Filed Pursuant to Rule 424(b)(5)
Registration No. 333-60749
PROSPECTUS SUPPLEMENT
- ---------------------
(TO PROSPECTUS DATED SEPTEMBER 9, 1998)
$2,558,779,000 (APPROXIMATE)
COMMERCIAL MORTGAGE ACCEPTANCE CORP.
AS DEPOSITOR
MERRILL LYNCH MORTGAGE CAPITAL INC.
MIDLAND LOAN SERVICES, INC.
GREENWICH CAPITAL FINANCIAL PRODUCTS, INC.
AS SELLERS AND
MIDLAND LOAN SERVICES, INC.
AS MASTER SERVICER AND SPECIAL SERVICER
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1998-C2
-------------------
The Commercial Mortgage Pass-Through Certificates, Series 1998-C2 (the
Certificates") will consist of various classes of Certificates, designated as
(i) the Class A-1, Class A-2 and Class A-3 Certificates (the "Class A
Certificates"), (ii) the Class X Certificates (together with the Class A
Certificates, the "Senior Certificates") and (iii) the Class B, Class C, Class
D, Class E, Class F, Class G, Class H, Class J, Class K, Class L and Class M
Certificates, and one or more classes of residual certificates. Only the Senior
Certificates and the Class B, Class C, Class D and Class E Certificates (the
"Offered Certificates") are offered hereby. It is a condition to their issuance
that the respective classes of Offered Certificates be assigned ratings by Duff
& Phelps Credit Rating Co. ("DCR") and by Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc. ("S&P"), as set forth in the table
below. Each Class of Offered Certificates will be issued with the aggregate
principal balance (the aggregate "Certificate Balance") or aggregate notional
amount (the aggregate "Notional Amount"), and will accrue interest at the per
annum rate (the "Pass-Through Rate"), set forth in the table below.
The Certificates will evidence the entire beneficial ownership interest in
a trust fund (the "Trust Fund") to be established by Commercial Mortgage
Acceptance Corp. (the "Depositor") pursuant to a Pooling and Servicing
Agreement, to be dated as of September 1, 1998 (the "Pooling and Servicing
Agreement"), among the Depositor, Midland Loan Services, Inc., as master
servicer (the "Master Servicer") and as special servicer (the "Special
Servicer"), and Norwest Bank Minnesota, National Association, as trustee (the
"Trustee"). Distributions on the Certificates will be payable solely from the
assets transferred to the Trust Fund for the benefit of the holders of the
Certificates (the "Certificateholders"). THE OFFERED CERTIFICATES DO NOT
CONSTITUTE OBLIGATIONS OF THE DEPOSITOR, THE SELLERS, THE MASTER SERVICER, THE
SPECIAL SERVICER, THE TRUSTEE, THE UNDERWRITERS OR ANY OF THEIR RESPECTIVE
AFFILIATES. Neither the Offered Certificates nor the Mortgage Loans (other than
certain Credit Lease Loans, as described herein) are insured or guaranteed by
any governmental agency or instrumentality or by the Depositor, the Sellers, the
Master Servicer, the Special Servicer, the Trustee, the Underwriters or any of
their respective affiliates or any other person.
(Cover page continued on following page)
-------------------
SEE "RISK FACTORS" BEGINNING ON PAGE S-29 IN THIS PROSPECTUS SUPPLEMENT AND
PAGE 12 OF THE PROSPECTUS FOR A DISCUSSION OF THE MATERIAL RISKS TO BE
CONSIDERED BEFORE PURCHASING THE OFFERED CERTIFICATES.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<TABLE>
<CAPTION>
====================================================================================================================================
INITIAL INITIAL SCHEDULED FINAL
CERTIFICATE PASS-THROUGH DISTRIBUTION RATINGS (3)
CLASS BALANCE (1) RATE DATE (2) S&P/DCR
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A-1 ........................... $ 515,016,000 5.80% March 15, 2006 AAA/AAA
Class A-2 ........................... $ 837,749,000 6.03% March 15, 2008 AAA/AAA
Class A-3 ........................... $ 671,128,000 6.04% March 15, 2008 AAA/AAA
Class X ............................. $2,891,276,720 (4) August 15, 2028 AAAr/AAA
Class B ............................. $ 144,564,000 (4) August 15, 2008 AA/AA
Class C ............................. $ 173,477,000 (4) August 15, 2008 A/A
Class D ............................. $ 173,476,000 (4) November 15, 2009 BBB/BBB
Class E ............................. $ 43,369,000 (4) June 15, 2010 BBB-/BBB-
====================================================================================================================================
</TABLE>
(footnotes on next page)
The Offered Certificates will be offered by Merrill Lynch, Pierce, Fenner &
Smith ("Merrill Lynch") and by Greenwich NatWest Limited, as agent for National
Westminster Bank, Plc ("GNL", and, together with Merrill Lynch, the
"Underwriters") from time to time to the public in negotiated transactions or
otherwise at varying prices to be determined at the time of sale. Proceeds to
the Depositor from the sale of the Offered Certificates will be approximately
$2,803,081,086, before deducting certain expenses payable by the Depositor, plus
accrued interest. For further information with respect to the plan of
distribution and any discounts and commissions, see "PLAN OF DISTRIBUTION"
herein.
The Offered Certificates are offered by the Underwriters, when, as and if
issued by the Depositor, delivered to and accepted by the Underwriters and
subject to their right to reject orders in whole or in part. It is expected that
delivery of the Offered Certificates will be made in book-entry form through the
Same-Day Funds Settlement System of The Depository Trust Company ("DTC") in the
United States and may be made in book-entry form through Cedel Bank, societe
anonyme and the Euroclear System, as participants of DTC in Europe, against
payment therefor on or about September 29, 1998.
-------------------
MERRILL LYNCH & CO. GREENWICH NATWEST
PNC CAPITAL MARKETS AS SELLING AGENT
-------------------
The date of this Prospectus Supplement is September 23, 1998
<PAGE>
MAP INDICATING
PRIMARY PROPERTY TYPE
BY CUT-OFF DATE BALANCE
<PAGE>
[M H C] Logo of Manufactured Home Communities
----------
--Four Photographs--
----------
Picture of
Contempo Marin, San Rafael, CA
Picture of
Holiday Hills Village, Federal Heights, CO
Picture of
Country Place Village, New Port Richey, FL
Picture of
Casa del Sol, Glendale, AZ
<PAGE>
[Logo for World Financial Properties, Inc.]
Two Pictures Representing One Liberty Plaza, NY, NY
One Liberty Plaza, New York, NY
Picture of
Sheraton Chicago, Hotel & Towers, Chicago, Ill
[Logo of Tishman Hotel Corporation
<PAGE>
The footnotes to the table on the cover page are as follows:
(1) The table sets forth: in the case of the Class X Certificates, the initial
aggregate Notional Amount thereof; and, in the case of each other Class of
Offered Certificates, the initial aggregate Certificate Balance thereof.
The Class X Certificates will not have a Certificate Balance and will not
entitle the holders thereof to distributions of principal. The initial
aggregate Certificate Balance or Notional Amount of each Class of Offered
Certificates is subject to a permitted variance of plus or minus 5%.
(2) The "Scheduled Final Distribution Date" with respect to any Class of
Offered Certificates is the Distribution Date on which the final
distribution would occur for such Class based on the assumptions described
in "Description of the Certificates--Scheduled Final Distribution Date"
herein. The actual performance and experiences of the Mortgage Loans will
likely differ from such assumptions. As described herein under "RATINGS",
the Rated Final Distribution Date for those Classes of Offered Certificates
entitled to distributions of principal will be the Distribution Date in
September 2030.
(3) See "RATINGS" herein.
(4) The Pass-Through Rates for the Class A-1, Class A-2 and Class A-3
Certificates for each Distribution Date are fixed at the respective per
annum rates set forth in the table. The Pass-Through Rate for the Class X
Certificates is the approximate initial Pass-Through Rate and, subsequent
to the initial Distribution Date (as defined herein), is variable and will
be determined as described under "DESCRIPTION OF THE CERTIFICATES--
Pass-Through Rates" herein. The Pass-Through Rates for the Class B,
Class C, Class D and Class E Certificates are the approximate initial
Pass-Through Rates and, subsequent to the initial Distribution Date, will
equal the Weighted Average Net Mortgage Rate (as defined herein) minus
0.97%, 0.78%, 0.34%, and 0%, respectively.
- ----------
(Continued from cover)
THE PROSPECTUS THAT ACCOMPANIES THIS PROSPECTUS SUPPLEMENT CONTAINS
IMPORTANT INFORMATION REGARDING THIS OFFERING THAT IS NOT CONTAINED HEREIN, AND
PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THE PROSPECTUS AND THIS PROSPECTUS
SUPPLEMENT IN FULL TO OBTAIN MATERIAL INFORMATION CONCERNING THE OFFERED
CERTIFICATES.
UNTIL DECEMBER 22, 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE OFFERED
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS. THIS DELIVERY REQUIREMENT IS
IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
FOR UNITED KINGDOM PURCHASERS: THE CERTIFICATES MAY NOT BE OFFERED OR SOLD
IN THE UNITED KINGDOM OTHER THAN TO PERSONS WHOSE ORDINARY BUSINESS IS TO BUY OR
SELL SECURITIES, WHETHER AS PRINCIPAL OR AGENT OR OTHERWISE IN CIRCUMSTANCES
THAT DO NOT CONSTITUTE AN OFFER TO THE PUBLIC WITHIN THE MEANING OF THE PUBLIC
OFFERS OF SECURITIES REGULATIONS 1995, AND THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS MAY ONLY BE ISSUED OR PASSED ON TO ANY PERSON IN THE UNITED KINGDOM
IF THAT PERSON IS OF A KIND DESCRIBED IN ARTICLE 11(3) OF THE FINANCIAL SERVICES
ACT 1986 (INVESTMENT ADVERTISEMENTS) (EXEMPTIONS) ORDER 1996, AS AMENDED.
No dealer, salesperson or other individual has been authorized to give any
information or to make any representations not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the
Depositor or the Underwriters. This Prospectus Supplement and the Prospectus do
not constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction. Neither the delivery of this
Prospectus Supplement and the Prospectus nor any sale made hereunder shall,
under any circumstances, create an implication that the information herein or
therein is correct as of any time subsequent to the date hereof or that there
has been no change in the affairs of the Depositor since such date.
There is currently no secondary market for the Offered Certificates. The
Underwriters have advised the Depositor that they currently intend to make a
secondary market in the Offered Certificates, but they are under no obligation
to do so. There can be no assurance that such a market will develop or, if it
does develop, that it will continue or will provide investors with a sufficient
level of liquidity of investment. The Offered Certificates will not be listed on
any securities exchange. See "RISK FACTORS--Limited Liquidity" herein.
S-2
<PAGE>
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act of 1933, as
amended (the "1933 Act"), with respect to the Offered Certificates. This
Prospectus Supplement and the accompanying Prospectus, which form a part of the
Registration Statement, omit certain information contained in such Registration
Statement pursuant to the rules and regulations of the Commission. The
Registration Statement can be inspected and copied at the Public Reference Room
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and the
Commission's regional offices at Seven World Trade Center, 13th Floor, New York,
New York 10048, and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such materials can be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W, Washington D.C. 20549. The Commission maintains a Web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of the Web site is http://www.sec.gov. See "ADDITIONAL INFORMATION" and
"REPORTS" in the Prospectus.
FORWARD-LOOKING STATEMENTS
If and when included in this Prospectus Supplement and the accompanying
Prospectus or in documents incorporated herein or therein by reference, the
words "expects," "intends," "anticipates," "estimates" and analogous expressions
are intended to identify forward-looking statements. Any such statements, which
may include statements contained in "RISK FACTORS" herein and in the Prospectus,
inherently are subject to a variety of risks and uncertainties that could cause
actual results to differ materially from those projected. Such risks and
uncertainties include, among others, general economic and business conditions,
competition, changes in foreign, political, social and economic conditions,
regulatory initiatives and compliance with governmental regulations, customer
preferences and various other events, conditions and circumstances, many of
which are beyond the Depositor's control. These forward-looking statements speak
only as of the date of this Prospectus Supplement. The Depositor expressly
disclaims any obligation or undertaking to release publicly any updates or
revisions to any forward-looking statement contained herein to reflect any
change in the Depositor's expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is based.
REPORTS TO CERTIFICATEHOLDERS
The Trustee will mail or otherwise make available monthly reports
concerning the Certificates to all Certificateholders of record.
S-3
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
AVAILABLE INFORMATION ............................................................................. S-3
FORWARD-LOOKING STATEMENTS ........................................................................ S-3
REPORTS TO CERTIFICATEHOLDERS ..................................................................... S-3
SUMMARY OF PROSPECTUS SUPPLEMENT .................................................................. S-6
RISK FACTORS ...................................................................................... S-29
Investment in Commercial and Multifamily Mortgage Loans ....................................... S-29
Repurchase or Substitution of Mortgage Loans .................................................. S-38
Prepayment and Yield Considerations ........................................................... S-38
Effect of Prepayment Premiums ................................................................. S-40
Limited Liquidity ............................................................................. S-40
Potential Conflict of Interest in Connection with Specially Serviced Mortgage Loans ........... S-40
Risk of Year 2000 ............................................................................. S-40
DESCRIPTION OF THE MORTGAGE POOL .................................................................. S-41
General ....................................................................................... S-41
Underwriting Standards ........................................................................ S-42
Certain Terms and Conditions of the Mortgage Loans ............................................ S-42
Assessment of Property Condition .............................................................. S-45
Largest Mortgage Loans ........................................................................ S-46
Credit Lease Loans ............................................................................ S-46
Additional Mortgage Loan Information .......................................................... S-46
The Sellers ................................................................................... S-58
Assignment of the Mortgage Loans; Repurchases and Substitutions ............................... S-58
Representations and Warranties; Repurchases and Substitutions ................................. S-59
Changes in Mortgage Pool Characteristics ...................................................... S-60
MASTER SERVICER AND SPECIAL SERVICER .............................................................. S-61
DESCRIPTION OF THE CERTIFICATES ................................................................... S-63
General ....................................................................................... S-63
Certificate Balances and Notional Amounts ..................................................... S-64
Pass-Through Rates ............................................................................ S-64
Distributions ................................................................................. S-65
Appraisal Reductions .......................................................................... S-72
Subordination, Realized Losses and Allocations of Certain Expenses ............................ S-73
Scheduled Final Distribution Date ............................................................. S-74
Optional Termination .......................................................................... S-75
Voting Rights ................................................................................. S-75
Delivery, Form and Denomination ............................................................... S-75
Registration and Transfers .................................................................... S-79
YIELD AND MATURITY CONSIDERATIONS ................................................................. S-79
Yield Considerations .......................................................................... S-79
Weighted Average Life ......................................................................... S-83
THE POOLING AND SERVICING AGREEMENT ............................................................... S-88
General ....................................................................................... S-88
Assignment of the Mortgage Loans .............................................................. S-88
Servicing of the Mortgage Loans; Collection of Payments ....................................... S-88
Collection Activities ......................................................................... S-89
Advances ...................................................................................... S-89
Accounts ...................................................................................... S-91
Withdrawals from the Certificate Account and the Distribution Account ......................... S-91
Inspections ................................................................................... S-92
Realization Upon Mortgage Loans ............................................................... S-92
Amendments, Modifications and Waivers ......................................................... S-95
The Trustee ................................................................................... S-95
</TABLE>
S-4
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Duties of the Trustee ......................................................................... S-96
Servicing Compensation and Payment of Expenses ................................................ S-97
Special Servicing ............................................................................. S-98
The Controlling Class Representative .......................................................... S-100
Limitation on Liability of Controlling Class Representative ................................... S-100
Sub-Servicers ................................................................................. S-101
Reports to Certificateholders; Available Information .......................................... S-101
MATERIAL FEDERAL INCOME TAX CONSEQUENCES .......................................................... S-105
ERISA CONSIDERATIONS .............................................................................. S-106
LEGAL INVESTMENT .................................................................................. S-109
PLAN OF DISTRIBUTION .............................................................................. S-110
USE OF PROCEEDS ................................................................................... S-111
EXPERTS ........................................................................................... S-111
LEGAL MATTERS ..................................................................................... S-111
RATINGS ........................................................................................... S-111
INDEX OF DEFINITIONS .............................................................................. S-113
ANNEX A-- Certain Characteristics of the Mortgage Loans ........................................... A-1
ANNEX B-- Form of Distribution Date Statements .................................................... B-1
ANNEX C-- Form of Supplemental Statements ......................................................... C-1
ANNEX D-- Description of Largest Mortgage Loans ................................................... D-1
ANNEX E-- Term Sheet .............................................................................. E-1
</TABLE>
S-5
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SUMMARY OF PROSPECTUS SUPPLEMENT
Prospective investors are advised to read carefully, and should rely solely
on, the detailed information appearing elsewhere in this Prospectus Supplement
and the Prospectus relating to the Offered Certificates in making their
investment decision. The following Summary does not include all relevant
information relating to the Offered Certificates or the Mortgage Loans,
particularly with respect to the risks and special considerations involved with
an investment in the Offered Certificates and is qualified in its entirety by
reference to the detailed information appearing elsewhere in this Prospectus
Supplement and the Prospectus. Prior to making any investment decision, a
prospective investor should review fully this Prospectus Supplement and the
Prospectus. Capitalized terms used and not otherwise defined herein have the
respective meanings assigned to them in the Prospectus. See "INDEX OF
DEFINITIONS" herein and in the Prospectus.
INITIAL
AGGREGATE
CERTIFICATE % OF DESCRIPTION
BALANCE OR INITIAL EXPECTED WEIGHTED OF PASS- PASS-
NOTIONAL POOL RATING BY AVERAGE PRINCIPAL THROUGH THROUGH
CLASS AMOUNT(1) BALANCE S&P/DCR LIFE(2) WINDOW(2) RATE RATE
----- ------------ ------- --------- -------- --------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Senior Certificates
-------------------
A-1 ................... $ 515,016,000 17.8% AAA/AAA 5.0 10/98-03/06 Fixed Rate 5.80%
A-2 ................... $ 837,749,000 29.0% AAA/AAA 9.2 03/06-03/08 Fixed Rate 6.03%
A-3 ................... $ 671,128,000 23.2% AAA/AAA 9.7 03/08-08/08 Fixed Rate 6.04%
X ..................... $2,891,276,720(3) (3) AAAr/AAA N/A N/A Variable Rate I/O (4)
Subordinate Certificates
------------------------
B ..................... $ 144,564,000 5.00% AA/AA 9.9 08/08-08/08 Net WAC (5)
C ..................... $ 173,477,000 6.00% A/A 9.9 08/08-08/08 Net WAC (5)
D ..................... $ 173,476,000 6.00% BBB/BBB 10.0 08/08-11/09 Net WAC (5)
E ..................... $ 43,369,000 1.50% BBB-/BBB- 11.3 11/09-06/10 Net WAC (5)
F(6) .................. $ 122,880,000 4.25% (6) 13.5 06/10-05/13 Fixed Rate 5.44%
G(6) .................. $ 21,684,000 0.75% (6) 14.7 05/13-07/13 Fixed Rate 5.44%
H(6) .................. $ 36,141,000 1.25% (6) 14.9 07/13-08/13 Fixed Rate 5.44%
J(6) .................. $ 65,054,000 2.25% (6) 15.4 08/13-08/15 Fixed Rate 5.44%
K(6) .................. $ 21,684,000 0.75% (6) 17.8 08/15-05/17 Fixed Rate 5.44%
L(6) .................. $ 21,685,000 0.75% (6) 19.2 05/17-03/18 Fixed Rate 5.44%
M(6) .................. $ 43,369,720 1.50% (6) 20.8 03/18-08/28 Fixed Rate 5.44
</TABLE>
- ---------------
(1) In each case, subject to a variance of plus or minus 5%.
(2) The weighted average life (expressed in years) and the period (expressed in
months following the Closing Date and commencing with the month of the
first Distribution Date) during which distributions of principal would be
received (the "Principal Window") set forth in the foregoing table are
based on the assumptions described in "DESCRIPTION OF THE
CERTIFICATES--Scheduled Final Distribution Date" herein. See "YIELD AND
MATURITY CONSIDERATIONS" herein.
(3) The Class X Certificates will not have a principal balance nor will they
entitle the holders thereof to receive distributions of principal, but will
entitle such holders to receive payments of interest equal to the aggregate
of the interest accrued on the Notional Amount of each of its Components
(each as defined herein). See "DESCRIPTION OF THE CERTIFICATES--Certificate
Balances and Notional Amounts" and "--Pass-Through Rates" herein.
(4) The Pass-Through Rate for the Class X Certificates is variable and will be
determined as described under "DESCRIPTION OF THE
CERTIFICATES--Pass-Through Rates" herein.
(5) The Pass-Through Rates for the Class B, Class C, Class D and Class E
Certificates will equal the Weighted Average Net Mortgage Rate minus 0.97%,
0.78%, 0.34% and 0%, respectively.
(6) Not offered hereby.
The residual certificates are not represented in this table. The residual
certificates do not have Certificate Balances, Notional Amounts, Pass-Through
Rates or any ratings thereon.
- --------------------------------------------------------------------------------
S-6
<PAGE>
- --------------------------------------------------------------------------------
Title of Certificates ............. Commercial Mortgage Acceptance Corp.
Commercial Mortgage Pass-Through
Certificates, Series 1998-C2 (the
"Certificates ").
The Certificates will be issued pursuant
to a Pooling and Servicing Agreement to
be dated as of September 1, 1998 (the
"Pooling and Servicing Agreement ")
among the Depositor, the Master
Servicer, the Special Servicer and the
Trustee.
Only the Senior Certificates (as defined
herein) and the Class B, Class C, Class
D and Class E Certificates are offered
hereby.
The Class F, Class G, Class H, Class J,
Class K, Class L and Class M
Certificates and any residual
certificates (collectively, the "Private
Certificates ") have not been registered
under the 1933 Act and are not offered
hereby. Accordingly, to the extent this
Prospectus Supplement contains
information regarding the terms of the
Private Certificates, such information
is provided solely because of its
relevance to a prospective purchaser of
an Offered Certificate.
Depositor ......................... Commercial Mortgage Acceptance Corp. (the
"Depositor"), a wholly owned subsidiary
of Midland Loan Services, Inc. (the
Master Servicer, Special Servicer and
one of the Sellers). See "THE DEPOSITOR"
in the Prospectus.
Sellers ........................... Merrill Lynch Mortgage Capital Inc.
("MLMCI") as to 228 Mortgage Loans,
representing 69.0% of the Initial Pool
Balance (as defined herein); Greenwich
Capital Financial Products, Inc.
("GCFP") as to 165 Mortgage Loans,
representing 17.4% of the Initial Pool
Balance; and Midland Loan Services, Inc.
("Midland" and, collectively with MLMCI
and GCFP, the "Sellers") as to 119
Mortgage Loans, representing 13.7% of
the Initial Pool Balance. Each Seller
will sell its Mortgage Loans to the
Depositor on the Closing Date pursuant
to an agreement (each, a "Mortgage Loan
Purchase Agreement"), which will be
assigned to the Trustee. See
"DESCRIPTION OF THE MORTGAGE POOL--The
Sellers" herein.
Master Servicer ................... Midland Loan Services, Inc. (the "Master
Servicer"), a wholly owned subsidiary of
PNC Bank, N.A. ("PNC"). See "MASTER
SERVICER AND SPECIAL SERVICER" herein.
Special Servicer .................. Midland Loan Services, Inc. (the "Special
Servicer"), a wholly owned subsidiary of
PNC. The Special Servicer will be
responsible for performing certain
servicing functions with respect to
Mortgage Loans that, in general, are in
default or as to which default is
reasonably foreseeable, and for the
management of and potential disposition
of REO Properties. The Controlling Class
of Sequential Pay Certificates (as
defined herein) will have the right,
subject to certain conditions described
herein, to replace the Special Servicer
and to select a representative (the
"Controlling Class Representative ")
from whom the Special Servicer will seek
advice and approval and take directions
under certain circumstances, as
described herein. An affiliate of the
Special Servicer is expected to purchase
the Class H, Class J, Class K,
- --------------------------------------------------------------------------------
S-7
<PAGE>
- --------------------------------------------------------------------------------
Class L and Class M Certificates on or
shortly after the Closing Date. See "THE
POOLING AND SERVICING AGREEMENT--Special
Servicing," and "--Servicing
Compensation and Payment of Expenses"
herein. See "MASTER SERVICER AND SPECIAL
SERVICER" herein.
Trustee ........................... Norwest Bank Minnesota, National
Association, a national banking
association (the "Trustee"). See "THE
POOLING AND SERVICING AGREEMENT--The
Trustee" herein.
Cut-Off Date ...................... September 1, 1998.
Closing Date ...................... On or about September 29, 1998.
Distribution Date ................. The 15th day of each month, or if such
15th day is not a business day, the
business day immediately following such
day, commencing in October, 1998;
provided, however, that the Distribution
Date will be no earlier than the fourth
business day following the related
Determination Date.
Scheduled Final
Distribution Date ................ The Scheduled Final Distribution Dates set
forth below are the Distribution Dates
on which the final distribution would
occur for each offered Class based on
the assumption that no Mortgage Loan is
prepaid in whole or in part, and
otherwise have been determined on the
basis of the assumptions described in
"DESCRIPTION OF THE
CERTIFICATES--Scheduled Final
Distribution Date" herein.
Scheduled Final
Class Designation Distribution Date
----------------- -----------------
Class A-1 March 15, 2006
Class A-2 March 15, 2008
Class A-3 August 15, 2008
Class X August 15, 2028
Class B August 15, 2008
Class C August 15, 2008
Class D November 15, 2009
Class E June 15, 2010
Record Date ....................... With respect to each Distribution Date,
the close of business on the last
business day of the month preceding the
month in which such Distribution Date
occurs.
Interest Accrual Period ........... With respect to any Distribution Date, the
calendar month preceding the month in
which such Distribution Date occurs.
Interest for each Interest Accrual
Period is calculated based on a 360-day
year consisting of twelve 30-day months.
Determination Date ................ With respect to each Distribution Date,
the tenth day of such month, or if such
tenth day is not a business day, the
next succeeding business day.
Denominations ..................... The Offered Certificates of each Class
will be issued, maintained and
transferred on the book-entry records of
the Depository Trust Company ("DTC") and
its Participants (as defined herein)
- --------------------------------------------------------------------------------
S-8
<PAGE>
- --------------------------------------------------------------------------------
in denominations of $1,000 actual or
notional principal amount and in
integral multiples of $1 in excess
thereof.
Clearance and Settlement .......... Certificateholders must elect to hold
their Offered Certificates in book-entry
form, delivery of which will be made
through the facilities of DTC in the
United States and may be made through
the facilities of Cedel Bank, societe
anonyme ("CEDEL"), or the Euroclear
System ("Euroclear") in Europe.
Transfers within DTC, CEDEL or
Euroclear, as the case may be, will be
in accordance with the usual rules and
operating procedures of the relevant
system. Crossmarket transfers between
persons holding directly or indirectly
through DTC, on the one hand, and
counterparties holding directly or
indirectly through CEDEL or Euroclear,
on the other, will be effected by DTC
through Citibank, N.A. or The Chase
Manhattan Bank, the relevant
depositaries of CEDEL and Euroclear,
respectively.
Description of the Certificates ... The Certificates will be issued pursuant
to the Pooling and Servicing Agreement,
and will represent in the aggregate the
entire beneficial ownership interest in
a trust fund (the "Trust Fund")
consisting of the Mortgage Loans and
certain related assets.
Certificate Balances and
Notional Amounts ................. Upon initial issuance, and in each case
subject to a permitted variance of plus
or minus 5%, the Offered Certificates
(other than the Class X Certificates)
will have the Certificate Balances
representing the approximate percentage
of the Initial Pool Balance (as defined
herein) set forth in the table at the
beginning of this Summary.
The "Certificate Balance" of any Class A,
Class B, Class C, Class D, Class E,
Class F, Class G, Class H, Class J,
Class K, Class L and Class M
Certificates (the "Sequential Pay
Certificates") outstanding at any time
represents the maximum amount that the
holders thereof are entitled to receive
as distributions allocable to principal
from the cash flow on the Mortgage Loans
and the other assets in the Trust Fund.
As described herein, the Certificate
Balance of each Class of Sequential Pay
Certificates will be reduced on each
Distribution Date by any distributions
of principal actually made on such Class
of Certificates on such Distribution
Date, and further by any Realized Losses
and Additional Trust Fund Expenses
(each, as defined herein) that are
allocated to such Class of Certificates
on such Distribution Date.
The Class X Certificates will not have a
Certificate Balance, but will represent
the right to receive the sum of the
interest accrued on the Notional Amount
of each of its Components, as described
herein. As of any Distribution Date,
each Component will have a Notional
Amount equal to the Certificate Balance
of the Class of Sequential Pay
Certificates with the same Class
designation immediately prior to such
Distribution Date. The Components do not
represent separate Classes of
Certificates, but rather separate
components, each of which is a part of
the Class X Certificates.
None of the residual certificates will
have a Certificate Balance.
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S-9
<PAGE>
- --------------------------------------------------------------------------------
See "DESCRIPTION OF THE CERTIFICATES--
Certificate Balances and Notional
Amounts" herein.
Pass-Through Rates ................ The Initial Pass-Through Rate applicable
to each Class of Sequential Pay
Certificates for each Distribution Date
is set forth or described in the table
at the beginning of the Summary. The
Pass-Through Rates for the Class B,
Class C, Class D and Class E
Certificates will equal the Weighted
Average Net Mortgage Rate minus 0.97%,
0.78%, 0.34% and 0%, respectively.
The Class X Certificates will receive
payments of interest equal to the
aggregate of the interest accrued on the
Notional Amount of each of its
Components. Each Component will accrue
interest at its applicable Strip Rate
(as set forth below) on its related
Notional Amount. The Strip Rate
applicable to the Class A-1, Class A-2
and Class A-3 Components for each
Distribution Date will equal the
Weighted Average Net Mortgage Rate for
such Distribution Date minus 5.80%,
6.03% and 6.04%, respectively (but not
less than zero); the Strip Rate
applicable to the Class B, Class C,
Class D and Class E Components for each
Distribution Date will equal 0.97%,
0.78%, 0.34%, and 0%, respectively; and
the Strip Rate applicable to the Class
F, Class G, Class H, Class J, Class K,
Class L and Class M Components for each
Distribution Date will each equal the
Weighted Average Net Mortgage Rate for
such Distribution Date minus 5.44% (but
not less than zero).
The residual certificates will not bear
interest, but will represent the right
to receive certain limited amounts not
otherwise payable on the Sequential Pay
and Class X Certificates.
The "Weighted Average Net Mortgage Rate"
for each Distribution Date is the
weighted average of the Net Mortgage
Rates for the Mortgage Loans as of the
commencement of the related Collection
Period (as defined herein), weighted on
the basis of their respective Stated
Principal Balances outstanding
immediately prior to such Distribution
Date.
The "Net Mortgage Rate" for each Mortgage
Loan will equal (x) the Mortgage Rate in
effect for such Mortgage Loan as of the
Cut-Off Date minus (y) the
Administrative Cost Rate (as defined
herein) for such Mortgage Loan;
provided, that if any Mortgage Loan does
not accrue interest on the basis of a
360-day year consisting of twelve 30-day
months (which is the basis on which
interest accrues in respect of the
Sequential Pay Certificates), then,
solely for the purpose of calculating
the Weighted Average Net Mortgage Rate,
the Mortgage Rate referred to in clause
(x) and the Master Servicing Fee Rate
will, to the extent appropriate, be
adjusted from accrual period to accrual
period to compensate for such
difference.
The "Stated Principal Balance" of each
Mortgage Loan outstanding at any time
represents the principal balance of such
Mortgage Loan ultimately due and payable
thereon and generally will equal the
Cut-Off Date Balance (as defined herein)
thereof, reduced on each Distribution
Date (to not less than zero) by (i)
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S-10
<PAGE>
- --------------------------------------------------------------------------------
any payments or other collections (or
advances in lieu thereof) of principal
on such Mortgage Loan that are due or
received, as the case may be, during the
related Collection Period and
distributed on the Certificates on such
Distribution Date and (ii) the principal
portion of any Realized Loss incurred in
respect of such Mortgage Loan during the
related Collection Period for such
Distribution Date. Notwithstanding the
foregoing, if any Mortgage Loan is paid
in full, liquidated or otherwise removed
from the Trust Fund, commencing as of
the first Distribution Date following
the Collection Period during which such
event occurred, the Stated Principal
Balance of such Mortgage Loan will be
zero. See "DESCRIPTION OF THE
CERTIFICATES--Pass-Through Rates"
herein.
Distributions ..................... On each Distribution Date, for so long as
the aggregate Certificate Balance of the
Classes of the Sequential Pay
Certificates is greater than zero, the
Trustee will (except as otherwise
described under "DESCRIPTION OF THE
CERTIFICATES--Optional Termination"
herein) apply the Available Distribution
Amount (as defined herein) for such date
for the following purposes and in the
following order of priority, in each
case to the extent of remaining
available funds:
(1) to distributions of interest to the
holders of the Class A-1, Class
A-2, Class A-3 and Class X
Certificates (in each case, so long
as any such Class remains
outstanding), pro rata, in
accordance with the respective
amounts of Distributable
Certificate Interest (as defined
herein) on such Classes of
Certificates on such Distribution
Date, in an amount equal to all
Distributable Certificate Interest
in respect of each such Class of
Certificates for such Distribution
Date and, to the extent not
previously paid, for all prior
Distribution Dates;
(2) to distributions of principal to
the holders of the Class A-1
Certificates in an amount (not to
exceed the then outstanding
Certificate Balance of such Class
of Certificates outstanding
immediately prior to such
Distribution Date) equal to the
Principal Distribution Amount (as
defined herein) for such
Distribution Date;
(3) after the Class A-1 Certificates
have been retired, to distributions
of principal to the holders of the
Class A-2 Certificates in an amount
(not to exceed the then outstanding
Certificate Balance of such Class
of Certificates outstanding
immediately prior to such
Distribution Date) equal to the
Principal Distribution Amount for
such Distribution Date, less any
portion thereof distributed in
respect of the Class A-1
Certificates;
(4) after the Class A-1 and Class A-2
Certificates have been retired, to
distributions of principal to the
holders of the Class A-3
Certificates in an amount (not to
exceed the then outstanding
Certificate Balance of such Class
of Certificates outstanding
immediately prior to such
Distribution Date) equal to the
Principal Distribution Amount for
such
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S-11
<PAGE>
- --------------------------------------------------------------------------------
Distribution Date, less any portion
thereof distributed in respect of
the Class A-1 and/or Class A-2
Certificates;
(5) to distributions to the holders of
the Class A-1, Class A-2 and Class
A-3 Certificates, pro rata, in
accordance with the amount of
Realized Losses and Additional
Trust Fund Expenses, if any,
previously allocated to such
Classes of Certificates for which
no reimbursement has previously
been received, plus interest on any
such Realized Losses or Additional
Trust Fund Expenses, accrued at the
applicable Pass-Through Rate from
the date such Realized Losses
and/or Additional Trust Fund
Expenses were allocated to such
Class;
(6) to distributions of interest to the
holders of the Class B Certificates
in an amount equal to all
Distributable Certificate Interest
in respect of such Class of
Certificates for such Distribution
Date and, to the extent not
previously paid, for all prior
Distribution Dates;
(7) after the Class A Certificates have
been retired, to distributions of
principal to the holders of the
Class B Certificates in an amount
(not to exceed the then outstanding
Certificate Balance of such Class
of Certificates outstanding
immediately prior to such
Distribution Date) equal to the
Principal Distribution Amount for
such Distribution Date, less any
portion thereof distributed in
respect of the Class A
Certificates;
(8) to distributions to the holders of
the Class B Certificates to
reimburse such holders for all
Realized Losses and Additional
Trust Fund Expenses, if any,
previously allocated to such Class
of Certificates and for which no
reimbursement has previously been
received, plus interest on any such
Realized Losses or Additional Trust
Fund Expenses, accrued at the
applicable Pass-Through Rate from
the date such Realized Losses
and/or Additional Trust Fund
Expenses were allocated to such
Class;
(9) to distributions of interest to the
holders of the Class C Certificates
in an amount equal to all
Distributable Certificate Interest
in respect of such Class of
Certificates for such Distribution
Date and, to the extent not
previously paid, for all prior
Distribution Dates;
(10) after the Class A and Class B
Certificates have been retired, to
distributions of principal to the
holders of the Class C Certificates
in an amount (not to exceed the
then outstanding Certificate
Balance of such Class of
Certificates outstanding
immediately prior to such
Distribution Date) equal to the
Principal Distribution Amount for
such Distribution Date, less any
portion thereof distributed in
respect of the Class A and/or Class
B Certificates;
(11) to distributions to the holders of
the Class C Certificates to
reimburse such holders for all
Realized Losses and
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S-12
<PAGE>
- --------------------------------------------------------------------------------
Additional Trust Fund Expenses, if
any, previously allocated to such
Class of Certificates and for which
no reimbursement has previously
been received, plus interest on any
such Realized Losses or Additional
Trust Fund Expenses, accrued at the
applicable Pass-Through Rate from
the date such Realized Losses
and/or Additional Trust Fund
Expenses were allocated to such
Class;;
(12) to distributions of interest to the
holders of the Class D Certificates
in an amount equal to all
Distributable Certificate Interest
in respect of such Class of
Certificates for such Distribution
Date and, to the extent not
previously paid, for all prior
Distribution Dates;
(13) after the Class A, Class B and
Class C Certificates have been
retired, to distributions of
principal to the holders of the
Class D Certificates in an amount
(not to exceed the then outstanding
Certificate Balance of such Class
of Certificates outstanding
immediately prior to such
Distribution Date) equal to the
Principal Distribution Amount for
such Distribution Date, less any
portion thereof distributed in
respect of the Class A, Class B
and/or Class C Certificates;
(14) to distributions to the holders of
the Class D Certificates to
reimburse such holders for all
Realized Losses and Additional
Trust Fund Expenses, if any,
previously allocated to such Class
of Certificates and for which no
reimbursement has previously been
received, plus interest on any such
Realized Losses or Additional Trust
Fund Expenses, accrued at the
applicable Pass-Through Rate from
the date such Realized Losses
and/or Additional Trust Fund
Expenses were allocated to such
Class;
(15) to distributions of interest to the
holders of the Class E Certificates
in an amount equal to all
Distributable Certificate Interest
in respect of such Class of
Certificates for such Distribution
Date and, to the extent not
previously paid, for all prior
Distribution Dates;
(16) after the Class A, Class B, Class C
and Class D Certificates have been
retired, to distributions of
principal to the holders of the
Class E Certificates in an amount
(not to exceed the then outstanding
Certificate Balance of such Class
of Certificates outstanding
immediately prior to such
Distribution Date) equal to the
Principal Distribution Amount for
such Distribution Date, less any
portion thereof distributed in
respect of the Class A, Class B,
Class C and/or Class D
Certificates;
(17) to distributions to the holders of
the Class E Certificates to
reimburse such holders for all
Realized Losses and Additional
Trust Fund Expenses, if any,
previously allocated to such Class
of Certificates and for which no
reimbursement has previously been
received, plus interest on any such
Realized Losses or Additional Trust
Fund
- --------------------------------------------------------------------------------
S-13
<PAGE>
- --------------------------------------------------------------------------------
Expenses, accrued at the applicable
Pass-Through Rate from the date
such Realized Losses and/or
Additional Trust Fund Expenses were
allocated to such Class; and
(18) to distributions to the holders of
the respective Classes of Private
Certificates as described herein
(provided that no distributions of
principal will be made in respect
of any Class of Private
Certificates until the aggregate
Certificate Balance of the Class A,
Class B, Class C, Class Dand Class
E Certificates has been reduced to
zero).See "DESCRIPTION OF THE
CERTIFICATES-- Distributions--
Application of Available
Distribution Amount" herein.
After the Certificate Balance of the
Subordinate Certificates has been
reduced to zero, distributions of
principal will be made in respect of the
Class A Certificates, pro rata. The
"Distributable Certificate Interest" in
respect of any Class of Certificates for
each Distribution Date represents that
portion of the Accrued Certificate
Interest in respect of such Class of
Certificates and such Distribution Date
reduced (to not less than zero) by such
Class's allocable share (calculated as
described below) of the aggregate of any
Prepayment Interest Shortfalls resulting
from voluntary principal prepayments
made on the Mortgage Loans (other than a
Specially Serviced Mortgage Loan) during
the related Collection Period that are
not covered by the Master Servicer's
Compensating Interest Payment for such
Distribution Date (the aggregate of such
Prepayment Interest Shortfalls that are
not so covered, as to such Distribution
Date, the "Net Aggregate Prepayment
Interest Shortfall"). See "THE POOLING
AND SERVICING AGREEMENT--Servicing
Compensation and Payment of Expenses"
and "DESCRIPTION OF THE CERTIFICATES--
Distributions-- Distributable
Certificate Interest" herein.
The "Accrued Certificate Interest" in
respect of each Class of Sequential Pay
Certificates for each Distribution Date
is equal to one month's interest at the
Pass-Through Rate applicable to such
Class of Certificates and such
Distribution Date accrued during the
immediately preceding calendar month on
the related Certificate Balance
outstanding immediately prior to such
Distribution Date. The "Accrued
Certificate Interest" in respect of the
Class X Certificates for each
Distribution Date is equal to the sum of
one month's interest at the Strip Rate
applicable to each Component and such
Distribution Date accrued during the
immediately preceding calendar month on
the related Notional Amount outstanding
on each such Component immediately prior
to such Distribution Date. Accrued
Certificate Interest will be calculated
on a 30/360 day basis.
The "Principal Distribution Amount" for
each Distribution Date will generally
equal the sum of (a) the aggregate of
the principal portions of all Scheduled
Payments (as defined herein) (other
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S-14
<PAGE>
- --------------------------------------------------------------------------------
than Balloon Payments) due (to the
extent received or advanced), and the
principal portions of any Assumed
Scheduled Payments (as defined herein)
deemed due, on or in respect of the
Mortgage Loans for their respective Due
Dates occurring during the related
Collection Period; (b) the aggregate of
all principal prepayments received on
the Mortgage Loans during the related
Collection Period (including any
Remaining Cash Flow); (c) with respect
to any Mortgage Loan as to which the
related stated maturity date occurred
during or prior to the related
Collection Period, any payment of
principal made by or on behalf of the
related borrower during the related
Collection Period (including any Balloon
Payment), net of any portion of such
payment that represents a recovery of
the principal portion of any Scheduled
Payment (other than a Balloon Payment)
due or the principal portion of any
Assumed Scheduled Payment deemed due, in
respect of such Mortgage Loan on a Due
Date during or prior to the related
Collection Period and not previously
recovered; (d) the aggregate of all
liquidation proceeds and insurance
proceeds, condemnation awards and
proceeds of Mortgage Loan repurchases
that were received on or in respect of
Mortgage Loans or REO Loans during the
related Collection Period and that were
identified and applied by the Master
Servicer as recoveries of principal, in
each case net of any portion of such
amounts that represents a recovery of
the principal portion of any Scheduled
Payment (other than a Balloon Payment)
due, or of the principal portion of any
Assumed Scheduled Payment deemed due, in
respect of the related Mortgage Loan or
REO Loan on a Due Date during or prior
to the related Collection Period and not
previously recovered; and (e) if such
Distribution Date is subsequent to the
initial Distribution Date, the excess,
if any, of the Principal Distribution
Amount for the immediately preceding
Distribution Date, over the aggregate
distributions of principal made on the
Certificates on such immediately
preceding Distribution Date.
Reimbursements of Realized Losses and
Additional Trust Fund Expenses
previously allocated to principal will
not constitute distributions of
principal for any purpose and will not
result in an additional reduction in the
Certificate Balance of the Class of
Certificates in respect of which any
such reimbursement is made.
The holders of the Offered Certificates
may also receive portions of any
Prepayment Premiums, to the extent
described under "DESCRIPTION OF THE
CERTIFICATES--Distributions--Allocation
of Prepayment Premiums" herein. Such
distributions will be in addition to the
distributions of interest, if any, made
to such holders from the Available
Distribution Amount on each Distribution
Date.
Certain Yield and Prepayment
Considerations ................... The yield on each Class of the Offered
Certificates will depend on, among other
things, the Pass-Through Rate for such
Certificates.
The yield on any Sequential Pay
Certificate that is purchased at a
discount or premium will also be
affected by the rate and timing
- --------------------------------------------------------------------------------
S-15
<PAGE>
- --------------------------------------------------------------------------------
of distributions in respect of principal
on such Certificate, which in turn will
be affected by (i) the rate and timing
of principal payments (including
principal prepayments) on the Mortgage
Loans and (ii) the extent to which such
principal payments are applied on any
Distribution Date in reduction of the
Certificate Balance of such Certificate.
An investor that purchases any
Sequential Pay Certificate at a discount
should consider the risk that a slower
than anticipated rate of principal
payments on such Certificate will result
in an actual yield that is lower than
such investor's expected yield. An
investor that purchases any Sequential
Pay Certificate at a premium should
consider the risk that a faster than
anticipated rate of principal payments
on such Certificate will result in an
actual yield that is lower than such
investor's expected yield. Insofar as an
investor's initial investment in any
Sequential Pay Certificate is returned
in the form of payments of principal
thereon, there can be no assurance that
such amounts can be reinvested in a
comparable alternative investment with a
comparable yield. Investors in the
Offered Certificates should consider
that, as of the Cut-Off Date, certain of
the Mortgage Loans may be prepaid at any
time and others may be prepaid at any
time after the expiration of the
applicable Lockout Period, subject, in
most cases, to the payment of a Yield
Maintenance Charge or Percentage
Premium. See "DESCRIPTION OF THE
MORTGAGE POOL--Certain Terms and
Conditions of the Mortgage
Loans--Prepayment Provisions" herein.
Accordingly, the rate of prepayments on
the Mortgage Loans is likely to be
inversely related to the level of
prevailing market interest rates (and,
presumably, to the yields on comparable
alternative investments). The yield to
an investor in the Certificates also
will be affected by, among other things,
Pass-Through Rates in effect from time
to time, Appraisal Reductions, Realized
Losses and Additional Trust Fund
Expenses, which may adversely affect the
amounts distributable to one or more
Classes of Regular Certificates. See
"DESCRIPTION OF THE
CERTIFICATES--Distributions--Application
of Available Distribution Amount" and
"--Distributions--Principal Distribution
Amount" herein.
The Class X Certificates are interest-only
Certificates and are not entitled to any
distributions in respect of principal.
The yield to maturity of the Class X
Certificates will be especially
sensitive to the prepayment, repurchase,
extension, default and recovery
experience on the Mortgage Loans, which
prepayment, repurchase, default and
recovery experience may fluctuate
significantly from time to time. A rate
of principal payments and liquidations
on the Mortgage Loans that is more rapid
than expected by investors will have a
material negative effect on the yield to
maturity of the Class X Certificates.
Investors in the Class X Certificates
should fully consider the associated
risks, including the risk that a rapid
rate of prepayment of the Mortgage Loans
could result in the failure of such
investors to fully recoup their initial
investments. See "YIELD AND MATURITY
CONSIDERATIONS--Yield Sensitivity of the
Class X Certificates" herein.
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S-16
<PAGE>
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The allocation to any Class of Offered
Certificates of any Prepayment Premium
may be insufficient to offset fully the
adverse effects on the reduction to the
anticipated yield to maturity resulting
from the corresponding principal
prepayment. Any delay in collection of a
Balloon Payment due at the maturity of a
Mortgage Loan or any delay in the
repayment of the principal balance of an
ARD Loan (as defined herein) by its
Anticipated Repayment Date will likely
extend the weighted average life of the
Class or Classes of Offered Certificates
entitled to distributions in respect of
principal as of the date such Balloon
Payment was due or as of such
Anticipated Repayment Date. See
"DESCRIPTION OF THE
CERTIFICATES--Certificate Balances and
Notional Amounts" and "--Distributions,"
"YIELD AND MATURITY CONSIDERATIONS" and
"THE POOLING AND SERVICE
AGREEMENT--Amendments, Modifications and
Waivers herein, and "RISK
FACTORS--Effects of Prepayments on
Average Life of Certificates and Yields"
in the Prospectus.
The actual rate of prepayment of principal
on the Mortgage Loans cannot be
predicted. The investment performance of
the Offered Certificates may vary
materially and adversely from the
investment expectations of investors due
to prepayments on the Mortgage Loans
being higher or lower than anticipated
by investors. The actual yield to the
holder of an Offered Certificate may not
be equal to the yield anticipated at the
time of purchase of the Certificate or,
notwithstanding that the actual yield is
equal to the yield anticipated at that
time, the total return on investment
expected by the investor or the expected
weighted average life of the Certificate
may not be realized. For a discussion of
certain factors affecting prepayment of
the Mortgage Loans, including the effect
of Prepayment Premiums, see "YIELD AND
MATURITY CONSIDERATIONS" herein. In
deciding whether to purchase any Offered
Certificates, an investor should make an
independent decision as to the
appropriate prepayment assumptions to be
used.
Advances .......................... As and to the extent described herein, the
Master Servicer will be obligated to
make advances ( "Advances ") in respect
of delinquent payments of principal
(other than the principal portion of
Balloon Payments) and/or interest on the
Mortgage Loans (each, a "P&I Advance ")
and the Master Servicer will be
obligated to cover certain servicing
expenses (each, a "Servicing Advance ")
in accordance with the provisions set
forth in the Pooling and Servicing
Agreement. See "THE POOLING AND
SERVICING AGREEMENT--Advances" herein.
If the Master Servicer fails to make any
Advance that it is obligated to make
pursuant to the Pooling and Servicing
Agreement, the Trustee will be required
to make such Advance.
Each of the Master Servicer and the
Trustee, as applicable, will be
obligated to make Advances only to the
extent that it determines, in its
reasonable discretion, that such
Advances are ultimately recoverable from
future payments and other collections on
the
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S-17
<PAGE>
- --------------------------------------------------------------------------------
related Mortgage Loan or REO Property.
Such determination will be conclusive
and binding on the Certificateholders.
The Master Servicer and the Trustee will
each be entitled, with respect to any
Advance made thereby, to receive
interest accrued on the amount of such
Advance for so long as it is outstanding
at a rate per annum (the "Advance Rate
") equal to the "prime rate" as
published in the "Money Rates" section
of The Wall Street Journal, as such
"prime rate" may change from time to
time. Such interest on any Advance will
be payable to the Master Servicer or the
Trustee, as the case may be, first from
related collections from the mortgagors
or the related Mortgaged Property, and
then, out of any amounts then on deposit
in the Certificate Account. To the
extent not offset by default interest or
late charges actually collected in
respect of the related defaulted
Mortgage Loan, interest accrued on
outstanding Advances made in respect
thereof will result in a reduction in
amounts payable on the Certificates. See
"THE POOLING AND SERVICING
AGREEMENT--Advances" herein.
Subordination; Allocation of Realized
Losses and Expense Losses ........ The rights of the Class B, Class C, Class
D, Class E, Class F, Class G, Class H,
Class J, Class K, Class L and Class M
Certificates (the "Subordinate
Certificates") to receive payments of
principal and interest will be
subordinated to the rights of the Class
A and Class X Certificates (the "Senior
Certificates"), to the extent described
herein and, further, in the case of any
particular Class of Subordinate
Certificates to the rights of the
holders of each other Class of
Subordinate Certificates, if any, with
an earlier alphabetical Class
designation, as described herein. Such
subordination will be accomplished by
(i) the application of the Available
Distribution Amount in the order
described above under "--Distributions"
and (ii) the allocation of Realized
Losses incurred on the Mortgage Loans
and Additional Trust Fund Expenses to
the Sequential Pay Certificates in
reverse order of their alphabetical
Class designations; provided that any
Realized Losses and Additional Trust
Fund Expenses allocated to the Class A
Certificates will be allocated pro rata
to the Class A-1, Class A-2 and Class
A-3 Certificates in accordance with
their respective Certificate Balances.
Any Realized Losses and Additional Trust
Fund Expenses allocated to any Class of
Sequential Pay Certificates will cause a
corresponding reduction in the Notional
Amount of the related Component of the
Class X Certificates. No other form of
credit enhancement is offered for the
benefit of the holders of the
Certificates.
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S-18
<PAGE>
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Prepayment Interest Shortfalls .... If a borrower prepays a Mortgage Loan, in
whole or in part, prior to the
Determination Date in any calendar
month, the amount of interest (net of
related Servicing Fees and Trustee Fee)
at the related Mortgage Rate (as defined
herein) accrued on such prepayment, in
general, from the beginning of such
calendar month to, but not including,
the date of prepayment (or any later
date through which interest accrues)
will, to the extent actually collected,
constitute a "Prepayment Interest
Excess." Conversely, if a borrower
prepays a Mortgage Loan, in whole or in
part, after the Determination Date in
any calendar month and does not pay
interest on such prepayment through, in
general, the end of such calendar month,
then the shortfall in a full month's
interest (net of related Master
Servicing Fee) on such prepayment will
constitute a "Prepayment Interest
Shortfall."
Prepayment Interest Excesses collected on
the Mortgage Loans during any Collection
Period will first be applied to offset
Prepayment Interest Shortfalls incurred
in respect of the Mortgage Loans during
such Collection Period and, to the
extent not needed for such purposes,
will be retained by the Master Servicer
as additional servicing compensation.
The Master Servicer will be obligated to
cover, out of its own funds, without
right of reimbursement, to the extent of
its Master Servicing Fees for the
related Collection Period, any
Prepayment Interest Shortfalls in
respect of the Mortgage Loans that are
not so offset by Prepayment Interest
Excesses (but only up to 0.01% per annum
per Mortgage Loan on an aggregate
basis). Any payment so made by the
Master Servicer to cover such shortfalls
will constitute a "Compensating Interest
Payment". The aggregate of all
Prepayment Interest Shortfalls incurred
in respect of the Mortgage Loans during
any Collection Period that are neither
offset by Prepayment Interest Excesses
collected on the Mortgage Loans during
such Collection Period nor covered by a
Compensating Interest Payment made by
the Master Servicer, shall constitute
the "Net Aggregate Prepayment Interest
Shortfall" for the related Distribution
Date.
Any Net Aggregate Prepayment Interest
Shortfall for a Distribution Date will
be allocated among the respective
Classes of Regular Certificates, on a
pro rata basis, in the ratio that the
Accrued Certificate Interest with
respect to any such Class of
Certificates for such Distribution Date,
bears to the total of the Accrued
Certificate Interest with respect to all
Classes of Regular Certificates for such
Distribution Date. The Distributable
Certificate Interest in respect of any
Class of Regular Certificates will be
reduced to the extent that any Net
Aggregate Prepayment Interest Shortfalls
are allocated thereto. See "THE POOLING
AND SERVICING AGREEMENT--Servicing
Compensation and Payment of Expenses"
herein.
Optional Termination .............. The Majority Subordinate Certificate-
holder, the Depositor, the Master
Servicer and the Special Servicer will
each have the option to purchase, at the
purchase price specified herein, all of
the Mortgage Loans, and all property
acquired through exercise of remedies in
respect of any Mortgage Loans, remaining
in the
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S-19
<PAGE>
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Trust Fund, and thereby effect a
termination of the Trust Fund and early
retirement of the then outstanding
Certificates, on any Distribution Date
on which the aggregate Certificate
Balance of all Classes of Sequential Pay
Certificates then outstanding is less
than or equal to 1% of the Initial Pool
Balance. See "DESCRIPTION OF THE
CERTIFICATES--Optional Termination"
herein.
Risk Factors ...................... There are material risks associated with
an investment in the Offered
Certificates. See "RISK FACTORS" herein
and in the Prospectus.
Material Federal Income Tax
Consequences ..................... One or more separate "real estate mortgage
investment conduit" ("REMIC") elections
will be made with respect to the Trust
Fund for federal income tax purposes.
The Offered Certificates will constitute
"regular interests" in one of such
REMICs. See "MATERIAL FEDERAL INCOME TAX
CONSEQUENCES" herein and in the
Prospectus. The assets of the
lowest-tier REMIC will generally consist
of the Mortgage Loans, including the
Senior Meidinger Tower Interest (as
defined herein), any REO Properties
acquired on behalf of the
Certificateholders and the Certificate
Account. For federal income tax
purposes, the Regular Certificates (or,
in the case of the Class X Certificates,
each Component thereof) will represent
"regular interests" in a REMIC and
generally will be treated as debt
instruments ofsuch REMIC.
The Class A-1, Class A-2, Class A-3, Class
B, Class C, Class D and Class E
Certificates will not, and the Class X
Certificates will, be treated as having
been issued with original issue discount
for federal income tax reporting
purposes. The prepayment assumption that
will be used for purposes of computing
the accrual of original issue discount,
market discount and premium, if any, for
federal income tax purposes will be
equal to a CPR (as defined herein) of
0%. No representation is made that the
Mortgage Loans will prepay at that rate
or at any other rate.
The Offered Certificates will be treated
as "real estate assets" within the
meaning of Section 856(c)(4)(A) of the
Internal Revenue Code of 1986, as
amended (the "Code"). In addition,
interest (including original issue
discount) on the Offered Certificates
will be interest described in Section
856(c)(3)(B) of the Code. However, each
Class of Offered Certificates will
generally only be considered assets
described in Section 7701(a)(19)(C) of
the Code to the extent of the percentage
of the total Mortgage Pool which is
represented by the Mortgage Loans that
are secured by residential property and,
accordingly, an investment in the
Offered Certificates may not be suitable
for certain thrift institutions.
For further information regarding the
federal income tax consequences of
investing in the Offered Certificates,
see "MATERIAL FEDERAL INCOME TAX
CONSEQUENCES" herein and in the
Prospectus.
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S-20
<PAGE>
ERISA Considerations .............. A fiduciary of any employee benefit plan
or other retirement arrangement subject
to the Employee Retirement Income
Security Act of 1974, as amended
("ERISA"), or Section 4975 of the Code
(each, a "Plan") should review carefully
with its legal advisors whether the
purchase or holding of Offered
Certificates could give rise to a
transaction that is prohibited or is not
otherwise permitted either under ERISA
or Section 4975 of the Code or whether
there exists any statutory or
administrative exemption applicable to
an investment therein.
The U.S. Department of Labor has issued to
Merrill Lynch an individual exemption,
Prohibited Transaction Exemption 90-29,
which generally exempts from the
application of certain of the prohibited
transaction provisions of Sections 406
(a) and (b) and 407(a) of ERISA, and the
excise taxes imposed on such prohibited
transactions by Sections 4975(a) and (b)
of the Code and Section 502(i) of ERISA,
transactions relating to the purchase,
sale and holding of pass-through
certificates underwritten by Merrill
Lynch and the servicing and operation of
related asset pools, provided that
certain conditions are satisfied.
The Depositor expects that the Prohibited
Transaction Exemption will generally
apply to the Class A-1, Class A-2, Class
A-3 and Class X Certificates, but it
will not apply to the other Classes of
Offered Certificates. Accordingly,
except as described herein, the Class B,
Class C, Class D and Class E
Certificates may not be acquired by a
Plan or any investor holding assets of a
Plan. Purchasers using insurance company
general account funds to effect such
purchase should consider the
availability of Prohibited Transaction
Class Exemption 95-60 issued by the U.S.
Department of Labor. See "ERISA
CONSIDERATIONS" herein and in the
Prospectus.
Ratings ........................... It is a condition of their issuance that
the Class A-1, Class A-2, Class A-3,
Class B, Class C, Class D, Class E and
Class X Certificates receive the ratings
from Duff & Phelps Credit Rating Co.
("DCR") and Standard & Poor's Ratings
Services, a division of The McGraw-Hill
Companies, Inc. ("S&P" and together with
DCR, the "Rating Agencies"), set forth
on the cover page of this Prospectus
Supplement. The ratings on the Offered
Certificates address the likelihood of
the timely receipt by holders thereof of
all distributions of interest to which
they are entitled and, except in the
case of the Class X Certificates,
distributions of principal sufficient to
reduce the Certificate Balance of each
Class of Offered Certificates to zero by
the Rated Final Distribution Date, which
is September 15, 2030, the first
Distribution Date that follows the
second anniversary of the end of the
amortization term for the Mortgage Loan
that, as of the Cut-Off Date, has the
longest remaining amortization term. A
security rating is not a recommendation
to buy, sell or hold securities and may
be subject to revision or withdrawal at
any time by the assigning rating
organization. A security rating does not
represent any assessment of (i) the
likelihood or frequency of principal
prepayments on the Mortgage Loans or the
corresponding effect on yield to
investors, (ii) the degree to which such
prepayments might differ from
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S-21
<PAGE>
- --------------------------------------------------------------------------------
those originally anticipated, or (iii)
whether and to what extent Prepayment
Premiums and Additional Interest will be
received. Also, a security rating does
not represent any assessment of the
yield to maturity that investors may
experience or the possibility that the
holders of the Class X Certificates
might not fully recover their investment
in the event of rapid prepayments of the
Mortgage Loans (including both voluntary
and involuntary prepayments). If the
entire pool were to prepay in the
initial month, with the result that the
Class X Certificateholders receive only
a single month's interest and thus
suffer a nearly complete loss of their
investment, all amounts "due" to such
holders nevertheless will have been
paid, and such result is consistent with
the "AAA" or "AAAr" rating received on
the Class X Certificates. The Notional
Amount upon which interest is calculated
for each of the Components is reduced by
the allocation of Realized Losses,
Additional Trust Fund Expenses and
prepayments, whether voluntary or
involuntary, to the related Class of
Sequential Pay Certificates. The rating
does not address the timing or magnitude
of reductions of such Notional Amounts,
but only the obligation to pay interest
timely on the Notional Amounts as so
reduced from time to time. Accordingly,
the ratings of the Class X Certificates
should be evaluated independently from
similar ratings on other types of
securities. S&P assigns the additional
symbol of "r" to highlight classes of
securities that S&P believes may
experience high volatility or high
variability in expected returns due to
non-credit risks; however, the absence
of an "r" symbol should not be taken as
an indication that a class will exhibit
no volatility or variability in total
return. See "RATINGS" herein and "RISK
FACTORS--Limited Nature of Credit
Ratings" in the Prospectus.
Legal Investment The Offered Certificates
will not constitute "mortgage related
securities" within the meaning of the
Secondary Mortgage Market Enhancement
Act of 1984. The appropriate
characterization of the Offered
Certificates under various legal
investment restrictions, and thus the
ability of investors subject to these
restrictions to purchase the Offered
Certificates, may be subject to
significant interpretative
uncertainties. In addition, institutions
whose investment activities are subject
to review by federal or state regulatory
authorities may be or may become subject
to restrictions on the investment by
such institutions in certain forms of
mortgage backed securities. Investors
should consult their own legal advisors
to determine whether and to what extent
the Offered Certificates constitute
legal investments for them. See "LEGAL
INVESTMENT" herein and in the
Prospectus.
Collateral Overview: Loan Details . The Mortgage Pool is expected to consist
of 512 conventional, fixed rate mortgage
loans (the "Mortgage Loans") secured by
546 Mortgaged Properties with an
aggregate Cut-Off Date Balance of
$2,891,276,720 (the "Initial Pool
Balance"). See "DESCRIPTION OF THE
MORTGAGE POOL--Certain Terms and
Conditions of the Mortgage Loans--Other
Financing" herein. The Cut-Off Date
Balances of the Mortgage Loans will
range from $168,507 to $273,132,900 and
the Mortgage
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S-22
<PAGE>
- --------------------------------------------------------------------------------
Loans will have an average Cut-Off Date
Balance of $5,647,025. All loan balances
and percentages are subject to a
variance of plus or minus 5%. The
"Cut-Off Date Balance" of any Mortgage
Loan will equal the unpaid principal
balance thereof as of the Cut-Off Date,
after reduction for all payments of
principal due on or before such date,
whether or not received. All percentages
referred to herein without further
description are approximate percentages
by Initial Pool Balance. References to
percentages of Mortgaged Properties are
references to the percentages of the
Initial Pool Balance represented by the
portion of the Cut-Off Date Balance of
the related Mortgage Loans represented
by such Mortgaged Properties, based upon
their related appraised value, or in the
case of the MHC Loan, or 9.2%, by
marketvalue studies, of such Mortgaged
Properties. See "Annex D--Manufactured
Home Communities--Market Studies."
Security for the Mortgage Loans ... All of the Mortgage Loans are generally
non-recourse obligations of the
respective borrowers. No Mortgage Loan
will be insured or guaranteed by any
governmental entity or private insurer
(other than certain Credit Lease Loans
(as defined herein) with respect to
which a lease enhancement policy or a
residual value insurance policy is in
effect).
Each Mortgage Loan is secured by a lien on
the borrower's interest, except as set
forth below, in one or more
income-producing real properties (each,
a "Mortgaged Property"). Five hundred
six (506) Mortgage Loans, or 93.5%, are
secured by a first mortgage lien on the
related borrower's fee simple estate in
the related Mortgaged Property. Five of
the Mortgage Loans, or 6.3%, are secured
by a first mortgage lien on the
respective borrower's leasehold estate
in the related Mortgaged Property. One
Mortgage Loan, or 0.2%, is secured by
(a) a first mortgage lien on the related
borrower's fee interest and leasehold
estate of the related Mortgaged
Property, and (b) a second mortgage lien
on the fee interest in a portion of the
Mortgaged Property owned by a
governmental agency. See "DESCRIPTION OF
THE MORTGAGE POOL--General" herein.
Property Types .................... Set forth below are the number of
Mortgaged Properties and the approximate
percentage of the Initial Pool Balance
represented by the portion of the
Mortgage Loans that are secured by
Mortgaged Properties operated for each
of the indicated purposes with
concentrations above 5%:
Number of % of
Mortgaged Initial Pool
Property Type Properties Balance
------------- ---------- -------
Multifamily ........... 217 30%
Office ................ 58 23%
Retail
Anchored ............. 48 11%
Unanchored ........... 67 6%
---------------------------
115 17%
Hospitality ........... 32 10%
Mobile Home Park ...... 44 10%
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S-23
<PAGE>
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Geographic Concentration .......... The Mortgaged Properties for the Mortgage
Loans are located throughout 41 states,
the District of Columbia and the U.S.
Virgin Islands. Set forth below are the
number of Mortgaged Properties and the
approximate percentage of the Initial
Pool Balance represented by such
Mortgaged Properties that are located in
the states with concentrations of
Mortgaged Properties above 5%:
Number of % of
Mortgaged Initial Pool
State Properties Balance
----- ---------- -------
California 94 14%
New York 28 11%
Texas 66 8%
Illinois 6 8%
New Jersey 14 6%
Pennsylvania 20 6%
Florida 34 6%
Borrower Concentration ............ No Mortgage Loan or group of Mortgage
Loans to one borrower or group of
related borrowers exceeds 9.45% of the
Initial Pool Balance. See "DESCRIPTION
OF THE MORTGAGE POOL" herein. Except
with respect to the three largest
Mortgage Loans, a description of which
is set forth in Annex D hereto, no
Mortgage Loan or group of Mortgage Loans
to one borrower or group of related
borrowers exceeds 3.96% of the Initial
Pool Balance.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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S-24
<PAGE>
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Loan Size ......................... Set forth below are the number of Mortgage
Loans and the approximate percentage of
the Initial Pool Balance represented by
the Mortgage Loans which have Cut-Off
Date Balances within the indicated
range:
Range of Number of % of
Cut-Off Date Mortgage Initial Pool
Balance Loans Balance
------- ----- -------
$ 168,507-$ 999,999 ....... 68 1%
1,000,000- 1,999,999 ....... 131 7%
2,000,000- 2,999,999 ....... 105 9%
3,000,000- 3,999,999 ....... 59 7%
4,000,000- 4,999,999 ....... 35 5%
5,000,000- 5,999,999 ....... 26 5%
6,000,000- 6,999,999 ....... 16 4%
7,000,000- 7,999,999 ....... 12 3%
8,000,000- 8,999,999 ....... 14 4%
9,000,000- 9,999,999 ....... 8 3%
10,000,000- 14,999,999 ....... 12 5%
15,000,000- 19,999,999 ....... 8 5%
20,000,000- 24,999,999 ....... 3 2%
25,000,000- 29,999,999 ....... 5 5%
30,000,000- 34,999,999 ....... 3 3%
40,000,000- 69,999,999 ........ 4 7%
$70,000,000-$273,132,900 ....... 3 24%
-----------------------------------
Total 512 100%
===================================
Mortgage Loan Payments ............ All of the Mortgage Loans bear interest at
annualized rates ("Mortgage Rates") that
will remain fixed for their respective
remaining loan terms, except as
described herein. Scheduled payments of
principal and interest (the "Periodic
Payments") on all but one of the
Mortgage Loans are due monthly on the
first day of each month (the "Due
Date"). For purposes of calculating
amounts payable to Certificateholders
each month, the Due Date for the
remaining Mortgage Loan will be deemed
to be the first day of each month. See
"DESCRIPTION OF THE MORTGAGE
POOL--Certain Terms and Conditions of
the Mortgage Loans--Due Dates" and
"--Mortgage Rates; Calculations of
Interest" herein.
Amortization Characteristics ...... Certain of the Mortgage Loans provide for
Periodic Payments based on amortization
schedules significantly longer than
their respective remaining terms to
maturity. As a result, such Mortgage
Loans (the "Balloon Loans") will have
substantial principal amounts due and
payable (each such amount, together with
the corresponding payment of interest, a
"Balloon Payment") on their respective
scheduled maturity dates, unless prepaid
prior thereto. See "RISK
FACTORS--Investment in Commercial and
Multifamily Mortgage Loans-Balloon
Payments" herein and "RISK
FACTORS--Balloon Payments" in the
Prospectus. Certain of the Mortgage
Loans (the "ARD Loans") fully or
substantially amortize through their
respective remaining terms to maturity,
but provide that after a date set forth
in the respective Mortgage Loan
documents (each such date, an
"Anticipated Repayment Date"), interest
will generally accrue on each ARD
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S-25
<PAGE>
- --------------------------------------------------------------------------------
Loan at an interest rate above the
related Mortgage Rate and, in addition
to its obligation to make its scheduled
Periodic Payments, the related borrower
will be obligated to apply all monthly
cash flow generated by the related
Mortgaged Property in excess of regular
debt service payment (without giving
effect to the Adjusted Mortgage Rate),
reserves and certain other property
expenses (the "Remaining Cash Flow ") to
the repayment of principal of such
Mortgage Loan. See "DESCRIPTION OF THE
MORTGAGE POOL--Certain Terms and
Conditions of the Mortgage Loans" and
"--Amortization" herein. Certain of the
Mortgage Loans (the "Fully Amortizing
Loans "), other than the ARD Loans,
fully or substantially amortize through
their respective remaining terms to
maturity.
Set forth below are the number of Mortgage
Loans and the approximate percentages of
the Initial Pool Balance,
respectively,represented by Balloon
Loans, ARD Loans and Fully Amortizing
Loans:
Number of % of
Mortgage Initial Pool
Amortization Type Loans Balance
----------------- ----- -------
Balloon ............... 397 58%
ARD ................... 48 36%
Fully Amortizing ...... 67 5%
-----------------------------
Total .............. 512 100%
=============================
Prepayment Provisions ............. As of the Cut-Off Date, all of the
Mortgage Loans restrict or prohibit
voluntary principal prepayments. In
general, the Mortgage Loans: (i)
prohibit voluntary prepayments of
principal for a period (a "Lockout
Period") ending on a date specified in
the related Mortgage Note (as defined
herein) and, in general, thereafter
impose a Yield Maintenance Charge or
Percentage Premium (each as defined
herein) for most of their respective
remaining terms to maturity (303
Mortgage Loans, or 35%); (ii) prohibit
voluntary prepayments of principal for
most of their remaining term to maturity
(121 Mortgage Loans, or 57%); (iii)
permit voluntary principal prepayments
provided that the prepayment is
accompanied by a Yield Maintenance
Charge for a period and then a
Percentage Premium in excess of the
amount prepaid for most of their
respective remaining terms to maturity
(53 Mortgage Loans, or 4%); (iv) permit
voluntary principal prepayments provided
that the prepayment is accompanied by a
Yield Maintenance Charge for most of
their respective remaining terms to
maturity (23 Mortgage Loans, or 2%); or
(v) prohibit prepayment for a specified
Lockout Period, then require that a
prepayment is accompanied by a Yield
Maintenance Charge for a period, and
then a Percentage Premium in excess of
the amount prepaid for most of their
respective remaining terms to maturity
(12 Mortgage Loans, or 1%). See
"DESCRIPTION OF THE MORTGAGE
POOL--Additional Mortgage Loan
Information" herein. With respect to ARD
Loans, voluntary principal prepayments
after the Anticipated Repayment Date are
permitted without material restrictions.
The ability of the Master
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S-26
<PAGE>
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Servicer or the Special Servicer to
waive or modify the terms of any
Mortgage Loan relating to the payment of
a Prepayment Premium (as defined herein)
is limited as described herein. See "THE
POOLING AND SERVICING
AGREEMENT--Amendments, Modifications and
Waivers" herein. The Depositor makes no
representation as to the enforceability
of the provisions of any Mortgage Note
requiring the payment of a Prepayment
Premium, or of the collectability of any
Prepayment Premium.
One hundred twenty four (124) of the
Mortgage Loans, or 57.8%, after a period
during which defeasance is prohibited
(which period includes the two years
after the Closing Date), provide that,
in general, under certain conditions,
the related borrower may substitute a
pledge of "Defeasance Collateral" in
exchange for a release of the Mortgaged
Property from the lien of the related
Mortgage. "Defeasance Collateral" is
non-callable United States Treasury
obligations (or obligations guaranteed
by the full faith and credit of the
United States) that provide for payments
that reflect, as closely as possible,
the remaining scheduled payments in
respect of the related Mortgage Loan.
Such obligations must provide for
payments on or prior, but as close as
possible, to each successive Due Date
through and including the maturity date
(or, in the case of the ARD Loans, the
Anticipated Repayment Date) with respect
to the defeased Mortgage Loan, with each
such payment being equal to or greater
than (with any excess to be returned to
the borrower) the Periodic Payments and
the Balloon Payment with respect to such
defeased Mortgage Loan (or, in the case
of an ARD Loan, the payment anticipated
on the related Anticipated Repayment
Date).
Credit Lease Loans ................ Nine (9) of the Mortgage Loans (the
"Credit Lease Loans"), or 0.9%, are
secured by Mortgages on Mortgaged
Properties that are, in each case,
subject to a lease (a "Credit Lease") to
a tenant (each a "Credit Lease Tenant")
which possesses (or whose parent or
other affiliate which guarantees the
Credit Lease obligation possesses) a
credit rating meeting the originator's
underwriting criteria. See "DESCRIPTION
OF THE MORTGAGE POOL--Credit Lease
Loans" herein.
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S-27
<PAGE>
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Dates of Origination .............. Set forth below is the approximate
percentage of the Initial Pool Balance
represented by the Mortgage Loans
originated in the indicated year:
% of
Initial Pool
Year Balance
---- -------
1997 31%
1998 69%
Additional Mortgage Loan
Characteristics .................. Set forth below is certain information
regarding the Mortgage Loans and the
related Mortgaged Properties as of the
Cut-Off Date (weighted averages set
forth below are based on the Initial
Pool Balance). Such information is more
fully described, and additional
information regarding the Mortgage Loans
and the related Mortgaged Properties is
set forth, in the tables under
"DESCRIPTION OF THE MORTGAGE
POOL--Additional Mortgage Loan
Information" herein and in Annex A
hereto. All terms used below have the
meanings as otherwise defined herein.
Minimum Cut-Off Date Balance ........................ $ 168,507
Maximum Cut-Off Date Balance ........................ $273,132,900
Average Cut-Off Date Balance ........................ $ 5,647,025
Minimum Mortgage Rate ............................... 6.66%
Maximum Mortgage Rate ............................... 9.38%
Weighted Average Mortgage Rate ...................... 7.21%
Minimum Remaining Term (months)(1) .................. 47
Maximum Remaining Term (months)(1) .................. 359
Weighted Average Remaining Term (months)(1) ......... 127
Minimum Remaining Amortization Term (months) ........ 104
Maximum Remaining Amortization Term (months) ........ 360
Weighted Average Remaining Amortization Term (months) 300
Minimum Cut-Off Date DSCR(2) ........................ 1.12x
Maximum Cut-Off Date DSCR(2) ........................ 3.28x
Weighted Average Cut-Off Date DSCR(2) ............... 1.45x
Minimum Cut-Off Date LTV(2) ......................... 24.93%
Maximum Cut-Off Date LTV(2) ......................... 86.10%
Weighted Average Cut-Off Date LTV(2) ................ 71.66%
Minimum Repayment LTV(2)(3) ......................... 19.89%
Maximum Repayment LTV(2)(3) ......................... 75.08%
Weighted Average Repayment LTV(2)(3) ................ 61.64%
----------------
(1) Term to maturity with respect to Balloon Loans and Fully
Amortizing Loans and term to Anticipated Repayment Date with
respect to ARD Loans.
(2) Calculated without regard to Credit Lease Loans.
(3) At maturity with respect to Balloon Loans only or at Anticipated
Repayment Date with respect to ARD Loans. Does not include Fully
Amortizing Loans.
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S-28
<PAGE>
RISK FACTORS
Prospective holders of Certificates should consider, among other things,
the factors listed below and in the Prospectus under "RISK FACTORS" in
connection with the purchase of the Certificates. Additional risk factors are
set forth elsewhere in this Prospectus Supplement under separate headings in
connection with discussions regarding particular aspects of assets of the Trust
Fund or the Offered Certificates.
INVESTMENT IN COMMERCIAL AND MULTIFAMILY MORTGAGE LOANS
Commercial and Multifamily Lending Generally. Commercial and multifamily
lending generally is viewed as exposing a lender to risks which are different
from many of the risks faced in connection with other types of lending such as
residential mortgage lending. Commercial and multifamily lending generally
involves larger loans, thereby providing lenders with less diversification of
risk. The ability of a borrower to repay a loan secured by an income-producing
property typically is dependent primarily upon the successful operation of such
property, rather than upon the existence of independent income or assets of the
borrower. If the net operating income of the property is reduced, the borrower's
ability to repay its loan may be impaired. This may occur for a variety of
reasons, including an increase in vacancy rates, a decline in rental rates, an
increase in operating expenses and/or an increase in necessary capital
expenditures. Because the value of an income-producing property is directly
related to the net income derived from such property, if the borrower becomes
unable to meet its obligations under the related Mortgage Loan, the liquidation
value of any such Mortgaged Property may be substantially less, relative to the
amount outstanding on the related Mortgage Loan. The income from and market
value of a Mortgaged Property may also be adversely affected by such factors as
changes in the general economic climate, the existence of an oversupply of
comparable space or a reduction in demand for real estate in the area, the
attractiveness of the property to tenants and guests and perceptions regarding
such property's safety, convenience and services. Real estate values and income
are also affected by such factors as government regulations and changes in real
estate, zoning or tax laws, the willingness and ability of a property owner to
provide capable management, changes in interest rate levels, the availability of
financing and potential liability under environmental and other laws.
Accordingly, commercial and multifamily property values and net operating income
are subject to volatility.
In addition, as described in more detail below with respect to the various
types of properties constituting the Mortgaged Properties, additional risk may
be presented by the type and use of a particular Mortgaged Property.
a. Property Location and Condition. In general, the location, age,
construction quality and design of a particular Mortgaged Property may affect
the occupancy level as well as the rents that may be charged for individual
leases or, in the case of any hospitality property, the amount that the customer
may be charged for the occupancy thereof. The characteristics of an area or
neighborhood in which a Mortgaged Property is located may change over time or in
relation to competing facilities. The effects of poor construction quality are
likely to require the borrower to spend increasing amounts of money over time
for maintenance and capital improvements. Even Mortgaged Properties that were
well constructed will deteriorate over time if adequate maintenance is not
scheduled and performed in a timely manner.
b. Leases. In general, except in the case of any hospitality property,
borrowers rely upon periodic lease or rental payments from tenants to pay for
maintenance and other operating expenses of their related Mortgaged Property, to
fund capital improvements and to service the related Mortgage Loan and any other
outstanding debt or other obligations. There can be no guarantee that tenants
will renew leases upon expiration or, in the case of a commercial tenant, that
it will continue operations throughout the term of its lease. Income from and
the market value of the Mortgaged Properties would be adversely affected if
vacant space in the Mortgaged Properties could not be leased for a significant
period of time, if tenants were unable to meet their lease obligations or if,
for any other reason, rental payments could not be collected. Accordingly,
repayment of the Mortgage Loans may be affected by the expiration or termination
of occupancy leases and the ability of the related borrowers to renew such
leases with the existing occupants or to release the space on economically
favorable terms to new occupants, or the existence of a market which requires a
reduced rental rate, substantial tenant improvements or expenditures or other
concessions to a tenant in connection with a lease renewal. No assurance can be
given that leases that expire can be renewed, that the space covered by leases
that expire or are terminated can be leased in a timely manner at comparable
rents or on comparable terms or that the borrower will have the cash or be able
to obtain the financing to fund any required tenant improvements. In addition,
upon the occurrence of an event of default by a tenant, delays and costs in
enforcing the lessor's rights could occur and a recovery with respect thereto,
if any, may be significantly less than if no default had
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occurred. If a significant portion of a Mortgaged Property is leased to a single
tenant, the consequences of the failure of the borrower to release such portion
of such Mortgaged Property in the event that such tenant vacates the space
leased to it (either as a result of the expiration of the term of the lease or a
default by the tenant) or a failure of such tenant to perform its obligations
under the related lease, will be more pronounced than if such Mortgaged Property
were leased to a greater number of tenants. See "--Tenant Matters" herein.
Certain tenants at the Mortgaged Properties may be entitled to terminate their
leases or reduce their rents based upon negotiated lease provisions, e.g., if an
anchor tenant ceases operations at the related Mortgaged Property. In such
cases, there can be no assurance that the operation of such provisions will not
allow such a termination or rent reduction. A tenant's lease may also be
terminated or otherwise affected if such tenant becomes the subject of a
bankruptcy proceeding.
In the case of retail, office and industrial properties, the performance
and liquidation value of such properties may be dependent upon the business
operated by tenants, the creditworthiness of such tenants and/or the number of
tenants. In some cases, a single tenant or a relatively small number of tenants
may account for all or a disproportionately large share of the rentable space or
rental income of such property. Accordingly, a decline in the financial
condition of a significant or the sole tenant, as the case may be, or other
adverse circumstances of such a tenant (such as a bankruptcy or insolvency), may
have a disproportionately greater effect on the net operating income derived
from such property than would be the case if rentable space or rental income
were more evenly distributed among a greater number of tenants at such property.
c. Competition. Other multifamily and commercial properties located in the
areas of the Mortgaged Properties compete with the Mortgaged Properties of
similar types to attract customers, tenants and other occupants. Such properties
generally compete on the basis of rental rates, location, condition and features
of the property. If competing properties in the applicable market have lower
rents, lower operating costs, more favorable locations or better facilities, the
rental rates for a Mortgaged Property may be adversely affected. In addition, if
any oversupply of competing properties exists in a particular market (either as
a result of an increase in similar properties or a decrease in the number of
customers, tenants or other occupants due to a decline in economic activity in
the area), the rental rates for a Mortgaged Property may be adversely affected.
Increased competition could adversely affect income from and the market value of
the Mortgaged Properties.
d. Quality of Management. The successful operation of a Mortgaged Property
may also be dependent on the performance and viability of the respective
property managers of the Mortgaged Properties. Property managers are responsible
for responding to changes in the local market, planning and implementing the
rental rate structure (including establishing levels of rent payments) and
advising the related borrower so that maintenance and capital improvements can
be carried out in a timely fashion. Management errors may adversely affect the
long-term viability of a Mortgaged Property. There can be no assurance regarding
the performance of any present or future property manager, or that any such
property manager will at all times be in a financial condition to continue to
fulfill its management responsibilities under the related management agreement.
Risks Particular to Multifamily Properties. Multifamily projects are part
of a market that, in general, is characterized by low barriers to entry. Thus, a
particular apartment market with historically low vacancies could experience
substantial new construction, and a resultant oversupply of units, in a
relatively short period of time. Since multifamily apartment units are typically
leased on a short-term basis: (i) the tenants who reside in a particular project
within such a market may easily move to newer projects with better amenities;
and (ii) the timely receipt of rent payments and occupancy and rent levels may
be adversely affected more rapidly than other types of properties by unfavorable
economic conditions generally, local military base or factory closings and
national and local politics, including current or future rent stabilization and
rent control laws and agreements. Further, reduced mortgage interest rates may
encourage renters to purchase single-family housing.
Risks Particular to Office Properties. Office properties generally require
their owners to expend significant amounts for general capital improvements,
tenant improvements and costs of reletting space. In addition, office properties
that are not equipped to accommodate the needs of modern business may become
functionally obsolete and thus non-competitive. Office properties may also be
adversely affected if there is an economic decline in the businesses operated by
their tenants. The risk of such an adverse effect is increased if revenue is
dependent on a significant tenant or if there is a significant concentration of
tenants in a particular business or industry.
Risks Particular to Retail Properties. In addition to risks generally
associated with real estate, retail properties can also be adversely affected by
other factors such as adverse changes in economic conditions generally, consumer
preferences, demographics or spending patterns and competition from alternative
forms of retailing (such as
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"off-price" or "factory outlet" retailing, direct mail, video shopping networks,
telephone shopping and electronic commerce) that reduce the need for retail
space. In addition, significant tenants at a retail property play an important
part in generating customer traffic and making a retail property a desirable
location for other tenants. Thus, a retail property may be adversely affected if
an anchor or other significant tenant ceases operations (which may occur at the
expiration of a lease term or the term of its covenant to operate, the tenant's
bankruptcy, its general cessation of business activities or for other reasons).
In addition, certain tenants at retail properties may be entitled to terminate
their leases if one or more anchor tenants cease operations.
Risks Particular to Self Storage Facilities. Tenant privacy, anonymity and
unsupervised access may heighten environmental risks to a lender making a loan
secured by a self storage property. The environmental site assessments discussed
herein did not include an inspection of the contents of the self-storage units
included in the self storage properties and there is no assurance that all of
the units included in the self storage properties are free from hazardous
substances or other pollutants or contaminants or will remain so in the future.
See "--Environmental Risks" below. Due to the short-term nature of self storage
leases, self storage properties also may be subject to more volatility in terms
of supply and demand than loans secured by other types of properties.
Additionally, because of the construction utilized in connection with certain
self storage facilities, it might be difficult or costly to convert such a
facility to an alternative use. Thus, the liquidation value of self storage
properties may be substantially less than would be the case if the same were
readily adaptable to other uses.
Risks Particular to Adult Living Facilities/Health Care Facilities.
Mortgage Loans secured by liens on residential health care facilities pose risks
not associated with loans secured by liens on other types of income-producing
real estate. Providers of long-term nursing care, assisted living and other
medical services are subject to federal and state laws that relate to the
adequacy of medical care, distribution of pharmaceuticals, rate setting,
equipment, personnel, operating policies and additions to facilities and
services and, to the extent dependent on patients whose fees are reimbursed by
private insurers, to the reimbursement policies of such insurers. The failure of
any of such borrower to maintain or renew any required license or regulatory
approval could prevent it from continuing operations at a Mortgaged Property (in
which case no revenues would be received from such property or portion thereof
requiring licensing) or, if applicable, bar it from participation in government
reimbursement programs. Furthermore, in the event of foreclosure, there can be
no assurance that the Trustee or any other purchaser at a foreclosure sale would
be entitled to the rights under such licenses and such party may have to apply
in its own right for such license. There can be no assurance that a new license
could be obtained or that the related Mortgaged Property would be adaptable to
other uses. To the extent any residential health care facility receives a
significant portion of its revenues from government reimbursement programs,
primarily Medicaid and Medicare, such revenue may be subject to statutory and
regulatory changes, retroactive rate adjustments, administrative rulings, policy
interpretations, delays by fiscal intermediaries and government funding
restrictions. Moreover, governmental payers have employed cost-containment
measures that limit payments to health care providers, and there are currently
under consideration various proposals in the United States Congress that could
materially change or curtail those payments. Accordingly, there can be no
assurance that payments under government reimbursement programs will, in the
future, be sufficient to fully reimburse the cost of caring for program
beneficiaries. If not, net operating income of the Mortgaged Properties that
receive substantial revenues from those sources, and consequently the ability of
the related borrowers to meet their Mortgage Loan obligations, could be
adversely affected. Under applicable federal and state laws and regulations,
including those that govern Medicare and Medicaid programs, only the provider
who actually furnished the related medical goods and services may sue for or
enforce its rights to reimbursement. Accordingly, in the event of foreclosure,
none of the Trustee, the Master Servicer, the Special Servicer or a subsequent
lessee or operator of the property would generally be entitled to obtain from
federal or state governments any outstanding reimbursement payments relating to
services furnished at the respective properties prior to such foreclosure.
Risks Particular to Hospitality Properties. Various factors, including
location, quality and franchise affiliation, if any, affect the economic
viability of a hospitality property. Additional factors affecting a hospitality
property's performance include a high level of continuing capital expenditures
to keep necessary furniture, fixtures and equipment updated, competition from
other hospitality properties, increases in operating costs, dependence on
business and commercial travelers and tourism, increases in energy costs and
other expenses of travel and adverse effects of general and local economic
conditions. Because hospitality property rooms generally are rented for short
periods of time, such properties tend to experience more volatility in response
to adverse economic conditions and competition than do other commercial
properties. Additionally, the revenues of certain hospitality properties,
particularly those located in regions whose economies depend upon tourism, may
be highly seasonal in nature.
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Furthermore, the financial strength and capabilities of the owner and operator
of a hospitality property may have an impact on such property's quality of
service and economic viability. Certain of the Mortgaged Properties consisting
of hospitality properties are franchisees of national chains. The viability of
any hospitality property affiliated with a franchise depends in part on the
continued existence and financial strength of the franchisor, such property's
adherence to the franchise operating standards, the public perception of the
franchise service mark and the duration of the franchise licensing agreements.
The loss of a franchise could have a material adverse effect upon the operations
or the underlying value of the related Mortgaged Property because of the loss of
associated name recognition, marketing support and centralized reservation
system. Additionally, in the event of a foreclosure on a hospitality property
(i) any related franchise agreement, operating, liquor or other licenses may not
be transferable; (ii) it may be difficult to terminate an ineffective operator;
and (iii) future occupancy rates may be adversely affected by any negative
perception created by the foreclosure.
Risks Particular to Parking Garage Facilities. The risks associated with
garage properties are generally the risks associated with the type of property
from which such garage property draws its customers. A garage property dependent
upon a retail facility for customers is subject to the risks affecting such
retail facility, while a garage property dependent upon an office facility for
customers is subject to the risks affecting such office facility. Due to the
short-term nature of parking leases, garage properties also may be subject to
more volatility than other typesof properties.
Risks Particular to Mobile Home Parks. Mortgage lenders whose loans are
secured by mortgages encumbering mobile home parks may be subject to additional
risks not faced by lenders whose loans are secured by other types of income
producing properties. Since the borrower often does not own the mobile homes
located upon the related Mortgaged Property, the borrower (and the lender
subsequent to any foreclosure) may face additional costs and delays in obtaining
evictions of tenants and the removal of mobile homes upon a default or
abandonmentby a tenant.
Risks Particular to Industrial Properties. Mortgage Loans secured by an
industrial property may be adversely affected by reduced demand for industrial
space occasioned by a decline in a particular industry segment. Furthermore, a
property that suited the particular needs of a tenant may be difficult to lease
to a future tenant or may become functionally obsolete relative to newer
properties. Given the inherent nature of the operations typically conducted upon
them, industrial properties may be subject to increased environmental risks. See
"--Environmental Risks" herein.
Risks Particular to Credit Lease Properties. The payment of interest and
principal on Credit Lease Loans is dependent principally on the payment by each
Credit Lease Tenant or guarantor of the Credit Lease (the "Guarantor"), if any,
of monthly rental payments and other payments due under the terms of its Credit
Lease. A downgrade in the credit rating of the Credit Lease Tenant and/or the
Guarantor may have a related adverse effect on the rating of the Offered
Certificates. In addition, because the ability of a Credit Lease to service the
related Credit Lease Loan is dependent on revenue from a single Credit Lease
Tenant, in the event of a default under a Credit Lease or the associated
guarantee, as the case may be, the related borrower may not have the ability to
make required payments on such Credit Lease Loan until the premises are re-let.
If a payment default on the Credit Lease Loan occurs, the Special Servicer may
be entitled to foreclose upon or otherwise realize upon the related Mortgaged
Property to recover amounts due under the Credit Lease Loan, and will also be
entitled to pursue any available remedies against the defaulting Credit Lease
Tenant and any Guarantor.
Certificateholders may be adversely affected by any failure by the provider
of any lease enhancement policy or residual value policy to pay under the terms
of any such policy, and any downgrade of the credit rating of such provider may
adversely affect the ratings of the Offered Certificates. See "DESCRIPTION OF
THE MORTGAGE POOL--Credit Lease Loans" herein.
Mortgage Loans Not Insured. No Mortgage Loan is insured or guarantied by
the United States of America, any governmental agency or instrumentality, any
private mortgage insurer (other than certain Credit Lease Loans with respect to
which a lease enhancement policy or a residual value insurance policy is in
effect) or by the Depositor, the applicable Seller, the Master Servicer, the
Special Servicer, the Trustee, the Underwriters, any of their respective
affiliates or any other person. However, as more fully described under
"DESCRIPTION OF THE MORTGAGE POOL--General" and "--Representations and
Warranties; Repurchases and Substitutions" herein, the applicable Seller will be
obligated to repurchase or substitute a Mortgage Loan if (i) there is a defect
with respect to certain of the documents relating to such Mortgage Loan or (ii)
certain of their respective representations or warranties concerning
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such Mortgage Loan are breached, and such defect or breach materially and
adversely affects the interests of the Certificateholders and such defect or
breach is not cured as required. There can be no assurance that the applicable
Seller will be in a financial position to effect such repurchase or
substitution. See "DESCRIPTION OF THE MORTGAGE POOL--The Sellers" herein.
Limited Recourse. Substantially all of the Mortgage Loans are non-recourse
loans as to which recourse, in the event of default, will be limited to the
related Mortgaged Property. With respect to Mortgage Loans where recourse is
permitted as to any person or entity, generally, no current evaluation has been
undertaken of the financial condition of such person or entity. Consequently,
prospective Investors should consider each of the Mortgage Loans to be a
non-recourse loan, the payment of which is primarily dependent upon the
sufficiency of the net operating income from the related Mortgaged Property and,
at maturity, upon the market value of such Mortgaged Property or the ability of
the related borrower to refinance such Mortgaged Property.
Concentration of Mortgage Loans and Borrowers. Several of the Mortgage
Loans, individually or together with other Mortgage Loans with which they are
cross-collateralized, have Cut-Off Date Balances that are substantially higher
than the average Cut-Off Date Balance. In general, a mortgage pool with a
smaller number of loans that have larger average balances may be subject to
losses that are more severe than other pools having the same or similar
aggregate principal balance and composed of smaller average loan balances and a
greater number of loans. Additionally, a mortgage pool with a high concentration
of Mortgage Loans to the same borrower or affiliated borrowers is subject to the
potential risk that a borrower undergoing financial difficulties might divert
its resources or undertake remedial actions (such as a bankruptcy) in order to
alleviate such difficulties, to the detriment of one or more of the Mortgaged
Properties. In all cases, each investor should carefully consider all aspects of
any loans representing a significant percentage of the outstanding principal
balance of a mortgage pool in order to ensure that such loans are not subject to
risks unacceptable to such Investor. See "DESCRIPTION OF THE MORTGAGE
POOL--Certain Characteristics of the Mortgage Pool--Concentration of Mortgage
Loans and Borrowers" herein.
No Reunderwriting of Mortgage Loans. The Depositor has not reunderwritten
the Mortgage Loans. Instead, the Depositor has relied on the representations and
warranties made by the applicable Seller, and the applicable Seller's obligation
to repurchase a Mortgage Loan in the event that a representation or warranty was
not true when made. These representations and warranties do not cover all of the
matters that the Depositor would review in underwriting a mortgage loan and
should not be viewed as a substitute for reunderwriting the Mortgage Loans. If
the Depositor had reunderwritten the Mortgage Loans, it is possible that the
reunderwriting process may have revealed problems with a Mortgage Loan not
covered by a representation or warranty. In addition, no assurance can be given
that the applicable Seller will be able to repurchase a Mortgage Loan if a
representation or warranty has been breached. See "DESCRIPTION OF THE MORTGAGE
POOL--Representations and Warranties; Repurchases and Substitutions" herein.
Tax Considerations Related to Foreclosure. One or more of the REMICs
established under the Pooling and Servicing Agreement might become subject to
federal (and possibly state or local) tax on certain of its net income from the
operation and management of a Mortgaged Property subsequent to the Trust Fund's
acquisition of a Mortgaged Property pursuant to a foreclosure or deed-in-lieu of
foreclosure, including in some circumstances a 100% prohibited transaction tax,
thereby substantially reducing net proceeds available for distribution to
Certificateholders. See "MATERIAL FEDERAL INCOME TAX CONSEQUENCES--Federal
Income Tax Consequences for REMIC Certificates--Taxation of REMIC Regular
Certificates," "--Federal Income Tax Consequences for REMIC
Certificates--Taxation of the REMIC" and "--Federal Income Tax Consequences for
REMIC Certificates--Taxation of Holders of Residual Certificates" in the
Prospectus.
Geographic Concentration. In general, a mortgage pool with a significant
portion of its loans secured by properties located in a smaller number of states
or geographic regions may be subject to losses that are more severe than other
pools having a more diverse geographic distribution of its loans. See
"DESCRIPTION OF THE MORTGAGE POOL--Certain Characteristics of the Mortgage
Pool--Geographic Concentration" herein for a more detailed discussion of the
location of the Mortgaged Properties on a state-by-state basis. Repayments by
borrowers and the market values of the Mortgaged Properties could be affected by
economic conditions generally or in the regions where the borrowers and the
Mortgaged Properties are located, conditions in the real estate markets where
the Mortgaged Properties are located, changes in governmental rules and fiscal
policies, natural disasters (which may result in uninsured losses) and other
factors that are beyond the control of the borrowers. To the extent that general
economic or other relevant conditions in states or regions in which Mortgaged
Properties securing significant
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portions of the aggregate principal balance of the Mortgage Loans are located
decline and result in a decrease in commercial property, housing or consumer
demand in the region, the income from and market value of the Mortgaged
Properties may be adversely affected. See "DESCRIPTION OF THE MORTGAGE
POOL--Certain Characteristics of the Mortgage Pool--Geographic Concentration"
herein.
Environmental Risks. If an adverse environmental condition exists with
respect to a Mortgaged Property, the Trust Fund may be subject to the following
risks: (i) a diminution in the value of such Mortgaged Property or the inability
to foreclose against such Mortgaged Property; (ii) the potential that the
related borrower may default on the related Mortgage Loan due to such borrower's
inability to pay high remediation costs or difficulty in bringing its operations
into compliance with environmental laws; (iii) in certain circumstances as more
fully described below, liability for clean-up costs or other remedial actions,
which liability could exceed the value of such Mortgaged Property or the unpaid
balance of the related Mortgage Loan; or (iv) the inability to sell the related
Mortgage Loan in the secondary market or to lease such Mortgaged Property to
potential tenants. Under certain federal and state laws, the reimbursement of
remedial costs incurred by state and federal regulatory agencies to correct
environmental conditions are secured by a statutory lien over the subject
property, which lien, in some instances, may be prior to the lien of an existing
mortgage. Any such lien arising with respect to a Mortgaged Property would
adversely affect the value of such Mortgaged Property and could make
impracticable the foreclosure by the Special Servicer on such Mortgaged Property
in the event of a default by the related borrower.
Under various federal, state and local laws, ordinances and regulations, a
current or previous owner or operator of real property, as well as certain other
categories of parties, may be liable for the costs of removal or remediation of
hazardous or toxic substances on, under, adjacent to or in such property. The
cost of any required remediation and the owner's liability therefor as to any
property is generally not limited under applicable laws, and could exceed the
value of the property and/or the aggregate assets of the owner. Under some
environmental laws, a secured lender (such as the Trust Fund) may be found to be
an "owner" or "operator" of the related Mortgaged Property if it is determined
that the lender participated in the management of the borrower, regardless of
whether the borrower actually caused the environmental damage. In such cases, a
secured lender may be liable for the costs of any required removal or
remediation of hazardous substances. The Trust Fund's potential exposure to
liability for cleanup costs will increase if the Trust Fund, or an agent of the
Trust Fund, actually takes possession of a Mortgaged Property or control of its
day-to-day operations. See "CERTAIN LEGAL ASPECTS OF THE MORTGAGE
LOANS--Environmental Risks" in the Prospectus, and "DESCRIPTION OF THE MORTGAGE
POOL--Assessment of Property Condition--Environmental Assessments" herein.
The Pooling and Servicing Agreement will provide that the Special Servicer,
acting on behalf of the Trust Fund, may not acquire title to a Mortgaged
Property securing a Mortgage Loan or take over its operation unless the Special
Servicer has previously determined, based upon an environmental site assessment
prepared by a person who regularly conducts environmental audits, that: (i) the
Mortgaged Property is in compliance with applicable environmental laws, and
there are no circumstances present at the Mortgaged Property relating to the
use, management or disposal of any hazardous substances, hazardous materials,
wastes or petroleum based materials for which investigation, testing,
monitoring, containment, clean-up or remediation could be required under any
federal, state or local law or regulation; or (ii) if the Mortgaged Property is
not so in compliance or such circumstances are so present, then it would be in
the best economic interest of the Trust Fund to acquire title to the Mortgaged
Property and further to take such actions as would be necessary and appropriate
to effect such compliance and/or respond to such circumstances, which may
include obtaining an environmental insurance policy. Such requirement may
effectively preclude enforcement of the security for the related Note until a
satisfactory environmental site assessment is obtained (or until any required
remedial action is thereafter taken), but will decrease the likelihood that the
Trust Fund will become liable for any damages or for remediation costs under any
environmental law. However, there can be no assurance that the environmental
site assessment will accurately reveal the existence of conditions or
circumstances that would diminish the value of the related Mortgaged Property or
result in the Trust Fund becoming liable under any environmental law. See "THE
POOLING AND SERVICING AGREEMENT--Realization Upon Mortgage Loans--Standards for
Conduct Generally in Effecting Foreclosure or the Sale of Defaulted Loans"
herein and "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS--Environmental Risks" in
the Prospectus.
Special Hazards Losses. The Master Servicer and/or Special Servicer will
generally be required to cause the borrower on each Mortgage Loan serviced by it
to maintain such insurance coverage in respect of the related Mortgaged Property
as is required under the related Mortgage, including hazard insurance; provided
that each of the Master Servicer and the Special Servicer may satisfy its
obligation to cause hazard insurance to be maintained with
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respect to any Mortgaged Property through its acquisition of a blanket or master
single interest insurance policy. In general, the standard form of fire and
extended coverage policy covers physical damage to or destruction of the
improvements on the related Mortgaged Property by fire, lightning, explosion,
smoke, windstorm and hail, and riot, strike and civil commotion, subject to the
conditions and exclusions specified in each policy. Although the policies
covering the Mortgaged Properties are underwritten by different insurers under
different state laws in accordance with different applicable state forms, and
therefore do not contain identical terms and conditions, most such policies
typically do not cover any physical damage resulting from war, revolution,
governmental actions, floods and other water-related causes, earth movement
(including earthquakes, landslides and mud flows), wet or dry rot, vermin,
domestic animals and other kinds of risks not specified in the preceding
sentence. Any losses incurred with respect to Mortgage Loans due to uninsured
risks or insufficient hazard insurance proceeds could adversely affect
distributions to the Certificateholders.
Balloon Payments. Three hundred ninety-seven Mortgage Loans, or 58.3% (the
"Balloon Loans"), do not fully amortize over their terms to maturity and have a
Balloon Payment due at maturity. Mortgage Loans with Balloon Payments involve a
greater risk to a lender than Fully Amortizing Loans because the ability of a
borrower to make a Balloon Payment typically will depend upon its ability either
to fully refinance the loan or to sell the related Mortgaged Property at a price
sufficient to permit the borrower to make the Balloon Payment. Moreover, whether
or not losses are ultimately sustained, any delay in the collection of a Balloon
Payment that would otherwise be distributable in respect of a Class of Offered
Certificates will likely extend the weighted average life of such Class. The
ability of a borrower to effect a refinancing or sale will be affected by a
number of factors, including the value of the related Mortgaged Property, the
level of available mortgage rates at the time of sale or refinancing, the
borrower's equity in the Mortgaged Property, the financial condition and
operating history of the borrower and the Mortgaged Property, tax laws,
prevailing general economic conditions and the availability of credit for loans
secured by multifamily or commercial, as the case may be, real properties
generally. See "RISK FACTORS--Balloon Payments" in the Prospectus.
In order to maximize recoveries on defaulted Mortgage Loans, the Pooling
and Servicing Agreement permits the Master Servicer, or the Special Servicer, to
extend and modify Mortgage Loans that are in material default or as to which a
payment default (including the failure to make a Balloon Payment) is reasonably
foreseeable; subject, however, to the limitations described under "THE POOLING
AND SERVICING AGREEMENT--Amendments, Modifications and Waivers" herein. There
can be no assurance, however, that any such extension or modification will
increase the present value of recoveries in a given case. Any delay in
collection of a Balloon Payment that would otherwise be distributable in respect
of a Class of Offered Certificates, whether such delay is due to borrower
default or to modification of the related Mortgage Loan, will likely extend the
weighted average life of such Class of Offered Certificates. See "YIELD AND
MATURITY CONSIDERATIONS" herein.
Other Financing. In general, the borrowers: (i) are required to satisfy all
existing indebtedness encumbering the related Mortgaged Property as of the
closing of the related Mortgage Loan and (ii) are prohibited from encumbering
the related Mortgaged Property with additional secured debt without the lender's
prior approval. With respect to 20 Mortgage Loans, or 7.9% (control numbers
MLMI-042, MLMI-068, MLMI-076, MLMI-094, MLMI-109, MLMI-117, MLMI-151, MLMI-160,
GCM-037, GCM-052, GCM-076, GCM-093, GCM-103, GCM-129, GCM-200, MID-38, MID-47,
MID-73, WMFG-106 and WMFG-108), the related Mortgage Loan documents allow the
borrower, under certain specified circumstances, to either maintain an existing
subordinate mortgage encumbering the related Mortgaged Properties, or to grant
such a subordinate mortgage in the future. As of the Cut-Off Date, the Mortgaged
Properties securing seven of such Mortgage Loans or 5.8% (control numbers
MLMI-042, MLMI-068, MLMI-109, MLMI-117, MLMI-151, and WMFG-106 and WMFG-108),
are encumbered by secured subordinated debt. The existence of secured
subordinated debt encumbering any Mortgaged Property may increase the difficulty
of refinancing the related Mortgage Loan at maturity and the possibility that
reduced cash flow could result in deferred maintenance. Also, in the event that
the holder of the subordinated debt has filed for bankruptcy or been placed in
involuntary receivership, foreclosure by any senior lienholder (including the
Trust Fund) on the Mortgaged Property could be delayed. Notwithstanding the
foregoing, with respect to many of the Mortgage Loans, the Mortgage Loan
documents do not prohibit the borrower from incurring additional indebtedness
which is not secured by a lien on the related Mortgaged Properties. A default by
the borrower on such additional indebtedness could impair the borrower's
financial condition and result in the bankruptcy or receivership of the borrower
in which event foreclosure by the Trust Fund on the Mortgaged Property would be
delayed. However, with respect to any such future subordinate debt, a violation
of such prohibition may not become evident until the related
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Mortgage Loan otherwise defaults. In cases in which one or more subordinate
liens are imposed on a Mortgaged Property or the borrower incurs other
indebtedness, the Trust Fund is subject to additional risks, including, without
limitation, the risks that the necessary maintenance of the Mortgaged Property
could be deferred to allow the borrower to pay the required debt service on the
subordinate financing and that the value of the Mortgaged Property may fall as a
result, and that the borrower may have a greater incentive to repay the
subordinate or unsecured indebtedness first and that it may be more difficult
for the borrower to refinance the Mortgage Loan or to sell the Mortgaged
Property for purposes of making any Balloon Payment upon the maturity of the
Mortgage Loan. See "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS--Secondary
Financing; Due-on-Encumbrance Provisions" in the Prospectus and "DESCRIPTION OF
THE MORTGAGE POOL--Certain Characteristics of the Mortgage Pool--Other
Financing" herein.
Risks Related to the Borrower's Form of Entity. The borrowers may be either
individuals or legal entities. Mortgage loans made to legal entities may entail
risks of loss greater than those of mortgage loans made to individuals. For
example, a legal entity, as opposed to an individual, may be more inclined to
seek legal protection from its creditors under the bankruptcy laws. Unlike
individuals involved in bankruptcies, various types of entities generally do not
have personal assets and creditworthiness at stake. The bankruptcy of a
borrower, or a general partner or managing member of a borrower, may impair the
ability of the lender to enforce its rights and remedies under the related
mortgage. The borrowers are generally not bankruptcy-remote entities, and
therefore may be more likely to become insolvent or the subject of a voluntary
or involuntary bankruptcy proceeding because such borrowers may be (a) operating
entities with businesses distinct from the operation of the property with the
associated liabilities and risks of operating an ongoing business and (b)
individuals who have personal liabilities unrelated to the property. However,
any borrower, even a bankruptcy-remote entity, as owner of real estate will be
subject to certain potential liabilities and risks. No assurance can be given
that a borrower will not file for bankruptcy protection or that creditors of a
borrower or a corporate or individual general partner or managing member of a
borrower will not initiate a bankruptcy or similar proceeding against such
borrower or corporate or individual general partner or managing member. See
"CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS--Foreclosure--Bankruptcy Laws" in
the Prospectus.
Limitations of Appraisals and Engineering Reports. In general, appraisals
and market value studies represent only the analysis and opinion of qualified
experts and are not guaranties of present or future value, and may determine a
value of a property that is significantly higher than the amount that can be
obtained from the sale of a Mortgaged Property under a distress or liquidation
sale. Information regarding the values of the Mortgaged Properties as of the
Cut-off Date is presented under "DESCRIPTION OF THE MORTGAGE POOL--Additional
Mortgage Loan Information" herein for illustrative purposes only. Any
engineering reports obtained in connection with this offering represent only the
analysis of the individual engineers or site inspectors preparing such reports,
and may not reveal all necessary or desirable repairs, maintenance or capital
improvement items.
Zoning Compliance. The Mortgaged Properties are typically subject to
applicable building and zoning ordinances and codes ("Zoning Laws") affecting
the construction and use of real property. Since the Zoning Laws applicable to a
Mortgaged Property (including, without limitation, density, use, parking and
set-back requirements) are generally subject to change by the applicable
regulatory authority at any time, certain of the improvements upon the Mortgaged
Properties may not comply fully with all applicable current and future Zoning
Laws. Such changes may limit the ability of the related borrower to
rehabilitate, renovate and update the premises, and to rebuild or utilize the
premises "as is" in the event of a substantial casualty loss with respect
thereto.
Costs of Compliance with Applicable Laws and Regulations. A borrower may be
required to incur costs to comply with various existing and future federal,
state or local laws and regulations applicable to the related Mortgaged
Property, e.g., Zoning Laws and the Americans with Disabilities Act of 1990. See
"CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS--Americans With Disabilities Act"
in the Prospectus. The expenditure of such costs or the imposition of injunctive
relief, penalties or fines in connection with the borrower's noncompliance could
negatively impact the borrower's cash flow and, consequently, its ability to pay
its Mortgage Loan.
Limitations on Enforceability of Due-on-Sale Clauses and Assignments of
Leases and Rents. The Mortgages generally contain due-on-sale clauses, which
permit the acceleration of the maturity of the related Mortgage Loan if the
borrower sells, transfers or conveys the related Mortgaged Property or its
interest in the Mortgaged Property. There may be limitations on the
enforceability of such clauses. The Mortgages also generally include a
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debt-acceleration clause, which permits the acceleration of the related Mortgage
Loan upon a monetary or non-monetary default by the borrower. The courts of all
states will generally enforce clauses providing for acceleration in the event of
a material payment default, but may refuse the foreclosure of a Mortgage when
acceleration of the indebtedness would be inequitable or unjust or the
circumstances would render acceleration unconscionable. See "CERTAIN LEGAL
ASPECTS OF THE MORTGAGE LOANS--Enforceability of Certain Provisions" in the
Prospectus.
The Mortgage Loans may also be secured by an assignment of leases and rents
pursuant to which the borrower typically assigns its right, title and interest
as landlord under the leases on the related Mortgaged Property and the income
derived therefrom to the lender as further security for the related Mortgage
Loan, while retaining a license to collect rents for so long as there is no
default. In the event the borrower defaults, the license terminates and the
lender is entitled to collect the rents. Such assignments are typically not
perfected as security interests prior to the lender's taking possession of the
related Mortgaged Property and/or appointment of a receiver. Some state laws may
require that the lender take possession of the Mortgaged Property and obtain a
judicial appointment of a receiver before becoming entitled to collect the
rents. In addition, if bankruptcy or similar proceedings are commenced by or in
respect of the borrower, the lender's ability to collect the rents may be
adversely affected. See "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS--Leases and
Rents" in the Prospectus.
Limitations on Enforceability of Cross-Collateralization. Certain of the
Mortgage Loans (the "Cross-Collateralized Loans") are cross-collateralized and
cross-defaulted with one or more related Cross-Collateralized Loans. Such
arrangements could be challenged as fraudulent conveyances by creditors of any
of the related borrowers or by the representative of the bankruptcy estate of
any related borrower if one or more of such borrowers were to become a debtor in
a bankruptcy case. Generally, under federal and most state fraudulent conveyance
statutes, a lien granted by any such borrower could be avoided if a court were
to determine that (i) such borrower was insolvent at the time of granting the
lien, was rendered insolvent by the granting of the lien, was left with
inadequate capital or was not able to pay its debts as they matured and (ii) the
borrower did not, when it allowed its Mortgaged Property to be encumbered by the
liens securing the indebtedness represented by the other Cross-Collateralized
Loans, receive "fair consideration" or "reasonably equivalent value" for
pledging such Mortgaged Property for the equal benefit of the other related
borrowers. No assurance can be given that a lien granted by a borrower on a
Cross-Collateralized Loan to secure the Mortgage Loan of another borrower, or
any payment thereon, would not be avoided as a fraudulent conveyance. See
"DESCRIPTION OF THE MORTGAGE POOL--Certain Terms and Conditions of the Mortgage
Loans--Cross-Default and Cross-Collateralization of Certain Mortgage Loans" and
Annex A herein for more information regarding the Cross-Collateralized Loans.
Tenant Matters. Certain of the Mortgaged Properties are leased wholly or in
large part to a single tenant or are wholly or in large part owner-occupied
(each such tenant or owner-occupier, a "Major Tenant"). Any default by a Major
Tenant could adversely affect the related borrower's ability to make payments on
the related Mortgage Loan. There can be no assurance that any Major Tenant will
continue to perform its obligations under its lease (or, in the case of an
owner-occupied Mortgaged Property, under the related Mortgage Loan documents).
See "DESCRIPTION OF THE MORTGAGE POOL--Certain Terms and Conditions of the
Mortgage Loans--Tenant Matters" herein.
Risks of Different Timing of Mortgage Loan Amortization. If and as
principal payments, property releases, or prepayments are made on a Mortgage
Loan, the remaining Mortgage Pool may be subject to more concentrated risk with
respect to the diversity of properties, types of properties and property
characteristics and with respect to the number of borrowers. See each table
entitled "Stated Remaining Terms to Maturity" under "DESCRIPTION OF THE MORTGAGE
POOL--Additional Mortgage Loan Information" for a description of the respective
maturity dates of the Mortgage Loans. Because principal on the Offered
Certificates (other than the Class X Certificates) is payable in sequential
order to the extent described herein under "DESCRIPTION OF
CERTIFICATES--Distributions," Classes that have a lower priority of
distributions are more likely to be exposed to the risk of concentration
discussed under "--Concentration of Mortgage Loans and Borrowers" above than
Classes with a higher sequential priority.
Ground Leases. Mortgage Loans secured by a Mortgage encumbering a leasehold
interest are subject to certain risks not applicable to a Mortgage encumbering a
fee interest. One of such risks is the potential for the total loss of the
security for the related Mortgage Loan upon the termination or expiration of the
ground lease creating the mortgaged leasehold interest. In general, the closer
the expiration date of a ground lease is to the maturity date of the related
Mortgage Loan, the more adversely affected will be the value of the related
Mortgaged Property and the ability
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of the related borrower to sell or refinance such Mortgaged Property. See
"CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS--Foreclosure-Leasehold Risks" in
the Prospectus. Pursuant to Section 365(h) of the Bankruptcy Code, ground
lessees are currently afforded rights not to treat a ground lease as terminated
and to remain in possession of their leased premises upon the bankruptcy of
their ground lessor and the rejection of the ground lease by the representative
of such ground lessor's bankruptcy estate. The leasehold mortgages provide that
the borrower may not elect to treat the ground lease as terminated on account of
any such bankruptcy of, and rejection by, the ground lessor without the prior
approval of the holder of the Mortgage Note. In the event of a bankruptcy of a
ground lessee/borrower, the ground lessee/borrower under the protection of the
Bankruptcy Code has the right to assume (continue) or reject (terminate) any or
all of its ground leases. In the event of concurrent bankruptcy proceedings
involving the ground lessor and the ground lessee/borrower, the Trustee may be
unable to enforce the bankrupt ground lessee/borrower's obligation to refuse to
treat a ground lease rejected by a bankrupt ground lessor as terminated. In such
circumstances, a ground lease could be terminated notwithstanding lender
protection provisions contained therein or in the related Mortgage.
Litigation. From time to time, there may be legal proceedings pending or
threatened against the borrowers and their affiliates relating to the business
of, or arising out of the ordinary course of business of, the borrowers and
their affiliates. There can be no assurance that any such litigation will not
have a material adverse effect on any borrower's ability to meet its obligations
under the related Mortgage Loan and, thus, on the distributions to
Certificateholders.
Condemnations. From time to time, there may be Condemnations pending or
threatened against one or more of the Mortgaged Properties. There can be no
assurance that the proceeds payable in connection with a total Condemnation will
be sufficient to restore the related Mortgaged Property or to satisfy the
remaining indebtedness of the related Mortgage Loan. The occurrence of a partial
Condemnation may have a material adverse effect on the continued use of or
income generation from the affected Mortgaged Property. Therefore, no assurance
can be made that the occurrence of any Condemnation will not have a negative
impact upon the distributions to Certificateholders.
REPURCHASE OR SUBSTITUTION OF MORTGAGE LOANS
As more fully described under "DESCRIPTION OF THE MORTGAGE POOL--General,"
"--Assignment of the Loans; Repurchases and Substitutions" and
"--Representations and Warranties; Repurchases and Substitutions" herein, the
applicable Seller will be obligated to substitute a Qualified Substitute
Mortgage Loan or to repurchase a Mortgage Loan if (i) there is a defect with
respect to the documents relating to such Mortgage Loan or (ii) one or more of
its representations or warranties concerning such Mortgage Loan in the related
Mortgage Loan Purchase Agreement are breached, if such defect or breach
materially and adversely affects the interests of the Certificateholders and
such defect or breach is not cured as required. However, there can be no
assurance that the applicable Seller will be in a financial position to effect
such substitution or repurchase. The ability of Midland to perform its
obligations as Master Servicer and Special Servicer under the Pooling and
Servicing Agreement may be jeopardized if it incurs significant liabilities for
the repurchase or substitution of Mortgage Loans as to which there has been a
breach of a representation or warranty. In addition, since the Pooling and
Servicing Agreement requires the Master Servicer to enforce on behalf of the
Trust the Sellers' obligations to repurchase or substitute Mortgage Loans,
Midland may experience a conflict of interest to the extent that Midland is
obligated to repurchase or substitute a Mortgage Loan as a Seller.
PREPAYMENT AND YIELD CONSIDERATIONS
The yield on any Offered Certificate that is purchased at a discount or
premium will be affected by (i) the rate and timing of principal payments and
collections on the Mortgage Loans, particularly unscheduled payments or
collections in the form of voluntary prepayments of principal or unscheduled
recoveries of principal due to defaults, casualties or condemnations whether
before or after the scheduled maturity date of the related Mortgage Loans, and
(ii) the order of priority of distributions of principal in respect of the
Certificates. The rate and timing of unscheduled payments and collections of
principal on the Mortgage Loans is impossible to accurately predict and will be
affected by a variety of factors, including, without limitation, the level of
prevailing interest rates, restrictions on voluntary prepayments contained in
the promissory notes (the "Mortgage Notes"), the availability of mortgage credit
and other economic, demographic, geographic, tax and legal factors. In general,
however, if prevailing interest rates fall significantly below the Mortgage
Rates on the Mortgage Loans, borrowers under the Mortgage Loans will have an
increased incentive to prepay. As described herein, the Principal Distribution
Amount for each Distribution Date will be distributable entirely in reduction of
the Certificate Balance of the Class A-1 Certificates until the Certificate
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Balance thereof is reduced to zero, and will thereafter be distributable in its
entirety in respect of each remaining Class of Certificates (except for the
Class X Certificates), sequentially in alphabetical and numerical order of Class
designation, until the Certificate Balance of each such Class is, in turn,
reduced to zero. See "DESCRIPTION OF THE
CERTIFICATES--Distributions--Application of the Available Distribution Amount"
herein. Accordingly, the actual rate of principal payments on the Mortgage Loans
may have different effects on the yields of the respective Classes of Offered
Certificates. Any payment of principal in reduction of the Certificate Balance
of any Class of Sequential Pay Certificates will result in a corresponding
reduction in the Notional Amount of the related Component. Thus, the yield on
the Class X Certificates will be extremely sensitive to the rate and timing of
principal payments on the Mortgage Loans, and the faster the rate at which the
Notional Amounts of the Components are reduced, the greater will be the negative
effect on the yield of the Class X Certificates, to the extent such effect is
not offset by distributions of a portion of any applicable Prepayment Premiums
to the holders thereof, as described under "DESCRIPTION OF THE
CERTIFICATES--Distributions--Allocation of Prepayment Premiums" herein. In
addition, the Mortgage Loans may not require the payment of Prepayment Premiums
in the event of involuntary prepayments resulting from casualty or condemnation.
Accordingly, prospective investors in the Class X Certificates should consider
the associated risks, including the risk that a rapid rate of prepayments on the
Mortgage Loans could result in the failure of such investors to recoup their
initial investments.
The yield on any Offered Certificate also will be affected by the rate and
timing of losses attributable to defaults on the Mortgage Loans, the severity of
such losses and the extent to which such losses and related expenses are applied
in reduction of the actual or notional principal amount of such Certificate or
otherwise reduce the amount of funds available for distribution to the holder of
such Certificate. To the extent described herein, the Private Certificates are
subordinate in right and time of payment to the Offered Certificates and will
bear shortfalls in collections and losses incurred in respect of the Mortgage
Loans prior to the Offered Certificates; and the Class B, Class C, Class D and
Class E Certificates are subordinate in right and time of payment to the Class
A-1, Class A-2, Class A-3 and Class X Certificates and will bear such shortfalls
in collections and losses prior to the Class A-1, Class A-2, Class A-3 and Class
X Certificates, in reverse alphabetical order of Class designation. Even though
the Class A-3 Certificates will receive principal payments only after the
Certificate Balance of the Class A-1 and Class A-2 Certificates have been
reduced to zero and the Class A-2 Certificates will receive principal payments
only after the Certificate Balance of the Class A-1 Certificates has been
reduced to zero, the Class A-1, Class A-2 and Class A-3 Certificates will bear
shortfalls in collections and losses incurred in respect of the Mortgage Loans
pro rata in proportion to their outstanding Certificate Balances. On each
Distribution Date, following all distributions on the Certificates to be made on
such date, the aggregate of all Realized Losses and Additional Trust Fund
Expenses that have been incurred since the Cut-Off Date through the end of the
related Collection Period and that have not previously been allocated to the
Certificates will be allocated, subject to the limitations described herein,
first to the Private Certificates in the order described in the Pooling and
Servicing Agreement, and then to the Class E, Class D, Class C and Class B
Certificates, in that order, until the Certificate Balance of each such Class
has been reduced to zero. Thereafter any additional Realized Losses and
Additional Trust Fund Expenses will be allocated to the Class A-1, Class A-2 and
Class A-3 Certificates, pro rata in proportion to their outstanding Certificate
Balances (in each case in reduction of their respective Certificate Balances as
of the related Distribution Date), but in the aggregate only to the extent that
the aggregate Certificate Balance of such Classes of Certificates remaining
outstanding after giving effect to the distributions on such Distribution Date
exceeds the aggregate Stated Principal Balance of the Mortgage Pool that will be
outstanding immediately following such Distribution Date. See "DESCRIPTION OF
THE CERTIFICATES--Subordination, Realized Losses and Allocation of Certain
Expenses" herein. Any Realized Loss or Additional Trust Fund Expenses allocated
in reduction of the Certificate Balance of any Class of Sequential Pay
Certificates will result in a corresponding reduction in the Notional Amount of
the related Component. See "DESCRIPTION OF THE CERTIFICATES--Distributions" and
"--Subordination, Realized Losses and Allocation of Certain Expenses" herein and
"YIELD AND MATURITY CONSIDERATIONS" herein and in the Prospectus.
The Pass-Through Rate applicable to the Class B, Class C, Class D and Class
E Certificates for each Distribution Date will equal the Weighted Average Net
Mortgage Rate minus 0.97%, 0.78%, 0.34% and 0%, respectively (but not less than
zero), the Strip Rate applicable to the Class A-1, Class A-2 and Class A-3
Components for each Distribution Date will equal the Weighted Average Net
Mortgage Rate minus 5.80%, 6.03% and 6.04%, respectively (but not less than
zero), and the Strip Rate applicable to the Class F, Class G, Class H, Class J,
Class K, Class L and Class M Component for each Distribution Date will each
equal the Weighted Average Net Mortgage Rate minus 5.44% (but
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not less than zero). Accordingly, the Pass-Through Rate on such Classes of
Certificates and the Strip Rate on such Components and, correspondingly, the
yield on the Class X Certificates, will be sensitive to changes in the relative
composition of the Mortgage Pool as a result of scheduled amortization,
voluntary and involuntary prepayments and liquidations. See "DESCRIPTION OF THE
CERTIFICATES--Distributions" and "--Subordination, Realized Losses and
Allocation of Certain Expenses" herein and "YIELD AND MATURITY CONSIDERATIONS"
herein.
EFFECT OF PREPAYMENT PREMIUMS
The rate and timing of principal payments made on a Mortgage Loan will be
affected, in part, by restrictions on voluntary prepayments contained in the
related Mortgage Note (e.g., Lockout Periods and Prepayment Premiums). All of
the Mortgage Loans generally provide that a permitted prepayment must be
accompanied by a Prepayment Premium or a restriction on prepayment; provided,
however, that the Prepayment Premium requirement generally expires prior to the
maturity date of a Mortgage Loan. The existence of Prepayment Premiums generally
will result in the Mortgage Loans prepaying at a lower rate. However, the
requirement that a prepayment be accompanied by a Prepayment Premium may not
provide a sufficient economic disincentive to a borrower seeking to refinance at
a more favorable interest rate. In addition, potential purchasers of the Offered
Certificates should especially consider that provisions requiring Prepayment
Premiums may not be enforceable in some states and under federal bankruptcy law
and may constitute interest for usury purposes. Accordingly, no assurance can be
given that the obligation to pay a Prepayment Premium will be enforceable under
applicable state or federal law or, if enforceable, that the foreclosure
proceeds received with respect to a defaulted Mortgage Loan will be sufficient
to make such payment. See "DESCRIPTION OF THE MORTGAGE POOL--Certain Terms and
Conditions of the Mortgage Loans--Prepayment Provisions" herein. In addition,
pursuant to the Pooling and Servicing Agreement, the Special Servicer will be
able to waive any Prepayment Premium with respect to Specially Serviced Mortgage
Loans. See "THE POOLING AND SERVICING AGREEMENT--Amendments, Modifications and
Waivers."
LIMITED LIQUIDITY
There is currently no secondary market for the Offered Certificates. The
Underwriters have advised the Depositor that they currently intend to make a
secondary market in the Offered Certificates, but they are under no obligation
to do so. Accordingly, there can be no assurance that a secondary market for the
Offered Certificates will develop. Moreover, if a secondary market does develop,
there can be no assurance that it will provide holders of Offered Certificates
with liquidity of investment or that it will continue for the life of the
Offered Certificates. The Offered Certificates will not be listed on any
securities exchange.
POTENTIAL CONFLICT OF INTEREST IN CONNECTION WITH SPECIALLY SERVICED
MORTGAGE LOANS
The Special Servicer is given considerable latitude in determining whether
and in what manner to liquidateor modify defaulted Mortgage Loans. As described
under "THE POOLING AND SERVICING AGREEMENT--Special Servicing" herein, the
Controlling Class of Sequential Pay Certificates will be empowered to replace
the Special Servicer and to select the Controlling Class Representative. See
"THE POOLING AND SERVICING AGREEMENT--General" herein. At any given time, the
Controlling Class Representative will be controlled generally by the holders of
the most subordinated (or, under certain circumstances as described herein, the
next most subordinated) Class of Certificates (that is, the Controlling Class as
described herein) outstanding from time to time, and such holders may have
interests in conflict with those of the holders of the Offered Certificates. For
instance, the holders of Certificates of the Controlling Class might desire to
mitigate the potential for loss to that Class from a troubled Mortgage Loan by
deferring enforcement in the hope of maximizing future proceeds. However, the
interests of the Trust Fund may be better served by prompt action, since delay
followed by a market downturn could result in less proceeds to the Trust Fund
than would have been realized if earlier action had been taken. The Pooling and
Servicing Agreement will provide that the Controlling Class Representative and
the Controlling Class may act in their own interest without incurring any
liability to the holders of any other Class of Certificates. It is anticipated
that an affiliate of the Special Servicer may acquire certain of the most
subordinated Regular Certificates (including those of the initial Controlling
Class). Under such circumstances, the Special Servicer may have interests that
conflict with the interests of the other holders of the Certificates.
RISK OF YEAR 2000
The transition from the year 1999 to the year 2000 may disrupt the ability
of computerized systems to process information. The Master Servicer and the
Trustee are currently modifying their computer systems and applications such
that they will be year 2000 compliant by August 31, 1999. If the Master Servicer
or the Trustee is unable to complete such modifications by the year 2000, the
ability of the Master Servicer or Trustee to service the Mortgage Loans and make
distributions to the Certificateholders, respectively, may be materially and
adversely affected.
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DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The Mortgage Pool is expected to consist of 512 conventional, fixed rate
Mortgage Loans, with an aggregate Cut-Off Date Balance of $2,891,276,720 (the
"Initial Pool Balance") which are secured by first liens on 546 commercial and
multifamily properties except as set forth below. See "--Other Financing"
herein. The Cut-Off Date Balances of the Mortgage Loans will range from $168,507
to $273,132,900 and the Mortgage Loans will have an average Cut-Off Date Balance
of $5,647,025. All loan balances and percentages are subject to a variance of
plus or minus 5%. The "Cut-Off Date Balance" of any Mortgage Loan will equal the
unpaid principal balance thereof as of the Cut-Off Date, after reduction for all
payments of principal due on or before such date, whether or not received. All
percentages referred to herein without further description are approximate
percentages by Initial Pool Balance. References to percentages of Mortgaged
Properties are references to the percentages of the Initial Pool Balance
represented by the portion of the Cut-Off Date Balance of the related Mortgage
Loans represented by such Mortgaged Properties based on their related appraised
value or in the case of the MHC Loan, or 9.2% by market value studies. See
"ANNEX D--Manufactured Home Communities--Market Studies."
All of the Mortgage Loans are generally non-recourse obligations of the
respective borrowers. No Mortgage Loan will be insured or guaranteed by any
governmental entity or private insurer (other than certain Credit Lease Loans).
Each Mortgage Loan is secured by a lien on the borrower's fee simple or
leasehold interest in one or more income-producing real properties (each, a
"Mortgaged Property"). Five hundred six (506) Mortgage Loans, or 93.5% are
secured by first mortgage lien on the related borrower's fee simple estate in
the related Mortgaged Property. Five of the Mortgage Loans, or 6.3%, (control
numbers MLMI-038, MLMI-003, GCM-200, WMF-042 and WMF-034) are secured by a first
mortgage lien on the borrower's leasehold estate in the related Mortgaged
Property. One Mortgage Loan, or 0.2%, (control number MID-154) is secured by (a)
a first mortgage lien on the related borrower's fee interest and leasehold
estate in the related Mortgaged Property, and (b) a second mortgage lien on the
fee interest in a portion of the Mortgaged Property owned by a Governmental
Agency.
Two hundred twenty-eight (228) Mortgage Loans, or 69.0%, will be acquired
by the Depositor from MLMCI, which originated such Mortgage Loans through an
affiliate or acquired such Mortgage Loans from one of the participants in its
commercial and multifamily mortgage loan conduit program concurrently with or
shortly after origination, or in the case of one hundred twenty-three (123) of
such Mortgage Loans, or 29.0%, acquired such Mortgage Loans in a secondary
market purchase, including 81 Mortgage Loans, or 23.8%, which were acquired from
WMF Capital Corp. ("WMF"). One hundred sixty-five (165) Mortgage Loans, or
17.4%, were acquired by the Depositor from GCFP, which originated such Mortgage
Loans or acquired such Mortgage Loans from one of the participants in its
commercial and multifamily mortgage loan conduit program concurrently with or
shortly after origination, or in the case of 68 of such Mortgage Loans, or 7.9%,
acquired such Mortgage Loans from Midland in a secondary market purchase. One
hundred nineteen (119) Mortgage Loans, 13.7%, were acquired by the Depositor
from Midland, which either originated such Mortgage Loans or acquired such
Mortgage Loans from an affiliate.
Set forth below is the approximate percentage of the Initial Pool Balance
represented by the Mortgage Loans originated in the indicated year:
% OF
INITIAL POOL
YEAR BALANCE
---- ------------
1997 .............................. 31%
1998 .............................. 69%
None of the Mortgage Loans were 30 days or more delinquent as of the
Cut-Off Date.
No Mortgage Loan or group of Mortgage Loans to one borrower or group of
related borrowers exceeds 9.45% of the Initial Pool Balance. Except with respect
to the three largest Mortgage Loans, a description of which is set forth in
Annex D hereto, no Mortgage Loan or group of Mortgage Loans to one borrower or
group of related borrowers exceeds 3.96% of the Initial Pool Balance. Mortgage
Loans to one borrower or a group of related borrowers are identified on Annex A
hereto. See "--Additional Mortgage Loan Information" and "RISK FACTORS--Related
Borrowers" herein.
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UNDERWRITING STANDARDS
Based upon information provided by each Seller, which has not been
independently verified by any of the Depositor, the Master Servicer, the Special
Servicer, the Underwriters or the Trustee, the following is a discussion of the
customary underwriting policies and procedures utilized in connection with the
origination of the Mortgage Loans. Such policies and procedures involved an
evaluation of both the prospective borrower and the proposed real estate
collateral. Factors typically analyzed in connection with a Mortgaged Property
include its historical cash flow; age and condition; appraised value; gross
square footage; net rentable area; gross land area; number of units, rooms or
beds; current tenants' size, identity and any lease termination or purchase
option rights; property interest to be mortgaged (fee or leasehold); term,
expiration and rental rates under current leases; leasing commissions, tenant
improvements and concessions; applicable market rentals for similar properties;
historical vacancy rate, market vacancy rate and credit loss rate; debt service
coverage ratio; and loan to value ratio. A site inspection of the related
Mortgaged Property was also typically performed, and third party appraisals,
engineering reports and Phase I environmental site assessments were generally
obtained. Factors typically analyzed in connection with a prospective borrower
include its credit history, capitalization and overall financial resources and
management skill and experience in the applicable property type.
CERTAIN TERMS AND CONDITIONS OF THE MORTGAGE LOANS
Mortgage Rates; Calculations of Interest. All of the Mortgage Loans bear
interest at Mortgage Rates that will remain fixed for their remaining terms,
except with respect to the ARD Loans which may provide for an increase in the
interest rate accruing on such Mortgage Loans after their respective Anticipated
Repayment Dates. One hundred six (106) Mortgage Loans, or 20.2%, accrue interest
on the basis (a "30/360 basis") of a 360-day year consisting of twelve 30-day
months and 406 Mortgage Loans, or 79.8%, accrue interest on the basis (an
"actual/360 basis") of the actual number of days elapsed over a 360-day year.
Due Dates. Except with respect to one Mortgage Loan (which Mortgage Loan
will be deemed due on the first day of each month), or 0.7%, all of the Mortgage
Loans have Due Dates (that is, the dates upon which the related Periodic
Payments become due) that occur on the first day of each month that a payment is
due. Periodic Payments are due monthly with respect to all of the Mortgage
Loans.
Amortization. Three hundred ninety-seven (397) Mortgage Loans, or 58.3%,
provide for Periodic Payments based on amortization schedules significantly
longer than their respective remaining terms to maturity. As a result, such
Mortgage Loans (the "Balloon Loans") will have substantial principal amounts due
and payable (each such amount, together with the corresponding payment of
interest, a "Balloon Payment") on their respective scheduled maturity dates,
unless prepaid prior thereto. See "RISK FACTORS--Investment in Commercial and
Multifamily Mortgage Loans--Balloon Payments" herein and "RISK FACTORS--Balloon
Payments" in the Prospectus. Forty-eight (48) Mortgage Loans, or 36.4%, (the
"ARD Loans") fully amortize through their respective remaining terms to
maturity, but provide that after a date set forth in the respective Mortgage
Loan documents (each such date, an "Anticipated Repayment Date"), interest
generally will accrue on each ARD Loan at an interest rate above the Mortgage
Rate (the "Adjusted Mortgage Rate") and, in addition to its obligation to make
its scheduled Periodic Payments, the related borrower will be obligated to apply
all monthly cash flow generated by the related Mortgaged Property in excess of
regular debt service payments (without giving effect to the Adjusted Mortgage
Rate), reserves and certain other property expenses (the "Remaining Cash Flow")
to the repayment of principal of such Mortgage Loan. The excess interest which
accrues on each ARD Loan and is attributable to the difference between the
Adjusted Mortgage Rate and the related original Mortgage Rate (the "Additional
Interest") will be deferred until the principal balance of such ARD Loan has
been reduced to zero and bears interest at the Adjusted Mortgage Rate to the
extent permitted by law. With respect to the ARD Loans, no Prepayment Premiums
will be due in connection with any principal prepayment on or after the
Anticipated Repayment Date. Sixty-seven (67) Mortgage Loans, or 5.4%, (the
"Fully Amortizing Loans"), excluding the ARD Loans, fully or substantially
amortize through their respective remaining terms to maturity. To the extent the
Periodic Payment for a Fully Amortizing Loan or ARD Loan is calculated on an
assumed 30/360 basis but interest accrues on such Mortgage Loan on an actual/360
basis, there may be a remaining balance upon maturity.
Prepayment Provisions. As of the Cut-Off Date, all of the Mortgage Loans
restrict or prohibit voluntary principal prepayments. In general, the Mortgage
Loans (other than the Mortgage Loans described in the next succeeding
paragraph): (i) prohibit voluntary prepayments of principal for a period (a
"Lockout Period") ending on a date specified in the related Mortgage Note (as
defined herein) and, in general, thereafter impose a Yield Maintenance
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Charge or Percentage Premium (each as defined herein) for most of their
respective remaining terms to maturity (303 Mortgage Loans, or 35%,); (ii)
prohibit voluntary prepayments of principal for most of their remaining term to
maturity (121 Mortgage Loans, or 57%); (iii) permit voluntary prepayments
provided that the prepayment is accompanied by a Yield Maintenance Charge and
then a Percentage Premium in excess of the amount prepaid for most of their
respective terms to maturity (53 Mortgage Loans, or 4%); (iv) permit voluntary
principal prepayments provided that the prepayment is accompanied by a Yield
Maintenance Charge for most of their respective remaining terms to maturity (23
Mortgage Loans, or 2%); or (v) prohibit prepayment for a period, then require
that a prepayment is accompanied by a Yield Maintenance Charge for a period, and
then a Percentage Premium in excess of the amount prepaid for most of their
respective remaining terms to maturity (12 Mortgage Loans, or 1%). See
"--Additional Mortgage Loan Information" herein. With respect to the ARD Loans,
voluntary principal prepayments after the Anticipated Repayment Date are
permitted without material restrictions. The ability of the Master Servicer or a
Special Servicer to waive or modify the terms of any Mortgage Loan relating to
the payment of a Prepayment Premium is limited as described herein. See
"SERVICING OF THE MORTGAGE LOANS--Modifications, Waivers and Amendments" herein.
The Depositor makes no representation as to the enforceability of the provisions
of any Mortgage Note requiring the payment of a Prepayment Premium, or as to the
collectability of any Prepayment Premium.
Defeasance. One hundred twenty-four (124) Mortgage Loans, or 57.8%, after a
period during which defeasance is prohibited (which period includes the two
years after the Closing Date), provide that, in general, under certain
conditions, the related borrower may substitute a pledge of "Defeasance
Collateral" in exchange for a release of the Mortgaged Property from the lien of
the related Mortgage. "Defeasance Collateral" is non-callable United States
Treasury obligations (or obligations guaranteed by the full faith and credit of
the United States) that provide for payments that reflect, as closely as
possible, the remaining scheduled payments in respect of the related Mortgage
Loan. Such obligations must provide for payments on or prior, but as close as
possible, to each successive Due Date through and including the maturity date
(or, in the case of the ARD Loans, the Anticipated Repayment Date) with respect
to the defeased Mortgage Loan, with each such payment being equal to or greater
than (with any excess to be returned to the borrower) the Periodic Payments and
the Balloon Payment with respect to such defeased Mortgage Loan (or, in the case
of an ARD Loan, the payment anticipated on the related Anticipated Repayment
Date). A borrower's ability to obtain such a release is in each case subject to
certain conditions specified in the related loan documents.
Nonrecourse Obligations. The Mortgage Loans are generally non-recourse
obligations of the respective borrowers and, upon any such borrower's default in
the payment of any amount due under the related Mortgage Loan, the holder
thereof may look only to the related Mortgaged Property for satisfaction of the
borrower's obligations. In addition, in those cases where recourse to a borrower
or guarantor is purportedly permitted, the Depositor has not undertaken an
evaluation of the financial condition of any such person, and prospective
investors should thus consider all of the Mortgage Loans to be nonrecourse. No
Mortgage Loan will be insured or guaranteed by any governmental entity or
private insurer (other than certain Credit Lease Loans).
"Due-on-Sale" and "Due-on-Encumbrance" Provisions. Generally, the Mortgages
contain "due-on-sale" and "due-on-encumbrance" clauses that, in most
circumstances, (i) permit the holder of the Mortgage to accelerate the maturity
of the related Mortgage Loan if the borrower sells or otherwise transfers or
encumbers the related Mortgaged Property or (ii) prohibit the borrower from
doing so without the consent of the holder of the Mortgage, which consent, in
certain cases, may not be unreasonably withheld if certain conditions are met.
As provided in the Pooling and Servicing Agreement, the Special Servicer, on
behalf of the Trust Fund, will determine, in a manner consistent with the
servicing standard described herein under "SERVICING OF THE MORTGAGE
LOANS--General," the other requirements set forth in the Pooling and Servicing
Agreement, and subject to the rights of the Controlling Class Representative
described herein under "THE POOLING AND SERVICING AGREEMENT--The Controlling
Class Representative," whether to exercise any right the holder of any Mortgage
may have under any such clause to accelerate payment of the related Mortgage
Loan upon, or to withhold its consent to, any transfer or further encumbrance of
the related Mortgaged Property. The Depositor makes no representation as to the
enforceability of any due-on-sale or due-on-encumbrance provision in connection
with any Mortgage Loan that is the subject of a proceeding under the Bankruptcy
Code.
Cross-Default and Cross-Collateralization of Certain Mortgage Loans.
Twenty-four (24) of the Mortgage Loans, or 5.2%, are cross-collateralized and
cross-defaulted with other Mortgage Loans. Three Mortgage Loans, or 0.1%, are
cross-defaulted but not cross-collateralized with other Mortgage Loans. No
Mortgage Loans are
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cross-collateralized or cross-defaulted with any loans which are not included in
the Mortgage Pool. The Special Servicer will determine whether to enforce the
cross-default and cross-collateralization rights upon a mortgage loan default
with respect to any of these Mortgage Loans. The Certificateholders will not
have any right to participate in or control any such determination. No other
Mortgage Loans are subject to cross-collateralization or cross-default
provisions.
Other Financing. The related Mortgage Loan documents generally prohibit
subordinate financing without the mortgagee's prior consent. With respect to 20
Mortgage Loans, or 7.9% (control numbers, MLMI-042, MLMI-068, MLMI-076,
MLMI-094, MLMI-109, MLMI-117, MLMI-151, MLMI-160, GCM-037, GCM-052, GCM-076,
GCM-093, GCM-103, GCM-129, GCM-200, MID-38, MID-47, MID-73, WMFG-106 and
WMFG-108), the related Mortgage Loan documents allow the borrower, under certain
specified circumstances, to either maintain an existing subordinate mortgage
encumbering the related Mortgaged Properties, or to grant such a subordinate
mortgage in the future. As of the Cut-Off Date, the Mortgaged Properties
securing seven of such Mortgage Loans, or 5.8% (control numbers MLMI-042,
MLMI-068, MLMI-109, MLMI-117, MLMI-151, WMFG-106 and WMFG-108), are encumbered
by secured subordinated debt. Generally, prior to any such subordinate mortgage
being allowed, certain conditions specified in the related Mortgage Loan
documents must be satisfied. Such conditions may include one or more of the
following: (a) the purpose, amount, term and amortization period of the proposed
subordinate debt, together with the identity of the subordinate lender and the
terms of the subordinate loan documents, must be acceptable to the senior
mortgagee; (b) pursuant to either the specific terms of the subordinate mortgage
or a separate recorded agreement obtained from such subordinate lender, the
subordinate mortgage must be unconditionally subordinated to the related
Mortgage Loan documents, and the subordinate lender is also typically prohibited
from exercising any remedies against the borrower without the senior mortgagee's
consent and from receiving any payments on such subordinate debt if, for the
immediately prior 12 months, either (i) the aggregate debt service coverage
ratio for such Mortgage Loan and such subordinate debt is less than a specified
ratio, or (ii) the aggregate loan to value ratio for such Mortgage Loan and such
subordinate debt is greater than a specified ratio; (c) the subordinate debt
must be non-recourse; and (d) acceptable economic conditions regarding the
related Mortgaged Property must exist as of the effective date of such
subordinate financing, typically including (i) an aggregate debt service
coverage ratio for such Mortgage Loan and such subordinate debt equal to or
exceeding a specified ratio, and/or (ii) an aggregate loan to value ratio for
such Mortgage Loan and such subordinate debt of less than a specified ratio.
The Trust Fund will also include one mortgage loan (the "Meidinger Tower
Loan") as to which a separate class of grantor trust certificates will be issued
which will represent a subordinated interest (the "Subordinate Meidinger Tower
Interest") in the Meidinger Tower Loan, while the senior interest (the "Senior
Meidinger Tower Interest") in the Meidinger Tower Loan will be represented by
the Certificates. Notwithstanding that the entire amount of the Meidinger Tower
Loan is included in the Trust Fund, for purposes of the presentation set forth
in this Prospectus Supplement the Senior Meidinger Tower Interest will be
treated as a separate Mortgage Loan, with a Cut-Off Date Balance of $21,000,000,
a fixed Mortgage Rate of 7.60% per annum, a Periodic Payment of $133,000 and a
maturity date of April 15, 2005. The Subordinate Meidinger Tower Interest has a
Cut-Off Date Balance of $6,997,500. As of the Cut-Off Date the combined
loan-to-value ratio was 95.88% and the combined debt service coverage ratio was
1.01x. As further described in the Pooling and Servicing Agreement, in the
absence of default thereunder, collections on the Meidinger Tower Loan will be
allocated between distributions on the Senior Meidinger Tower Interest, on the
one hand, and distributions on the Subordinate Meidinger Tower Interest, on the
other hand, on a pro rata basis in accordance with their respective principal
balances; however, in the event of default under such Mortgage Loan, such
collections will be applied to make distributions in respect of the Senior
Meidinger Tower Interest prior to being applied to make distributions in respect
of the Subordinate Meidinger Tower Interest. The Master Servicer will be
responsible for the servicing of the Meidinger Tower Loan, but it is expected
that such servicing will be conducted through a sub-servicer related to the
initial holder of the Subordinate Meidinger Tower Interest.
Tenant Matters. Generally, Major Tenants do not have investment-grade
credit ratings. The Major Tenants generally occupy their premises pursuant to
leases which require them to pay or reimburse the landlord for all applicable
real property taxes, maintain insurance over such premises thereon and maintain
the physical condition of such premises. In 94 of the Mortgage Loans, or 12.1%,
the related Major Tenant occupies approximately 50% or more of the related
Mortgaged Property.
Hazard, Liability and Other Insurance. Generally, each Mortgage Loan
requires that the related Mortgaged Property be insured (in an amount not less
than the lesser of (a) the full replacement cost of the Mortgaged Property or
(b) the outstanding principal balance of the related Mortgage Note, but in any
event in an amount sufficient to avoid
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the operation of any co-insurance provisions) against loss or damage by fire or
other risks and hazards covered by a standard extended coverage insurance
policy, and such other insurance as may from time to time reasonably be required
by the mortgagee. With respect to many of the Mortgage Loans, the related
borrower has satisfied the applicable insurance requirements by obtaining
blanket insurance policies, subject to the review and approval of the same by
the mortgagee, including the amount of insurance and the number of properties
covered by such policies.
Casualty and Condemnation. The related Mortgage Loan documents typically
provide that in the event of damage to the related Mortgaged Property by reason
of fire or other casualty or in the event of any taking or exercise of the power
of eminent domain with respect to the related Mortgaged Property, all applicable
insurance proceeds or condemnation awards will be applied to either the
outstanding indebtedness of the related Mortgage Loan, or to the repair or
restoration of the related Mortgaged Property, except in the instance of any
claims paid pursuant to any special risk casualty/condemnation insurance
policies under which the lender is the named insured (as opposed to merely loss
payee), in which case such proceeds may be applied at the discretion of the
holder of the related Mortgage Note.
ASSESSMENT OF PROPERTY CONDITION
Property Inspection. All of the Mortgaged Properties were inspected in
connection with the origination or acquisition of the related Mortgage Loans by
or on behalf of the originator or the related Seller to assess their general
condition. No inspection revealed any patent structural deficiency or any
deferred maintenance considered material and adverse to the interests of the
holders of the Offered Certificates and for which adequate reserves have not
been established.
Appraisals. All of the Mortgaged Properties were appraised by a state
certified appraiser or an appraiser belonging to the Appraisal Institute, except
with respect to one Mortgage Loan, or 9.2%, with respect to which market value
studies were performed. The primary purpose of each appraisal was to provide an
opinion of the fair market value of the related Mortgaged Property. There can be
no assurance that another appraiser would have arrived at the same opinion of
value.
Environmental Assessments. A "Phase I" environmental site assessment was
performed with respect to all the Mortgaged Properties in connection with the
origination of the related Mortgage Loans. In certain cases, additional
environmental testing, as recommended by such "Phase I" assessment, was
performed. In each case where environmental assessments recommended further
action, the originator of the related Mortgage Loan determined that the
necessary remediation or testing was being undertaken in a satisfactory manner
or that such remediation or testing would be adequately addressed post-closing.
In some instances, the originator of the related Mortgage Loan required that the
related borrower obtain an environmental insurance policy or third party
indemnity satisfactory to such originator or deposit reserves with such
originator or its designee to cover the estimated cost of such remediation.
Generally, such reserves were in an amount equal to approximately 125% of the
licensed inspector's estimated cost of the recommended action.
Engineering Assessments. Generally, a licensed engineer or architect
inspected the related Mortgaged Property with respect to all of the Mortgage
Loans to assess the structure, exterior walls, roofing, interior structure and
mechanical and electrical systems. Certain of the resulting reports indicated
certain deferred maintenance items and/or recommended capital improvements with
respect to certain of such Mortgaged Properties. The related borrowers generally
deposited with the lender or its designee at the origination of the related
Mortgage Loans an amount equal to approximately 110%-125% of the licensed
engineer's or architect's estimated cost of any material recommended repairs,
corrections or replacements not completed by closing, to assure their
completion.
Earthquake Analyses. An architectural or engineering consultant performed
an analysis on all but twenty of the Mortgaged Properties, representing 2.4% of
the Initial Pool Balance, located in the State of California in order to
evaluate the structural and seismic condition of the Mortgaged Property and to
assess, based primarily on statistical information, the probable maximum loss or
bounded maximum loss for the Mortgaged Property in an earthquake scenario. If
the resulting reports concluded that in the event of an earthquake and with
respect to a Mortgaged Property, the probable maximum loss would exceed 25% and
either (i) the bounded maximum loss over a 50-year period would exceed 20% of
the amount of the estimated replacement cost of the improvements or (ii) no
bounded maximum loss analysis was performed, earthquake insurance on such
Mortgaged Properties was obtained.
Zoning Compliance. Due to changes in applicable building and zoning
ordinances and codes ("Zoning Laws") affecting certain of the Mortgaged
Properties which have come into effect after the construction of improvements on
such Mortgaged Properties and for other reasons, certain improvements thereon
may not comply fully with current Zoning Laws, including density, use, parking
and set back requirements, but qualify as permitted
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non-conforming uses. Such changes may limit the ability of the related borrower
to rebuild the premises "as is" in the event of a substantial casualty loss with
respect thereto and may adversely affect the ability of the borrower to meet its
Mortgage Loan obligations from cash flow. While it is expected that insurance
proceeds would be available for application to the related Mortgage Loan if a
substantial casualty were to occur, no assurance can be given that such proceeds
would be sufficient to pay off such Mortgage Loan in full or that, if the
Mortgaged Property were to be repaired or restored in conformity with current
law, whether the value of the related Mortgaged Property or its revenue
producing potential would be diminished.
LARGEST MORTGAGE LOANS
Certain information with respect to the three largest Mortgage Loans, or
24.1%, is set forth in Annex D hereto.
CREDIT LEASE LOANS
Each Credit Lease has a primary lease term (the "Primary Term") that
expires on or after the scheduled final maturity date of the related Credit
Lease Loan. The amount of the Monthly Rental Payments payable by each Credit
Lease Tenant is equal to or greater than the scheduled payment of all principal,
interest and other amounts due each month on the related Credit Lease Loan, with
any Balloon Payments to be paid from the proceeds of any residual value
insurance policies or offers to purchase the Mortgaged Property by the Credit
Lease Tenant, as may be required in the related Credit Lease. Except with
respect to one Credit Lease Loan, or 0.1%, each of the Credit Lease Tenants (or
the related Guarantor) possesses an investment grade credit rating. In the case
of Credit Lease Loans with debt service reserve accounts, withdrawals of funds
on deposit in the debt service reserve account will be used to supplement
Monthly Rental Payments in an amount necessary to fully amortize such Mortgage
Loans.
Each Credit Lease generally provides that the related Credit Lease Tenant
must pay all real property taxes and assessments levied or assessed against the
related Mortgaged Property, and except in the case of certain of the Double Net
Leases, all charges for utility services, insurance and other operating expenses
incurred in connection with the operation of the related Mortgaged Property.
Pursuant to the terms of each assignment of a Credit Lease (each, a "Credit
Lease Assignment"), the related borrower has assigned to the mortgagee of the
related Credit Lease Loan, as security for such borrower's obligations
thereunder, such borrower's rights under the related Credit Lease and its rights
to all income and profits to be derived from the operation and leasing of the
related Mortgaged Property including, but not limited to, an assignment of any
guarantee of the Credit Lease Tenant's obligations under the Credit Lease and an
assignment of the right to receive all Monthly Rental Payments due under the
Credit Lease. Pursuant to the terms of the Credit Lease Assignments, each Credit
Lease Tenant is obligated under its Credit Lease to make all Monthly Rental
Payments directly to the owner of the related Credit Lease Loan.
Each Credit Lease Loan that provides the Credit Lease Tenant with
termination and abatement rights directly arising from certain casualty
occurrences or condemnations ("Casualty or Condemnation Rights") has the benefit
of a noncancelable lease enhancement insurance policy or requires the Credit
Lease Tenant to make a rejectable offer to purchase the related Mortgaged
Property pursuant to a set termination value schedule, except in connection with
two Mortgage Loans, or 0.2%, with respect to which the related lease enhancement
insurance policies do not apply to casualty rights during the last two years of
the term of the related Credit Lease Loan. Each lease enhancement insurance
policy provides, subject to customary exclusions, that in the event of a
permitted termination by a Credit Lease Tenant of its Credit Lease as a result
of a casualty or condemnation, the related insurer will pay to the Master
Servicer on behalf of the Trustee the "Loss of Rents" (that is, a lump sum
payment of all outstanding principal plus, subject to certain limitations,
accrued interest on the Credit Lease Loan).
The Mortgage Loans which are Credit Lease Loans are indicated on Annex A
hereto.
ADDITIONAL MORTGAGE LOAN INFORMATION
The Mortgage Pool. For a detailed presentation of certain of the
characteristics of the Mortgage Loans and the Mortgaged Properties, on an
individual basis, see Annex A hereto. Certain additional information
regardingthe Mortgage Loans is contained herein under "--Assignment of the
Mortgage Loans; Repurchases" and "--Representations and Warranties; Repurchases
and Substitutions," and in the Prospectus under "CERTAIN LEGAL ASPECTS OF THE
MORTGAGE LOANS."
For purposes of the following tables and the tables set forth in the
Summary and Annex A:
(i) References to "Remain Amort. Term" are references to the remaining
amortization terms.
(ii) References to "DSCR" are references to "Debt Service Coverage
Ratios." With respect to the Mortgage Loans, debt service coverage ratios
are used by income property lenders to measure the ratio of (a)
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cash currently generated by a property that is available for debt service
(that is, cash that remains after payment of non-capital expenses of
operation, tenant improvements, leasing commissions and replacement
reserves during the term of the Mortgage Loan) to (b) required debt service
payments. However, debt service coverage ratios only measure the current,
or recent, ability of a property to service mortgage debt. The "Debt
Service Coverage Ratio" for any Mortgage Loan (other than a Credit Lease
Loan) is the ratio of annual Net Cash Flow (as defined herein) produced by
the related Mortgaged Property to the annualized amount of debt service
that will be payable under that Mortgage Loan commencing after the
origination date. "Net Cash Flow" for a Mortgaged Property is determined by
the Seller or the applicable originator on the basis of Mortgaged Property
operating statements, generally unaudited, and certified rent rolls or
occupancy reports (as applicable) supplied by the related borrower in the
case of multifamily, mixed use, retail, manufactured housing community,
nursing homes, industrial, self storage, hospitality and office properties
(each, a "Rental Property").
In general, the applicable Seller or originator relied on full-year
operating statements, rolling 12-month operating statements and/or applicable
year-to-date financial statements, if available, and on certified rent rolls or
occupancy reports (as applicable) for all Rental Properties that were current as
of a date not earlier than six months prior to the respective date of
origination or acquisition in determining Net Cash Flow for the Mortgaged
Properties. References to "Cut-Off Date DSCR" are references to the DSCR as of
the Cut-Off Date. In general, Net Cash Flow is the revenue derived from the use
and operation of a Mortgaged Property less operating expenses (such as
utilities, administrative expenses, repairs and maintenance, payroll, management
fees and advertising), fixed expenses (such as insurance, real estate taxes and,
if applicable, ground lease payments), stabilized tenant improvement costs and
leasing commissions and replacement reserves. Net Cash Flow does not reflect
interest expenses and non-cash items such as depreciation and amortization, and
generally does not reflect capital expenditures, but does reflect reserves for
replacements.
In determining the "revenue" component of Net Cash Flow for each Rental
Property, the applicable Seller or originator generally relied on the most
recent certified rent roll supplied and certified by the related borrower and,
where the actual vacancy shown thereon and the market vacancy was less than 5%,
generally assumed a minimum of 5% vacancy in determining revenue from rents,
except that in the case of certain anchored shopping centers and certain single
tenant properties, space occupied by such anchor or single tenants may have been
disregarded in performing the vacancy adjustment due to the length of the
related leases or creditworthiness of such tenants, in accordance with the
respective Seller's underwriting standards. In determining the rental revenue
for each of the Rental Properties, the applicable Seller or originator either
reviewed rental revenue shown on the certified rolling 12-month operating
statements or annualized the rental revenue and reimbursement of expenses shown
on certified rent rolls or operating statements with respect to the prior one-
to 12-month periods. Generally, in the case of hospitality properties, gross
receipts were determined on the basis of historical operating levels shown on
the borrower-supplied operating statements, but in no case in excess of rolling
12-month operating statements. Occupancy rates and average daily room rates were
within the then current market ranges. In general, any non-recurring items and
non-property related revenue were eliminated from the calculation except in the
case of residential health care facilities.
In determining the "expense" component of Net Cash Flow for each Rental
Property, the Seller or originator generally relied on full-year or year-to-date
financial statements and/or rolling 12-month operating statements or financial
statements supplied by the related borrower, except that (a) if real estate tax
or insurance expense information more current than that reflected in the
financial statements was available, the newer information was used, (b) property
management fees were generally assumed to be 3% to 5% of effective gross
revenue, (c) assumptions were made with respect to stabilized reserves for
leasing commissions and tenant improvement expenses and (d) expenses were
assumed to include annual replacement reserves. See Annex A hereto. In addition,
in some instances, the applicable Seller or originator recharacterized as
capital expenditures those items reported by borrowers as operating expenses
(thus increasing Net Cash Flow) where such Seller or originator determined
appropriate.
The borrower's financial information used to determine Net Cash Flow was in
most cases unaudited, and neither the Sellers nor the Depositor verified their
accuracy.
(i) References to "Cut-Off Date LTV" are references to the ratio,
expressed as a percentage, of the Cut-Off Date Balance of a Mortgage Loan
to the appraised value, or with respect to one Mortgage Loan, or 9.2%, the
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market value, of the related Mortgaged Property as shown on the most recent
third-party appraisal or market value study thereof available to the
related Seller prior to the Cut-Off Date.
(ii) References to "Repayment LTV" are references to the ratio,
expressed as a percentage, of the expected balance of a Balloon Loan on its
scheduled maturity date or an ARD Loan on its Anticipated Repayment Date,
as the case may be (prior to the payment of any Balloon Payment or
repayment of principal), to the appraised value, or with respect to one
Mortgage Loan, or 9.2%, the market value, of the related Mortgaged Property
as shown on the most recent third-party appraisal or market value study
thereof available to the related Seller prior to the Cut-Off Date.
(iii) References to "Loan per Sq ft, Unit, Pad, Room or Bed" are, for
each Mortgage Loan secured by a lien on (1) a retail, industrial, medical
office or office property, (2) a multifamily or self storage property, (3)
a manufactured housing community, (4) a hospitality property or (5) a
healthcare facility, respectively, references to the Cut-Off Date Balance
of such Mortgage Loan divided by the number of square feet, dwelling or
storage units, pads, guest suites or rooms, or health care facility beds,
as applicable, that comprise the related Mortgaged Property, and, for each
Mortgage Loan secured by a lien on a retail, industrial, medical office or
office property, references to the Cut-Off Date Balance of such Mortgage
Loan divided by the net rentable square footage of the related Mortgaged
Property.
(iv) References to "Year Built" are references to the year that a
Mortgaged Property was originally constructed. With respect to any
Mortgaged Property which was constructed in phases, the "Year Built" refers
to the year that the first phase was originally constructed.
(v) References to "weighted averages" are references to averages
weighted on the basis of the Cut-Off Date Balances of the related Mortgage
Loans or in the event of substantial renovation or rehabilitation of a
Mortgaged Property, the year in which such renovation or rehabilitation was
completed.
(vi) References to "Mortgage Rate" are references to the interest rate
on a Mortgage Loan set forth in the related Mortgage Note on the Cut-Off
Date.
(vii) References to "Initial Reserves at Closing" represent reserves
escrowed at closing for needed maintenance, repairs, replacements and
corrections of engineering and environmental issues as outlined in the
engineering and environmental reports. Such amounts typically represent
125% of the costs of the work outlined in such reports and not completed by
closing. With respect to amounts considered de minimus and a part of
ongoing maintenance, a reserve was not established.
(viii) References to "Underwriting Reserves" represent amounts
underwritten on an annual basis to cover capital costs, as used by the
applicable Seller in determining net cash flow.
(ix) References to "Administrative Cost Rate" represent the sum of the
Master Servicing Fee Rate and the Trustee Fee Rate.
(x) References to "Occupancy Percentage" are, with respect to any
Mortgaged Property, references to (a) in the case of multifamily properties
and manufactured housing communities, the percentage of units or pads
rented, (b) in the case of medical office, office, industrial and retail
properties, the percentage of the net rentable square footage rented, (c)
in the case of self-storage facilities, either the percentage of the net
rentable square footage rented or the percentage of units rented (depending
on borrower reporting) and (d) in the case of congregate care facilities,
the percentage of beds rented.
(xi) References to "Stated Remaining Term" are references to the
remaining term to maturity for each Mortgage Loan (or the remaining number
of months to the Anticipated Repayment Date with respect to each ARD Loan)
as of the Cut-Off Date.
The sum in any column of any of the following tables may not equal the
indicated total due to rounding.
The DSCR, Cut-Off Date LTV and the Repayment LTV calculations for the
Mortgage Loans are exclusive of Credit Lease Loans because the Credit Lease
Loans were originated primarily on the basis of the creditworthiness of the
related Credit Lease Tenants or Guarantors.
S-48
<PAGE>
PROPERTY TYPES
<TABLE>
<CAPTION>
Aggregate Average Highest
Number of Cut-Off % of Initial Cut-Off Cut-Off
Mortgaged Date Pool Date Date
Property Types Properties Balance Balance Balance Balance
-------------- ---------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
MULTIFAMILY
Multifamily 200 $ 780,411,325 26.99% $ 3,902,057 $ 31,229,864
Multifamily/Retail 14 36,627,130 1.27 2,616,224 10,749,828
Multifamily/Retail/Office 1 45,856,749 1.59 45,856,749 45,856,749
Section 42 2 4,923,573 0.17 2,461,786 3,078,111
- ------------------------------------------------------------------------------------------------------------------------------------
SubTotal 217 867,818,777 30.02 3,999,165 45,856,749
OFFICE 58 663,258,842 22.94 11,435,497 273,132,900
RETAIL
Anchored Retail 48 327,231,500 11.32 6,817,323 33,728,960
Unanchored Retail 67 167,809,972 5.80 2,504,626 9,490,541
- ------------------------------------------------------------------------------------------------------------------------------------
SubTotal 115 495,041,472 17.12 4,304,708 33,728,960
HOSPITALITY
Full service 10 246,323,091 8.52 24,632,309 159,014,062
Limited service 22 50,801,496 1.76 2,309,159 4,874,496
- ------------------------------------------------------------------------------------------------------------------------------------
SubTotal 32 297,124,587 10.28 9,285,143 159,014,062
MOBILE HOME PARK 44 285,878,173 9.89 6,497,231 19,648,519
INDUSTRIAL 33 129,594,203 4.48 3,927,097 25,500,000
MIXED USE
Office/Industrial 5 40,738,063 1.41 8,147,613 26,930,301
Office/Retail 9 20,418,818 0.71 2,268,758 3,617,971
Retail/Self Storage 1 3,972,791 0.14 3,972,791 3,972,791
- ------------------------------------------------------------------------------------------------------------------------------------
SubTotal 15 65,129,671 2.25 4,341,978 26,930,301
ADULT LIVING FACILITY/
HEALTH CARE 8 31,686,746 1.10 3,960,843 8,284,903
CTL 9 26,551,070 0.92 2,950,119 10,388,234
SELF STORAGE 14 25,201,171 0.87 1,800,084 3,208,688
PARKING GARAGE 1 3,992,008 0.14 3,992,008 3,992,008
- ------------------------------------------------------------------------------------------------------------------------------------
TOTALS 546 $2,891,276,720 100.00% $ 5,295,379 $273,132,900
<CAPTION>
Weighted Averages
--------------------------------------------------------------------------------------------
Stated Remaining
Remaining Amort. Cut-Off Cut-Off Occupancy
Mortgage Term Term Date Date Repayment Percent-
Property Types Rate (mo.) (mo.) DSCR(A) LTV(A) LTV age(B)
-------------- ---- ----- ----- ------- ------ --- ------
<S> <C> <C> <C> <C> <C> <C> <C>
MULTIFAMILY
Multifamily 7.136% 124 343 1.34x 75.60% 62.69% 96%
Multifamily/Retail 7.095 115 343 1.46 75.30 64.30 95
Multifamily/Retail/Office 6.838 116 356 1.27 68.04 58.60 94
Section 42 7.180 178 358 1.20 85.27 66.05 90
- ------------------------------------------------------------------------------------------------------------------------------------
SubTotal 7.119 123 344 1.34 75.25 62.56 96
OFFICE 7.099 116 344 1.54 69.12 59.11 98
RETAIL
Anchored Retail 7.265 148 336 1.32 73.38 55.32 97
Unanchored Retail 7.459 127 321 1.43 69.99 55.99 95
- ------------------------------------------------------------------------------------------------------------------------------------
SubTotal 7.331 141 331 1.36 72.23 55.54 96
HOSPITALITY
Full service 7.104 111 292 1.74 62.80 47.62 NAP(D)
Limited service 7.973 176 264 1.49 68.10 30.10 NAP(D)
- ------------------------------------------------------------------------------------------------------------------------------------
SubTotal 7.253 122 287 1.70 63.70 44.62 NAP(D)
MOBILE HOME PARK 7.123 116 23 1.54 74.26 72.56 98
INDUSTRIAL 7.518 145 314 1.38 73.89 53.81 99
MIXED USE
Office/Industrial 7.606 123 326 1.30 75.26 62.49 99
Office/Retail 7.317 154 296 1.50 65.03 40.85 94
Retail/Self Storage 7.440 116 296 1.51 69.09 55.56 96
- ------------------------------------------------------------------------------------------------------------------------------------
SubTotal 7.506 132 315 1.37 71.67 55.29 97
ADULT LIVING FACILITY/
HEALTH CARE 7.793 144 269 1.66 66.43 41.42 94
CTL 7.176 248 276 NAP(D) NAP(D) NAP(D) 100
SELF STORAGE 7.839 161 273 1.49 65.12 34.22 88
PARKING GARAGE 7.200 118 298 1.50 62.38 50.47 98
- ------------------------------------------------------------------------------------------------------------------------------------
TOTALS 7.206% 127 300 1.45x 71.66% 58.63% 97%
<CAPTION>
Loan per
Sq ft. Unit, Average
Pad, Room Property
Property Types or Bed Size(C)
-------------- ------ -------
MULTIFAMILY
Multifamily 39,825 212
Multifamily/Retail 46,072 205
Multifamily/Retail/Office 63,956 717
Section 42 29,379 90
- --------------------------------------------------------------------
SubTotal 41,305 238
OFFICE 130 996,851
RETAIL
Anchored Retail 89 190,666
Unanchored Retail 92 46,290
- --------------------------------------------------------------------
SubTotal 90 141,725
HOSPITALITY
Full service 102,842 872
Limited service 28,437 99
- --------------------------------------------------------------------
SubTotal 90,120 740
MOBILE HOME PARK 26,173 392
INDUSTRIAL 58 208,529
MIXED USE
Office/Industrial 61 309,593
Office/Retail 107 30,431
Retail/Self Storage 69 57,311
- --------------------------------------------------------------------
SubTotal 76 206,684
ADULT LIVING FACILITY/
HEALTH CARE 30,934 186
CTL 134 61,111
SELF STORAGE 3,202 684
PARKING GARAGE 16 251,850
- --------------------------------------------------------------------
TOTALS 24,664 268,049
</TABLE>
- --------
(A) The Cut-Off Date DSCR and Cut-Off Date LTV ratio information shown above do
not reflect the nine Credit Lease Loans, representing 0.9% of the Initial
Pool Balance, which typically have debt service coverage ratios equal to or
less than 1.00x and loan to value ratios in excess of 79%.
(B) Weighted average of the occupancy percentage for the corresponding property
type determined on the basis of the individual occupancy percentages set
forth on Annex A.
(C) Average Property Size refers to total leasable square feet with respect to
retail, office and industrial properties, number of units with respect to
multifamily properties, number of pads with respect to manufactured housing
communities, number of guest rooms with respect to each hospitality
property, number of square feet with respect to self storage facilities and
number of beds with respect to health care facilities.
(D) NAP = Not Applicable.
S-49
<PAGE>
GEOGRAPHIC DISTRIBUTION
<TABLE>
<CAPTION>
Weighted Averages
Aggregate % of ---------------------------
Number of Cut-Off Initial Cut-Off Cut-Off
State or Mortgaged Date Pool Date Date Repayment
District(1) Properties Balance Balance DSCR(2) LTV(2) LTV
----------- ---------- ------- ------- ------- ------ ---
<S> <C> <C> <C> <C> <C> <C>
California 94 $ 410,267,397 14.19% 1.41x 71.55% 55.45%
New York 28 327,086,224 11.31 1.75 64.62 52.88
Texas 66 231,995,081 8.02 1.42 71.79 57.30
Illinois 6 226,405,523 7.83 1.66 66.25 57.69
New Jersey 14 177,825,050 6.15 1.34 72.37 59.01
Pennsylvania 20 174,492,176 6.04 1.37 73.02 58.96
Florida 34 173,561,102 6.00 1.38 75.36 64.12
Arizona 25 113,350,011 3.92 1.52 70.28 63.10
Maryland 12 102,589,130 3.55 1.29 75.99 63.59
Colorado 22 91,345,352 3.16 1.52 73.47 70.38
Virginia 21 91,286,621 3.16 1.31 76.72 63.41
District of Columbia 2 71,907,156 2.49 1.26 79.55 69.16
Washington 17 71,339,061 2.47 1.32 73.09 59.47
Oklahoma 15 68,623,017 2.37 1.32 76.43 67.25
Indiana 9 60,225,931 2.08 1.29 76.72 67.40
Massachusetts 14 52,157,458 1.80 1.45 71.09 49.85
Nevada 13 47,293,998 1.64 1.41 71.69 62.53
Oregon 15 41,027,838 1.42 1.40 66.42 37.78
Utah 9 34,363,027 1.19 1.35 77.23 64.05
Ohio 8 24,737,222 0.86 1.41 74.94 63.75
Georgia 7 23,744,315 0.82 1.55 72.63 56.43
Missouri 7 23,380,253 0.81 1.51 72.90 57.74
Kansas 7 22,555,916 0.78 1.33 72.02 61.29
North Carolina 4 21,749,344 0.75 1.33 76.69 59.83
Minnesota 8 21,637,520 0.75 1.43 71.18 62.98
Kentucky 1 21,000,000 0.73 1.61 71.92 69.07
Connecticut 12 20,623,938 0.71 1.41 72.34 51.82
Michigan 8 20,134,789 0.70 1.35 76.02 60.74
South Carolina 9 18,833,575 0.65 1.43 73.48 32.19
Louisiana 7 16,664,775 0.58 1.41 70.46 39.98
Tennessee 3 13,430,630 0.46 1.39 67.64 17.03
New Mexico 3 11,090,836 0.38 1.31 72.84 51.52
New Hampshire 6 10,920,479 0.38 1.52 71.81 53.30
Idaho 5 9,889,098 0.34 1.36 76.01 48.68
Montana 1 8,127,230 0.28 1.54 74.93 74.92
Vermont 1 7,953,321 0.28 1.45 75.75 66.88
Nebraska 4 7,448,888 0.26 1.32 69.25 54.97
Iowa 2 5,378,414 0.19 1.30 73.95 31.05
Maine 2 5,078,047 0.18 1.36 76.59 58.56
North Dakota 2 3,907,388 0.14 1.29 73.01 31.44
US Virgin Islands 1 2,997,012 0.10 1.85 65.15 52.80
South Dakota 1 2,378,325 0.08 1.50 52.24 33.29
Rhode Island 1 474,254 0.02 1.46 67.75 56.49
-----------------------------------------------------------------------------------------------------------------
TOTALS/WTG. AVGS. 546 $2,891,276,720 100.00% 1.45x 71.66% 58.63%
</TABLE>
- ----------
(1) Mortgaged Properties are located in 41 states, the District of Columbia and
the U.S. Virgin Islands.
(2) The Cut-Off Date DSCR and Cut-Off Date LTV ratio information shown above do
not reflect the nine Credit Lease Loans, representing 0.9% of the Initial
Pool Balance, which typically have debt service coverage ratios equal to or
less than 1.00x and loan to value ratios in excess of 79%.
S-50
<PAGE>
YEARS BUILT
<TABLE>
<CAPTION>
Weighted Averages
----------------------------------------------------------------------
Aggregate % of Cumulative % Cut- Cut-
Number of Cut-Off Initial of Initial Stated Remaining Off Off Repay-
Range of Mortgaged Date Pool Pool Mortgage Remaining Amort. Seasoning Date Date ment
Years Built Properties Balance Balance Balance Rate Term (mo.) Term (mo.) (mo.)(A) DSCR(B) LTV(B) LTV
- ----------- ---------- ------- ------- ------- ---- ---------- ---------- -------- ------- ------ ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1848-1849 1 $ 474,254 0.02% 0.02% 8.240% 118 298 2 1.46x 67.75% 56.49%
1850-1899 7 92,924,805 3.21 3.23 6.986 119 351 1 1.31 77.02 66.62
1900-1929 38 87,999,089 3.04 6.27 7.494 136 300 5 1.42 70.34 50.48
1930-1959 24 83,069,013 2.87 9.15 7.139 151 313 2 1.32 72.14 46.07
1960-1969 76 364,926,984 12.62 21.77 7.238 134 223 5 1.43 72.47 61.51
1970-1979 136 833,585,083 28.83 50.60 7.140 126 275 6 1.57 69.83 57.74
1980-1989 161 1,054,541,070 36.47 87.07 7.182 116 331 4 1.43 71.97 60.26
1990-1998 103 373,756,423 12.93 100.00 7.386 146 327 5 1.35 73.07 55.86
- ------------------------------------------------------------------------------------------------------------------------------------
TOTALS/WTG.
AVGS. 546 $2,891,276,720 100.00% 100.00% 7.206% 127 300 5 1.45x 71.66% 58.63%
</TABLE>
- ----------------
(A) Number of months elapsed since the first Due Date following origination.
(B) The Cut-Off Date DSCR and Cut-Off Date LTV ratio information shown above do
not reflect the nine Credit Lease Loans, representing 0.9% of the Initial
Pool Balance, which typically have debt service coverage ratios equal to or
less than 1.00x and loan to value ratios in excess of 79%.
DEBT SERVICE COVERAGE RATIOS
<TABLE>
<CAPTION>
Weighted Averages
----------------------------------------------------------
Range of Aggregate % of Cumulative % Cut- Cut-
Debt Service Number of Cut-Off Initial of Initial Stated Remaining Off Off Repay-
Coverage Mortgage Date Pool Pool Mortgage Remaining Amort. Date Date ment
Ratio Loans Balance Balance Balance Rate Term (mo.) Term (mo.) DSCR(A) LTV(A) LTV
- ----------- --------- ------- ------- ------- ---- ---------- ---------- ------- ------ ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CTL Loans 9 $ 26,551,070 0.92% 0.92% 7.176% 248 276 NAP(B) NAP(B) NAP(B)
1.10-1.19 3 5,468,553 0.19 1.11 7.128 154 357 1.16x 81.99% 66.10%
1.20-1.29 129 873,619,371 30.22 31.32 7.160 128 345 1.26 75.86 62.39
1.30-1.39 165 661,045,678 22.86 54.19 7.344 134 329 1.34 73.21 57.41
1.40-1.49 92 301,837,464 10.44 64.63 7.364 139 311 1.44 70.48 51.08
1.50-1.59 50 422,760,929 14.62 79.25 7.224 122 116 1.54 72.24 65.56
1.60-1.69 26 83,330,483 2.88 91.58 7.393 124 329 1.64 68.19 53.49
1.70-1.79 18 45,592,087 1.58 93.15 7.390 147 305 1.74 64.68 41.81
1.80-1.89 9 446,304,125 15.44 99.14 6.890 101 330 1.82 63.59 55.09
1.90-1.99 3 8,165,399 0.28 99.43 7.621 116 305 1.93 66.13 54.89
2.00-2.49 6 15,156,025 0.52 99.95 7.593 115 285 2.33 50.98 39.29
2.50-2.99 1 283,862 0.01 99.96 8.125 174 354 2.85 31.02 24.09
3.00-3.28 1 1,161,676 0.04 100.00 8.340 169 169 3.28 24.93 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
TOTALS/WTG.
AVGS. 512 $2,891,276,720 100.00% 100.00% 7.206% 127 300 1.45x 71.66% 58.63%
</TABLE>
- ----------
(A) The Cut-Off Date DSCR and Cut-Off Date LTV ratio information shown above do
not reflect the nine Credit Lease Loans, representing 0.9% of the Initial
Pool Balance, which typically have debt service coverage ratios equal to or
less than 1.00x and loan to value ratios in excess of 79%.
(B) NAP=Not Applicable.
CUT-OFF DATE LTV RATIOS
<TABLE>
<CAPTION>
Weighted Averages
----------------------------------------------------------
Range of Aggregate % of Cumulative % Cut- Cut-
Cut-off Number of Cut-Off Initial of Initial Stated Remaining Off Off Repay-
Date LTV Mortgage Date Pool Pool Mortgage Remaining Amort. Date Date ment
Ratios Loans Balance Balance Balance Rate Term (mo.) Term (mo.) DSCR(A) LTV(A) LTV
- ----------- --------- ------- ------- ------- ---- ---------- ---------- ------- ------ ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CTL Loans 9 $ 26,551,070 0.92% 0.92% 7.176% 248 276 NAP(B) NAP(B) NAP(B)
24.93-50.00% 19 35,313,817 1.22 2.14 7.590 126 266 1.92x 45.01% 29.28%
50.01-60.00 43 138,326,540 4.78 6.92 7.529 149 278 1.47 58.04 34.75
60.01-70.00 118 831,214,330 28.75 35.67 7.127 119 325 1.63 65.02 51.93
70.01-80.00 314 1,762,546,839 60.96 96.63 7.217 127 288 1.37 75.88 63.58
80.01-86.10 9 97,324,125 3.37 100.00 7.090 119 355 1.25 81.15 70.71
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL/WTG.
AVGS. 512 $2,891,276,720 100.00% 100.00% 7.206% 127 300 1.45x 71.66% 58.63%
</TABLE>
- ----------
(A) The Cut-Off Date DSCR and Cut-Off Date LTV ratio information shown above do
not reflect the nine Credit Lease Loans, representing 0.9% of the Initial
Pool Balance, which typically have debt service coverage ratios equal to or
less than 1.00x and loan to value ratios in excess of 79%.
(B) NAP=Not Applicable.
S-51
<PAGE>
REPAYMENT LTV RATIOS
<TABLE>
<CAPTION>
Weighted Averages
----------------------------------------------------------
Aggregate % of Cumulative % Cut- Cut-
Range of Number of Cut-Off Initial of Initial Stated Remaining Off Off Repay-
Repayment Mortgage Date Pool Pool Mortgage Remaining Amort. Date Date ment
LTV Ratios Loans Balance Balance Balance Rate Term (mo.) Term (mo.) DSCR(A) LTV(A) LTV
- ----------- --------- ------- ------- ------- ---- ---------- ---------- ------- ------ ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CTL Loans 9 $ 26,551,070 0.92% 0.92% 7.176% 248 276 NAP(B) NAP(B) NAP(B)
Fully Amortizing 60 132,611,540 4.59 5.50 7.736 236 236 1.45x 65.70% NAP(B)(C)
19.89% - 50.00% 77 262,924,982 9.09 14.60 7.444 164 302 1.49 63.10 42.11%
50.01 - 60.00 138 905,362,802 31.31 45.91 7.125 115 328 1.60 66.66 55.88
60.01 - 70.00 204 1,137,647,678 39.35 85.26 7.179 117 347 1.33 76.35 65.90
70.01 - 75.08 24 426,178,649 14.74 100.00 7.138 111 134 1.44 76.93 73.48
- -----------------------------------------------------------------------------------------------------------------------------------
TOTALS/
WTG. AVGS. 512 $2,891,276,720 100.00% 100.00% 7.206% 127 300 1.45x 71.66% 58.63%
</TABLE>
- ----------
(A) The Cut-Off Date DSCR and Cut-Off Date LTV ratio information shown above do
not reflect the nine Credit Lease Loans, representing 0.9% of the Initial
Pool Balance, which typically have debt service coverage ratios equal to or
less than 1.00x and loan to value ratios in excess of 79%.
(B) NAP=Not Applicable.
(C) Not Applicable. Fully Amortizing Loans which compute interest on an
Actual/360 basis generally have de minimis amounts (in addition to the
Scheduled Payment) due on its maturity date. Such amounts are not
considered Balloon Payments.
MORTGAGE RATES
<TABLE>
<CAPTION>
Weighted Averages
----------------------------------------------------------
Aggregate % of Cumulative % Cut- Cut-
Range of Number of Cut-Off Initial of Initial Stated Remaining Off Off Repay-
Mortgage Mortgage Date Pool Pool Mortgage Remaining Amort. Date Date ment
Rates Loans Balance Balance Balance Rate Term (mo.) Term (mo.) DSCR(A) LTV(A) LTV
- ----------- --------- ------- ------- ------- ---- ---------- ---------- ------- ------ ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6.660%-6.999% 72 $1,081,131,121 37.39% 37.39% 6.889% 114 344 1.51x 70.92% 61.22%
7.000 -7.124 62 559,231,665 19.34 56.73 7.082 123 176 1.45 73.79 65.59
7.125 -7.249 65 244,951,465 8.47 65.21 7.169 129 331 1.42 73.14 59.57
7.250 -7.374 62 235,665,548 8.15 73.36 7.296 148 326 1.38 73.19 54.77
7.375 -7.499 55 230,854,428 7.98 81.34 7.417 132 323 1.33 71.64 57.03
7.500 -7.624 35 215,575,936 7.46 88.80 7.551 134 322 1.47 71.15 56.47
7.625 -7.749 29 69,361,405 2.40 91.20 7.687 150 297 1.49 70.31 45.64
7.750 -7.874 19 48,061,657 1.66 92.86 7.792 144 296 1.42 70.23 41.95
7.875 -7.999 15 36,969,205 1.28 94.14 7.934 155 288 1.40 64.34 37.43
8.000 -8.124 16 37,624,334 1.30 95.44 8.027 169 261 1.36 66.17 27.53
8.125 -8.249 23 40,619,952 1.40 96.84 8.185 130 307 1.37 70.12 51.70
8.250 -8.374 16 25,081,049 0.87 97.71 8.284 163 281 1.56 65.63 37.47
8.375 -8.499 13 26,391,988 0.91 98.62 8.429 143 303 1.42 69.75 50.35
8.500 -8.624 11 17,983,736 0.62 99.25 8.557 124 322 1.35 70.88 56.39
8.625 -8.749 7 12,363,685 0.43 99.67 8.680 139 277 1.33 72.31 47.84
8.750 -8.874 10 8,241,469 0.29 99.96 8.782 199 264 1.51 64.16 22.82
8.875 -8.999 1 812,228 0.03 99.99 8.875 114 353 1.23 67.69 60.73
9.000 -9.375 1 355,851 0.01 100.00 9.375 113 293 1.25 64.12 53.96
- ------------------------------------------------------------------------------------------------------------------------------------
TOTALS/
WTG. AVGS. 512 $2,891,276,720 100.00% 100.00% 7.206% 127 300 1.45x 71.66% 58.63%
</TABLE>
- ----------
(A) The Cut-Off Date DSCR and Cut-Off Date LTV ratio information shown above do
not reflect the nine Credit Lease Loans, representing 0.9% of the Initial
Pool Balance, which typically have debt service coverage ratios equal to or
less than 1.00x and loan to value ratios in excess of 79%.
S-52
<PAGE>
ORIGINAL TERMS
<TABLE>
<CAPTION>
Weighted Averages
% of ------------------------------------------------------------------------
Number of Aggregate Initial Stated Remaining Cut-Off Cut-Off Repay-
Original Mortgage Cut-Off Date Pool Mortgage Remaining Amort. Seasoning Date Date ment
Terms Loans Balance Balance Rate Term (mo.) Term (mo.) (mo.)(A) DSCR (B) LTV (B) LTV
----- ----- ------- ------- ---- ---------- ---------- -------- -------- ------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5 Year Balloon 6 $ 18,383,911 0.64% 7.813% 50 329 10 1.35x 69.94% 66.48%
6 to 9 Year Balloon 14 62,828,008 2.17 7.454 77 328 6 1.43 72.19 65.70
10 Year Balloon 305 1,303,547,801 45.09 7.237 116 338 4 1.37 73.17 62.63
11 to 14 Year Balloon 12 72,308,748 2.50 7.402 138 336 6 1.31 72.69 58.98
15 Year Balloon 44 175,813,349 6.08 7.384 177 333 3 1.35 73.85 53.56
16 to 20 Year Balloon 16 52,454,168 1.81 7.417 235 327 5 1.43 71.37 37.07
6 to 9 Year ARD 2 167,298,965 5.79 6.871 79 295 5 1.81 65.02 56.83
10 Year ARD 36 824,974,470 28.53 7.035 114 235 6 1.56 71.14 64.54
11 to 14 Year ARD 1 13,137,941 0.45 6.930 138 354 6 1.39 79.62 65.51
15 Year ARD 4 13,900,286 0.48 7.209 179 340 1 1.34 72.52 53.46
16 to 20 Year ARD 5 31,938,940 1.10 7.506 213 323 3 1.38 65.85 38.09
Fully Amortizing 67 154,690,132 5.35 7.633 240 240 3 1.45 65.70 NAP(C)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTALS/WTG.
AVGS. 512 $2,891,276,720 100.00% 7.206% 127 300 5 1.45x 71.66% 58.63%
</TABLE>
- ----------
(A) Number of months elapsed since the first Due Date following origination.
(B) The Cut-Off Date DSCR and Cut-Off Date LTV ratio information shown above do
not reflect the nine Credit Lease Loans, representing 0.9% of the Initial
Pool Balance, which typically have debt service coverage ratios equal to or
less than 1.00x and loan to value ratios in excess of 79%.
(C) NAP = Not Applicable.
REMAINING TERMS
<TABLE>
<CAPTION>
Weighted Averages
----------------------------------------------------------
Aggregate % of Cumulative % Cut- Cut-
Range of Number of Cut-Off Initial of Initial Stated Remaining Off Off Repay-
Remaining Mortgage Date Pool Pool Mortgage Remaining Amort. Date Date ment
Terms (mo.) Loans Balance Balance Balance Rate Term (mo.) Term (mo.) DSCR(A) LTV(A) LTV
- ----------- --------- ------- ------- ------- ---- ---------- ---------- ------- ------ ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
47- 48 1 $ 10,203,470 0.35% 0.35% 7.840% 47 347 1.34x 72.88% 69.92%
49- 72 7 15,186,829 0.53 0.88 7.777 61 254 1.32 62.00 52.11
73- 84 14 223,120,586 7.72 8.60 7.007 79 307 1.72 67.29 59.84
97-108 12 49,441,314 1.71 10.31 8.303 107 321 1.36 72.90 63.04
109-120 331 2,081,794,190 72.00 82.31 7.132 116 297 1.45 72.34 63.30
121-228 70 320,456,899 11.08 93.39 7.380 168 320 1.36 71.95 49.45
229-240 68 146,978,167 5.08 98.47 7.606 235 280 1.40 68.33 18.98
241-300 7 35,985,128 1.24 99.72 7.612 277 277 1.52 68.60 0.00
301-359 2 8,110,137 0.28 100.00 7.186 359 359 1.27 79.70 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
TOTALS/WTG.
AVGS. 512 $2,891,276,720 100.00% 100.00% 7.206% 127 300 1.45x 71.66% 58.63%
</TABLE>
- ----------
(A) The Cut-Off Date DSCR and Cut-Off Date LTV ratio information shown above do
not reflect the nine Credit Lease Loans, representing 0.9% of the Initial
Pool Balance, which typically have debt service coverage ratios equal to or
less than 1.00x and loan to value ratios in excess of 79%.
S-53
<PAGE>
YEARS OF SCHEDULED MATURITY OR ANTICIPATED REPAYMENT DATE
<TABLE>
<CAPTION>
Weighted Averages
Scheduled % of Cumulative ---------------------------------------------------------------
Maturity Number of Aggregate Initial % of Initial Stated Remaining Cut-Off Cut-Off Repay-
or ARD Mortgage Cut-Off Date Pool Pool Mortgage Remaining Amort. Date Date ment
Year Loans Balance Balance Balance Rate Term (mo.) Term (mo.) DSCR (A) LTV (A) LTV
---- ----- ------- ------- ------- ---- ---------- ---------- -------- ------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2002 2 $ 12,182,313 0.42% 0.42% 7.885% 47 338 1.34x 70.93% 67.88%
2003 4 6,201,599 0.21 0.64 7.671 55 311 1.37 67.98 63.73
2004 3 8,539,351 0.30 0.93 7.910 70 211 1.30 55.13 40.62
2005 13 221,587,622 7.66 8.60 6.996 79 308 1.72 67.44 59.97
2007 36 662,938,689 22.93 31.52 7.157 111 205 1.63 69.88 64.42
2008 307 1,468,296,816 50.78 82.31 7.160 117 339 1.36 73.48 62.78
2009 6 41,808,553 1.45 83.75 7.743 133 329 1.31 75.92 62.02
2010 4 38,948,321 1.35 85.10 6.910 141 353 1.31 71.24 58.68
2011 3 4,689,815 0.16 85.26 7.125 154 298 1.53 75.44 52.65
2012 3 9,682,158 0.33 85.60 8.206 168 274 1.71 62.88 39.54
2013 50 201,204,543 6.96 92.56 7.342 177 320 1.35 72.88 48.59
2014 2 18,835,080 0.65 93.21 7.581 191 283 1.47 58.07 29.77
2015 1 2,893,131 0.10 93.31 7.000 203 203 1.22 77.15 0.00
2016 1 2,395,299 0.08 93.39 7.890 215 215 1.44 68.44 0.00
2017 6 13,938,899 0.48 93.87 7.553 231 276 1.36 75.14 28.55
2018 62 133,039,268 4.60 98.47 7.612 236 281 1.41 67.83 18.27
2020 5 20,340,058 0.70 99.18 7.953 261 261 1.52 68.07 0.00
2023 2 15,645,071 0.54 99.72 7.169 297 297 1.50 70.66 0.00
2028 2 8,110,137 0.28 100.00 7.186 359 359 1.27 79.70 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
TOTALS/WTG.
AVGS. 512 $2,891,276,720 100.00% 100.00% 7.206% 127 300 1.45x 71.66% 58.63%
</TABLE>
- ----------
(A) The Cut-Off Date DSCR and Cut-Off Date LTV ratio information shown above do
not reflect the nine Credit Lease Loans, representing 0.9% of the Initial
Pool Balance, which typically have debt service coverage ratios equal to or
less than 1.00x and loan to value ratios in excess of 79%.
CUT-OFF DATE BALANCES
<TABLE>
<CAPTION>
Weighted Averages
Range of Aggregate % of Cumulative ------------------------------------------------------------
Cut-Off Number of Cut-Off Initial % of Initial Stated Remaining Cut-Off Cut-Off Repay-
Date Mortgage Date Pool Pool Mortgage Remaining Amort. Date Date ment
Balances Loans Balance Balance Balance Rate Term (mo.) Term (mo.) DSCR (A) LTV (A) LTV
-------- ----- ------- ------- ------- ---- ---------- ---------- -------- ------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 168,507-$ 999,999 68 $ 42,931,299 1.48% 1.48% 8.037% 155 294 1.46x 65.80% 39.79%
1,000,000- 1,999,999 131 197,316,295 6.82 8.31 7.502 146 302 1.44 69.27 48.56
2,000,000- 2,999,999 105 265,104,677 9.17 17.48 7.455 136 310 1.43 70.68 51.76
3,000,000- 3,999,999 59 202,442,677 7.00 24.48 7.322 130 317 1.36 71.63 55.87
4,000,000- 4,999,999 35 155,419,263 5.38 29.86 7.313 135 332 1.37 73.38 58.62
5,000,000- 5,999,999 26 144,301,247 4.99 34.85 7.266 152 331 1.40 73.11 52.90
6,000,000- 6,999,999 16 103,268,602 3.57 38.42 7.468 135 318 1.39 73.14 54.45
7,000,000- 7,999,999 12 90,912,342 3.14 41.56 7.333 143 334 1.36 74.36 56.80
8,000,000- 8,999,999 14 119,750,987 4.14 45.70 7.220 139 324 1.48 72.02 52.01
9,000,000- 9,999,999 8 74,336,951 2.57 48.28 7.255 116 337 1.34 73.10 62.35
10,000,000- 14,999,999 12 144,431,308 5.00 53.27 7.070 131 350 1.33 76.84 66.45
15,000,000- 19,999,999 8 133,904,211 4.63 57.90 7.113 127 351 1.30 74.45 63.02
20,000,000- 24,999,999 3 69,709,818 2.41 60.31 7.307 107 339 1.47 67.00 58.90
25,000,000- 29,999,999 5 135,771,981 4.70 65.01 7.343 144 346 1.30 75.08 60.61
30,000,000- 34,999,999 3 97,908,824 3.39 68.40 7.140 119 339 1.30 72.53 61.51
40,000,000- 69,999,999 4 216,619,276 7.49 75.89 6.886 118 358 1.25 77.05 67.05
70,000,000-273,132,900 3 697,146,963 24.11 100.00 6.960 104 205 1.71 68.05 62.84
- ------------------------------------------------------------------------------------------------------------------------------------
TOTALS/WTG.
AVGS. 512 $2,891,276,720 100.00% 100.00% 7.206% 127 300 1.45x 71.66% 58.63%
</TABLE>
- ----------
Average Cut-Off Date Balance is $5,647,025.
(A) The Cut-Off Date DSCR and Cut-Off Date LTV ratio information shown above do
not reflect the nine Credit Lease Loans, representing 0.9% of the Initial
Pool Balance, which typically have debt service coverage ratios equal to or
less than 1.00x and loan to value ratios in excess of 79%.
S-54
<PAGE>
PREPAYMENT RESTRICTIONS BY CATEGORIES
<TABLE>
<CAPTION>
Weighted Average
Remaining Lockout/
Weighted Defeasance
Aggregate % of Average Term (mo.)/ Weighted Average # of
Number of Cut-Off Initial Stated % of Weighted Average Months Open to
Mortgage Date Pool Remaining Stated Remaining Term Prepayment Prior
Prepayment Restrictions (A) Loans Balance Balance Term (mos.) of Lockout to Maturity/ARD
- ---------------------------- --------- ----------- ----------- ------------- ---------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
LO/DEF (B)(C) 121 $1,654,732,895 57.23% 123 118 96.43% 4
LO, then PP 28 37,036,189 1.28 185 102 54.96 6
LO, then YM 275 988,033,692 34.17 131 58 44.71 7
LO, then YM, then PP 12 37,046,717 1.28 146 51 34.90 11
YM Only 23 51,396,270 1.78 114 0 0.00 8
YM, then PP 53 123,030,958 4.26 126 0 0.00 13
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL/WTG. AVGS. 512 $2,891,276,720 100.00% 127 90 70.87% 6
</TABLE>
- ----------
(A) LO=Locked Out, YM=Yield Maintenance, PP=Percentage Premium, DEF=Defeasance.
(B) Including two Mortgage Loans, or 0.06%, which are not defeasance loans.
(C) DEF=Defeasance
PREPAYMENT RESTRICTIONS BY ORIGINAL TERM
<TABLE>
<CAPTION>
Aggregate % of
Number of Cut-Off Initial
Mortgage Date Pool
Original Term Prepayment Restriction (A) Loans Balance Balance
------------- -------------------------- ----- ------- -------
<S> <C> <C> <C> <C>
5 Year Balloon LO 2 $ 1,615,334 0.06%
LO, then YM 1 2,295,642 0.08%
YM, then PP 3 14,472,935 0.50%
- ------------------------------------------------------------------------------------------------------------------------------------
SubTotal 6 18,383,911 0.64%
6 to 9 Year Balloon LO, then PP 1 2,608,705 0.09%
LO, then YM 9 53,941,785 1.87%
LO, then YM, then PP 1 3,451,361 0.12%
YM Only 1 373,409 0.01%
YM, then PP 2 2,452,748 0.08%
- ------------------------------------------------------------------------------------------------------------------------------------
SubTotal 14 62,828,008 2.17%
6 to 9 Year ARD LO/DEF 2 167,298,965 5.79%
10 Year Balloon LO/DEF 59 507,743,076 17.56%
LO, then PP 19 16,531,420 0.57%
LO, then YM 181 638,353,510 22.08%
LO, then YM, then PP 7 19,883,153 0.69%
YM Only 22 51,022,861 1.76%
YM, then PP 17 70,013,781 2.42%
- ------------------------------------------------------------------------------------------------------------------------------------
SubTotal 305 1,303,547,801 45.09%
10 Year ARD LO/DEF 12 731,084,023 25.29%
LO, then YM 24 93,890,447 3.25%
- ------------------------------------------------------------------------------------------------------------------------------------
SubTotal 36 824,974,470 28.53%
11 to 14 Year Balloon LO/DEF 5 37,337,960 1.29%
LO, then YM 5 29,293,879 1.01%
YM, then PP 2 5,676,909 0.20%
- ------------------------------------------------------------------------------------------------------------------------------------
SubTotal 12 72,308,748 2.50%
11 to 14 Year ARD LO/DEF 1 13,137,941 0.45%
15 Year Balloon LO/DEF 18 118,753,440 4.11%
LO, then PP 5 2,623,407 0.09%
LO, then YM 10 31,273,493 1.08%
LO, then YM, then PP 1 6,294,785 0.22%
YM, then PP 10 16,868,225 0.58%
- ------------------------------------------------------------------------------------------------------------------------------------
SubTotal 44 175,813,349 6.08%
<CAPTION>
Weighted Averages
-----------------------------------------------------------------------------------------------
Remaining
Stated Remaining Months
Remaining Months Remaining Remaining Open
Mortgage Term Locked Months Months Prior to
Original Term Rate (mo.) Out YM PP Maturity/ARD
------------- ---- ----- --- -- -- ------------
<S> <C> <C> <C> <C> <C> <C>
5 Year Balloon 7.958% 56 49 0 0 7
7.440 58 10 42 0 6
7.856 48 0 36 6 6
- ------------------------------------------------------------------------------------------------------------------------------------
7.813 50 6 34 5 6
6 to 9 Year Balloon 8.450 78 30 0 42 6
7.315 77 38 35 0 4
8.150 71 23 24 12 12
8.660 81 0 74 0 7
8.282 74 0 58 10 6
- ------------------------------------------------------------------------------------------------------------------------------------
7.454 77 35 34 3 5
6 to 9 Year ARD 6.871 79 77 0 0 2
10 Year Balloon 7.126 119 115 0 0 4
8.064 116 53 0 54 9
7.226 115 52 57 0 6
7.702 112 43 45 12 12
7.485 114 0 106 0 8
7.643 110 0 82 20 9
- ------------------------------------------------------------------------------------------------------------------------------------
7.237 116 72 37 2 6
10 Year ARD 7.014 113 109 0 0 4
7.201 117 45 64 0 7
- ------------------------------------------------------------------------------------------------------------------------------------
7.035 114 102 7 0 4
11 to 14 Year Balloon 7.493 135 129 0 0 7
7.032 142 60 66 0 16
8.710 131 0 47 60 24
- ------------------------------------------------------------------------------------------------------------------------------------
7.402 138 91 30 5 12
11 to 14 Year ARD 6.930 138 131 0 0 7
15 Year Balloon 7.273 178 172 0 0 6
7.789 175 100 0 70 5
7.302 176 83 85 0 8
8.250 168 36 60 60 12
7.933 176 0 116 53 7
- ------------------------------------------------------------------------------------------------------------------------------------
7.384 177 134 28 8 6
</TABLE>
S-55
<PAGE>
PREPAYMENT RESTRICTIONS BY ORIGINAL TERM--(Continued)
<TABLE>
<CAPTION>
Aggregate % of
Number of Cut-Off Initial
Mortgage Date Pool
Original Term Prepayment Restriction (A) Loans Balance Balance
------------- -------------------------- ----- ------- -------
<S> <C> <C> <C> <C>
15 Year ARD LO/DEF 2 9,592,712 0.33%
LO, then YM 2 4,307,574 0.15%
- ------------------------------------------------------------------------------------------------------------------------------------
SubTotal 4 13,900,286 0.48%
16 to 20 Year Balloon LO/DEF 4 11,460,617 0.40%
LO, then PP 1 2,997,779 0.10%
LO, then YM 8 30,619,048 1.06%
LO, then YM, then PP 2 6,378,187 0.22%
YM, then PP 1 998,536 0.03%
- ------------------------------------------------------------------------------------------------------------------------------------
SubTotal 16 52,454,168 1.81%
16 to 20 Year ARD LO/DEF 1 2,772,538 0.10%
LO, then YM 4 29,166,402 1.01%
- ------------------------------------------------------------------------------------------------------------------------------------
SubTotal 5 31,938,940 1.10%
Fully Amortizing LO/DEF 15 53,936,290 1.87%
LO, then PP 2 12,274,878 0.42%
LO, then YM 31 74,891,909 2.59%
LO, then YM, then PP 1 1,039,231 0.04%
YM, then PP 18 12,547,824 0.43%
- ------------------------------------------------------------------------------------------------------------------------------------
SubTotal 67 154,690,132 5.35%
TOTALS 512 $2,891,276,720 100.00%
<CAPTION>
Weighted Averages
-----------------------------------------------------------------------------------------------
Remaining
Stated Remaining Months
Remaining Months Remaining Remaining Open
Mortgage Term Locked Months Months Prior to
Original Term Rate (mo.) Out YM PP Maturity/ARD
------------- ---- ----- --- -- -- ------------
<S> <C> <C> <C> <C> <C> <C>
15 Year ARD 7.251 179 172 0 0 7
7.115 179 47 126 0 6
- ------------------------------------------------------------------------------------------------------------------------------------
7.209 179 133 39 0 7
16 to 20 Year Balloon 7.449 236 232 0 0 4
8.460 239 119 0 113 7
7.259 234 83 147 0 5
7.455 236 107 62 61 7
8.520 238 0 118 60 60
- ------------------------------------------------------------------------------------------------------------------------------------
7.417 235 119 95 15 6
16 to 20 Year ARD 7.250 239 239 0 0 0
7.530 210 117 89 0 4
- ------------------------------------------------------------------------------------------------------------------------------------
7.506 213 128 82 0 4
Fully Amortizing 7.612 254 240 0 0 14
7.017 289 179 0 110 1
7.667 221 103 105 0 13
6.750 359 48 72 235 4
8.198 230 0 125 59 46
- ------------------------------------------------------------------------------------------------------------------------------------
7.633 240 148 61 15 15
7.206% 127 90 28 3 6
</TABLE>
- ----------
(A) LO=Locked Out, DEF=Defeasance, YM=Yield Maintenance, PP=Percentage Premium.
S-56
<PAGE>
PREPAYMENT LOCK-OUT/PREMIUM ANALYSIS
<TABLE>
<CAPTION>
Current 12 Mo. 24 Mo. 36 Mo. 48 Mo. 60 Mo. 72 Mo. 84 Mo.
Prepayment September September September September September September September September
Restrictions 1998 1999 2000 2001 2002 2003 2004 2005
------------ ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Locked Out 94.0% 93.8% 93.1% 91.0% 83.6% 64.0% 63.6% 62.2%
Yield Maintenance 6.0 6.2 6.9 8.5 15.8 35.0 34.8 34.6
Percentage Premium
5.00% and greater 0.0 0.0 0.0 0.0 0.2 0.5 0.0 0.3
4.00 to 4.99% 0.0 0.0 0.0 0.1 0.0 0.2 0.5 0.0
3.00 to 3.99% 0.0 0.0 0.0 0.0 0.1 0.0 0.2 2.2
2.00 to 2.99% 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.2
1.00 to 1.99% 0.0 0.0 0.0 0.4 0.2 0.1 0.1 0.4
Open 0.0 0.0 0.0 0.0 0.2 0.1 0.8 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
TOTALS 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Mortgage Pool
Balance
($millions) $2,891.3 $2,859.8 $2,826.4 $2,789.8 $2,740.8 $2,691.0 $2,641.8 $2,398.2
% of Initial Pool
Balance 100.0% 98.9% 97.8% 96.5% 94.8% 93.1% 91.4% 82.9%
<CAPTION>
Current 96 Mo. 108 Mo. 120 Mo. 132 Mo. 144 Mo. 156 Mo. 168 Mo. 180 Mo.
Prepayment September September September September September September September September
Restrictions 2006 2007 2008 2009 2010 2011 2012 2013
------------ ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Locked Out 61.4% 40.5% 53.0% 45.0% 53.0% 51.7% 47.2% 28.8%
Yield Maintenance 33.7 23.9 34.4 35.4 36.6 37.8 35.3 51.4
Percentage Premium
5.00% and greater 0.6 0.1 6.3 0.0 0.0 0.0 0.0 10.4
4.00 to 4.99% 0.0 0.2 0.1 6.5 0.0 0.0 0.0 0.0
3.00 to 3.99% 0.1 0.0 1.2 0.1 7.7 0.0 0.0 0.0
2.00 to 2.99% 1.9 0.0 0.0 1.3 0.1 7.8 0.0 0.0
1.00 to 1.99% 0.6 0.5 0.4 0.4 2.0 0.5 6.0 2.8
Open 1.8 34.8 4.5 11.3 0.7 2.2 11.4 6.6
- ------------------------------------------------------------------------------------------------------------------------------------
TOTALS 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Mortgage Pool
Balance
($millions) $2,351.7 $2,259.2 $ 404.8 $ 379.1 $ 307.1 $ 287.6 $ 266.1 $ 117.0
% of Initial Pool
Balance 81.3% 78.1% 14.0% 13.1% 10.6% 9.9% 9.2% 4.0%
</TABLE>
S-57
<PAGE>
The Sellers
On or prior to the Closing Date, the Depositor will acquire the Mortgage
Loans from the Sellers pursuant to separate agreements (the "Mortgage Loan
Purchase Agreements "). The Sellers acquired or originated the Mortgage Loans as
described above under "--General."
On or prior to the Closing Date, the Depositor will transfer the Mortgage
Loans, without recourse, to the Trustee for the benefit of the
Certificateholders. In connection with such transfer, the Depositor will require
each Seller to deliver to the Trustee or to a document custodian appointed by
the Trustee (a "Custodian"), among other things, the following documents with
respect to each Mortgage Loan (collectively, as to each Mortgage Loan, the
"Mortgage File"): (i) the original Mortgage Note, endorsed, without recourse, to
the order of the Trustee or in blank; (ii) the original or a copy of the
Mortgage, together with an original or copy of any intervening assignments of
the Mortgage, in each case with evidence of recording indicated thereon; (iii)
the original or a copy of any related assignment of leases (if such item is a
document separate from the Mortgage), together with an original or a copy of any
intervening assignments of any such assignments of leases, in each case with
evidence of recording indicated thereon (any of which assignments, however, to
the extent included in a related assignment of Mortgage need not be a separate
instrument); (iv) an original assignment of the Mortgage in favor of the Trustee
or in blank and in recordable form (but for the insertion of the name of the
assignee and any related recording information which is not yet available to the
Depositor or applicable Seller); (v) an original assignment of any related
assignment of leases (if such item is a document separate from the Mortgage) in
favor of the Trustee or in blank and in recordable form (but for the insertion
of the name of the assignee and any related recording information which is not
yet available to the Depositor or applicable Seller), any of which assignment,
to the extent included in a related assignment of Mortgage, need not be a
separate instrument; (vi) originals or copies of all written modification
agreements in those instances in which the terms or provisions of the Mortgage
or Mortgage Note have been modified; (vii) the original or a copy of the policy
or certificate of lender's title insurance issued on the date of the origination
of such Mortgage Loan, or, if such policy has not been issued, an irrevocable,
binding commitment (which may refer to a pro forma or specimen title insurance
policy) to issue such title insurance policy; (viii) any file copies of any UCC
financing statements in the possession of the applicable Seller; and (ix) an
original assignment in favor of the Trustee or in blank of any financing
statement executed and in a form suitable for filing or recording (but for the
insertion of the name of the assignee and any related filing or recording
information which is not yet available to the Depositor or applicable Seller).
Assignment of the Mortgage Loans; Repurchases and Substitutions
The Trustee or a Custodian on its behalf will be required to review each
Mortgage File within a specified period following its receipt thereof. If any of
the above-described documents is found during the course of such review to be
missing from any Mortgage File or defective, and in either case such omission or
defect materially and adversely affects the interests of the Certificateholders
or the value of the affected Mortgage Loan, the applicable Seller, if it cannot
deliver the document or cure the defect (other than omissions solely due to a
document not having been returned by the related recording office) within a
period of 90 days following its receipt of notice thereof, will be obligated
pursuant to the applicable Mortgage Loan Purchase Agreement (the relevant rights
under which will be assigned by the Depositor to the Trustee) to (1) repurchase
the affected Mortgage Loan within such 90-day period at a price (the "Purchase
Price") generally equal to the sum of (i) the unpaid principal balance of such
Mortgage Loan,(ii) unpaid accrued interest on such Mortgage Loan (calculated at
the applicable Mortgage Rate) to but not including the Due Date in the
Collection Period in which the purchase is to occur and (iii) certain Additional
Trust Fund Expenses in respect of such Mortgage Loan, including but not limited
to, servicing expenses that are reimbursable to the Master Servicer, the Special
Servicer or the Trustee plus any interest thereon and on any related P&I
Advances or (2) substitute a Qualified Substitute Mortgage Loan for such
Mortgage Loan and pay the Trustee a shortfall amount equal to the difference
between the Purchase Price of the deleted Mortgage Loan calculated as of the
date of substitution and the Stated Principal Balance of such Qualified
Substitute Mortgage Loan as of the date of substitution (the "Substitution
Shortfall Amount"); provided, that such Seller will have an additional 90-day
period to deliver the document or cure the defect, as the case may be, if it is
diligently proceeding to effect such delivery or cure, has delivered to the
Trustee an officer's certificate that describes the reasons that such delivery
or cure was not effected within the first 90-day cure period and the actions it
proposes to take to effect such delivery or cure, and which states that it
anticipates such delivery or cure will be effected within the additional 90-day
period, and such defect does not relate to any Mortgage Loan not being treated
as a "qualified mortgage" within the meaning of the REMIC Provisions. The
foregoing repurchase or substitution obligation will constitute the sole remedy
available to the
S-58
<PAGE>
Certificateholders and the Trustee for any uncured failure to deliver, or any
uncured defect in, a constituent Mortgage Loan document. The applicable Seller
will be solely responsible for such repurchase or substitution obligation, and
such obligation will not be the responsibility of the Depositor or any of its
other affiliates.
The Pooling and Servicing Agreement will require that each of the
assignments described in clauses (iv), (v) and (ix) of the second preceding
paragraph be promptly (and in any event within 45 days after the later of the
delivery of a complete Mortgage File or the Closing Date) submitted for
recording or filing in the appropriate public office for real property records
or UCC financing statement records.
A "Qualified Substitute Mortgage Loan" is a mortgage loan which must, on
the date of substitution: (i) have an outstanding Stated Principal Balance,
after application of all scheduled payments of principal and interest due during
or prior to the month of substitution, not in excess of the Stated Principal
Balance of the deleted Mortgage Loan as of the Due Date in the calendar month
during which the substitution occurs; (ii) have a Mortgage Rate not less than
the Mortgage Rate of the deleted Mortgage Loan; (iii) have the same Due Date as
the deleted Mortgage Loan; (iv) accrue interest on the same basis as the deleted
Mortgage Loan (for example, on the basis of a 360-day year consisting of twelve
30-day months); (v) have a remaining term to stated maturity not greater than,
and not more than two years less than, the remaining term to stated maturity of
the deleted Mortgage Loan; (vi) have an original loan-to-value ratio not higher
than that of the deleted Mortgage Loan and a current loan-to-value ratio not
higher than the then-current loan-to-value ratio of the deleted Mortgage Loan;
(vii) comply as of the date of substitution with all of the representations and
warranties set forth in the applicable Mortgage Loan Purchase Agreement; (viii)
have an environmental report with respect to the related Mortgaged Property
which will be delivered as a part of the related Mortgage File; (ix) have an
original debt service coverage ratio not less than the original debt service
coverage ratio of the deleted Mortgage Loan; (x) at the Trustee's request, be
determined by an Opinion of Counsel to be a "qualified replacement mortgage"
within the meaning of Section 860G(a)(4) of the Code; (xi) not have a maturity
date after the date three years prior to the Rated Final Distribution Date;
(xii) not be substituted for a deleted Mortgage Loan unless the Trustee has
received prior confirmation in writing by each Rating Agency that such
substitution will not result in the withdrawal, downgrade, or qualification of
the rating assigned by the Rating Agency to any Class of Certificates then rated
by the Rating Agency (the cost, if any, of obtaining such confirmation to be
paid by the applicable Seller); and (xiii) not be substituted for a deleted
Mortgage Loan if it would result in the termination of the REMIC status of any
of the REMICs or the imposition of tax on any of the REMICs other than a tax on
income expressly permitted or contemplated to be received by the terms of the
Pooling and Servicing Agreement; provided, subject to certain limitations, the
Controlling Class Representative will have the right to approve such
substitutions. In the event that one or more mortgage loans are substituted for
one or more deleted Mortgage Loans, then the amounts described in clause (i)
shall be determined on the basis of aggregate principal balances and the rates
described in clause (ii) above and the remaining term to stated maturity
referred to in clause (v) above shall be determined on a weighted average basis.
When a Qualified Substitute Mortgage Loan is substituted for a deleted Mortgage
Loan, the applicable Seller shall certify that such Mortgage Loan meets all of
the requirements of the above definition and shall send such certification to
the Trustee.
Representations and Warranties; Repurchases and Substitutions
In each Mortgage Loan Purchase Agreement, the applicable Seller will
represent and warrant with respect to each related Mortgage Loan (subject to
certain exceptions specified in the related Mortgage Loan Purchase Agreement),
as of the Closing Date, or as of such other date specifically provided in the
representation and warranty, among other things, generally that: (i) the
information set forth in the schedule of Mortgage Loans attached to the
applicable Mortgage Loan Purchase Agreement (which contains certain of the
information set forth in Annex A) is true and correct in all material respects
as of the Cut-Off Date; (ii) the applicable Seller owns the Mortgage Loan, has
full right and authority to sell, transfer and assign such Mortgage Loan and is
transferring the Mortgage Loan free and clear of any and all liens, pledges,
charges or security interests; (iii) the proceeds of the Mortgage Loan have been
fully disbursed and there is no requirement for future advances thereunder; (iv)
each of the related Mortgage Note, related Mortgage and other agreements
executed in connection therewith is the legal, valid and binding obligation of
the maker thereof (subject to any non-recourse provisions contained in any of
the foregoing agreements and any applicable state anti-deficiency or market
value deficiency legislation), enforceable in accordance with its terms, except
as such enforcement may be limited by bankruptcy, insolvency, reorganization,
liquidation, receivership, moratorium or other laws affecting the enforcement of
creditors' rights, and by general principles of equity (regardless of whether
such enforcement is considered in a proceeding in equity or at law); (v) the
assignment of the
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<PAGE>
related Mortgage to the Trustee on behalf of the Certificateholders constitutes
the legal, valid, binding and enforceable assignment of such Mortgage, except as
the enforcement of such assignment may be limited by bankruptcy, insolvency,
reorganization, liquidation, receivership, moratorium or other laws relating to
or affecting creditors' rights or by general principles of equity (regardless of
whether such enforcement is considered in a proceeding in equity or at law);
(vi) the related Mortgage is a valid and enforceable first priority lien on the
related Mortgaged Property in the outstanding principal amount of the related
Mortgage Loan, except for (A) the lien of current real property taxes, ground
rents, water charges, sewer rents and assessments not yet delinquent or accruing
interest or penalties, (B) covenants, conditions and restrictions, rights of
way, easements and other matters that are of public record, and (C) the
exceptions set forth in the related title insurance policy; (vii) taxes
(including taxes payable in future installments) that would be a lien on the
related Mortgaged Property and that prior to the Cut-Off Date have become
delinquent were paid, or an escrow of funds sufficient to cover such payment had
been established; (viii) as of the Cut-Off Date, no scheduled payment of
principal or interest was more than 30 days past due; (ix) there is no
proceeding pending for the total or partial condemnation of any material portion
of the related Mortgaged Property and to the applicable Seller's knowledge, the
Mortgaged Property is free and clear of any material damage that would
materially and adversely affect its value as security for the Mortgage Loan; (x)
the related Mortgaged Property is covered by a lender's title insurance policy
(or a pro forma or specimen policy, escrow letter or a marked up title insurance
commitment on which the required premium has been paid which evidence that such
title insurance policy will be issued) insuring that the related Mortgage is a
valid first lien on such Mortgaged Property, subject only to the exceptions
stated therein; (xi) each Mortgage Loan represents a "qualified mortgage" within
the meaning of Section 860G(a)(3) of the Code; (xii) any Prepayment Premium
constitutes a "customary prepayment penalty" within the meaning of Treasury
Regulations Section 1.860G-l(b)(2); and (xiii) the applicable Seller has no
knowledge of any material and adverse environmental condition or circumstance
affecting any Mortgaged Property that was not disclosed in the report of the
environmental assessment of the Mortgaged Property.
In the case of a breach of any of the foregoing representations and
warranties that materially and adversely affects the interests of the
Certificateholders or the value of the affected Mortgage Loan, the applicable
Seller, if it cannot cure such breach within a period of 90 days following its
receipt of notice thereof, will be obligated pursuant to the applicable Mortgage
Loan Purchase Agreement (the relevant rights under which will be assigned by the
Depositor to the Trustee) to either substitute a Qualified Substitute Mortgage
Loan and pay any Substitution Shortfall Amount or to repurchase the affected
Mortgage Loan within such 90-day period at the applicable Purchase Price;
provided, that such Seller will generally have an additional 90-day period to
cure such breach if it is diligently proceeding with such cure, and has
delivered to the Trustee an officer's certificate that describes the reasons
that a cure was not effected within the first 90-day cure period and the actions
it proposes to take to effect such cure and which states that it anticipates
such cure will be effected within the additional 90-day period.
The foregoing substitution or repurchase obligation will constitute the
sole remedy available to the Certificateholders and the Trustee for any uncured
breach of the applicable Seller's representations and warranties regarding the
applicable Mortgage Loans. The applicable Seller will be the sole warranting
party in respect of the Mortgage Loans sold by such Seller to the Depositor, and
neither the Depositor nor any of its other affiliates will be obligated to
substitute or repurchase any such affected Mortgage Loan in connection with a
breach of the applicable Seller's representations and warranties if the
applicable Seller defaults on its obligation to do so.
Changes in Mortgage Pool Characteristics
The description in this Prospectus Supplement of the Mortgage Pool and the
Mortgaged Properties is based upon the Mortgage Pool as expected to be
constituted at the time the Offered Certificates are issued. Prior to the
issuance of the Offered Certificates, a Mortgage Loan may be removed from the
Mortgage Pool if the Depositor deems such removal necessary or appropriate or if
it is prepaid. A limited number of other mortgage loans may be included in the
Mortgage Pool prior to the issuance of the Offered Certificates, unless
including such mortgage loans would materially alter the characteristics of the
Mortgage Pool as described herein. The Depositor believes that the information
set forth herein will be representative of the characteristics of the Mortgage
Pool as it will be constituted at the time the Offered Certificates are issued,
although the range of Mortgage Rates, maturities and certain other
characteristics of such Mortgage Loans may vary.
A Current Report on Form 8-K (the "Form 8-K") will be available to
purchasers of the Offered Certificates on or shortly after the Closing Date and
will be filed, together with the Pooling and Servicing Agreement, with the
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Securities and Exchange Commission within fifteen days after the initial
issuance of the Offered Certificates. If Mortgage Loans are removed from or
added to the Mortgage Pool as described in the preceding paragraph, such removal
or addition will be noted in the Form 8-K.
MASTER SERVICER AND SPECIAL SERVICER
Midland Loan Services, L.P., was organized under the laws of the State of
Missouri in 1992 as a limited partnership. On April 3, 1998, substantially all
of the assets of Midland Loan Services, L.P., were acquired by Midland Loan
Services, Inc. ("Midland"), a newly formed, wholly owned subsidiary of PNC Bank,
National Association ("PNC"). Midland is a real estate financial services
company that provides loan servicing and asset management for large pools of
commercial and multifamily real estate assets and that originates commercial
real estate loans. Midland's address is 210 West 10th Street, 6th Floor, Kansas
City, Missouri 64105. Midland will serve as the Master Servicer and the initial
Special Servicer for the Trust Fund under the Pooling and Servicing Agreement.
In addition, Midland (or its predecessor in interest, Midland Loan Services,
L.P.) and its affiliates are the Sellerwith respect to 119 of the Mortgage
Loans. See "DESCRIPTION OF THE MORTGAGE POOL--TheSellers" herein.
As of July 31, 1998, Midland was responsible for the servicing of
approximately 12,600 commercial and multifamily loans with an aggregate
principal balance of approximately $29.6 billion the collateral for which is
located in all 50 states, Puerto Rico and the District of Columbia. With respect
to such loans, approximately 10,250 loans with an aggregate principal balance of
approximately $20.5 billion pertain to commercial and multifamily
mortgage-backed securities. Property type concentrations within the portfolio
include multifamily, office, retail, hospitality and other types of income
producing properties. Midland also provides commercial loan servicing for
newly-originated loans and loans acquired in the secondary market on behalf of
issuers of commercial and multifamily mortgage-backed securities, financial
institutions and private investors.
Midland provides asset management and disposition services for commercial
and multifamily mortgage-backed securities transactions and transactions for
private investors. As of June 30, 1998, Midland provided such services for 27
transactions with original aggregate asset balances in excess of $9.5 billion.
Midland and its affiliates have liquidated, disposed of or otherwise resolved
approximately 2,250 assets with net recoveries of more than $2.4 billion.
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The following delinquency tables set forth information concerning the
delinquency experience on commercial and multifamily mortgage loans serviced by
the Master Servicer (including loans serviced by Midland Loan Services, L.P.
prior to April 3, 1998) for commercial mortgage-backed securities transactions
(the "CMBS Portfolio"). The CMBS Portfolio does not include mortgage loans
included in distressed RTC portfolios.
<TABLE>
<CAPTION>
As of December 31,
--------------------------------------------------------------------------------------
1995 1996 1997
-------------------------- -------------------------- --------------------------
By By Dollar By By Dollar By By Dollar
No. of Amount No. of Amount No. of Amount
Loans of Loans Loans of Loans Loans of Loans
----------- ----------- ----------- ----------- ----------- -----------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total Portfolio ........ 651 $ 1,899,207 2,782 $ 6,557,024 4,290 $13,284,970
=========== =========== =========== =========== =========== ===========
Period of delinquency(1)
30-59 days ........... 16 $ 80,888 198 $ 89,419 96 $ 140,191
60 to 89 days ........ 3 1,372 17 10,479 27 13,381
90 days or more(2) ... 6 49,607 18 33,898 78 155,223
----------- ----------- ----------- ----------- ----------- -----------
Total delinquent loans . 25 $ 131,866 233 $ 133,795 201 $ 308,795
=========== =========== =========== =========== =========== ===========
Percent of portfolio ... 4% 7% 8% 2% 5% 2%
=========== =========== =========== =========== =========== ===========
</TABLE>
(1) The indicated periods of delinquency are based on the number of days past
due on a contractual basis, based on a 30-day month. No mortgage loan is
considered delinquent for these purposes until the monthly anniversary of
its contractual due date (e.g., a mortgage loan with a payment due on
January 1 would first be considered delinquent on February 1), at which
time such mortgage loan is considered 30 days delinquent. The delinquencies
reported above were determined as of the dates indicated.
(2) Includes pending foreclosures.
<TABLE>
<CAPTION>
As of June 30,
--------------------------------------------------------
1997 1998
-------------------------- --------------------------
By By Dollar By By Dollar
No. of Amount No. of Amount
Loans of Loans Loan of Loans
----------- ----------- ----------- -----------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C>
Total Portfolio ........ 3,504 $10,911,715 4,923 $17,119,746
=========== =========== =========== ===========
Period of delinquency(1)
30-59 days ........... 180 $ 65,609 38 $ 24,196
60 to 89 days ........ 19 20,812 14 23,791
90 days or more(2) ... 44 93,282 97 74,112
----------- ----------- ----------- -----------
Total delinquent loans . 243 $ 179,704 149 $ 122,100
=========== =========== =========== ===========
Percent of portfolio ... 6.9% 1.6% 3.0% 0.7%
=========== =========== =========== ===========
</TABLE>
(1) The indicated periods of delinquency are based on the number of days past
due on a contractual basis, based on a 30-day month. No mortgage loan is
considered delinquent for these purposes until the monthly anniversary of
its contractual due date (e.g., a mortgage loan with a payment due on
January 1 would first be considered delinquent on February 1), at which
time such mortgage loan is considered 30 days delinquent. The delinquencies
reported above were determined as of the dates indicated.
(2) Includes pending foreclosures.
Management of Midland believes that because the delinquency rate for the
CMBS Portfolio is relatively low, any changes in delinquency levels from period
to period are not due to any overall market trends, but rather are primarily due
to variations in the size of the CMBS Portfolio, as well as individual property
level economics and circumstances unique to individual borrowers.
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The delinquency experience set forth above is historical and is based on
the servicing of mortgage loans that may not be representative of the Mortgage
Loans in the Mortgage Pool. Consequently, there can be no assurance that the
delinquency experience on the Mortgage Loans in the Mortgage Pool will be
consistent with the data set forth above. In addition, most of the mortgage
loans included in the CMBS Portfolio were originated by persons that are not
affiliated with the Master Servicer and were not reunderwritten by the Master
Servicer or its affiliates. These mortgage loans were originated by numerous
entities over a long period of time in accordance with a variety of underwriting
policies and standards that may be materially different from those used to
underwrite the Mortgage Loans included in the Mortgage Pool. Furthermore, some
of the mortgage loans included in the CMBS Portfolio and some of the Mortgage
Loans in the Mortgage Pool are being primary serviced or sub-serviced by third
parties.
The CMBS Portfolio includes many mortgage loans which have not been
outstanding long enough to have seasoned to a point where delinquencies would be
fully reflected. In the absence of substantial continuous additions of servicing
for recently originated mortgage loans to the CMBS Portfolio, it is possible
that the delinquency percentages experienced in the future could be
significantly higher than those indicated in the tables above.
It should be noted that if the commercial and/or multifamily real estate
market should experience an overall decline in property values, the actual rates
of delinquencies could be higher than those previously experienced by the Master
Servicer. In addition, adverse economic conditions may affect the timely payment
of scheduled payments of principal and interest on the Mortgage Loans and,
accordingly, the actual rates of delinquencies with respect to the Mortgage
Pool.
Midland has been approved as a master and special servicer for investment
grade commercial and multifamily mortgage-backed securities by Fitch IBCA, Inc.
("Fitch") and S&P Midland is ranked "Strong" as a commercial loan servicer and
asset manager and "Above Average" as a master servicer by S&P, and "Acceptable"
as a master servicer and "Above Average" as a special servicer by Fitch. S&P
ranks commercial loan servicers, asset managers and master servicers in one of
five rating categories: Strong, Above Average, Average, Below Average and Weak.
Fitch ranks special servicers in one of five categories: Superior, Above
Average, Average, Below Average and Unacceptable. Fitch ranks master servicers
as Acceptable or Unacceptable.
The information concerning Midland set forth above has been provided by
Midland and none of the Trustee, the Sellers or the Underwriters make any
representation or warranty as to the accuracy thereof.
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement and will consist of various Classes of Certificates, designated as (i)
the Class A-1, Class A-2 and Class A-3 Certificates (collectively, the "Class A
Certificates"), (ii) the Class X Certificates (the "Class X Certificates" and
together with the Class A Certificates, the "Senior Certificates") and (iii) the
Class B, Class C, Class D, Class E, Class F, Class G, Class H, Class J, Class K,
Class L and Class M Certificates (collectively, the "Subordinate Certificates")
and one or more classes of residual certificates. The Pooling and Servicing
Agreement will be included as part of the Form 8-K to be filed with the
Commission within 15 days after the Closing Date. See "THE POOLING AND SERVICING
AGREEMENT" herein and "DESCRIPTION OF THE CERTIFICATES" and "SERVICING OF THE
MORTGAGE LOANS" in the Prospectus for more important additional information
regarding the terms of the Pooling and Servicing Agreement and the Certificates.
The Certificates represent in the aggregate the entire beneficial ownership
interest in a Trust Fund consisting primarily of: (i) the Mortgage Loans and
principal due after the Cut-Off Date and all payments under and proceeds of the
Mortgage Loans received on and after the Cut-Off Date (exclusive of principal
prepayments received prior to the Cut-Off Date and scheduled payments of
principal and interest due before the Cut-Off Date); (ii) any Mortgaged Property
acquired on behalf of the Trust Fund through foreclosure, deed-in-lieu of
foreclosure or otherwise (upon acquisition, an "REO Property"); (iii) such funds
or assets as from time to time are deposited in the Certificate Account, the
Distribution Account and any account established in connection with REO
Properties (an "REO Account"); (iv) the rights of the mortgagee under all
insurance policies with respect to the Mortgage Loans; (v) the Depositor's
rights and remedies under the applicable Mortgage Loan Purchase Agreement; and
(vi) all of the mortgagee's right, title and interest in the reserve accounts.
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Certificate Balances and Notional Amounts
Upon initial issuance, and in each case subject to a permitted variance of
plus or minus 5%, the Sequential Pay Certificates will have the Certificate
Balances, representing the approximate percentage of the Initial Pool Balance as
set forth in the following table: Percent of Initial
Initial Pool
Class of Certificate Certificate Balance Balance
-------------------- ------------------- ---------
Class A-1 .................... $515,016,000 17.8%
Class A-2 .................... $837,749,000 29.0%
Class A-3 .................... $671,128,000 23.2%
Class B ...................... $144,564,000 5.00%
Class C ...................... $173,477,000 6.00%
Class D ...................... $173,476,000 6.00%
Class E ...................... $ 43,369,000 1.50%
Class F ...................... $122,880,000 4.25%
Class G ...................... $ 21,684,000 0.75%
Class H ...................... $ 36,141,000 1.25%
Class J ...................... $ 65,054,000 2.25%
Class K ...................... $ 21,684,000 0.75%
Class L ...................... $ 21,685,000 0.75%
Class M ...................... $ 43,369,720 1.50%
The "Certificate Balance" of any Class of Sequential Pay Certificates
outstanding at any time represents the maximum amount that the holders thereof
are entitled to receive as distributions allocable to principal from the cash
flow on the Mortgage Loans and the other assets in the Trust Fund. The
Certificate Balance of each Class of Sequential Pay Certificates will be reduced
on each Distribution Date by any distributions of principal actually made on
such Class of Certificates on such Distribution Date, and further by any
Realized Losses and Additional Trust Fund Expenses that are allocated to such
Class of Certificates on such Distribution Date pursuant to the terms of the
Pooling and Servicing Agreement.
The Class X Certificates will not have a principal balance, but will
represent the right to receive distributions of interest accrued on the
respective Notional Amount of each of its Components (each a "Component"), as
described herein. Each such Component will relate to each separate Class of
Sequential Pay Certificates with the same Class designation. As of any
Distribution Date, each Component will have a Notional Amount equal to the
Certificate Balance of the related Class of Sequential Pay Certificates
immediately prior to such Distribution Date. The Components do not represent
separate Classes of Certificates, but rather separate components, each of which
is a part of the Class X Certificates. None of the Residual Certificates will
have a Certificate Balance.
Pass-Through Rates
The Pass-Through Rate applicable to each Class of Sequential Pay
Certificates for each Distribution Date is set forth in the table at the
beginning of the Summary. The Pass-Through Rates for the Class B, Class C, Class
D and Class E Certificates are variable and will equal the Weighted Average Net
Mortgage Rate minus 0.97%, 0.78%, 0.34% and 0%, respectively.
The Class X Certificates will receive payments of interest equal to the
aggregate of the interest accrued on the Notional Amount of each of its
Components. Each Component will accrue interest at its applicable Strip Rate on
its related Notional Amount. The Strip Rate applicable to the Class A-1, Class
A-2 and Class A-3 Components for each Distribution Date will equal the Weighted
Average Net Mortgage Rate for such Distribution Date minus 5.80%, 6.03% and
6.04%, respectively (but not less than zero); the Strip Rate applicable to the
Class B, Class C, Class D and Class E Components for each Distribution Date will
equal 0.97%, 0.78%, 0.34% and 0%, respectively; and the Strip Rate applicable to
the Class F, Class G, Class H, Class J, Class K, Class L and Class M Components
for each Distribution Date will each equal the Weighted Average Net Mortgage
Rate for such Distribution Date minus 5.44% (but not less than zero).
The residual certificates will not bear interest, but will represent the
right to receive certain limited amounts not otherwise payable on the Sequential
Pay and the Class X Certificates.
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The "Weighted Average Net Mortgage Rate" for each Distribution Date is the
weighted average of the Net Mortgage Rates for the Mortgage Loans as of the
commencement of the related Collection Period (as defined herein), weighted on
the basis of their respective Stated Principal Balances outstanding immediately
prior to such Distribution Date. The "Net Mortgage Rate" for each Mortgage Loan
will equal (x) the Mortgage Rate in effect for such Mortgage Loan as of the
Cut-Off Date, minus (y) the Administrative Cost Rate for such Mortgage Loan;
provided, that if any Mortgage Loan does not accrue interest on the basis of a
360-day year consisting of twelve 30-day months (which is the basis on which
interest accrues in respect of the Sequential Pay Certificates), then, solely
for the purpose of calculating the Weighted Average Net Mortgage Rate, the
Mortgage Rate referred to in clause (x) and the Master Servicing Fee Rate will,
to the extent appropriate, be adjusted from accrual period to accrual period to
compensate for such difference. The "Stated Principal Balance" of each Mortgage
Loan outstanding at any time represents the principal balance of such Mortgage
Loan ultimately due and payable thereon and generally will equal the Cut-Off
Date Balance thereof, reduced on each Distribution Date (to not less than zero)
by (i) any payments or other collections (or advances in lieu thereof) of
principal on such Mortgage Loan that are due or received, as the case may be,
during the related Collection Period and distributed on the Certificates on such
Distribution Date and (ii) the principal portion of any Realized Loss incurred
in respect of such Mortgage Loan during the related Collection Period for such
Distribution Date. Notwithstanding the foregoing, if any Mortgage Loan is paid
in full, liquidated or otherwise removed from the Trust Fund, commencing as of
the first Distribution Date following the Collection Period during which such
event occurred, the Stated Principal Balance of such Mortgage Loan will be zero.
See "DESCRIPTION OF THE CERTIFICATES--Pass-Through Rates" herein.
The "Collection Period" for each Distribution Date will be the period that
begins immediately following the Determination Date in the month preceding the
month in which such Distribution Date occurs (or, in the case of the initial
Distribution Date, immediately following the Cut-Off Date) and ends on and
includes the Determination Date in the same month as such Distribution Date. The
"Determination Date" will be the 10th day of each month (or, if not a business
day, the next succeeding business day).
Distributions
General. Distributions on the Certificates will be made by the Trustee, to
the extent of available funds, on the 15th day of each month or, if any such
15th day is not a business day, then on the next succeeding business day with
the same force and effect and no additional interest shall accrue, commencing
October 16, 1998 (each, a "Distribution Date"); provided, however, that the
Distribution Date will be no earlier than the fourth business day following the
related Determination Date. Except as described below, all such distributions
will be made to the persons in whose names the Certificates are registered (the
"Certificateholders") at the close of business on the last business day of the
month preceding the month in which the related Distribution Date occurs (the
"Record Date") and shall be made by wire transfer of immediately available
funds, if such Certificateholder shall have provided written wiring instructions
to the Trustee no less than five business days prior to such Record Date, or
otherwise by check mailed to the address of such Certificateholder as it appears
in the Certificate register. The final distribution on any Certificate
(determined without regard to any possible future reimbursement of any Realized
Loss or Additional Trust Fund Expense previously allocated to such Certificate)
will be made only upon presentation and surrender of such Certificate at the
location that will be specified in a notice of the pendency of such final
distribution. All distributions made with respect to a Class of Certificates
will be allocated pro rata among the outstanding Certificates of such Class
based on their respective percentage interests in such Class.
The Available Distribution Amount. The aggregate amount available for
distribution to Certificateholders on each Distribution Date (the "Available
Distribution Amount") will, in general, equal the sum of thefollowing amounts:
(a) the total amount of all cash due after the Cut-Off Date and
received on or in respect of the Mortgage Loans and any REO Properties by
the Master Servicer as of the close of business on the related
Determination Date, exclusive of any portion thereof that represents one or
more of the following:
(i) any Periodic Payments collected but due on a Due Date after
the related Collection Period,
(ii) any Prepayment Premiums,
(iii) all amounts in the Certificate Account that are payable or
reimbursable to any person other than the Certificateholders,
including any Servicing Fees and Trustee Fees and any Additional
TrustFund Expenses, and
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<PAGE>
(iv) amounts deposited in the Certificate Account in error;
(b) all P&I Advances made by the Master Servicer or the Trustee with
respect to such Distribution Date;
(c) any Compensating Interest Payment made by the Master Servicer to
cover the aggregate of any Prepayment Interest Shortfalls experienced
during the related Collection Period. See "THE POOLING AND SERVICING
AGREEMENT--Servicing Compensation and Payment of Expenses","--Advances" and
"-- Accounts" herein.
Any Prepayment Premiums actually collected will be distributed separately
from the Available Distribution Amount. See "--Distributions--Allocation of
Prepayment Premiums" herein.
Application of Available Distribution Amount. On each Distribution Date,
for so long as the aggregate Certificate Balance of the Sequential Pay
Certificates is greater than zero, the Trustee will (except as otherwise
described under "--Optional Termination" below) apply the Available Distribution
Amount for such date for the following purposes and in the following order of
priority, in each case to the extent of the Available Distribution Amount:
(1) to distributions of interest to the holders of the Class A-1, Class
A-2, Class A-3 and Class X Certificates (in each case, so long as any such Class
remains outstanding), pro rata, in accordance with the respective amounts of
Distributable Certificate Interest (as defined herein) in respect of such
Classes of Certificates on such Distribution Date in an amount equal to all
Distributable Certificate Interest in respect of each such Class of Certificates
for such Distribution Date and, to the extent not previously paid, for all prior
Distribution Dates;
(2) to distributions of principal to the holders of the Class A-1
Certificates in an amount (not to exceed the then outstanding Certificate
Balance of such Class of Certificates) equal to the Principal Distribution
Amount (as defined herein) for such Distribution Date;
(3) after the Class A-1 Certificates have been retired, to distributions of
principal to the holders of the Class A-2 Certificates in an amount (not to
exceed the then outstanding Certificate Balance of such Class of Certificates)
equal to the Principal Distribution Amount for such Distribution Date, less any
portion thereof distributed in respect of the Class A-1 Certificates;
(4) after the Class A-1 and Class A-2 Certificates have been retired, to
distributions of principal to the holders of the Class A-3 Certificates in an
amount (not to exceed the then outstanding Certificate Balance of such Class of
Certificates outstanding immediately prior to such Distribution Date) equal to
the Principal Distribution Amount for such Distribution Date, less any portion
thereof distributed in respect of the Class A-1 and/or Class A-2 Certificates;
(5) to distributions to the holders of the Class A-1, Class A-2 and Class
A-3 Certificates, pro rata, in accordance with the amount of Realized Losses and
Additional Trust Fund Expenses, if any, previously allocated to such Classes of
Certificates for which no reimbursement has previously been received, plus
interest on any such Realized Losses or Additional Trust Fund Expenses, accrued
at the applicable Pass-Through Rate from the date such Realized Losses and/or
Additional Trust Fund Expenses were allocated to such Class;
(6) to distributions of interest to the holders of the Class B Certificates
in an amount equal to all Distributable Certificate Interest in respect of such
Class of Certificates for such Distribution Date and, to the extent not
previously paid, for all prior Distribution Dates;
(7) after the Class A-1, Class A-2 and Class A-3 Certificates have been
retired, to distributions of principal to the holders of the Class B
Certificates in an amount (not to exceed the then outstanding Certificate
Balance of such Class of Certificates) equal to the Principal Distribution
Amount for such Distribution Date, less any portion thereof distributed in
respect of the Class A-1, Class A-2 and/or Class A-3 Certificates on such
Distribution Date;
(8) to distributions to the holders of the Class B Certificates to
reimburse such holders for all Realized Losses and Additional Trust Fund
Expenses, if any, previously allocated to such Class of Certificates and for
which no reimbursement has previously been received, plus interest on any such
Realized Losses or Additional Trust Fund Expenses, accrued at the applicable
Pass-Through Rate from the date such Realized Losses and/or Additional Trust
Fund Expenses were allocated to such Class;
(9) to distributions of interest to the holders of the Class C Certificates
in an amount equal to all Distributable Certificate Interest in respect of such
Class of Certificates for such Distribution Date and, to the extent not
previously paid, for all prior Distribution Dates;
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(10) after the Class A-1, Class A-2, Class A-3 and Class B Certificates
have been retired, to distributions of principal to the holders of the Class C
Certificates in an amount (not to exceed the then outstanding Certificate
Balance of such Class of Certificates) equal to the Principal Distribution
Amount for such Distribution Date, less any portion thereof distributed in
respect of the Class A-1, Class A-2, Class A-3 and/or Class B Certificates on
such Distribution Date;
(11) to distributions to the holders of the Class C Certificates to
reimburse such holders for all Realized Losses and Additional Trust Fund
Expenses, if any, previously allocated to such Class of Certificates and for
which no reimbursement has previously been received, plus interest on any such
Realized Losses or Additional Trust Fund Expenses, accrued at the applicable
Pass-Through Rate from the date such Realized Losses and/or Additional Trust
Fund Expenses were allocated to such Class;
(12) to distributions of interest to the holders of the Class D
Certificates in an amount equal to all Distributable Certificate Interest in
respect of such Class of Certificates for such Distribution Date and, to the
extent not previously paid, for all prior Distribution Dates;
(13) after the Class A-1, Class A-2, Class A-3, Class B and Class C
Certificates have been retired, to distributions of principal to the holders of
the Class D Certificates in an amount (not to exceed the then outstanding
Certificate Balance of such Class of Certificates) equal to the Principal
Distribution Amount for such Distribution Date, less any portion thereof
distributed in respect of the Class A-1, Class A-2, Class A-3, Class B and/or
Class C Certificates on such Distribution Date;
(14) to distributions to the holders of the Class D Certificates to
reimburse such holders for all Realized Losses and Additional Trust Fund
Expenses, if any, previously allocated to such Class of Certificates and for
which no reimbursement has previously been received, plus interest on any such
Realized Losses or Additional Trust Fund Expenses, accrued at the applicable
Pass-Through Rate from the date such Realized Losses and/or Additional Trust
Fund Expenses were allocated to such Class;
(15) to distributions of interest to the holders of the Class E
Certificates in an amount equal to all Distributable Certificate Interest in
respect of such Class of Certificates for such Distribution Date and, to the
extent not previously paid, for all prior Distribution Dates;
(16) after the Class A-1, Class A-2, Class A-3, Class B, Class C and Class
D Certificates have been retired, to distributions of principal to the holders
of the Class E Certificates in an amount (not to exceed the then outstanding
Certificate Balance of such Class of Certificates) equal to the Principal
Distribution Amount for such Distribution Date, less any portion thereof
distributed in respect of the Class A-1, Class A-2, Class A-3, Class B, Class C
and/or Class D Certificates;
(17) to distributions to the holders of the Class E Certificates to
reimburse such holders for all Realized Losses and Additional Trust Fund
Expenses, if any, previously allocated to such Class of Certificates and for
which no reimbursement has previously been received, plus interest on any such
Realized Losses or Additional Trust Fund Expenses, accrued at the applicable
Pass-Through Rate from the date such Realized Losses and/or Additional Trust
Fund Expenses were allocated to such Class;
(18) to distributions of interest to the holders of the Class F
Certificates in an amount equal to all Distributable Certificate Interest in
respect of such Class of Certificates for such Distribution Date and, to the
extent not previously paid, for all prior Distribution Dates;
(19) after the Class A-1, Class A-2, Class A-3, Class B, Class C, Class D
and Class E Certificates have been retired, to distributions of principal to the
holders of the Class F Certificates in an amount (not to exceed the then
outstanding Certificate Balance of such Class of Certificates) equal to the
Principal Distribution Amount for such Distribution Date, less any portion
thereof distributed in respect of the Class A-1, Class A-2, Class A-3, Class B,
Class C, Class D and/or Class E Certificates;
(20) to distributions to the holders of the Class F Certificates to
reimburse such holders for all Realized Losses and Additional Trust Fund
Expenses, if any, previously allocated to such Class of Certificates and for
which no reimbursement has previously been received, plus interest on any such
Realized Losses or Additional Trust Fund Expenses, accrued at the applicable
Pass-Through Rate from the date such Realized Losses and/or Additional Trust
Fund Expenses were allocated to such Class;
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(21) to distributions of interest to the holders of the Class G
Certificates in an amount equal to all Distributable Certificate Interest in
respect of such Class of Certificates for such Distribution Date and, to the
extent not previously paid, for all prior Distribution Dates;
(22) after the Class A-1, Class A-2, Class A-3, Class B, Class C, Class D,
Class E and Class F Certificates have been retired, to distributions of
principal to the holders of the Class G Certificates in an amount (not to exceed
the then outstanding Certificate Balance of such Class of Certificates) equal to
the Principal Distribution Amount for such Distribution Date, less any portion
thereof distributed in respect of the Class A-1, Class A-2, Class A-3, Class B,
Class C, Class D, Class E and/or Class F Certificates;
(23) to distributions to the holders of the Class G Certificates to
reimburse such holders for all Realized Losses and Additional Trust Fund
Expenses, if any, previously allocated to such Class of Certificates and for
which no reimbursement has previously been received, plus interest on any such
Realized Losses or Additional Trust Fund Expenses, accrued at the applicable
Pass-Through Rate from the date such Realized Losses and/or Additional Trust
Fund Expenses were allocated to such Class;
(24) to distributions of interest to the holders of the Class H
Certificates in an amount equal to all Distributable Certificate Interest in
respect of such Class of Certificates for such Distribution Date and, to the
extent not previously paid, for all prior Distribution Dates;
(25) after the Class A-1, Class A-2, Class A-3 Class B, Class C, Class D,
Class E, Class F and Class G Certificates have been retired, to distributions of
principal to the holders of the Class H Certificates in an amount (not to exceed
the then outstanding Certificate Balance of such Class of Certificates) equal to
the Principal Distribution Amount for such Distribution Date, less any portion
thereof distributed in respect of the Class A-1, Class A-2, Class A-3, Class B,
Class C, Class D, Class E, Class F and/or Class G Certificates;
(26) to distributions to the holders of the Class H Certificates to
reimburse such holders for all Realized Losses and Additional Trust Fund
Expenses, if any, previously allocated to each such Class of Certificates and
for which no reimbursement has previously been received, plus interest on any
such Realized Losses or Additional Trust Fund Expenses, accrued at the
applicable Pass-Through Rate from the date such Realized Losses and/or
Additional Trust Fund Expenses were allocated to such Class;
(27) to distributions of interest to the holders of the Class J
Certificates in an amount equal to all Distributable Certificate Interest in
respect of such Class of Certificates for such Distribution Date and, to the
extent not previously paid, for all prior Distribution Dates;
(28) after the Class A-1, Class A-2, Class A-3, Class B, Class C, Class D,
Class E, Class F, Class G and Class H Certificates have been retired, to
distributions of principal to the holders of the Class J Certificates in an
amount (not to exceed the then outstanding Certificate Balance of such Class of
Certificates) equal to the Principal Distribution Amount for such Distribution
Date, less any portion thereof distributed in respect of the Class A-1, Class
A-2, Class A-3, Class B, Class C, Class D, Class E, Class F, Class G and/or
Class H Certificates;
(29) to distributions to the holders of the Class J Certificates to
reimburse such holders for all Realized Losses and Additional Trust Fund
Expenses, if any, previously allocated to each such Class of Certificates and
for which no reimbursement has previously been received, plus interest on any
such Realized Losses or Additional Trust Fund Expenses, accrued at the
applicable Pass-Through Rate from the date such Realized Losses and/or
Additional Trust Fund Expenses were allocated to such Class;
(30) to distributions of interest to the holders of the Class K
Certificates in an amount equal to all Distributable Certificate Interest in
respect of such Class of Certificates for such Distribution Date and, to the
extent not previously paid, for all prior Distribution Dates;
(31) after the Class A-1, Class A-2, Class A-3, Class B, Class C, Class D,
Class E, Class F, Class G, Class H and Class J Certificates have been retired,
to distributions of principal to the holders of the Class K Certificates in an
amount (not to exceed the then outstanding Certificate Balance of such Class of
Certificates) equal to the Principal Distribution Amount for such Distribution
Date, less any portion thereof distributed in respect of the Class A-1, Class
A-2, Class A-3, Class B, Class C, Class D, Class E, Class F, Class G, Class H
and/or Class J Certificates;
(32) to distributions to the holders of the Class K Certificates to
reimburse such holders for all Realized Losses and Additional Trust Fund
Expenses, if any, previously allocated to each such Class of Certificates and
for which no
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reimbursement has previously been received, plus interest on any such Realized
Losses or Additional Trust Fund Expenses, accrued at the applicable Pass-Through
Rate from the date such Realized Losses and/or Additional Trust Fund Expenses
were allocated to such Class; and
(33) to distributions of interest to the holders of the Class L
Certificates in an amount equal to all Distributable Certificate Interest in
respect of such Class of Certificates for such Distribution Date and, to the
extent not previously paid, for all prior Distribution Dates;
(34) after the Class A-1, Class A-2, Class A-3, Class B, Class C, Class D,
Class E, Class F, Class G, Class H, Class J and Class K Certificates have been
retired, to distributions of principal to the holders of Class L Certificates in
an amount (not to exceed the then outstanding Certificate Balance of such Class
of Certificates) equal to the Principal Distribution Amount for such
Distribution Date, less any portion thereof distributed in respect of the Class
A-1, Class A-2, Class A-3, Class B, Class C, Class D, Class E, Class F, Class G,
Class H, Class J and Class K Certificates;
(35) to distributions to the holders of the Class L Certificates to
reimburse such holders for all Realized Losses and Additional Trust Fund
Expenses, if any, previously allocated to each such Class of Certificates and
for which no reimbursement has previously been received, plus interest on any
such Realized Losses or Additional Trust Fund Expenses, accrued at the
applicable Pass-Through Rate from the date such Realized Losses and/or
Additional Trust Fund Expenses were allocated to such Class; and
(36) to distribution of interest to the holders of the Class M Certificates
in an amount equal to all Distributable Certificate Interest in respect of such
Class of Certificates for such Distribution Date and, to the extent not
previously paid, for all prior Distribution Dates;
(37) after the Class A-1, Class A-2, Class A-3, Class B, Class C, Class D,
Class E, Class F, Class G, Class H, Class J, Class K and Class L Certificates
have been retired, to distributions of principal to the holders of Class M
Certificates in an amount (not to exceed the then outstanding Certificate
Balance of such Class of Certificates) equal to the Principal Distribution
Amount for such Distribution Date, less any portion thereof distributed in
respect of the Class A-1, Class A-2, Class A-3, Class B, Class C, Class D, Class
E, Class F, Class G, Class H, Class J, Class K and Class L Certificates;
(38) to distributions to the holders of the Class M Certificates to
reimburse such holders for all Realized Losses and Additional Trust Fund
Expenses, if any, previously allocated to each such Class of Certificates and
for which no reimbursement has previously been received, plus interest on any
such Realized Losses or Additional Trust Fund Expenses, accrued at the
applicable Pass-Through Rate from the date such Realized Losses and/or
Additional Trust Fund Expenses were allocated to such Class; and
(39) to distributions to the holders of the residual certificates in an
amount equal to the balance, if any, of the Available Distribution Amount
remaining after the distributions to be made on such Distribution Date as
described in the above clauses.
After the Certificate Balance of the Subordinate Certificates has been
reduced to zero, distributions of principal will be made in respect of the Class
A Certificates, pro rata.
Distributable Certificate Interest. The "Distributable Certificate
Interest" in respect of any Class of Certificates for each Distribution Date
represents that portion of the Accrued Certificate Interest in respect of such
Class of Certificates and such Distribution Date reduced (to not less than zero)
by such Class's allocable share (calculated as described below) of the aggregate
of any Prepayment Interest Shortfalls resulting from voluntary principal
prepayments made on the Mortgage Loans (other than Specially Serviced Mortgage
Loans) during the related Collection Period that are not covered by the Master
Servicer's Compensating Interest Payment for such Distribution Date (the
aggregate of such Prepayment Interest Shortfalls that are not so covered, as to
such Distribution Date, the "Net Aggregate Prepayment Interest Shortfall").
The "Accrued Certificate Interest" in respect of each Class of Sequential
Pay Certificates for each Distribution Date is equal to one month's interest at
the Pass-Through Rate applicable to such Class of Certificates and such
Distribution Date accrued during the immediately preceding calendar month on the
related Certificate Balance outstanding immediately prior to such Distribution
Date. The "Accrued Certificate Interest" in respect of the Class X Certificates
for each Distribution Date is equal to the sum of one month's interest at the
Strip Rate applicable to each such Component and such Distribution Date accrued
during the immediately preceding calendar month on the related
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Notional Amount outstanding on each such Component immediately prior to such
Distribution Date. Accrued Certificate Interest will be calculated on a 30/360
day basis.
The portion of the Net Aggregate Prepayment Interest Shortfall for any
Distribution Date that is allocable to each Class of Regular Certificates will
equal the product of (a) such Net Aggregate Prepayment Interest Shortfall,
multiplied by (b) a fraction, the numerator of which is equal to the Accrued
Certificate Interest in respect of such Class of Certificates for such
Distribution Date, and the denominator of which is equal to the aggregate
Accrued Certificate Interest for all the Regular Certificates for such
Distribution Date.
Principal Distribution Amount. The "Principal Distribution Amount" for each
Distribution Date will generally equal the sum of:
(a) the aggregate of the principal portions of all Scheduled Payments
(other than Balloon Payments) due (to the extent received or advanced, and
the principal portions of any Assumed Scheduled Payments deemed due, on or
in respect of the Mortgage Loans for their respective Due Dates occurring
during the related Collection Period;
(b) the aggregate of all principal prepayments received on the
Mortgage Loans during the related Collection Period (including any
Remaining Cash Flow);
(c) with respect to any Mortgage Loan as to which the related stated
maturity date occurred during or prior to the related Collection Period,
any payment of principal made by or on behalf of the related borrower
during the related Collection Period (including any Balloon Payment), net
of any portion of such payment that represents a recovery of the principal
portion of any Scheduled Payment (other than a Balloon Payment) due or the
principal portion of any Assumed Scheduled Payment deemed due, in respect
of such Mortgage Loan on a Due Date during or prior to the related
Collection Period and not previously recovered;
(d) the aggregate of all liquidation proceeds and insurance proceeds,
condemnation awards, proceeds of Mortgage Loan repurchases and Substitution
Shortfall Amounts that were received on or in respect of Mortgage Loans or
REO Loans during the related Collection Period and that were identified and
applied by the Master Servicer as recoveries of principal, in each case net
of any portion of such amounts that represents a recovery of the principal
portion of any Scheduled Payment (other than a Balloon Payment) due, or of
the principal portion of any Assumed Scheduled Payment deemed due, in
respect of the related Mortgage Loan or REO Loan on a Due Date during or
prior to the related Collection Period and not previously recovered; and
(e) if such Distribution Date is subsequent to the initial
Distribution Date, the excess, if any, of the Principal Distribution Amount
for the immediately preceding Distribution Date, over the aggregate
distributions of principal made on the Certificates on such immediately
preceding Distribution Date.
The "Scheduled Payment" due on any Mortgage Loan on any related Due Date is
the amount of the Periodic Payment that is or would have been, as the case may
be, due thereon on such date, without regard to any waiver, modification or
amendment of such Mortgage Loan granted or agreed to by the Master Servicer or
the Special Servicer or otherwise resulting from a bankruptcy or similar
proceeding involving the related borrower or the application of any Remaining
Cash Flow with respect to an ARD Loan, and assuming that each prior Periodic
Payment has been made in a timely manner. The "Assumed Scheduled Payment" is an
amount deemed due (i) in respect of any Balloon Loan that is delinquent in
respect of its Balloon Payment beyond the first Determination Date that follows
its stated maturity date and (ii) in respect of each REO Loan. The Assumed
Scheduled Payment deemed due on any such Balloon Loan on its stated maturity
date and on each successive related Due Date that it remains or is deemed to
remain outstanding will equal the Scheduled Payment that would have been due
thereon on such date if the related Balloon Payment had not come due but rather
such Mortgage Loan had continued to amortize in accordance with such loan's
amortization schedule, if any, in effect prior to its stated maturity date. The
Assumed Scheduled Payment deemed due on any REO Loan on each Due Date that the
related REO Property remains part of the Trust Fund will equal the Scheduled
Payment that would have been due in respect of such predecessor Mortgage Loan on
such Due Date had it remained outstanding or, if such Mortgage Loan was a
Balloon Loan and such Due Date coincides with or follows what had been its
stated maturity date, the Assumed Scheduled Payment that would have been deemed
due in respect of such Mortgage Loan on such Due Date had it remained
outstanding.
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Distributions of the Principal Distribution Amount will constitute the only
distributions of principal on the Certificates. Reimbursements of Realized
Losses and Additional Trust Fund Expenses previously allocated to principal will
not constitute distributions of principal for any purpose and will not result in
an additional reduction in the Certificate Balance of the Class of Certificates
in respect of which any such reimbursement is made.
Treatment of REO Properties. Notwithstanding that any Mortgaged Property
may be acquired as part of the Trust Fund through foreclosure, deed in lieu of
foreclosure or otherwise, the related Mortgage Loan will be treated, for
purposes of (i) determining distributions on the Certificates, (ii) allocating
Realized Losses and Additional Trust Fund Expenses to the Certificates, and
(iii) determining the amount of Trustee Fees and Master Servicing Fees payable
under the Pooling and Servicing Agreement, as having remained outstanding until
such REO Property is liquidated. In connection therewith, operating revenues and
other proceeds derived from such REO Property (net of related operating costs)
will be "applied" by the Master Servicer as principal, interest and other
amounts that would have been "due" on such Mortgage Loan, and the Master
Servicer or the Trustee will be required to make P&I Advances in respect of such
Mortgage Loan, in all cases as if such Mortgage Loan had remained outstanding.
References to "Mortgage Loan" or "Mortgage Loans" in the definitions of
"Principal Distribution Amount" and "Weighted Average Net Mortgage Rate" include
any Mortgage Loan as to which the related Mortgaged Property has become an REO
Property (an "REO Loan").
Allocation of Prepayment Premiums. In the event a borrower is required to
pay any Prepayment Premium, the amount of such payments actually collected will
be distributed in respect of the Class A-1, Class A-2, Class A-3, Class B, Class
C, Class D, Class E, Class F and Class G Certificates and the Class X
Certificates, as set forth below. A "Prepayment Premium" is any Yield
Maintenance Charge or any other fees (each such other fee, a "Percentage
Premium") paid or payable, as the context requires, as a result of a prepayment
of principal on a Mortgage Loan which are calculated based upon a specified
percentage (which may decline over time) of the amount prepaid. "Yield
Maintenance Charges" are payments paid or payable, as the context requires, on a
Mortgage Loan as a result of a prepayment of principal not otherwise due
thereon, which has been calculated (based on Scheduled Payments on such Mortgage
Loan) to compensate the holder of the Mortgage Loan for reinvestment losses
based on the aggregate payment of interest which would have accrued on such
Mortgage Loan on each subsequent due date through the maturity date of such
Mortgage Loan, at a rate calculated as the difference between the Mortgage Rate
on such Mortgage Loan and the applicable U.S. Treasury rate (plus a spread if
applicable) in effect on the date of prepayment (the "Rate Differential"), but
in certain cases, not less than a fixed percentage.
On each Distribution Date, any Prepayment Premium collected on a Mortgage
Loan during the related Collection Period will be distributed as follows: the
holders of each Class of the Certificates then entitled to distributions of
principal with respect to such Mortgage Loan on such Distribution Date will be
entitled to an amount equal to the amount of such Prepayment Premium, multiplied
by (a) a fraction (which in no event may be greater than one) the numerator of
which is equal to the excess, if any, of the Pass-Through Rate of such Class of
Certificates, over the relevant Discount Rate (as defined below), and the
denominator of which is equal to the excess, if any, of the Mortgage Rate of the
prepaid Mortgage Loan, over the relevant Discount Rate, and (b) a fraction, the
numerator of which is equal to the amount of principal distributable on such
Class of Certificates on such Distribution Date, and the denominator of which is
the Principal Distribution Amount for such Distribution Date. If there is more
than one Class of Certificates entitled to distributions of such principal on
any particular Distribution Date on which a Prepayment Premium is distributable,
the aggregate amount of such Prepayment Premium will be allocated among all such
Classes up to, and on a pro rata basis in accordance with, their respective
entitlements thereto in accordance with, the foregoing sentence. The portion, if
any, of the Prepayment Premium remaining after any such payments to the holders
of such Certificates will be distributed to the holders of the Class X
Certificates.
The "Discount Rate" applicable to any Class of Offered Certificates will be
equal to the yield (plus a spread if applicable) (when compounded monthly) on
the non-callable U.S. Treasury issue (primary issue) with a maturity date
closest to the maturity date for the prepaid Mortgage Loan as reported in The
Wall Street Journal on the date of such prepayment. In the event that there are
two such U.S. Treasury issues (a) with the same coupon, the issue with the lower
yield will be utilized, and (b) with maturity dates equally close to the
maturity date for the prepaid Mortgage Loan, the issue with the earlier maturity
date will be utilized.
The Depositor makes no representation as to the enforceability of the
provision of any Mortgage Note requiring the payment of a Prepayment Premium, or
of the collectability of any Prepayment Premium. See "DESCRIPTION
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OF THE MORTGAGE POOL--Certain Terms and Conditions of the Mortgage
Loans--PrepaymentProvisions" herein.
APPRAISAL REDUCTIONS
Upon the earliest of the date (each such date, a "Required Appraisal Date")
that (1) any Mortgage Loan is one hundred twenty (120) days delinquent in
respect of any Periodic Payment, (2) any REO Property is acquired on behalf of
the Trust Fund, (3) any Mortgage Loan has been modified by the Special Servicer
to reduce the amount of any Periodic Payment, other than a Balloon Payment, (4)
with respect to which sixty days elapse after a receiver is appointed and
continues in such capacity in respect of a Mortgaged Property securing any
Mortgage Loan, (5) with respect to which sixty days elapse after a borrower with
respect to any Mortgage Loan has become subject to any bankruptcy proceeding or
(6) with respect to which a date has passed which is the third anniversary of
the date on which an extension of the scheduled maturity date of a Mortgage Loan
became effective as a result of a modification of such Mortgage Loan by the
Special Servicer, which extension does not change the amount of Periodic
Payments on the Mortgage Loan (each such Mortgage Loan, including any REO Loan,
a "Required Appraisal Loan"), the Special Servicer will use its best efforts to
promptly obtain (within 60 days of the applicable Required Appraisal Date;
provided, however, that with respect to an event described in clause (1), the
Special Servicer will be required to receive such appraisal within the 120-day
period set forth in such clause (1)) (i) an appraisal of the related Mortgaged
Property prepared in accordance with 12 CFR 225.62 and conducted in accordance
with the standards of the Appraisal Institute by a Qualified Appraiser, unless
such an appraisal had been previously obtained within the prior twelve months,
or (ii) with respect to any Mortgage Loan with an outstanding principal balance
equal to or less than $1,500,000, an internal property valuation performed by
the Special Servicer at its discretion in accordance with the servicing
standard. A "Qualified Appraiser" is an independent appraiser, selected by the
Special Servicer, that is a member in good standing of the Appraisal Institute
and that is, if the state in which the subject Mortgaged Property is located
certifies or licenses appraisers, certified or licensed in such state, and in
each such case who has a minimum of five years experience in the subject
property type and market. The cost of such appraisal will be an Advance by the
Master Servicer, subject to the Master Servicer's right to be reimbursed
therefor out of related proceeds or, if not reimbursable therefrom, out of
general funds on deposit in the Certificate Account with interest thereon at the
Reimbursement Rate and subject to the Master Servicer's determination that such
Advance would not be a nonrecoverable Advance. As a result of any such
appraisal, it may be determined that an "Appraisal Reduction Amount" exists with
respect to the related Required Appraisal Loan, such determination to be made
upon the later of 30 days after the Required Appraisal Date if no new appraisal
is required or upon receipt of a new appraisal. The Appraisal Reduction Amount
for any Required Appraisal Loan will equal the excess, if any, of (a) the sum
of, without duplication, as of the Determination Date immediately succeeding the
date on which the appraisal is obtained, (i) the Stated Principal Balance of
such Required Appraisal Loan, (ii) to the extent not previously advanced by or
on behalf of the Master Servicer or the Trustee, all unpaid interest on the
Required Appraisal Loan through the most recent Due Date prior to such
Determination Date at a per annum rate equal to the related Net Mortgage Rate,
(iii) all accrued but unpaid Servicing Fees and any Additional Trust Fund
Expenses in respect of such Required Appraisal Loan, (iv) all related
unreimbursed Advances, plus interest thereon, made by or on behalf of the Master
Servicer, the Special Servicer and the Trustee with respect to such Required
Appraisal Loan and (v) all currently due and unpaid real estate taxes and
assessments, insurance premiums, and, if applicable, ground rents in respect of
the related Mortgaged Property (net of any amount escrowed therefor), over (b)
an amount equal to 90% of the appraised value (net of any prior liens) of the
related Mortgaged Property as determined by such appraisal. If an Appraisal
Reduction Amount exists with respect to any Required Appraisal Loan, the
Controlling Class Representative may, at its expense, direct the Special
Servicer to obtain and deliver to the Master Servicer and Trustee an appraisal
meeting the requirements for a Required Appraisal and, further, will be entitled
to request that the Appraisal Reduction Amount for such Required Appraisal Loan
be recalculated based upon such appraisal.
Notwithstanding the foregoing, if any Required Appraisal Loan as to which
an Appraisal Reduction Amount has been established in accordance with the
preceding paragraph becomes a Corrected Mortgage Loan, then the Appraisal
Reduction Amount shall be deemed to be zero, subject to such Mortgage Loan again
becoming subject to the appraisal requirement described above; provided, that,
in the case of any Required Appraisal Loan that has been modified as described
in the immediately preceding paragraph, the Appraisal Reduction Amount will be
deemed to exist for so long as the terms of the modification are in effect.
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SUBORDINATION, REALIZED LOSSES AND ALLOCATIONS OF CERTAIN EXPENSES
The rights of holders of the Class B, Class C, Class D and Class E
Certificates and each Class of the Private Certificates (collectively, the
"Subordinate Certificates") to receive distributions of amounts collected or
advanced on the Mortgage Loans will be subordinated, to the extent described
herein, to the rights of holders of the Class A-1, Class A-2, Class A-3 and
Class X Certificates (collectively, the "Senior Certificates") and each other
such Class of Subordinate Certificates, if any, with an earlier alphabetical
Class designation. This subordination is intended to enhance the likelihood of
timely receipt by the holders of the Senior Certificates of the full amount of
Distributable Certificate Interest payable in respect of such Classes of
Certificates on each Distribution Date, and the ultimate receipt by the holders
of the Class A-1, Class A-2 and Class A-3 Certificates of principal in an amount
equal to the entire respective Certificate Balance of such Classes of
Certificates. Similarly, but to decreasing degrees, this subordination is also
intended to enhance the likelihood of timely receipt by the holders of the Class
B, the Class C, the Class D and the Class E Certificates of the full amount of
Distributable Certificate Interest payable in respect of each such Class of
Certificates on each Distribution Date, and the ultimate receipt by the holders
of each such Class of Certificates of principal equal to the entire related
Certificate Balance. The protection afforded to the holders of the Class E
Certificates by means of the subordination of the Private Certificates, to the
holders of the Class D Certificates by means of the subordination of the Class E
and the Private Certificates, to the holders of the Class C Certificates by
means of the subordination of the Class D, the Class E and the Private
Certificates, to the holders of the Class B Certificates by means of the
subordination of the Class C, the Class D, the Class E and the Private
Certificates, and to the holders of the Senior Certificates by means of the
subordination of the Subordinate Certificates, will be accomplished by (i) the
application of the Available Distribution Amount on each Distribution Date in
accordance with the order of priority described under
"--Distributions--Application of the Available Distribution Amount" above and
(ii) the allocation of Realized Losses and Additional Trust Fund Expenses as
described below. The Class A-2 Certificates will receive principal payments only
after the Certificate Balance of the Class A-1 Certificates has been reduced to
zero. The Class A-3 Certificates will receive principal payments only after the
Certificate Balance of the Class A-1 and the Class A-2 Certificates has been
reduced to zero. However, the Class A-1, Class A-2, Class A-3 and Class X
Certificates will bear shortfalls in collections and losses incurred in respect
of the Mortgage Loans pro rata. No other form of credit support will be
available for the benefit of the holders of the Offered Certificates.
On each Distribution Date, following all distributions on the Certificates
to be made on such date, the aggregate of all Realized Losses and Additional
Trust Fund Expenses (to the extent such Additional Trust Fund Expenses are not
covered by interest received on the Mortgage Loans) that have been incurred
since the Cut-Off Date through the end of the related Collection Period and that
have not previously been allocated as described below will be allocated among
the respective Classes of Sequential Pay Certificates (in each case in reduction
of their respective Certificate Balances) as follows, but in the aggregate only
to the extent that the aggregate Certificate Balance of all Classes of
Sequential Pay Certificates remaining outstanding after giving effect to the
distributions on such Distribution Date exceeds the aggregate Stated Principal
Balance of the Mortgage Pool that will be outstanding immediately following such
Distribution Date: first, to the Class M Certificates, until the remaining
Certificate Balance of such Class of Certificates is reduced to zero; second, to
the Class L Certificates, until the remaining Certificate Balance of such Class
of Certificates is reduced to zero; third, to the Class K Certificates, until
the remaining Certificate Balance of such Class of Certificates is reduced to
zero; fourth, to the Class J Certificates, until the remaining Certificate
Balance of such Class of Certificates is reduced to zero; fifth, to the Class H
Certificates, until the remaining Certificate Balance of such Class of
Certificates is reduced to zero; sixth, to the Class G Certificates, until the
remaining Certificate Balance of such Class of Certificates is reduced to zero;
seventh, to the Class F Certificates, until the remaining Certificate Balance of
such Class of Certificates is reduced to zero; eighth, to the Class E
Certificates, until the remaining Certificate Balance of such Class of
Certificates is reduced to zero; ninth to the Class D Certificates, until the
remaining Certificate Balance of such Class of Certificates is reduced to zero;
tenth to the Class C Certificates, until the remaining Certificate Balance of
such Class of Certificates is reduced to zero; and eleventh to the Class B
Certificates, until the remaining Certificate Balance of such Class of
Certificates is reduced to zero. Thereafter, additional Realized Losses and
Additional Trust Fund Expenses will be allocated to the Class A-1 Certificates,
the Class A-2 Certificates and the Class A-3 Certificates, pro rata, in
proportion to their outstanding Certificate Balances, until the remaining
Certificate Balances of such Classes of Certificates are reduced to zero.
Any Realized Loss or Additional Trust Fund Expense allocated in reduction
of the Certificate Balance of any Class of Sequential Pay Certificates will
result in a corresponding reduction in the Notional Amount for therelated
Component.
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"Realized Losses" are losses arising from the inability to collect all
amounts due and owing under any defaulted Mortgage Loan, including by reason of
the fraud or bankruptcy of the borrower or a casualty of any nature at the
related Mortgaged Property, to the extent not covered by insurance. The Realized
Loss in respect of a liquidated Mortgage Loan (or related REO Property) is an
amount generally equal to the excess, if any, of (a) the outstanding principal
balance of such Mortgage Loan as of the date of liquidation, together with (i)
all accrued and unpaid interest thereon at the related Mortgage Rate in effect
from time to time to but not including the Due Date in the Collection Period in
which the liquidation occurred and (ii) certain related unreimbursed servicing
expenses, over (b) the aggregate amount of liquidation proceeds, if any,
recovered in connection with such liquidation. If any portion of the debt due
under a Mortgage Loan is forgiven, whether in connection with a modification,
waiver or amendment granted or agreed to by the Special Servicer or in
connection with the bankruptcy or similar proceeding involving the related
borrower, the amount so forgiven also will be treated as a Realized Loss.
"Additional Trust Fund Expenses" include, among other things, (i) any
Special Servicing Fees or Recovery Fees paid to the Special Servicer, (ii) any
interest paid to the Master Servicer, the Special Servicer and/or the Trustee in
respect of unreimbursed Advances and (iii) any of certain unanticipated,
non-Mortgage Loan specific expenses of the Trust Fund, including, but not
limited to, certain reimbursements and indemnifications to the Trustee of the
type described under "THE POOLING AND SERVICING AGREEMENT--The Trustee" herein,
certain reimbursements to the Master Servicer, the Special Servicer and the
Depositor of the type described under "THE POOLING AND SERVICING
AGREEMENT--Servicing of the Mortgage Loans; Collection of Payments" herein, and
certain federal, state and local taxes, and certain tax-related expenses,
payable from the assets of the Trust Fund and described under "MATERIAL FEDERAL
INCOME TAX CONSEQUENCES--Prohibited Transactions Tax and Other Taxes" herein and
the costs of certain opinions of counsel required to be obtained in connection
with the servicing of the Mortgage Loans and administration of the Trust Fund.
Additional Trust Fund Expenses will reduce amounts payable to Certificateholders
and, subject to the distribution priorities described above, may result in a
loss on one or more Classes of Offered Certificates.
SCHEDULED FINAL DISTRIBUTION DATE
The "Scheduled Final Distribution Date" with respect to any Class of
Certificates is the Distribution Date on which the aggregate Certificate Balance
or aggregate Notional Amount, as the case may be, of such Class of Certificates
would be reduced to zero based on the assumptions set forth below. Such
Distribution Date shall in each case be as follows:
CLASS OF DESIGNATION SCHEDULED FINAL DISTRIBUTION DATE
-------------------- ---------------------------------
Class A-1 ......................... March 15, 2006
Class A-2 ......................... March 15, 2008
Class A-3 ......................... August 15, 2008
Class X ........................... August 15, 2028
Class B ........................... August 15, 2008
Class C ........................... August 15, 2008
Class D ........................... November 15, 2009
Class E ........................... June 15, 2010
Class F ........................... May 15, 2013
Class G ........................... July 15, 2013
Class H ........................... August 15, 2013
Class J ........................... May 15, 2017
Class K ........................... October 15, 2016
Class L ........................... March 15, 2018
Class M ........................... August 15, 2028
The Scheduled Final Distribution Dates set forth above were calculated
without regard to any delays in the collection of Balloon Payments and without
regard to a reasonable liquidation time with respect to any Mortgage Loans that
may be delinquent. Accordingly, in the event of defaults on the Mortgage Loans,
the actual final Distribution Date for one or more Classes of the Certificates
may be later, and could be substantially later, than the related Scheduled Final
Distribution Date(s).
In addition, the Scheduled Final Distribution Dates set forth above were
calculated assuming no involuntary or voluntary prepayments (in whole or in
part), no repurchases, no early termination, no defaults, no modifications and
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no extensions. Since the rate of payment (including prepayments) of the Mortgage
Loans can be expected to exceed the scheduled rate of payments, and could exceed
such scheduled rate by a substantial amount, the actual final Distribution Date
for one or more Classes of the Certificates may be earlier, and could be
substantially earlier, than the related Scheduled Final Distribution Date(s).
The rate of payments (including prepayments) on the Mortgage Loans will depend
on the characteristics of the Mortgage Loans, as well as on the prevailing level
of interest rates and other economic factors, and no assurance can be given as
to actual payment experience.
OPTIONAL TERMINATION
The obligations created by the Pooling and Servicing Agreement will
terminate upon the final distribution to the Certificateholders, which shall
follow the earlier of (i) the final payment (or advance in respect thereof) or
other liquidation of the last Mortgage Loan or REO Property subject thereto and
(ii) the purchase of all of the Mortgage Loans and all of the REO Properties
remaining in the Trust Fund, if any, by the Majority Subordinate
Certificateholder, the Depositor, the Master Servicer or the Special Servicer.
Written notice of termination of the Pooling and Servicing Agreement will be
given to each Certificateholder, and the final distribution will be made only
upon surrender and cancellation of the Certificates at the office of the Trustee
or other registrar for the Certificates or at such other location as may be
specified in such notice of termination.
Any such purchase by the Majority Subordinate Certificateholder, the Master
Servicer, the Depositor or the Special Servicer of all the Mortgage Loans and
all of the REO Properties, if any, remaining in the Trust Fund is required to be
made at a price equal to (i) the aggregate Purchase Price of all the Mortgage
Loans (other than REO Loans) then included in the Trust Fund, plus (ii) the fair
market value of all REO Properties then included in the Trust Fund, as
determined by an appraiser mutually agreed upon by the Master Servicer and the
Trustee, minus (iii) if the purchaser is the Master Servicer or the Special
Servicer the aggregate of amounts payable or reimbursable to the Master Servicer
or the Special Servicer, as the case may be, under the Pooling and Servicing
Agreement. Such purchase will effect early retirement of the then outstanding
Offered Certificates, but the right of the Majority Subordinate
Certificateholder, the Master Servicer, the Depositor or the Special Servicer to
effect such termination is subject to the requirement that the then aggregate
Stated Principal Balance of the Mortgage Pool be less than 1% of the Initial
Pool Balance.
The purchase price paid in connection with the purchase of all Mortgage
Loans and REO Properties remaining in the Trust Fund, exclusive of any portion
thereof payable or reimbursable (as if such purchase price constituted
liquidation proceeds) to any person other than the Certificateholders, will
constitute part of the Available Distribution Amount for the final Distribution
Date. The Available Distribution Amount for the final Distribution Date will be
distributed by the Trustee generally as described herein under
"--Distributions--Application of the Available Distribution Amount," except that
the distributions of principal on any Class of Sequential Pay Certificates
described thereunder will be made, subject to available funds and the
distribution priorities described thereunder, in an amount equal to the entire
Certificate Balance of such Class remaining outstanding.
VOTING RIGHTS
At all times during the term of the Pooling and Servicing Agreement, 100%
of the voting rights for the Certificates (the "Voting Rights") will be
allocated among the respective Classes of Sequential Pay Certificates in
proportion to the Certificate Balances of those Classes. Voting Rights allocated
to a Class of Certificates will be allocated among the related
Certificateholders in proportion to the percentage interests in such Class
evidenced by their respective Certificates. The Class A-1 Certificates, Class
A-2 Certificates and Class A-3 Certificates will be treated as one Class for
determining the Controlling Class. Certificateholders will generally have a
right to vote with respect to required consents to certain amendments to the
Pooling and Servicing Agreement and as otherwise specified herein.
DELIVERY, FORM AND DENOMINATION
Book-Entry Certificates. No Person acquiring an Offered Certificate will be
entitled to receive a physical certificate representing such Certificate, except
under the limited circumstances described below. Absent such circumstances, the
Offered Certificates will be registered in the name of a nominee of DTC and
beneficial interests
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therein will be held by investors ("Beneficial Owners") through the book-entry
facilities of DTC, as described herein. The Offered Certificates will initially
be issued in denominations of not less than $1,000 actual or notional principal
amount and integral multiples of $1 in excess thereof. The Depositor has been
informed by DTC that its nominee will be Cede & Co. Accordingly, Cede & Co. is
expected to be the holder of record of the Offered Certificates.
Certificateholders may also hold Certificates through CEDEL or Euroclear (in
Europe), if they are participants in such systems or indirectly through
organizations that are participants in such systems. CEDEL and Euroclear will
hold omnibus positions on behalf of their participants through customers'
certificates accounts in CEDEL's and Euroclear's names on the books of their
respective Depositaries which in turn will hold such positions in customers'
certificates accounts in the Depositaries' names on the books of DTC. Citibank,
N.A. ("Citibank") will act as depositary for CEDEL and The Chase Manhattan Bank
("Chase") will act as depositary for Euroclear (in such capacities, the
"Depositaries").
Transfers between DTC participants will occur in the ordinary way in
accordance with DTC rules. Transfers between CEDEL Participants and Euroclear
Participants will occur in the ordinary way in accordance with their applicable
rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL or
Euroclear Participants, on the other, will be effected in DTC in accordance with
DTC rules on behalf of the relevant European international clearing system by
its Depositary; however, such cross-market transactions will require delivery of
instructions to the relevant European international clearing system by the
counterpart in such system in accordance with its rules and procedures and
within its established deadlines (European time). The relevant European
international clearing system will, if the transaction meets its settlement
requirements, deliver instructions to its Depositary to take action to effect
final settlement on its behalf by delivering or receiving certificates through
DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. CEDEL Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of certificates received in CEDEL
or Euroclear as a result of a transaction with a DTC Participant will be made
during subsequent certificates settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
certificates settled during such processing will be reported to the relevant
Euroclear or CEDEL Participant on such business day. Cash received in CEDEL or
Euroclear as a result of sales of certificates by or through a CEDEL Participant
or a Euroclear Participant to a DTC Participant will be received with value on
the DTC settlement date but will be available in the relevant CEDEL or Euroclear
cash account only as of the business day following settlement in DTC.
No Beneficial Owner of an Offered Certificate will be entitled to receive a
definitive Certificate (a "Definitive Certificate") representing such person's
interest in the Offered Certificates, except as set forth below. Unless and
until Definitive Certificates are issued to Beneficial Owners in respect of the
Offered Certificates under the limited circumstances described herein, all
references to actions taken by Certificateholders or holders will, in the case
of the Offered Certificates, refer to actions taken by DTC upon instructions
from its participants, and all references herein to distributions, notices,
reports and statements to Certificateholders or holders will, in the case of the
Offered Certificates, refer to distributions, notices, reports and statements to
DTC or Cede & Co., as the case may be, for distribution to Beneficial Owners in
accordance with DTC procedures. DTC may discontinue providing its services as
securities depository with respect to the Offered Certificates at any time by
giving reasonable notice to the Trustee. Under such circumstances, in the event
that a successor securities depository is not obtained, certificates are
required to be printed and delivered. The Trustee, the Master Servicer, the
Special Servicer and the Certificate Registrar may for all purposes, including
the making of payments due on the Offered Certificates, deal with DTC as the
authorized representative of the Beneficial Owners with respect to such
Certificates for the purposes of exercising the rights of Certificateholders
under the Pooling and Servicing Agreement.
Offered Certificates will be converted to Definitive Certificates and
reissued to Beneficial Owners or their nominees, rather than to DTC or its
nominee, only if (i)(A) the Depositor advises the Certificate Registrar in
writing that DTC is no longer willing or able to discharge properly its
responsibilities as Depository with respect to any Class of the Offered
Certificates and (B) the Depositor is unable to locate a qualified successor or
(ii) the Depositor, at its option, advises the Trustee and Certificate Registrar
that it elects to terminate the book-entry system through DTC with respect to
any Class of the Offered Certificates.
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Upon the occurrence of any event described in the immediately preceding
paragraph, the Certificate Registrar will be required to notify all affected
Beneficial Owners through DTC of the availability of Definitive Certificates.
Upon surrender by DTC of the physical certificates representing the affected
Offered Certificates and receipt from DTC of instructions for re-registration,
the Certificate Registrar will reissue the Offered Certificates as Definitive
Certificates to the Beneficial Owners. Upon the issuance of Definitive
Certificates for purposes of evidencing ownership of the Certificates, the
registered holders of such Definitive Certificates will be recognized as
Certificateholders under the Pooling and Servicing Agreement and, accordingly,
will be entitled directly to receive payments on, and exercise Voting Rights
with respect to, and to transfer and exchange such Definitive Certificates.
Definitive Certificates will be transferable and exchangeable at the
offices of the Trustee or the Certificate Registrar in accordance with the terms
of the Pooling and Servicing Agreement.
The Depository Trust Company. The Depository Trust Company ("DTC") is a
limited purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to Section 17A of the Securities Exchange Act of 1934, as
amended. DTC was created to hold securities for its participating organizations
("Participants") and to facilitate the clearance and settlement of securities
transactions among Participants through electronic computerized book-entry
changes in Participants' accounts, thereby eliminating the need for physical
movement of certificates. Participants include securities brokers and dealers
(including the Underwriters), banks, trust companies and clearing corporations
and certain other organizations. The rules applicable to DTC and its
participants are on file with the Commission. Indirect access to the DTC system
also is available to banks, brokers, dealers, trust companies and other
institutions that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants"). DTC is
owned by a number of its Direct Participants and by the New York Stock Exchange,
Inc., the American Stock Exchange, Inc. and the National Association of
Securities Dealers, Inc.
Purchases of Offered Certificates under the DTC system must be made by or
through Direct Participants, which will receive a credit for the Offered
Certificates on DTC's records. The ownership interest of each Beneficial Owner
is in turn to be recorded on the Direct and Indirect Participants' records.
Beneficial Owners will not receive written confirmation from DTC of their
purchase, but Beneficial Owners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of their
holdings, from the Direct or Indirect Participant through which the Beneficial
Owner entered into the transaction. Transfers of ownership interests in the
Offered Certificates are to be accomplished by entries made on the books of
Participants acting on behalf of Beneficial Owners. Beneficial Owners will not
receive certificates representing their ownership interests in the Certificates
except in the event that use of the book-entry system for the Offered
Certificates is discontinued. Neither the Certificate Registrar nor the Trustee
will have any responsibility to monitor or restrict the transfer of ownership
interests in Offered Certificates through the book-entry facilities of DTC.
To facilitate subsequent transfers, all Offered Certificates deposited by
Participants with DTC are registered in the name of DTC's nominee, Cede & Co.
The deposit of Offered Certificates with DTC and their registration in the name
of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of
the actual Beneficial Owners of the Offered Certificates; DTC's records reflect
only the identity of the Direct Participants to whose accounts such Offered
Certificates are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers. Beneficial Owners will not be recognized as
Certificateholders, as such term is used in the Pooling and Servicing Agreement,
by the Trustee or any paying agent (each, a "Paying Agent") appointed by the
Trustee. Beneficial Owners will be permitted to exercise the rights of
Certificateholders only indirectly through DTC and its Participants.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Beneficial
Owner to pledge Offered Certificates to persons or entities that do not
participate in the DTC system, or to otherwise act with respect to such Offered
Certificates, may be limited due to lack of a definitive Certificate for such
Offered Certificates. In addition, under a book-entry format, Beneficial Owners
may
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experience delays in their receipt of payments, since distributions will be made
by the Trustee or a Paying Agent on behalf of the Trustee to Cede & Co., as
nominee for DTC.
Neither DTC nor Cede & Co. will consent or vote with respect to the Offered
Certificates. Under its usual procedures, DTC mails an Omnibus Proxy to the
Trustee as soon as possible after the record date. The Omnibus Proxy assigns
Cede & Co.'s consenting or voting rights to those Direct Participants to whose
accounts the securities are credited on that record date (identified in a
listing attached to the Omnibus Proxy). DTC may take conflicting actions with
respect to Percentage Interests or Voting Rights to the extent that Participants
whose holdings of Offered Certificates evidence such Percentage Interests or
Voting Rights authorize divergent action.
Neither the Depositor, the Trustee, the Master Servicer, the Special
Servicer, nor any Paying Agent will have any responsibility for any aspect of
the records relating to, or payments made on account of, beneficial ownership
interests of the Offered Certificates registered in the name of Cede & Co., as
nominee for DTC, or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests. In the event of the insolvency
of DTC, a Participant or an Indirect Participant in whose name Offered
Certificates are registered, the ability of the Beneficial Owners of such
Offered Certificates to obtain timely payment may be impaired. In addition, in
such event, if the limits of applicable insurance coverage by the Securities
Investor Protection Corporation are exceeded or if such coverage is otherwise
unavailable, ultimate payment of amounts distributable with respect to such
Offered Certificates maybe impaired.
CEDEL. Cedel Bank, societe anonyme ("CEDEL") is incorporated under the laws
of Luxembourg as a professional depository. CEDEL holds securities for its
participating organizations ("CEDEL Participants") and facilitates the clearance
and settlement of securities transactions between CEDEL Participants through
electronic book-entry changes in accounts of CEDEL Participants, thereby
eliminating the need for physical movement of securities. Transactions may be
settled in CEDEL in any of 28 currencies, including United States dollars. CEDEL
provides to its Participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. CEDEL interfaces with domestic markets in
several countries. As a professional depository, CEDEL is subject to regulation
by the Luxembourg Monetary Institute. CEDEL Participants are recognized
financial institutions around the world, including underwriters, securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations. Indirect access to CEDEL is also available to others, such
as banks, brokers, dealers, and trust companies that clear through or maintain a
custodial relationship with a CEDEL Participant, either directly or indirectly.
Euroclear. The Euroclear System ("Euroclear") was created in 1968 to hold
securities for participants of the Euroclear System ("Euroclear Participants")
and to clear and settle transactions between Euroclear Participants through
simultaneous electronic book-entry delivery against payment, thereby eliminating
the need for physical movement of certificates and any risk from lack of
simultaneous transfers of securities and cash. Transactions may now be settled
in any of 27 currencies, including United States dollars. The Euroclear System
includes various other services, including securities lending and borrowing, and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described above. The Euroclear
System is operated by Morgan Guaranty Trust Company of New York, Brussels,
Belgium office (the "Euroclear Operator"), under contract with Euroclear
Clearance System S.C., a Belgian cooperative corporation (the "Cooperative").
All operations are conducted by the Euroclear Operator, and all Euroclear
securities clearance accounts and Euroclear cash accounts are accounts with the
Euroclear Operator, not the Cooperative. The Cooperative establishes policy for
Euroclear on behalf of Euroclear Participants. Euroclear Participants include
banks (including central banks), securities brokers and dealers. Indirect access
to Euroclear is also available to other firms that clear through or maintain a
custodial relationship with a Euroclear Participant, either directly or
indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation that is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Certificates clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of Euroclear and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear and receipts of payments with respect to
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securities in Euroclear. All securities in Euroclear are held on a fungible
basis without attribution to specific certificates to specific securities
clearance accounts. The Euroclear Operator acts under the Terms and Conditions
only on behalf of Euroclear Participants, and has no record of or relationship
with persons holding through Euroclear Participants.
REGISTRATION AND TRANSFER
Subject to the restrictions on transfer and exchange set forth in the
Pooling and Servicing Agreement, the holder of any Definitive Certificate may
transfer or exchange the same in whole or part (in a principal amount equal to
the minimum authorized denomination or any integral multiple thereof) by
surrendering such Definitive Certificate at the offices of the certificate
registrar appointed pursuant to the Pooling and Servicing Agreement (the
"Certificate Registrar") or at the office of any transfer agent, together with
an executed instrument of assignment and transfer in the case of transfer and a
written request for exchange in the case of exchange. In exchange for any
Definitive Certificate properly presented for transfer or exchange with all
necessary accompanying documentation, the Certificate Registrar will, within
five Business Days of such request if made at the corporate trust office of the
Certificate Registrar, or within ten Business Days if made at the office of a
transfer agent (other than the Certificate Registrar), execute and deliver at
such corporate trust office or the office of the transfer agent, as the case may
be, to the transferee (in the case of transfer) or holder (in the case of
exchange) or send by first class mail at the risk of the transferee (in the case
of transfer) or holder (in the case of exchange) to such address as the
transferee or holder, as applicable, may request, a Definitive Certificate or
Definitive Certificates, as the case may require, for a like aggregate
Certificate Balance or Notional Amount, as applicable, and in such authorized
denomination or denominations as may be requested. The presentation for transfer
or exchange of any Definitive Certificate will not be valid unless made at the
offices of the Certificate Registrar or at the office of a transfer agent by the
registered holder in person, or by a duly authorized attorney-in-fact. The
Certificate Registrar may decline to accept any request for an exchange or
registration of transfer of any Definitive Certificate during the period of 15
days preceding any Distribution Date.
No fee or service charge will be imposed by the Certificate Registrar for
its services in respect of any registration of transfer or exchange referred to
herein; provided, however, that in connection with the transfer of Private
Certificates to certain institutional accredited investors, the Certificate
Registrar will be entitled to be reimbursed by the transferor for any costs
incurred in connection with such transfer. The Certificate Registrar may require
payment by each transferor of a sum sufficient to pay any tax, expense or other
governmental charge payable in connection with any such transfer.
For a discussion of certain transfer restrictions, see "ERISA
CONSIDERATIONS" herein.
YIELD AND MATURITY CONSIDERATIONS
YIELD CONSIDERATIONS
General. The yield on any Offered Certificate will depend on the price at
which such Certificate is purchased by an investor and the rate, timing and
amount of distributions on such Certificate. The rate, timing and amount of
distributions on any Offered Certificate will in turn depend on, among other
things, (i) the Pass-Through Rate for such Certificate, (ii) the rate and timing
of principal payments (including principal prepayments) and other principal
collections on the Mortgage Loans and the extent to which such amounts are to be
applied in reduction of the Certificate Balance or Notional Amount of the
related Class, (iii) the rate, timing and severity of Realized Losses and
Additional Trust Fund Expenses and the extent to which such losses and expenses
are allocable in reduction of the Certificate Balance or Notional Amount of the
related Class and (iv) the timing and severity of any Net Aggregate Prepayment
Interest Shortfalls and the extent to which such shortfalls are allocable in
reduction of the Distributable Certificate Interest payable on the related
Class.
Rate and Timing of Principal Payment. The yield to holders of the Class X
Certificates will be extremely sensitive to, and the yield to holders of any
other Offered Certificates purchased at a discount or premium will be affected
by, the rate and timing of principal payments made in reduction of the
Certificate Balance of such Certificates
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(or, in the case of the Class X Certificates, in reduction of the Notional
Amount of one or more of the Components thereof). As described herein, the
Principal Distribution Amount for each Distribution Date will be distributable
first in respect of the Class A-1 Certificates until the Certificate Balance
thereof is reduced to zero, and will thereafter be distributable entirely in
respect of the Class A-2 Certificates, the Class A-3 Certificates, the Class B
Certificates, the Class C Certificates, the Class D Certificates and the Class E
Certificates, in that order, in each case until the Certificate Balance of such
Class of Certificates is reduced to zero. Any reduction of the Certificate
Balance of any Class of Sequential Pay Certificates will result in a
corresponding reduction in the Notional Amount of the related Component.
Consequently, the rate and timing of principal payments that are distributed or
otherwise result in reduction of the Certificate Balance or Notional Amount of
each Class of Offered Certificates will be directly related to the rate and
timing of principal payments on or in respect of the Mortgage Loans, which will
in turn be affected by the amortization schedules thereof, the dates on which
Balloon Payments are due and the rate and timing of principal prepayments and
other unscheduled collections thereon (including for this purpose, collections
made in connection with liquidations of Mortgage Loans due to defaults,
casualties or condemnations affecting the Mortgaged Properties, or purchases of
Mortgage Loans out of the Trust Fund). Prepayments and, assuming the respective
stated maturity dates therefor have not occurred, liquidations and purchases of
the Mortgage Loans, will result in distributions on the Offered Certificates
(other than the Class X Certificates) of amounts that would otherwise be
distributed over the remaining terms of the Mortgage Loans. Defaults on the
Mortgage Loans, particularly at or near their stated maturity dates, may result
in significant delays in payments of principal on the Mortgage Loans (and,
accordingly, on the Offered Certificates that are Sequential Pay Certificates)
while work-outs are negotiated, foreclosures are completed or bankruptcy
proceedings are resolved. See "THE POOLING AND SERVICING AGREEMENT--Amendments,
Modifications and Waivers" and "--Realization Upon Mortgage Loans" herein and
"CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS--Foreclosure" in the Prospectus.
The extent to which the yield to maturity of any Class of Offered
Certificates may vary from the anticipated yield will depend upon the degree to
which such Certificates are purchased at a discount or premium and when, and to
what degree, payments of principal on the Mortgage Loans in turn are distributed
or otherwise result in reduction of the Certificate Balance or Notional Amount
of such Certificates. An investor should consider, in the case of any Offered
Certificate purchased at a discount, the risk that a slower than anticipated
rate of principal payments on the Mortgage Loans could result in an actual yield
to such investor that is lower than the anticipated yield and, in the case of a
Class X Certificate or any other Offered Certificate purchased at a premium, the
risk that a faster than anticipated rate of principal payments could result in
an actual yield to such investor that is lower than the anticipated yield. In
general, the earlier a payment of principal on the Mortgage Loans is distributed
or otherwise results in reduction of the Certificate Balance (or the Notional
Amount of a Component) of an Offered Certificate purchased at a discount or
premium, the greater will be the effect on an investor's yield to maturity. As a
result, the effect on an investor's yield of principal payments on the Mortgage
Loans occurring at a rate higher (or lower) than the rate anticipated by the
investor during any particular period would not be fully offset by a subsequent
like reduction (or increase) in the rate of such principal payments. Investors
in the Class X Certificates should fully consider the risk that a rapid rate of
principal payments on the Mortgage Loans could result in the failure of such
investors to recoup their initial investments. Because the rate of principal
payments on the Mortgage Loans will depend on future events and a variety of
factors (as described more fully below), no assurance can be given as to such
rate or the rate of principal prepayments in particular. The Depositor is not
aware of any relevant publicly available or authoritative statistics with
respect to the historical prepayment experience of a large group of mortgage
loans comparable to the Mortgage Loans.
Most of the Mortgage Loans do not fully amortize over their terms to
maturity and have a Balloon Payment due at maturity. Mortgage Loans with Balloon
Payments involve a greater risk to a lender than Fully Amortizing Loans because
the ability of a borrower to make a Balloon Payment typically will depend upon
its ability either to fully refinance the loan or to sell the related Mortgaged
Property at a price sufficient to permit the borrower to make the Balloon
Payment. Moreover, and whether or not losses are ultimately sustained, any delay
in the collection of a Balloon Payment that would otherwise be distributable in
respect of a Class of Offered Certificates will likely extend the weighted
average life of such Class. The ability of a borrower to effect a refinancing or
sale will be affected by a number of factors, including the value of the related
Mortgaged Property, the level of available mortgage rates at the time of sale or
refinancing, the borrower's equity in the Mortgaged Property, the financial
condition and operating history of the borrower and the Mortgaged Property, tax
laws, prevailing general economic conditions and the
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availability of credit for loans secured by multifamily or commercial, as the
case may be, real properties generally. See "RISK FACTORS--Balloon Payments" in
the Prospectus.
Losses and Shortfalls. The yield to holders of the Offered Certificates
will also depend on the extent to which such holders are required to bear the
effects of any losses or shortfalls on the Mortgage Loans. Losses and other
shortfalls on the Mortgage Loans will, with the exception of any Net Aggregate
Prepayment Interest Shortfalls, generally be borne by the holders of the
respective Classes of Sequential Pay Certificates, to the extent of amounts
otherwise distributable in respect of their Certificates, in reverse
alphabetical order of their Class designations. Realized Losses and Additional
Trust Fund Expenses will be allocated, as and to the extent described herein, to
the respective Classes of Sequential Pay Certificates (in reduction of the
Certificate Balance of each such Class), in reverse alphabetical order of their
Class designations. Any Realized Loss or Additional Trust Fund Expense allocated
in reduction of the Certificate Balance of any Class of Sequential Pay
Certificates will result in a corresponding reduction in the Notional Amount for
the related Component. As more fully described herein under "DESCRIPTION OF THE
CERTIFICATES--Distributions--Distributable Certificate Interest," Net Aggregate
Prepayment Interest Shortfalls will generally be borne by the respective Classes
of Regular Certificates on a pro rata basis.
Strip Rates. The Strip Rate applicable to the Class A-1, Class A-2 and
Class A-3 Components for each Distribution Date will equal the Weighted Average
Net Mortgage Rate for such Distribution Date minus 5.80%, 6.03% and 6.04%
respectively (but not less than zero); the Strip Rate applicable to the Class B,
Class C, Class D and Class E Components for each Distribution Date will equal
0.97%, 0.78%, 0.34%, and 0%, respectively; and the Strip Rate applicable to the
Class F, Class G, Class H, Class J, Class K, Class L and Class M Components for
each Distribution Date will each equal the Weighted Average Net Mortgage Rate
for such Distribution Date minus 5.44% (but not less than zero).
Pass-Through Rate. Because (i) the Pass-Through Rate for the Class X
Certificates is equal to the weighted average of the Strip Rates of each of its
Components and (ii) the Pass-Through Rate for the Class B, Class C, Class D and
Class E Certificates is equal to the Weighted Average Net Mortgage Rate minus
0.97%, 0.78%, 0.34% and 0%, respectively, the Pass-Through Rate for the Class X
Certificates will be sensitive to changes in both the Weighted Average Net
Mortgage Rate and the weighted average Pass-Through Rate and the Pass-Through
Rate for the Class B, Class C, Class D and Class E Certificates will be
sensitive to changes in the Weighted Average Net Mortgage Rate.
The weighted average Pass-Through Rate will fluctuate based on the relative
sizes of the Certificate Balances of the Sequential Pay Certificates. The
Weighted Average Net Mortgage Rate will fluctuate over the life of the Class X,
Class B, Class C, Class D and Class E Certificates as a result of scheduled
amortization, voluntary prepayments and liquidations and repurchases of Mortgage
Loans. If principal payments, including voluntary and involuntary Principal
Prepayments, are made on a Mortgage Loan with a relatively high Net Mortgage
Rate at a rate faster than the rate of principal payments on the Mortgage Pool
as a whole, the Pass-Through Rates applicable to the Class X, Class B, Class C,
Class D and Class E Certificates will be adversely affected. Accordingly, the
yield on each such Class of Certificates will be sensitive to changes in the
outstanding principal balances of the Mortgage Loans as a result of scheduled
amortization, voluntary prepayments, repurchases and liquidations of Mortgage
Loans.
Certain Relevant Factors. The rate and timing of principal payments and
defaults and the severity of losses on the Mortgage Loans may be affected by a
number of factors, including, without limitation, prevailing interest rates, the
terms of the Mortgage Loans (for example, Lockout Periods, provisions requiring
the payment of Prepayment Premiums and amortization terms that require Balloon
Payments), the demographics and relative economic vitality of the areas in which
the Mortgaged Properties are located and the general supply and demand for
rental units, hotel/motel guest rooms, residential health care facility beds or
comparable commercial space, as applicable, in such areas, the quality of
management of the Mortgaged Properties, the servicing of the Mortgage Loans,
possible changes in tax laws and other opportunities for investment. See "RISK
FACTORS--Investment in Commercial and Multifamily Mortgage Loans" and
"DESCRIPTION OF THE MORTGAGE POOL" herein.
The rate of prepayment on the Mortgage Pool is likely to be affected by
prevailing market interest rates for mortgage loans of a comparable type, term
and risk level. When the prevailing market interest rate is below a mortgage
interest rate, the related borrower has an incentive to refinance its mortgage
loan. As of the Cut-off Date, all of the Mortgage Loans may either be
voluntarily prepaid or defeased at any time after the expiration of the
applicable Lockout Period, subject, in most cases, to the payment of a Yield
Maintenance Charge or Percentage Premium. A
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requirement that a prepayment be accompanied by a Prepayment Premium may not
provide a sufficient economic disincentive to deter a borrower from refinancing
at a more favorable interest rate.
Depending on prevailing market interest rates, the outlook for market
interest rates and economic conditions generally, some borrowers may sell or
refinance Mortgaged Properties in order to realize their equity therein, to meet
cash flow needs or to make other investments. In addition, some borrowers may be
motivated by federal and state tax laws (which are subject to change) to sell
Mortgaged Properties prior to the exhaustion of tax depreciation benefits.
An investor should consider the risk that rapid rates of prepayments on the
Mortgage Loans, and therefore of amounts distributable in reduction of the
principal balance of the Offered Certificates entitled to distributions of
principal may coincide with periods of low prevailing interest rates. During
such periods, the effective interest rates on securities in which an investor
may choose to reinvest amounts distributed in reduction of the principal balance
of such investor's Offered Certificate may be lower than the Pass-Through Rate
applicable thereto. Conversely, slower rates of prepayments on the Mortgage
Loans, and therefore of amounts distributable in reduction of principal balance
of the Offered Certificates entitled to distributions of principal, may coincide
with periods of high prevailing interest rates. During such periods, the amount
of principal distributions resulting from prepayments available to an investor
in such Certificates for reinvestment at such high prevailing interest rates may
be relatively small.
If the markets for commercial and multifamily real estate should experience
an overall decline in property values such that the outstanding balances of the
Mortgage Loans exceed the value of the respective Mortgaged Properties, a
borrower under a non-recourse loan may have a decreased incentive to fund
operating cash flow deficits and, as a result, actual losses may be higher than
those originally anticipated by investors.
The Depositor makes no representation as to the particular factors that
will affect the rate and timing of prepayments and defaults on the Mortgage
Loans, as to the relative importance of such factors, as to the percentage of
the principal balance of the Mortgage Loans that will be prepaid or as to
whether a default will have occurred as of any date or as to the overall rate of
prepayment or default on the Mortgage Loans.
Delay in Payment of Distributions. Because monthly distributions will not
be made to Certificateholders until a date that is scheduled to be at least 14
days following the Due Dates for the Mortgage Loans during the related
Collection Period, the effective yield to the holders of the Offered
Certificates will be lower than the yield that would otherwise be produced by
the applicable Pass-Through Rates and purchase prices (assuming such prices did
not account for such delay).
Unpaid Distributable Certificate Interest. As described under "DESCRIPTION
OF THE CERTIFICATES--Distributions--Application of the Available Distribution
Amount" herein, if the portion of the Available Distribution Amount
distributable in respect of interest on any Class of Offered Certificates on any
Distribution Date is less than the Distributable Certificate Interest then
payable for such Class, the shortfall will be distributable to holders of such
Class of Certificates on subsequent Distribution Dates, to the extent of
available funds. Any such shortfall will not bear interest, however, and will
therefore negatively affect the yield to maturity of such Class of Certificates
for so long as it is outstanding.
Yield Sensitivity of the Class X Certificates. The yield to maturity on the
Class X Certificates will be extremely sensitive to the rate and timing of
principal payments (including by reason of prepayments, defaults and
liquidations) on the Mortgage Loans. Accordingly, investors in the Class X
Certificates should fully consider the associated risks, including the risk that
a rapid rate of prepayment of the Mortgage Loans could result in the failure of
such investors to fully recoup their initial investments. The allocation of a
portion of collected Percentage Premiums or Yield Maintenance Charges to the
Class X Certificates is intended to reduce those risks; however, such allocation
may be insufficient to offset fully the adverse effects on the yields on such
Class of Certificates that the related prepayments may otherwise have.
Prepayments on mortgage loans may be measured by a prepayment standard or
model. The model used in this Prospectus Supplement is the "Constant Prepayment
Rate" or "CPR" model. The CPR model represents an assumed constant annual rate
of prepayment each month, expressed as a per annum percentage of the then
scheduled principal balance of one or more mortgage loans. As used in the
following table, the column headed "0%" assumes that none of the Mortgage Loans
is prepaid in whole or in part before maturity. The columns headed "5%" and
"10%,"
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respectively, assume that prepayments are made each month at those levels of CPR
on each Mortgage Loan whether or not it is then in its Lockout Period, if any.
The following table indicates the approximate pre-tax yields to maturity
(on a corporate bond equivalent basis ("CBE")) on the Class X Certificates for
the specified CPRs. Such calculations are based on the following assumptions
("Table Assumptions"): (i) no prepayment restrictions apply, and each Mortgage
Loan is assumed to prepay at the indicated level of CPR, with the CPR in each
case being applied on the first day of each month to that portion of the
scheduled principal amount of the Mortgage Loan that is outstanding, (ii) the
initial Certificate Balances of the Sequential Pay Certificates and the
Pass-Through Rates for the Regular Certificates are as described in the Summary
hereof, (iii) there are no delinquencies or Additional Trust Fund Expenses, (iv)
scheduled interest and principal payments on the Mortgage Loans are timely
received, except as described above, and prepayments are made on the Mortgage
Loans on their respective Due Dates (assumed in all cases to be the first day of
each month) at the indicated levels of CPR set forth in the tables, (v) partial
prepayments on the Mortgage Loans are permitted, but are assumed not to affect
the amortization schedules, (vi) no Prepayment Premiums are collected, (vii)
neither the Master Servicer, the Special Servicer, the majority holder of the
Controlling Class nor the Depositor exercises its right of optional termination
of the Trust Fund described herein, (viii) no Mortgage Loan is required to be
purchased from the Trust Fund, (ix) there are no Prepayment Interest Shortfalls
or Appraisal Reductions, (x) distributions on the Certificates are made on the
15th day (each assumed to be a business day) of each month, commencing in
October 1998, (xi) the assumed settlement date is September 29, 1998, and (xii)
the Mortgage Rate used solely for the amortization of the Meidinger Tower Loan
is 9.1%.
PRE-TAX YIELD TO MATURITY (CBE) OF THE CLASS X CERTIFICATES
BREAK-EVEN PRE-TAX YIELD TO MATURITY AT
ASSUMED PURCHASE PRICE CPR% AT -------------------------------
(INCLUDING ACCRUED INTEREST) 0% YIELD (A) 0% CPR 5% CPR 10% CPR
- ---------------------------- ------------ ------ ------ -------
$209,362,240 8.16% 9.16% 3.52% (2.05)%
$216,138,669 7.53% 8.42% 2.81% (2.74)%
$223,366,861 6.89% 7.67% 2.08% (3.43)%
- ----------
(A) THE BREAK-EVEN CPR% IS THE APPROXIMATE CPR% FOR EACH ASSUMED PURCHASE PRICE
WHERE THE PRE-TAX YIELD TO MATURITY (CBE) IS APPROXIMATELY 0%.
The pre-tax yields set forth in the preceding table were calculated by
determining the monthly discount rates that, when applied to the assumed streams
of cash flow to be paid on the Class X Certificates, would cause the discounted
present value of such assumed stream of cash flows to equal the assumed
aggregate purchase price of the Class X Certificates, which includes accrued
interest, and by converting such monthly rates to corporate bond equivalent
rates. Such calculation does not take into account shortfalls in collection of
interest due to prepayments (or other liquidations) on the mortgage loans or the
interest rates at which investors may be able to reinvest funds received by them
as distributions on the Class X Certificates (and consequently does not purport
to reflect the return on any investment in the Class X Certificates when such
reinvestment rates are considered).
The characteristics of the mortgage loans differ in substantial respects
from those assumed in preparing the table above, and the table is presented for
illustrative purposes only. In particular, many of the mortgage loans are
subject to lockout periods and/or required defeasance periods disregarded in
preparing the table. Thus, the mortgage loan will not pay at any constant rate.
in addition, there can be no assurance that the mortgage loans will prepay at
any particular rate, that the actual pre-tax yields on the Class X Certificates
will correspond to any of the pre-tax yields shown herein or that the aggregate
purchase prices of the Class X Certificates will be those assumed. Accordingly,
investors must make their own decisions as to the appropriate assumptions
(including prepayment assumptions) to be used in deciding whether to purchase
the Class X Certificates.
WEIGHTED AVERAGE LIFE
The weighted average life of any Class A-1, Class A-2, Class A-3, Class B,
Class C, Class D or Class E Certificate refers to the average amount of time
that will elapse from the date of its issuance until each dollar allocable
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to principal of such Certificate is distributed to the investor. The weighted
average life of any such Offered Certificate will be influenced by, among other
things, the rate at which principal on the Mortgage Loans is paid or otherwise
collected or advanced and applied to pay principal of such Offered Certificate.
Any delay in collection of a Balloon Payment due at the maturity of a Mortgage
Loan or the repayment of the principal balance of a Mortgage Loan on its
respective Anticipated Repayment Date will likely extend the weighted average
life of the Class or Classes of Offered Certificates entitled to distributions
in respect of principal as of the date such Balloon Payment was due or such
Anticipated Repayment Date. As described herein, the Principal Distribution
Amount for each Distribution Date will be distributable first in respect of the
Class A-1 Certificates until the Certificate Balance thereof is reduced to zero,
and will thereafter be distributable entirely in respect of the Class A-2
Certificates, the Class A-3 Certificates, the Class B Certificates, the Class C
Certificates, the Class D Certificates and the Class E Certificates, in that
order, in each case until the Certificate Balance of such Class of Certificates
is reduced to zero.
The following tables indicate the percentage of the initial Certificate
Balance of each Class of Offered Certificates (other than the Class X
Certificates) that would be outstanding after each of the dates shown under each
of the designated scenarios (each, a "Scenario") and the corresponding weighted
average life of each such Class of Offered Certificates. The tables have been
prepared on the basis of, among others, the assumptions described below. To the
extent that the Mortgage Loans or the Certificates have characteristics that
differ from those assumed in preparing the tables, the Class A-1, Class A-2,
Class A-3, Class B, Class C, Class D and/or Class E Certificates may mature
earlier or later than indicated by the tables. Accordingly, the Mortgage Loans
will not prepay at any constant rate, and it is highly unlikely that the
Mortgage Loans will prepay in a manner consistent with the assumptions
underlying any of the Scenarios. In addition, variations in the actual
prepayment experience and the balance of the Mortgage Loans that prepay may
increase or decrease the percentages of initial Certificate Balances (and
shorten or extend the weighted average lives) shown in the following tables.
Investors are urged to conduct their own analyses of the rates at which the
Mortgage Loans may be expected to prepay.
The tables set forth below were prepared on the basis of the relevant Table
Assumptions, except that it was assumed that there are no prepayments on the
Mortgage Loans other than in accordance with the designated Scenario. The
Scenarios are as follows:
Scenario (1): No Mortgage Loan prepays; that is, the CPR for the Mortgage
Pool is 0%.
Scenarios (2), (3), (4) and (5): No Mortgage Loan (including Mortgage Loans
allowing defeasance but not voluntary prepayment during the Lockout Period)
prepays during a month in which a Lockout Period is in effect or in which
prepayments on such Mortgage Loan are required to be accompanied by a Yield
Maintenance Charge. All other Mortgage Loans prepay each month at the rate of 5%
CPR in the case of Scenario (2), 10% CPR in the case of Scenario (3), 15% in the
case of Scenario (4) and 25% in the case of Scenario (5).
Based on the above-referenced assumptions, the following seven tables
indicate the resulting weighted average lives of each Class of Offered
Certificates (other than the Class X Certificates) and sets forth the
percentages of the initial Certificate Balance of such Class of Offered
Certificates that would be outstanding after each of the dates shown under each
of the designated Scenarios. For purposes of the following tables, the weighted
average life is determined by (i) multiplying the amount of each principal
distribution thereon by the number of years from the Closing Date of such
Certificate to the related Distribution Date, (ii) summing the results and (iii)
dividing the sum by the aggregate amount of the reductions in the principal
balance of such Certificate.
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<PAGE>
<TABLE>
<CAPTION>
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF THE
CLASS A-1 CERTIFICATES UNDER EACH DESIGNATED SCENARIO
0% CPR DURING LOCKOUT
OR YLD. MAINT.-OTHERWISE
AT INDICATED CPR
------------------------------------------------------------
(0% CPR) (5% CPR) (10% CPR) (15% CPR) (25% CPR)
DISTRIBUTION DATE 1 2 3 4 5
----------------- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Closing Date ..................................... 100 100 100 100 100
September 15, 1999 ............................... 94 94 94 94 94
September 15, 2000 ............................... 87 87 87 87 87
September 15, 2001 ............................... 80 80 80 80 80
September 15, 2002 ............................... 71 71 71 71 70
September 15, 2003 ............................... 61 61 61 60 60
September 15, 2004 ............................... 52 51 51 50 50
September 15, 2005 ............................... 4 4 3 2 1
September 15, 2006 (and thereafter) .............. 0 0 0 0 0
Weighted Average Life
(in years) ...................................... 5.0 5.0 5.0 5.0 5.0
<CAPTION>
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF THE
CLASS A-2 CERTIFICATES UNDER EACH DESIGNATED SCENARIO
0% CPR DURING LOCKOUT
OR YLD. MAINT.-OTHERWISE
AT INDICATED CPR
------------------------------------------------------------
(0% CPR) (5% CPR) (10% CPR) (15% CPR) (25% CPR)
DISTRIBUTION DATE 1 2 3 4 5
----------------- -------- -------- ------- --------- --------
<S> <C> <C> <C> <C> <C>
Closing Date ..................................... 100 100 100 100 100
September 15, 1999 ............................... 100 100 100 100 100
September 15, 2000 ............................... 100 100 100 100 100
September 15, 2001 ............................... 100 100 100 100 100
September 15, 2002 ............................... 100 100 100 100 100
September 15, 2003 ............................... 100 100 100 100 100
September 15, 2004 ............................... 100 100 100 100 100
September 15, 2005 ............................... 100 100 100 100 100
September 15, 2006 ............................... 97 96 95 94 93
September 15, 2007 ............................... 86 85 83 82 80
September 15, 2008 (and thereafter) .............. 0 0 0 0 0
Weighted Average Life
(in years) ...................................... 9.2 9.2 9.1 9.1 9.1
<CAPTION>
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF THE
CLASS A-3 CERTIFICATES UNDER EACH DESIGNATED SCENARIO
0% CPR DURING LOCKOUT
OR YLD. MAINT.-OTHERWISE
AT INDICATED CPR
------------------------------------------------------------
(0% CPR) (5% CPR) (10% CPR) (15% CPR) (25% CPR)
DISTRIBUTION DATE 1 2 3 4 5
----------------- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Closing Date ..................................... 100 100 100 100 100
September 15, 1999 ............................... 100 100 100 100 100
September 15, 2000 ............................... 100 100 100 100 100
September 15, 2001 ............................... 100 100 100 100 100
September 15, 2002 ............................... 100 100 100 100 100
September 15, 2003 ............................... 100 100 100 100 100
September 15, 2004 ............................... 100 100 100 100 100
September 15, 2005 ............................... 100 100 100 100 100
September 15, 2006 ............................... 100 100 100 100 100
September 15, 2007 ............................... 100 100 100 100 100
September 15, 2008 (and thereafter) .............. 0 0 0 0 0
Weighted Average Life
(in years) ...................................... 9.7 9.7 9.7 9.7 9.6
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF THE
CLASS B CERTIFICATES UNDER EACH DESIGNATED SCENARIO
0% CPR DURING LOCKOUT
OR YLD. MAINT.-OTHERWISE
AT INDICATED CPR
------------------------------------------------------------
(0% CPR) (5% CPR) (10% CPR) (15% CPR) (25% CPR)
DISTRIBUTION DATE 1 2 3 4 5
----------------- -------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Closing Date ..................................... 100 100 100 100 100
September 15, 1999 ............................... 100 100 100 100 100
September 15, 2000 ............................... 100 100 100 100 100
September 15, 2001 ............................... 100 100 100 100 100
September 15, 2002 ............................... 100 100 100 100 100
September 15, 2003 ............................... 100 100 100 100 100
September 15, 2004 ............................... 100 100 100 100 100
September 15, 2005 ............................... 100 100 100 100 100
September 15, 2006 ............................... 100 100 100 100 100
September 15, 2007 ............................... 100 100 100 100 100
September 15, 2008 (and thereafter) .............. 0 0 0 0 0
Weighted Average Life
(in years) ...................................... 9.9 9.9 9.9 9.9 9.9
<CAPTION>
PERCENTAGES OF THE INITIAL BALANCE OF THE
CLASS C CERTIFICATES UNDER EACH DESIGNATED SCENARIO
0% CPR DURING LOCKOUT
OR YLD. MAINT.-OTHERWISE
AT INDICATED CPR
------------------------------------------------------------
(0% CPR) (5% CPR) (10% CPR) (15% CPR) (25% CPR)
DISTRIBUTION DATE 1 2 3 4 5
----------------- -------- ------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Closing Date ..................................... 100 100 100 100 100
September 15, 1999 ............................... 100 100 100 100 100
September 15, 2000 ............................... 100 100 100 100 100
September 15, 2001 ............................... 100 100 100 100 100
September 15, 2002 ............................... 100 100 100 100 100
September 15, 2003 ............................... 100 100 100 100 100
September 15, 2004 ............................... 100 100 100 100 100
September 15, 2005 ............................... 100 100 100 100 100
September 15, 2006 ............................... 100 100 100 100 100
September 15, 2007 ............................... 100 100 100 100 100
September 15, 2008 (and thereafter) .............. 0 0 0 0 0
Weighted Average
Life (in years) ................................. 9.9 9.9 9.9 9.9 9.9
<CAPTION>
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF THE
CLASS D CERTIFICATES UNDER EACH DESIGNATED SCENARIO
0% CPR DURING LOCKOUT
OR YLD. MAINT.-OTHERWISE
AT INDICATED CPR
------------------------------------------------------------
(0% CPR) (5% CPR) (10% CPR) (15% CPR) (25% CPR)
DISTRIBUTION DATE 1 2 3 4 5
----------------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Closing Date ..................................... 100 100 100 100 100
September 15, 1999 ............................... 100 100 100 100 100
September 15, 2000 ............................... 100 100 100 100 100
September 15, 2001 ............................... 100 100 100 100 100
September 15, 2002 ............................... 100 100 100 100 100
September 15, 2003 ............................... 100 100 100 100 100
September 15, 2004 ............................... 100 100 100 100 100
September 15, 2005 ............................... 100 100 100 100 100
September 15, 2006 ............................... 100 100 100 100 100
September 15, 2007 ............................... 100 100 100 100 100
September 15, 2008 ............................... 17 15 14 12 10
September 15, 2009 ............................... 2 0 0 0 0
September 15, 2010 (and thereafter) .............. 0 0 0 0 0
Weighted Average Life
(in years) ...................................... 10.0 10.0 10.0 10.0 9.9
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PERCENTAGES OF THE INITIAL BALANCE OF THE
CLASS E CERTIFICATES UNDER EACH DESIGNATED SCENARIO
0% CPR DURING LOCKOUT
OR YLD. MAINT.-OTHERWISE
AT INDICATED CPR
------------------------------------------------------------
(0% CPR) (5% CPR) (10% CPR) (15% CPR) (25% CPR)
DISTRIBUTION DATE 1 2 3 4 5
----------------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Closing Dateame: 67Sngl .......................... 100 100 100 100 100
September 15, 1999 ............................... 100 100 100 100 100
September 15, 2000 ............................... 100 100 100 100 100
September 15, 2001 ............................... 100 100 100 100 100
September 15, 2002 ............................... 100 100 100 100 100
September 15, 2003 ............................... 100 100 100 100 100
September 15, 2004 ............................... 100 100 100 100 100
September 15, 2005 ............................... 100 100 100 100 100
September 15, 2006 ............................... 100 100 100 100 100
September 15, 2007 ............................... 100 100 100 100 100
September 15, 2008 ............................... 100 100 100 100 100
September 15, 2009 ............................... 100 98 90 81 66
September 15, 2010 (and thereafter) .............. 0 0 0 0 0
Weighted Average Life
(in years) ...................................... 11.3 11.2 11.2 11.1 11.0
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
</TABLE>
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<PAGE>
THE POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement to be dated as of September 1, 1998 (the "Pooling and Servicing
Agreement"), by and among the Depositor, the Master Servicer, the Special
Servicer and the Trustee.
The Depositor will provide a copy of the Pooling and Servicing Agreement
(without exhibits) without charge upon written request of a holder of a
Certificate addressed to Commercial Mortgage Acceptance Corp., 210 West 10th
Street, 6th Floor, Kansas City, Missouri 64105 Attention: Clarence Krantz at
telephone number (816) 435-5000.
ASSIGNMENT OF THE MORTGAGE LOANS
With respect to each Mortgage Loan, the Depositor will deliver (or cause to
be delivered) to the related Trustee (or to a custodian appointed by the
Trustee) certain loan documents which, will include the original Mortgagee Note
endorsed, without recourse, to the order of the Trustee, the original Mortgage
(or a certified copy thereof) with evidence of recording indicated thereon and
an assignment of the Mortgage to the Trustee in recordable form. The Pooling and
Servicing Agreement will require that the Depositor or other party thereto
promptly cause each such assignment of Mortgage to be recorded in the
appropriate public office for real property records.
The Trustee (or the custodian appointed by the Trustee) will be required to
review the Mortgage Loan documents within 45 days after receipt thereof, and the
Trustee (or the custodian) will hold such documents in trust for the benefit of
the Certificateholders. If any such document is found to be missing or
defective, in either case such that interests of the Certificateholders are
materially and adversely affected, the Trustee (or such custodian) will be
required to notify the Master Servicer and the Depositor, and the Master
Servicer will be required to notify the relevant Seller. In that case, and if
the Seller cannot deliver the document or cure the defect within 90 days after
receipt of such notice, then the Seller will be obligated to repurchase it from
the Trustee at the Purchase Price or substitute a Qualified Substitute Mortgage
Loan.
SERVICING OF THE MORTGAGE LOANS; COLLECTION OF PAYMENTS
The Pooling and Servicing Agreement will require the Master Servicer and
the Special Servicer to service and administer the Mortgage Loans (or in the
case of the Special Servicer, the Specially Serviced Mortgage Loans and REO
Mortgage Loans) on behalf of the Trust Fund solely in the best interests of and
for the benefit of all of the Certificateholders and the Trustee in accordance
with the terms of the Pooling and Servicing Agreement and the Mortgage Loans. In
furtherance of and to the extent consistent with the foregoing, except to the
extent that the Pooling and Servicing Agreement provides for a contrary specific
course of action, each of the Master Servicer and the Special Servicer will be
required to service and administer the Mortgage Loans (x) in the same manner in
which, and with the same care, skill, prudence and diligence with which it
services and administers similar mortgage loans for other third-party
portfolios, giving due consideration to customary and usual standards of
practice of prudent institutional commercial mortgage loan servicers used with
respect to loans comparable to the Mortgage Loans or (y) in the same manner in
which, and with the same care, skill, prudence and diligence with which, it
services and administers similar mortgage loans which it owns, whichever
standard of care is higher, and taking into account its other obligations under
the Pooling and Servicing Agreement, and exercising reasonable business judgment
and acting in accordance with applicable laws and the terms of the related
Mortgage Loans and with a view to the maximization of the recovery on such
Mortgage Loan on a net present value basis, but without regard to (i) any other
relationship that the Master Servicer, the Special Servicer, any Sub-Servicer or
any affiliate of the Master Servicer, the Special Servicer or any Sub-Servicer
may have with the borrowers or any affiliate of such borrowers; (ii) the
ownership of any Certificate by the Master Servicer, the Special Servicer or any
affiliate of either; (iii) the Master Servicer's or the Trustee's obligations,
as applicable, to make Advances or to incur servicing expenses with respect to
the Mortgage Loans; (iv) the Master Servicer's, the Special Servicer's or any
Sub-Servicer's right to receive compensation for its services under the Pooling
and Servicing Agreement or with respect to any particular transaction; (v) the
ownership, servicing or management for others by the Master Servicer, the
Special Servicer or any Sub-Servicer of any other mortgage loans or property or
(vi) any obligation of the Master Servicer, the Special Servicer, any
Sub-Servicer or any affiliate of the Master Servicer, the Special Servicer or
any Sub-Servicer to repurchase or substitute, as a Seller, any Mortgage Loan if
(a) there is a defect with respect to certain of the documents relating to such
Mortgage Loan or (b) certain of its
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representations or warranties concerning such Mortgage Loan are breached, and
such defect or breach materially and adversely affects the interests of the
Certificateholders and such breach or defect is not cured as required. The
Pooling and Servicing Agreement will provide, however, that neither the Master
Servicer nor the Special Servicer, nor any of their directors, officers,
employees or agents, will have any liability to the Trust Fund or the
Certificateholders for taking any action or refraining from taking an action in
good faith or for errors in judgment. The foregoing provision would not protect
the Master Servicer, the Special Servicer or such person for the breach of any
of the Master Servicer's or Special Servicer's respective representations or
warranties in the Pooling and Servicing Agreement, or against any specific
liability imposed on the Master Servicer or the Special Servicer for a breach of
the servicing standards set forth in the Pooling and Servicing Agreement, any
liability by reason of willful misfeasance, misrepresentation, bad faith, fraud
or negligence in the performance of its duties or by reason of its negligent
disregard of obligations or duties under the Pooling and Servicing Agreement.
The Pooling and Servicing Agreement will further provide that the Master
Servicer, the Special Servicer, the Depositor and any director, officer,
employee or agent of either of them will be entitled to indemnification by the
Trust Fund against any loss, liability or expense incurred in connection with
any legal action that relates to the Pooling and Servicing Agreement or the
Certificates; provided, however, that such indemnification will not extend to
any loss, liability or expense (i) that such person is specifically required to
bear pursuant to the terms of such agreement, or is incidental to the
performance of obligations and duties thereunder and is not reimbursable
pursuant to the Pooling and Servicing Agreement; (ii) incurred in connection
with any breach of a representation, warranty or covenant made in the Pooling
and Servicing Agreement; (iii) incurred by reason of misfeasance, bad faith or
negligence in the performance of obligations or duties under the Pooling and
Servicing Agreement, or by reason of reckless disregard of such obligations of
duties; or (iv) incurred in connection with any violation of any state or
federal securities law. In addition, the Pooling and Servicing Agreement will
provide that neither the Master Servicer, the Special Servicer nor the Depositor
will be under any obligation to appear in, prosecute or defend any legal action
that is not incidental to its respective responsibilities under the Pooling and
Servicing Agreement and that in its opinion may involve it in any expense or
liability.
The Pooling and Servicing Agreement will require the Master Servicer and
the Special Servicer to make reasonable efforts to collect all payments called
for under the terms and provisions of the Mortgage Loans, and to follow
collection procedures as are consistent with the servicing standard under the
Pooling and Servicing Agreement. Consistent with the above, the Master Servicer
or the Special Servicer, as applicable, may, in its discretion, waive any late
payment charge or penalty fee in connection with any delinquent Periodic Payment
or Balloon Payment with respect to any Mortgage Loan.
The Meidinger Tower Loan, 0.73% of the Initial Pool Balance, will not be
serviced in accordance with the provisions of the Pooling and Servicing
Agreement described herein, but will instead be serviced pursuant to a separate
servicing agreement. The Depositor does not believe that any differences in the
terms of such servicing agreement from those in the Pooling and Servicing
Agreement will be materially adverse to the Certificateholders.
COLLECTION ACTIVITIES
The Master Servicer monitors the performance of all loans, including
tracking of the status of outstanding payments due, grace periods and due dates,
and the calculation and assessment of late fees. The Master Servicer has created
a customized collection system that downloads all current loan information from
the servicing system on a daily basis. A variety of delinquency reports are
regularly prepared, and a series of delinquency notice letters is
system-generated and mailed. Payment reminder letters are automatically
generated and mailed to borrowers at 10 days past due; more strongly worded
collection letters are sent at 30 and 60 days past due. Higher-risk mortgage
loans, such as those with a large principal balance or chronic delinquency, are
flagged on the system and the borrower receives a telephone call rather than a
letter. A delinquent Mortgage Loan will be transferred to the Special Servicer
upon such Mortgage Loan becoming a Specially Serviced Mortgage Loan. See
"--Special Servicing" herein.
ADVANCES
On the business day prior to each Distribution Date, the Master Servicer
will be obligated, subject to the recoverability determination described in the
next paragraph, to make advances (each, a "P&I Advance") out of its own funds
or, subject to the replacement thereof as provided in the Pooling and Servicing
Agreement, from funds held in the Certificate Account that are not required to
be distributed to Certificateholders on such Distribution Date, in an amount
that is generally equal to the aggregate of all Scheduled Payments (other than
Balloon Payments) and any Assumed Scheduled Payments, net of related Master
Servicing Fees and, if any, Recovery Fees, due or deemed due, as
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the case may be, in respect of the Mortgage Loans during the related Collection
Period, in each case to the extent such amount was not paid by or on behalf of
the related borrower or otherwise collected as of the close of business on the
related Determination Date. The Master Servicer's obligations to make P&I
Advances in respect of any Mortgage Loan will continue until liquidation of such
Mortgage Loan or disposition of any REO Property acquired in respect thereof.
However, if the Periodic Payment on any Mortgage Loan has been reduced in
connection with a bankruptcy or similar proceeding or a modification, waiver or
amendment granted or agreed to by the Special Servicer, the Master Servicer will
be required to advance only the amount of the reduced Periodic Payment (net of
related Master Servicing Fees and, if any, Recovery Fees) in respect of
subsequent delinquencies. In addition, if it is determined that an Appraisal
Reduction Amount (as defined below) exists with respect to any Required
Appraisal Loan (as defined below), then, with respect to the Distribution Date
immediately following the date of such determination and with respect to each
subsequent Distribution Date for so long as such Appraisal Reduction Amount
exists, the Master Servicer will be required in the event of subsequent
delinquencies to advance in respect of such Mortgage Loan only an amount equal
to (a) the principal amount of the P&I Advance for such Mortgage Loan plus (b)
the product of (i) the amount of the interest component of the P&I Advance for
such Mortgage Loan that would otherwise be required without regard to this
sentence, multiplied by (ii) a fraction, the numerator of which is equal to the
Stated Principal Balance of such Mortgage Loan, net of such Appraisal Reduction
Amount, and the denominator of which is equal to the Stated Principal Balance of
such Mortgage Loan. Pursuant to the terms of the Pooling and Servicing
Agreement, if the Master Servicer fails to make a P&I Advance required to be
made, the Trustee shall then be required to make such P&I Advance.
In addition to P&I Advances, the Master Servicer will also be obligated
(subject to the limitations described herein) to make cash advances ("Servicing
Advances," and together with P&I Advances, "Advances") to pay (i) certain costs
and expenses incurred in connection with defaulted Mortgage Loans, acquiring
title to, or management of, REO Property or the sale of defaulted Mortgage Loans
or REO Properties, (ii) delinquent real estate taxes, assessments and hazard
insurance premiums and (iii) other similar costs and expenses necessary to
protect and preserve the security of the related Mortgage.
The Master Servicer (or the Trustee) will be entitled to recover any
Advance made out of its own funds from any amounts collected in respect of the
Mortgage Loan (net of related Servicing Fees with respect to collections of
interest and net of related Recovery Fees) as to which such Advance was made,
whether such amounts are collected in the form of late payments, insurance
proceeds, liquidation proceeds or any other recovery of the related Mortgage
Loan or REO Property ("Related Proceeds"). Neither the Master Servicer nor the
Trustee will be obligated to make any Advance that it determines in accordance
with the servicing standards described herein, would, if made, not be
recoverable out of Related Proceeds (a "Nonrecoverable Advance"), and the Master
Servicer (or the Trustee) will be entitled to recover, from general funds on
deposit in the Certificate Account, any Advance made that it later determines to
be a Nonrecoverable Advance. For so long as the Trustee has not succeeded to the
duties of the Master Servicer pursuant to the terms of the Pooling and Servicing
Agreement, the Trustee may conclusively rely upon the Master Servicer's
determination of a Nonrecoverable Advance.
If the Master Servicer fails to fulfill its obligation to make any required
Advance, the Trustee will be required to make the Advance subject to its good
faith determination of recoverability.
The obligation of the Master Servicer or the Trustee, as applicable, to
make Advances with respect to any Mortgage Loan pursuant to the Pooling and
Servicing Agreement will continue through the foreclosure of such Mortgage Loan
and until the liquidation of the Mortgage Loan or related Mortgaged Properties.
Advances are intended to provide a limited amount of liquidity, not to guarantee
or insure against losses.
In connection with the reimbursement of the Master Servicer or the Trustee
of any Advance made by it, the Master Servicer or the Trustee, as applicable,
will be entitled to be paid, out of any amounts then on deposit in the
Certificate Account, interest compounded annually at a per annum rate (the
"Reimbursement Rate") equal to the "prime rate" published in the "Money Rates"
section of The Wall Street Journal, as such "prime rate" may change from time to
time, accrued on the amount of such Advance from the date made to but not
including the date of reimbursement. To the extent not offset or covered by
default interest and late charges collected with respect to the related Mortgage
Loan or by amounts otherwise payable on the Private Certificates, interest
accrued on outstanding Advances will result in a reduction in amounts payable on
the Offered Certificates, subject to the distribution priorities described
herein.
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ACCOUNTS
Certificate Account. The Master Servicer will, pursuant to the Pooling and
Servicing Agreement, establish and maintain a segregated account or accounts
(the "Certificate Account") into which it will be required to deposit, within
one business day of receipt the following payments and collections received or
made by it on or with respect to the Mortgage Loans: (i) all payments on account
of principal on the Mortgage Loans; (ii) all payments on account of interest and
default interest on the Mortgage Loans and all Prepayment Premiums; (iii) any
amounts required to be deposited by the Master Servicer in connection with
losses realized on Permitted Investments with respect to funds held in the
Certificate Account and in connection with Prepayment Interest Shortfalls; (iv)
(x) all Net REO Proceeds transferred from an REO Account and (y) all
condemnation proceeds, insurance proceeds and net liquidation proceeds not
required to be applied to the restoration or repair of the related Mortgaged
Property; (v) any amounts received from borrowers that represent recoveries of
Servicing Advances; and (vi) any other amounts required by the provisions of the
Pooling and Servicing Agreement to be deposited into the Certificate Account by
the Master Servicer or the Special Servicer, including, without limitation,
proceeds of any purchase or repurchase of a Mortgage Loan as described under
"DESCRIPTION OF THE MORTGAGE POOL--Representations and Warranties; Repurchase,"
"THE POOLING AND SERVICING AGREEMENT--Realization Upon Mortgage Loans" and
"DESCRIPTION OF THE CERTIFICATES--Optional Termination" herein.
"Net REO Proceeds" with respect to any REO Property and any related
Mortgage Loan are all revenues received by the Special Servicer with respect to
such REO Property or REO Mortgage Loan that do not constitute liquidation
proceeds, net of any insurance premiums, taxes, assessments and other costs and
expenses permitted to be paid from the related REO Account pursuant to the
Pooling and Servicing Agreement.
The foregoing requirements for deposits in the Certificate Account will be
exclusive, and any payments in the nature of late payment charges, late fees,
NSF check charges, assumption fees, loan modification fees, loan service
transaction fees, extension fees, demand fees, beneficiary statement charges and
similar fees need not be deposited in the Certificate Account by the Master
Servicer and, to the extent permitted by applicable law, the Master Servicer or
the Special Servicer, as applicable, will be entitled to retain any such charges
and fees received with respect to the Mortgage Loans. In the event that the
Master Servicer deposits into the Certificate Account any amount not required to
be deposited therein, the Master Servicer may at any time withdraw such amount
from the Certificate Account.
Distribution Account. The Trustee will, pursuant to the Pooling and
Servicing Agreement, establish and maintain a segregated account or accounts
(the "Distribution Account") in the name of the Trustee for the benefit of the
holders of Certificates. With respect to each Distribution Date, the Master
Servicer will deposit in the Distribution Account, to the extent of funds on
deposit in the Certificate Account, on or before the Remittance Date an
aggregate amount of immediately available funds equal to the Available
Distribution Amount plus any Prepayment Premiums received by the Master Servicer
during the related Collection Period. To the extent not included in Available
Distribution Amount, the Master Servicer will remit to the Trustee all P&I
Advances for deposit into the Distribution Account on the related Distribution
Date. See "DESCRIPTION OF THE CERTIFICATES--Distributions" herein.
WITHDRAWALS FROM THE CERTIFICATE ACCOUNT AND THE DISTRIBUTION ACCOUNT
The Master Servicer or the Trustee may make withdrawals from the
Certificate Account or the Distribution Account for any of the following
purposes:
(i) to make distributions to the Certificateholders on each
Distribution Date;
(ii) to reimburse the Master Servicer or the Trustee for unreimbursed
amounts advanced by it as described under "--Advances," such reimbursement
to be made out of amounts received which were identified and applied by the
Master Servicer as late collections of interest on and principal of the
particular Mortgage Loans on REO Loans with respect to which the advances
were made (net of Master Servicing Fees or Recovery Fees, if any);
(iii) to reimburse the Master Servicer for unpaid servicing fees
earned by it and certain unreimbursed servicing expenses incurred by it
with respect to Mortgage Loans and properties acquired in respect thereof,
such reimbursement to be made out of amounts that represent liquidation
proceeds and insurance proceeds collected on the particular Mortgage Loans
and properties, and net income collected on the particular properties, with
respect to which such fees were earned or such expenses were incurred;
(iv) to reimburse the Special Servicer for unpaid servicing fees
earned by it, such reimbursement in the case of the Recovery Fees to be
made out of amounts collected on the related Mortgage Loan;
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(v) to reimburse the Master Servicer or the Trustee for any advances
described in clause (ii) above made by it and any servicing expenses
referred to in clause (iii) above incurred by it which, in the good faith
judgment of the Master Servicer or the Trustee, will not be recoverable
from the amounts described in clauses (ii) and (iii), respectively, such
reimbursement to be made from amounts collected on other Mortgage Loans;
(vi) to pay for costs and expenses incurred by the Trust Fund for
environmental site assessments performed with respect to Mortgaged
Properties that constitute security for defaulted Mortgage Loans, and for
any containment, clean-up or remediation of hazardous wastes and materials
present on such Mortgaged Properties, as described under "--Realization
Upon Defaulted Mortgage Loans";
(vii) to reimburse the Master Servicer, the Special Servicer, the
Depositor, or any of their respective directors, officers, employees and
agents, as the case may be, for certain expenses, costs and liabilities
incurred thereby, as and to the extent described under "--Servicing of the
Mortgage Loans; Collection of Payments";
(viii) to pay the fees of the Trustee;
(ix) to reimburse the Trustee or any of its directors, officers,
employees and agents, as the case may be, for certain expenses, costs and
liabilities incurred thereby, as and to the extent described under "--The
Trustee";
(x) to pay the Master Servicer or the Trustee, as additional
compensation, interest and investment income earned in respect of amounts
held in the applicable account;
(xi) to pay (generally from related income) for costs incurred in
connection with the operation, management and maintenance of any Mortgaged
Property acquired by the Trust Fund by foreclosure or otherwise;
(xii) to pay any federal, state or local taxes imposed on the Trust
Fund or its assets or transactions, as and to the extent described under
"Certain Federal Income Tax Consequences--REMICS--Prohibited Transactions
Tax and Other Taxes";
(xiii) to pay for the cost of an independent appraiser or other expert
in real estate matters retained to determine a fair sale price for a
defaulted Mortgage Loan or a property acquired in respect thereof in
connection with the liquidation of such Mortgage Loan or property;
(xiv) to pay for the cost of various opinions of counsel obtained
pursuant to the Pooling and Servicing Agreement for the benefit of
Certificateholders;
(xv) to make any other withdrawals permitted by the Pooling and
Servicing Agreement; and (xvi) to clear and terminate such account upon the
termination of the Trust Fund.
INSPECTIONS
The Master Servicer (or the Special Servicer with respect to Specially
Serviced Mortgage Loans or REO Property) will be required (at its own expense)
to inspect each Mortgaged Property at least once every two years (or, if the
related Mortgage Loan has a then current principal balance greater than
$2,000,000, then at least once every year). The Master Servicer and the Special
Servicer will each prepare or cause to be prepared as soon as reasonably
possible a written report of each such inspection and will deliver a copy of
such report to the Trustee and the Controlling Class Representative within 10
days after the preparation thereof.
REALIZATION UPON MORTGAGE LOANS
Standards for Conduct Generally in Effecting Foreclosure or the Sale of
Defaulted Loans. In connection with any foreclosure or other acquisition, any
costs and expenses incurred in any such proceedings will be advanced by the
Master Servicer as a Servicing Advance, unless the Master Servicer determines
that such Advance would constitute a Nonrecoverable Advance.
If the Special Servicer elects to proceed with a non-judicial foreclosure
in accordance with the laws of the state in which the Mortgaged Property is
located, the Special Servicer will not be required to pursue a deficiency
judgment against the related borrower, or any other liable party if the laws of
the state do not permit such a deficiency judgment after a non-judicial
foreclosure or if the Special Servicer determines, in its best judgment, that
the likely recovery if a deficiency judgment is obtained will not be sufficient
to warrant the cost, time, expense and/or exposure of pursuing the deficiency
judgment and such determination is evidenced by an officer's certificate
delivered to the Trustee.
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A borrower's failure to make required Mortgage Loan payments may mean that
operating income is insufficient to service the mortgage debt, or may reflect
the diversion of that income from the servicing of the mortgage debt. In
addition, a borrower that is unable to make Mortgage Loan payments may also be
unable to make timely payments of taxes and to otherwise maintain and insure the
related Mortgaged Property. In general, the Special Servicer will be required to
monitor any Mortgage Loan that is in default, evaluate whether the causes of the
default can be corrected over a reasonable period without significant impairment
of the value of the related Mortgaged Property, initiate corrective action in
cooperation with the borrower if cure is likely, inspect the related Mortgaged
Property and take such other actions as are consistent with the Servicing
Standard (as defined in the Pooling and Servicing Agreement). A significant
period of time may elapse before the Special Servicer is able to assess the
success of any such corrective action or the need for additional initiatives.
The time within which the Special Servicer can make the initial
determination of appropriate action, evaluate the success of corrective action,
develop additional initiatives, institute foreclosure proceedings and actually
foreclose (or accept a deed to a Mortgaged Property in lieu of foreclosure) on
behalf of the Certificateholders may vary considerably depending on the
particular Mortgage Loan, the Mortgaged Property, the borrower, the presence of
an acceptable party to assume the Mortgage Loan and the laws of the jurisdiction
in which the Mortgaged Property is located. If a borrower files a bankruptcy
petition, the Special Servicer may not be permitted to accelerate the maturity
of the related Mortgage Loan or to foreclose on the Mortgaged Property for a
considerable period of time. See "CERTAIN LEGAL ASPECTS OF MORTGAGE
LOANS--Foreclosure" in the Prospectus.
The Pooling and Servicing Agreement grants to the Master Servicer, the
Special Servicer and any holder of Certificates evidencing a majority interest
(or, if no Certificateholder holds a majority interest, the holder of
Certificates evidencing the largest interest) in the Controlling Class (the
"Majority Subordinate Certificateholder") a right to purchase from the Trust
Fund certain defaulted Specially Serviced Mortgage Loans in the priority
described below. If the Special Servicer has determined in good faith, in
accordance with the Servicing Standard, that any such defaulted Specially
Serviced Mortgage Loan will become subject to foreclosure proceedings, the
Special Servicer will be required to promptly so notify in writing the Trustee
and the Master Servicer, and the Trustee will be required, within ten days after
receipt of such notice, to notify the Majority Subordinate Certificateholder.
Such Certificateholder may at its option purchase from the Trust Fund, at a cash
price equal to the applicable Purchase Price, any such defaulted Specially
Serviced Mortgage Loan at any time prior to liquidation thereof; provided that
if such Certificateholder has not agreed to purchase such defaulted Specially
Serviced Mortgage Loan within 30 days of its having received notice in respect
thereof, either the Special Servicer or the Master Servicer, in that order of
preference, may at its option also purchase such Mortgage Loan from the Trust
Fund, at a cash price equal to the applicable Purchase Price. In addition, the
Special Servicer may offer to sell any such defaulted Specially Serviced
Mortgage Loan not otherwise purchased as described in the preceding sentence, if
and when the Special Servicer determines, consistent with the Servicing
Standard, that such a sale would be in the best economic interests of the Trust
Fund. Such offer will be required to be made in a commercially reasonable manner
for a period of not less than ten days. The Majority Subordinate
Certificateholder, the Master Servicer and the Special Servicer may offer to
purchase any such Specially Serviced Mortgage Loan or REO Property. Unless the
Special Servicer determines that acceptance of any bid would not be in the best
economic interests of the Certificateholders (as a collective whole) and subject
to any rights that the Controlling Class Representative may have to object if
the winning bid is not at least equal to the applicable Purchase Price, the
Special Servicer will be required to accept the highest cash bid received from
any person that constitutes a "fair price" (determined in accordance with the
Pooling and Servicing Agreement) for the particular Mortgage Loan. See "--The
Controlling Class Representative" below.
Notwithstanding any of the foregoing, the Special Servicer will not be
obligated to accept the highest cash bid if the Special Servicer determines, in
accordance with the Servicing Standard, that rejection of such bid would be in
the best interests of the Certificateholders (as a collective whole); and
subject to any rights that the Controlling Class Representative may have to
object if the winning bid is not at least equal to the applicable Purchase
Price, the Special Servicer may accept a lower cash bid (from any person or
entity other than itself or an affiliate) if it determines, in accordance with
the Servicing Standard, that acceptance of such bid would be in the best
interests of the Certificateholders (as a collective whole) (for example, if the
prospective buyer making the lower bid is more likely to perform its obligations
or the terms (other than the price) offered by the prospective buyer making the
lower bid are more favorable).
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Neither the Trustee, in its individual capacity, nor any of its affiliates
may bid for or purchase any defaulted Specially Serviced Mortgage Loan or any
REO Property.
The Special Servicer will be required to exercise reasonable efforts,
consistent with the Servicing Standard and the discussion under "--The
Controlling Class Representative" below, to foreclose upon or otherwise
comparably convert the ownership of properties securing such of the Mortgage
Loans as come into and continue in default and as to which no satisfactory
arrangements can be made for collection of delinquent payments and which are not
sold as described above.
Notwithstanding any provision to the contrary, the Special Servicer will
not, on behalf of the Trust Fund, obtain title to a Mortgaged Property as a
result of or in lieu of foreclosure or otherwise, and will not otherwise acquire
possession of, or take any other action with respect to, any Mortgaged Property
if, as a result of any such action, the Trustee, for the Trust Fund or the
holders of Certificates, would be considered to hold title to, to be a
"mortgagee-in-possession" of, or to be an "owner" or "operator" of, such
Mortgaged Property within the meaning of CERCLA or any comparable law, unless
the Special Servicer has previously determined, based on an updated
environmental assessment report prepared by an independent person who regularly
conducts environmental audits, that: (i) such Mortgaged Property is in
compliance with applicable environmental laws or, if not, after consultation
with an environmental consultant, that it would be in the best economic interest
of the Trust Fund to take such actions as are necessary to bring such Mortgaged
Property in compliance therewith and (ii) there are no circumstances present at
such Mortgaged Property relating to the use, management or disposal of any
hazardous materials for which investigation, testing, monitoring, containment,
clean-up or remediation could be required under any currently effective federal,
state or local law or regulation, or that, if any such hazardous materials are
present for which such action could be required, after consultation with an
environmental consultant, it would be in the best economic interest of the Trust
Fund to take such actions with respect to the affected Mortgaged Property.
In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed-in-lieu of foreclosure, the deed or certificate of sale
will be issued to the Trustee, or to its nominee (which shall not include the
Master Servicer or the Special Servicer) or a separate trustee or co-trustee on
behalf of the Trustee, as the holder of the lowest tier REMIC and as Trustee for
the holders of Certificates. Notwithstanding any such acquisition of title and
cancellation of the related Mortgage Loan, such Mortgage Loan will be considered
to be a Mortgage Loan held in the Trust Fund until such time as the related REO
Property is sold by the Trust Fund and the principal balance thereof will be
reduced by Net REO Proceeds allocated thereto.
If the Trust Fund acquires a Mortgaged Property by foreclosure or
deed-in-lieu of foreclosure upon a default of a Mortgage Loan, the Pooling and
Servicing Agreement will provide that the Special Servicer must administer such
Mortgaged Property so that it qualifies at all times as "foreclosure property"
within the meaning of Code Section 860G(a)(8). The Pooling and Servicing
Agreement will also require that any such Mortgaged Property be managed and
operated by an "independent contractor," within the meaning of applicable
Treasury regulations, who furnishes or renders services to the tenants of such
Mortgaged Property, unless the Special Servicer provides the Trustee with an
opinion of counsel that the operation and management of the Mortgaged Property
other than through an independent contractor will not cause such Mortgaged
Property to fail to qualify as "foreclosure property" (which opinion will be an
expense of the Trust Fund). Generally, the lowest-tier REMIC will not be taxable
on income received with respect to the Mortgaged Property to the extent that it
constitutes "rents from real property," within the meaning of Code Section
856(c)(3)(A) and Treasury regulations thereunder. "Rents from real property" do
not include the portion of any rental based on the net income or gain of any
tenant or sub-tenant. No determination has been made whether rent on any of the
Mortgaged Properties meets this requirement. "Rents from real property" include
charges for services customarily furnished or rendered in connection with the
rental of real property, whether the charges are separately stated. Services
furnished to the tenants of a particular building will be considered as
customary if, in the geographic market in which the building is located, tenants
in buildings that are of a similar class are customarily provided with the
service. No determination has been made whether the services furnished to the
tenants of the Mortgaged Properties are "customary" within the meaning of
applicable regulations. It is therefore possible that a portion of the rental
income with respect to a Mortgaged Property owned by the Trust Fund, presumably
allocated based on the value of any non-qualifying services, would not
constitute "rents from real property." In addition to the foregoing, any net
income from a trade or business operated or managed by an independent contractor
on a Mortgaged Property owned by the lowest-tier REMIC will not constitute
"rents from real property." Any of the foregoing types of income may instead
constitute "net income from foreclosure property," which would be taxable to the
lowest-tier REMIC at
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the highest marginal federal corporate rate (currently 35%; however, phase out
rates of 39% for taxable income between $100,000 and $335,000 and 38% for
taxable income between $15,000,000 and $18,333,333 apply) and may also be
subject to state or local taxes. Any such taxes would be chargeable against the
related income for purposes of determining the Net REO Proceeds available for
distribution to holders of Certificates. The Pooling and Servicing Agreement
provides that the Special Servicer will be permitted to cause the Trust Fund to
earn "net income from foreclosure property" that is subject to tax if it
determines that the net after-tax benefit to Certificateholders is greater than
what would be realized under another method of operating or net leasing the
mortgaged property. See "MATERIAL FEDERAL INCOME TAX CONSEQUENCES--Federal
Income Tax Consequences for REMIC Certificates--Taxation of the REMIC,"
"--Federal Income Tax Consequences for REMIC Certificates--Taxation of REMIC
Regular Certificates" and "--Federal Income Tax Consequences for REMIC
Certificates--Taxation of Holders of Residual Certificates" in the Prospectus.
AMENDMENTS, MODIFICATIONS AND WAIVERS
The Pooling and Servicing Agreement will permit the Special Servicer or the
Master Servicer, as applicable, to modify, waive or amend any term of any
Mortgage Loan if (a) it determines, in accordance with the servicing standard
described under "--General" above, that it is appropriate to do so and (b)
except as described in the following paragraph, such modification, waiver or
amendment will not (i) affect the amount or timing of any scheduled payments of
principal, interest or other amount (including Prepayment Premiums) payable
under the Mortgage Loan, (ii) affect the obligation of the related borrower to
pay a Prepayment Premium or permit a principal prepayment during the applicable
Lockout Period, (iii) except as expressly provided by the related Mortgage or in
connection with a material adverse environmental condition at the related
Mortgaged Property, result in a release of the lien of the related Mortgage on
any material portion of such Mortgaged Property without a corresponding
principal prepayment or (iv) in the judgment of the Special Servicer or the
Master Servicer, as applicable, materially impair the security for the Mortgage
Loan or reduce the likelihood of timely payment of amounts due thereon.
Notwithstanding clause (b) of the preceding paragraph, and subject to the
following sentence and the discussion under "--The Controlling Class
Representative," the Special Servicer may (i) reduce the amounts owing under any
Specially Serviced Mortgage Loan by forgiving principal, accrued interest and/or
any Prepayment Premium, (ii) reduce the amount of the Periodic Payment on any
Specially Serviced Mortgage Loan, including by way of a reduction in the related
Mortgage Rate, (iii) forbear in the enforcement of any right granted under any
Mortgage Note or Mortgage relating to a Specially Serviced Mortgage Loan, and/or
(iv) accept a principal prepayment on any Specially Serviced Mortgage Loan
during any Lockout Period; provided, that (x) the related borrower is in default
with respect to such Specially Serviced Mortgage Loan or, in the judgment of the
Special Servicer, such default is reasonably foreseeable, (y) in the sole, good
faith judgment of the Special Servicer, such modification, waiver or amendment
would increase the recovery to Certificateholders on a net present value basis
documented to the Trustee and (z) such modification, waiver or amendment does
not result in a tax being imposed on the Trust Fund or cause any of the REMICs
created pursuant to the Pooling and Servicing Agreement to fail to qualify as a
REMIC at any time the Certificates are outstanding. In no event, however, will
the Special Servicer be permitted to (i) extend the maturity date of a Mortgage
Loan beyond a date that is two years prior to the Rated Final Distribution Date
or (ii) if the Mortgage Loan is secured by a ground lease, extend the maturity
date of such Mortgage Loan beyond a date which is ten years prior to the
expiration of the term of such ground lease.
The Special Servicer and the Master Servicer, as applicable, will be
required to notify the Trustee, the Rating Agencies and, in the case of the
Special Servicer, the Master Servicer of any modification, waiver or amendment
of any term of any Mortgage Loan, and to deliver to the Trustee or the related
Custodian (with a copy to the Master Servicer), for deposit in the related
Mortgage File, an original counterpart of the agreement related to such
modification, waiver or amendment, promptly (and in any event within ten
business days) following the execution thereof. Copies of each agreement whereby
any such modification, waiver or amendment of any term of any Mortgage Loan is
effected are required to be available for review during normal business hours at
the offices of the Trustee.
THE TRUSTEE
Norwest Bank Minnesota, National Association ("Norwest Bank") will act as
Trustee pursuant to the Pooling and Servicing Agreement. Norwest Bank, a direct,
wholly owned subsidiary of Norwest Corporation, is a national
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banking association originally chartered in 1872 and is engaged in a wide range
of activities typical of a national bank. Norwest Bank's principal office is
located at Norwest Center, Sixth and Marquette, Minneapolis, Minnesota
55479-0113. Certificate transfer services are conducted at Norwest Bank's
offices in Minneapolis. Norwest Bank otherwise conducts its trustee and
securities administration services at its offices in Columbia, Maryland. Its
address there is 11000 Broken Land Parkway, Columbia, Maryland 21044-3562. In
addition, Norwest Bank maintains a trust office in New York located at 3 New
York Plaza, New York, New York 10004. Certificateholders and other interested
parties should direct their inquiries to the New York office. The telephone
number is (212) 515-5240. As compensation for its services, the Trustee will be
entitled to receive, from general funds on deposit in the Certificate Account,
the Trustee Fee. The "Trustee Fee" for each Distribution Date will be equal to
one-twelfth of the product of (a) the Trustee Fee Rate and (b) the aggregate of
the Certificate Balances of the Sequential Pay Certificates immediately prior to
such Distribution Date. The "Trustee Fee Rate" will be a per annum rate as set
forth in the Pooling and Servicing Agreement.
The Trustee will also have certain duties with respect to REMIC
administration (in such capacity, the "REMIC Administrator"). See "MATERIAL
FEDERAL INCOME TAX CONSEQUENCES--Reporting Requirements and Backup Withholding"
and "SERVICING OF THE MORTGAGE LOANS--Certain Matters With Respect to the Master
Servicer, the Special Servicer, the Trustee and the Depositor," "--Events of
Default" and "--Rights Upon Event of Default" in the Prospectus.
The Trustee may resign at any time by giving written notice to the
Depositor, the Master Servicer and the Special Servicer. Upon such notice of the
Trustee's resignation, the Master Servicer will appoint a successor trustee,
which appointment of successor trustee will not result, in and of itself, in a
downgrading, withdrawal or qualification of the rating then assigned by the
Rating Agencies to any Class of the Certificates as confirmed in writing by each
of the Rating Agencies. The cost, if any, of obtaining such confirmation shall
be paid by the resigning Trustee. If no successor trustee is appointed within 30
days after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for appointment of a successor
trustee.
If at any time the Trustee ceases to be eligible to continue as such under
the Pooling and Servicing Agreement, or if at any time the Trustee becomes
incapable of acting, or if certain events of (or proceedings in respect of)
bankruptcy or insolvency occur with respect to the Trustee, the Depositor will
be authorized to remove the Trustee and appoint a successor trustee. In
addition, holders of the Certificates entitled to at least 51% of the Voting
Rights may at any time (with or without cause) remove the Trustee and appoint a
successor trustee.
Any resignation or removal of the Trustee and appointment of a successor
trustee will not become effective until acceptance of appointment by the
successor trustee.
The Trust Fund will indemnify the Trustee and its directors, officers,
employees, agents, affiliates or "control" persons within the meaning of the
1933 Act against any and all losses, liabilities, damages, claims or expenses
(including reasonable attorneys' fees) arising in respect of the Pooling and
Servicing Agreement or the Certificates (but only to the extent that they are
expressly reimbursable under the Pooling and Servicing Agreement or are
unanticipated expenses incurred by any REMIC) other than those resulting from
the gross negligence, misrepresentation, fraud, bad faith or willful misconduct
of the Trustee and those for which such indemnified persons are indemnified
pursuant to the last sentence of this paragraph. The Trustee will not be
required to expend or risk its own funds or otherwise incur financial liability
in the performance of any of its duties under the Pooling and Servicing
Agreement, or in the exercise of any of its rights or powers, if in the
Trustee's opinion the repayment of such funds or adequate indemnity against such
risk or liability is not reasonably assured to it. Each of the Master Servicer
and the Special Servicer will indemnify the Trustee, and their respective
directors, officers, employees, agents and affiliates for similar losses
incurred related to the willful misconduct, fraud, misrepresentation, bad faith
and/or negligence in the performance of the Master Servicer's or the Special
Servicer's respective duties under the Pooling and Servicing Agreement or by
reason of negligent disregard of the Master Servicer's or the Special Servicer's
respective obligations and duties under the Pooling and Servicing Agreement.
DUTIES OF THE TRUSTEE
The Trustee, the Special Servicer and Master Servicer will make no
representation as to the validity or sufficiency of the Pooling and Servicing
Agreement, the Certificates, this Prospectus Supplement or the validity,
enforceability or sufficiency of the Mortgage Loans or related documents. The
Trustee will not be accountable for the use or application by the Depositor of
any Certificates or of the proceeds of such Certificates, or for the use of or
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application of any funds paid to the Depositor, the Master Servicer or the
Special Servicer in respect of the Mortgage Loans, or any funds deposited in or
withdrawn from the Certificate Account or the Distribution Account by the
Depositor, the Master Servicer or the Special Servicer, other than with respect
to any funds held by the Trustee.
If no Event of Default has occurred of which the Trustee has actual
knowledge and after the curing of all Events of Default that may have occurred,
the Trustee will be required to perform only those duties specifically required
under the Pooling and Servicing Agreement. Upon receipt of the various
certificates, reports or other instruments required to be furnished to it, the
Trustee will be required to examine such documents and to determine whether they
conform on their face to the requirements of the Pooling and Servicing
Agreement.
If the Master Servicer fails to make any required Advance, the Trustee will
be required to make such Advance to the extent that such Advance is not deemed
to be nonrecoverable. The Trustee will be entitled to rely conclusively on any
determination by the Master Servicer that an Advance, if made, would be
nonrecoverable. The Trustee will be entitled to reimbursement for each Advance
made by it in the same manner and to the same extent as the Master Servicer. See
"--Advances" herein.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The primary compensation to be paid to the Master Servicer in respect of
its servicing activities (including fees to be paid to any sub-servicer) will be
the Master Servicing Fee (together with the Special Servicing Fee, the
"Servicing Fees"). The "Master Servicing Fee" will be payable monthly on a
loan-by-loan basis from amounts received in respect of interest on each Mortgage
Loan or as otherwise described herein, will accrue at the related Master
Servicing Fee Rate and will be computed on the basis of the same principal
amount and for the same period respecting which any related interest payment due
on the Mortgage Loan is computed. In the event Midland Loan Services, Inc. is
terminated as Master Servicer, Midland Loan Services, Inc. will retain each
month, and the Master Servicing Fee will be reduced by, an amount equal to .025%
per annum multiplied by the principal balance of such Mortgage Loan as described
in the calculation of the Master Servicing Fee. The weighted average Master
Servicing Fee rate as of the Cut-Off Date will be .107%. In addition, as
additional servicing compensation, the Master Servicer, in addition to
Prepayment Interest Excesses and with respect to Mortgage Loans that are not
Specially Serviced Mortgage Loans, and the Special Servicer, with respect to
such Specially Serviced Mortgage Loans, will be entitled to retain all
modification fees, assumption fees, extension fees, late charges, default
interest (except to the extent such late charges and default interest are
applied to offset interest accrued on Advances with respect to the related
Mortgage Loan), exit fees, repayment fees, "Not Sufficient Funds" check charges,
and other similar fees and charges collected from borrowers on the related
Mortgage Loans. The Master Servicer is authorized to invest or direct the
investment of funds held in the Certificate Account and the reserve amounts (to
the extent permitted by law and the applicable Mortgage Loan documents) in
certain short-term United States government securities and other investment
grade obligations, and the Master Servicer will be entitled to retain any
interest or other income earned on such funds, but shall be required to cover
any losses on such investments from its own fund without any right to
reimbursement.
If a borrower voluntarily prepays a Mortgage Loan on a date that is prior
to its Due Date in a Collection Period, the amount of interest (net of the
related Master Servicing Fee) that accrues on the Mortgage Loan (other than a
Specially Serviced Mortgage Loan) during such Collection Period will be less
(such shortfall, a "Prepayment Interest Shortfall") than the amount of interest
(net of related Servicing Fees and without regard to any Prepayment Premium or
Yield Maintenance Charge actually collected) that would have accrued on the
Mortgage Loan through its Due Date. If such a principal prepayment occurs during
any Collection Period after the Due Date for such Mortgage Loan in such
Collection Period, the amount of interest (net of related Servicing Fees and the
Trustee Fee) that accrues and is collected on the Mortgage Loans during such
Collection Period will exceed (such excess, a "Prepayment Interest Excess") the
amount of interest (net of related Servicing Fee and the Trustee Fee and without
regard to any Prepayment Premium or Yield Maintenance Charge actually collected)
that would have been collected on the Mortgage Loan during such Collection
Period if the borrower had not prepaid. Any Prepayment Interest Excesses
collected will be paid to the Master Servicer as additional servicing
compensation. However, with respect to each Distribution Date, the Master
Servicer will be required to deposit into the Certificate Account (such deposit,
a "Compensating Interest Payment"), without any right of reimbursement therefor,
an amount equal to the aggregate of any Prepayment Interest Shortfalls
experienced during the related Collection Period (but only up to 0.01% per annum
per Mortgage Loan on an aggregate basis). Compensating Interest Payments will
not cover shortfalls in Mortgage Loan interest accruals that result from any
liquidation of a defaulted Mortgage Loan, or of any REO Property acquired in
respect thereof, that occurs during a Collection Period prior to the related Due
Date therein.
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As and to the extent described herein under "--Advances," the Master
Servicer will be entitled to receive interest, at the Reimbursement Rate, on any
Advances made by it. Such interest will compound annually and will be paid
contemporaneously with the reimbursement first from related collections from the
Mortgagors or the related Mortgage Property, and then, out of any amounts then
on deposit in the Certificate Account.
The principal compensation to be paid to the Special Servicer in respect of
its special servicing activities will be the Special Servicing Fee and, under
the circumstances described herein, Recovery Fees. The "Special Servicing Fee"
will accrue at a rate (the "Special Servicing Fee Rate") equal to 0.35% per
annum and will be computed on the basis of the same principal amount and for the
same period respecting which any related interest payment on the Specially
Serviced Mortgage Loan or REO Loan is computed. However, earned Special
Servicing Fees will be payable out of general collections on the Mortgage Loans
then on deposit in the Certificate Account. The Special Servicing Fee with
respect to any Specially Serviced Mortgage Loan will cease to accrue if such
Mortgage Loan is liquidated or becomes a Corrected Mortgage Loan. The Special
Servicer will be entitled to a "Recovery Fee" with respect to each Specially
Serviced Trust Fund Asset and Corrected Mortgage Loan, which Recovery Fee
generally will be in an amount equal to 1.0% of all amounts received in respect
thereof. However, no Recovery Fee will be payable in connection with, or out of
liquidation proceeds resulting from, the purchase of any Specially Serviced
Trust Fund Asset or Corrected Mortgage Loan (i) by a Seller (as described herein
under "DESCRIPTION OF THE MORTGAGE POOL--Assignment of the Mortgage Loans;
Repurchases and Substitutions" and "--Representations and Warranties;
Repurchases and Substitutions"), (ii) by the Majority Subordinate
Certificateholder, the Master Servicer, the Special Servicer or the Depositor as
described herein under "DESCRIPTION OF THE CERTIFICATES--Optional Termination"
or (iii) in certain other limited circumstances set forth in the Pooling and
Servicing Agreement. If any Person is acting as Special Servicer at such time as
any Specially Serviced Mortgage Loan become a Corrected Mortgage Loan and such
Person is subsequently terminated as Special Servicer hereunder, and if such
Corrected Mortgage Loan was still a Corrected Mortgage Loan at the time of such
termination, then such Person shall, following such termination, continue to be
entitled to all Recovery Fees payable in respect to such Corrected Mortgage
Loan. As additional servicing compensation, the Special Servicer will be
entitled to retain all assumption fees, modification fees and late payment
charges received on or with respect to the Specially Serviced Mortgage Loans and
investment income with respect to any REO Accounts.
The Pooling and Servicing Agreement will provide that each of the Master
Servicer and the Special Servicer will comply with the provisions of the Code
and the Treasury Regulations thereunder relating to REMICs. Each of the Master
Servicer and the Special Servicer will, in general, be required to pay all
ordinary expenses incurred by it in connection with its servicing activities
under the Pooling and Servicing Agreement, including the fees of any
sub-servicers retained by it, and will not be entitled to reimbursement therefor
except as expressly provided in the Pooling and Servicing Agreement. However,
the Master Servicer will be permitted to pay certain of such expenses (including
certain expenses incurred as a result of a Mortgage Loan default) directly out
of the Certificate Account and at times without regard to the relationship
between the expense and the funds from which it is being paid. See "DESCRIPTION
OF THE CERTIFICATES--Distributions" herein.
SPECIAL SERVICING
The initial Special Servicer will be Midland Loan Services, Inc. The
Special Servicer will conduct property inspections, collect financial
statements, rent-rolls and other financial data on the Mortgaged Properties
related to Specially Serviced Mortgage Loans, and prepare reports, as set forth
in the Pooling and Servicing Agreement. In addition, the Special Servicer will
be responsible for performing certain servicing functions with respect to
Mortgage Loans that, in general, are in default or as to which default is
reasonably foreseeable, for administering any REO Property and for performing
certain other servicing functions with respect to the Mortgage Pool under the
Pooling and Servicing Agreement. One or more affiliates of the Special Servicer
is expected to purchase the Class H, Class J, Class K, Class L and Class M
Certificates shortly after the Closing Date.
The Pooling and Servicing Agreement permits the holder (or holders) of the
majority of the Voting Rights allocated to holders of the Controlling Class of
Sequential Pay Certificates to replace the Special Servicer or any successor and
to select a representative (the "Controlling Class Representative") from whom
the Special Servicer will seek advice and approval and take direction under
certain circumstances, so long as it is consistent with the Special Servicer's
servicing standard. The "Controlling Class of Sequential Pay Certificates" is
the Class of Sequential Pay Certificates that has the latest alphabetical Class
designation and that has a Certificate Balance that is
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greater than 20% of its original Certificate Balance (or if no Classes of
Sequential Pay Certificates has a Certificate Balance that is greater then 20%
of its original Certificate Balance, the Class of Sequential Pay Certificates
with the latest alphabetical Class designation). The Class A-1, Class A-2 and
Class A-3 Certificates will be treated as one Class for determining the
Controlling Class of Sequential Pay Certificates. Any replacement of the Special
Servicer by the Controlling Class of Sequential Pay Certificates will be subject
to, among other things, (i) the delivery of notice of the proposed replacement
to the Rating Agencies and receipt of notice from the Rating Agencies that the
replacement will not result in a qualification, downgrade or withdrawal of any
of the then current ratings assigned to the Certificates, and (ii) the written
agreement of the successor Special Servicer to be bound by the terms and
conditions of the Pooling and Servicing Agreement. Subject to the foregoing, any
Certificateholder or affiliate thereof may be appointed as Special Servicer. See
"DESCRIPTION OF CERTIFICATES--Voting Rights" herein.
The Special Servicer will be responsible for servicing and administering
any Mortgage Loan as to which (a) any Periodic Payment shall be delinquent 45 or
more days (or, in the case of a Balloon Payment, if the Master Servicer
determines that the related borrower has obtained a commitment to refinance,
such longer period of delinquency (not to exceed 120 days) within which such
refinancing is expected to occur); (b) the Master Servicer shall have determined
that a default in making a Periodic Payment is likely to occur within 30 days
and is likely to remain unremedied for at least 60 days (or, in the case of a
Balloon Payment, if the Master Servicer determines that the related borrower has
obtained commitment to refinance, such longer period of delinquency (not to
exceed 120 days) within which such refinancing is expected to occur); (c) there
shall have occurred a default (other than as described in clause (a) above) that
in the good faith and reasonable judgment of the Master Servicer materially
impairs the value of the Mortgaged Property as security for the Mortgage Loan or
otherwise materially adversely affects the interests of Certificateholders and
that continues unremedied for the applicable grace period under the terms of the
Mortgage Loan (or, if no grace period is specified, for 30 days); (d) a decree
or order under any bankruptcy, insolvency or similar law shall have been entered
against the related borrower and such decree or order shall have remained in
force, undischarged or unstayed for a period of 60 days; (e) the related
borrower shall have consented to (or be subject to) the appointment of a
conservator or receiver or liquidator in any insolvency or similar proceedings
of or relating to such related borrower or relating to all or substantially all
of its property; (f) the related borrower shall have admitted in writing its
inability to pay its debts generally as they become due, filed a petition to
take advantage of any applicable insolvency or reorganization statute, made an
assignment for the benefit of its creditors, or voluntarily suspended payment of
its obligations; (g) the Master Servicer shall have received notice of the
commencement of foreclosure or similar proceedings with respect to the related
Mortgaged Property; or (h) such Mortgage Loan is a Required Appraisal Loan.
In the event of any of the foregoing with respect to any Mortgage Loan, the
Master Servicer is required to use its reasonable efforts to cause the transfer
of its servicing responsibilities with respect thereto to the Special Servicer
within five business days. Notwithstanding such transfer, the Master Servicer
will continue to receive payments on such Mortgage Loan (including amounts
collected by the Special Servicer), to make certain calculations with respect to
such Mortgage Loan, and to make remittances (including, if necessary, Advances)
and prepare certain reports to the Trustee with respect to such Mortgage Loan.
If title to the related Mortgaged Property is acquired by the Trust Fund (upon
acquisition, an "REO Property"), whether through foreclosure, deed in lieu of
foreclosure or otherwise, the Special Servicer will continue to be responsible
for the operation and management thereof. Mortgage Loans serviced by the Special
Servicer are referred to herein as "Specially Serviced Mortgage Loans" and,
together with any REO Properties, constitute "Specially Serviced Trust Fund
Assets." If the Special Servicer is not the Master Servicer, the Master Servicer
will have no responsibility for the Special Servicer's performance of its duties
under the Pooling and Servicing Agreement.
The Special Servicer will prepare a report (an "Asset Status Report") for
each Mortgage Loan which becomes a Specially Serviced Mortgage Loan not later
than 30 days after such Mortgage Loan becomes a Specially Serviced Mortgage
Loan. Each Asset Status Report will be delivered to the Controlling Class
Representative and eachRating Agency.
A Mortgage Loan will cease to be a Specially Serviced Mortgage Loan (and
will become a "Corrected Mortgage Loan" as to which the Master Servicer will
re-assume servicing responsibilities):
(v) with respect to the circumstances described in clause (a) of the
second preceding paragraph, when the related borrower has made all
delinquent payments and has made three consecutive full and timely Periodic
Payments under the terms of such Mortgage Loan (as such terms may be
changed or modified in connection with
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a bankruptcy or similar proceeding involving the related borrower or by
reason of a modification, waiver or amendment granted or agreed to by the
Special Servicer);
(w) with respect to any of the circumstances described in clauses (b),
(d), (e), (f) and (h) of the second preceding paragraph, when such
circumstances cease to exist in the good faith, reasonable judgment of the
Special Servicer, but, with respect to any bankruptcy or insolvency
proceedings described in clauses (d), (e) and (f), no later than the entry
of an order or decree dismissing such proceeding;
(x) with respect to the circumstances described in clause (c) of the
second preceding paragraph, when such default is cured; and
(y) with respect to the circumstances described in clause (g) of the
second preceding paragraph, when such proceedings are terminated.
so long as at that time no circumstance identified in such clauses (a) through
(h) exists that would cause the Mortgage Loan to continue to be characterized as
a Specially Serviced Mortgage Loan.
THE CONTROLLING CLASS REPRESENTATIVE
The Controlling Class Representative will be entitled to advise the Special
Servicer with respect to the following actions of the Special Servicer, and the
Special Servicer will not take any of the following actions, subject in all
events to its obligations under the servicing standard, unless the Controlling
Class Representative has approved such action in writing within ten business
days of having been notified thereof and having been provided with all
reasonably requested information with respect thereto (provided that if such
written notice has not been received by the Special Servicer within ten business
days, then the Controlling Class Representative's approval will be deemed to
have been given):
(i) any foreclosure upon or comparable conversion (which may include
acquisitions of an REO Property) of the ownership of properties securing
such of the Specially Serviced Mortgage Loans as come into and continue in
default;
(ii) any modification of a monetary term of a Mortgage Loan;
(iii) any proposed sale of a defaulted Mortgage Loan or REO Property
(other than in connection with the termination of the Trust Fund as
described under "DESCRIPTION OF THE CERTIFICATES--Optional Termination"
herein);
(iv) any acceptance of a discounted payoff;
(v) any determination to bring an REO Property into compliance with
applicable environmental laws or to otherwise address hazardous materials
located at an REO Property;
(vi) any release of collateral (other than in accordance with the
terms of, or upon satisfaction of, a Mortgage Loan); (vii) any acceptance
of substitute or additional collateral for a Mortgage Loan (other than in
accordance with the terms of a Mortgage Loan);
(viii) any waiver of a "due-on-sale" or "due-on-encumbrance" clause
(other than in accordance with the terms of a Mortgage Loan); and
(ix) any acceptance of an assumption agreement releasing a borrower
from liability under a Mortgage Loan (other than in accordance with the
terms of a Mortgage Loan).
In addition, the Controlling Class Representative may direct the Special
Servicer to take or to refrain from taking, such other actions as the
Controlling Class Representative may deem advisable or as to which provision is
otherwise made in the Pooling and Servicing Agreement; provided that no
direction may require or cause the Special Servicer to violate any provision of
the Pooling and Servicing Agreement, including the Special Servicer's obligation
to act in accordance with the servicing standards described under "--General"
above, or expose the Master Servicer, the Special Servicer, the Trust Fund or
the Trustee to liability, or materially expand the scope of the Special
Servicer's responsibilities under the Pooling and Servicing Agreement.
LIMITATION ON LIABILITY OF CONTROLLING CLASS REPRESENTATIVE
The Controlling Class Representative will have no liability to the
Certificateholders for any action taken, or for refraining from the taking of
any action, in good faith pursuant to the Pooling and Servicing Agreement, or
for errors
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in judgment; provided, however, that the Controlling Class Representative will
not be protected against any liability which would otherwise be imposed by
reason of willful misfeasance, bad faith or gross negligence in the performance
of duties or by reason of reckless disregard of obligations or duties. By its
acceptance of a Certificate, each Certificateholder confirms its understanding
that the Controlling Class Representative may take actions that favor the
interests of one or more Classes of the Certificates over other Classes of the
Certificates, that the Controlling Class Representative may have special
relationships and interests that conflict with holders of some Classes of the
Certificates, that the Controlling Class Representative does not have any duties
to the holders of any Class of Certificates other than the Controlling Class,
and, absent willful misfeasance, bad faith or gross negligence on the part of
the Controlling Class Representative, each Certificateholder agrees to take no
action against the Controlling Class Representative or any of its officers,
directors, employees, principals or agents as a result of such a special
relationship or conflict, and that the Controlling Class Representative will not
be deemed to have been grossly negligent or reckless, or to have acted in bad
faith or engaged in willful misfeasance or to have recklessly disregarded any
obligations or duties by reason of its having acted solely in the interests of
the Controlling Class and that the Controlling Class Representative will have no
liability whatsoever for having so acted.
SUB-SERVICERS
The Master Servicer and Special Servicer may each delegate its servicing
obligations in respect of the Mortgage Loans serviced thereby to one or more
third-party servicers (each, a "Sub-Servicer"); provided that the Master
Servicer or Special Servicer, as the case may be, will remain obligated under
the Pooling and Servicing Agreement for such delegated duties, and will be
responsible for the acts and omissions of any such Sub-Servicer.
The Master Servicer and Special Servicer will each be solely liable for all
fees owed by it to any Sub-Servicer retained thereby, irrespective of whether
its compensation pursuant to the Pooling and Servicing Agreement is sufficient
to pay such fees. Each Sub-Servicer retained thereby will be reimbursed by the
Master Servicer or Special Servicer, as the case may be, for certain
expenditures which it makes, generally to the same extent the Master Servicer or
Special Servicer would be reimbursed under the Pooling and Servicing Agreement.
See "--Servicing Compensation and Payment of Expenses" herein.
REPORTS TO CERTIFICATEHOLDERS; AVAILABLE INFORMATION
On each Distribution Date, based solely on information provided in monthly
reports prepared by the Master Servicer and the Special Servicer and delivered
to the Trustee, the Trustee will be required to provide or make available to (i)
each holder of an Offered Certificate, (ii) the initial beneficial owners of the
Offered Certificates and (iii) subsequent beneficial owners of the Offered
Certificates upon their request to the Trustee (x) a statement (a "Distribution
Date Statement"), providing various items of information relating to
distributions made on such date with respect to the relevant Class and a
statement, similar in content to the form of Annex B, setting forth the recent
status of the Mortgage Pool based on information provided to it by the Master
Servicer and the Special Servicer, and (y) certain additional information
regarding the Mortgage Loans in the form of Annex C. Each Distribution Date
Statement will substantially contain the information set forth below:
(1) A statement setting forth, among other things: (I) the amount of
distributions, if any, made on such Distribution Date to the holders of
each Class of Sequential Pay Certificates and applied to reduce the
respective Certificate Balances thereof; (ii) the amount of distributions,
if any, made on such Distribution Date to the holders of each Class of
Sequential Pay Certificates and the Class X Certificates allocable to
Distributable Certificate Interest and Prepayment Premiums; (iii) the
Available Distribution Amount for such Distribution Date; (iv) the
aggregate amount of P&I Advances made in respect of the immediately
preceding Distribution Date; (v) the aggregate Stated Principal Balance of
the Mortgage Pool outstanding immediately before and immediately after such
Distribution Date; (vi) the number, aggregate principal balance, weighted
average remaining term to maturity and weighted average Mortgage Rate of
the Mortgage Pool as of the end of the Collection Period for the prior
Distribution Date; (vii) as of the close of business on the last day of the
most recently ended calendar month, the number and aggregate unpaid
principal balance of Mortgage Loans (A) delinquent 30-59 days, (B)
delinquent 60-89 days, (C) delinquent 90 days or more, and (D) as to which
foreclosure proceedings have been commenced; (viii) with respect to any REO
Property included in the Trust Fund as of the end of the Collection Period
for such Distribution Date, the principal balance of the Mortgage Loan as
of the date such Mortgage Loan became delinquent; (ix) the Accrued
Certificate Interest and
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Distributable Certificate Interest in respect of each Class of Sequential
Pay Certificates and the Class X Certificates for such Distribution Date;
(x) the aggregate amount of Distributable Certificate Interest payable in
respect of each Class of Sequential Pay Certificates and the Class X
Certificates on such Distribution Date, including, without limitation, any
Distributable Certificate Interest remaining unpaid from prior Distribution
Dates; (xi) any unpaid Distributable Certificate Interest in respect of
such Class of Sequential Pay Certificates and the Class X Certificates
after giving effect to the distributions made on such Distribution Date;
(xii) the Pass-Through Rate for each Class of Sequential Pay Certificates
and the Class X Certificates for such Distribution Date; (xiii) the
Principal Distribution Amount for such Distribution Date, separately
identifying the respective components of such amount; (xiv) the aggregate
of all Realized Losses incurred during the related Collection Period and,
aggregated by type, all Additional Trust Fund Expenses incurred during the
related Collection Period; (xv) the Certificate Balance or Notional Amount,
as the case may be, of each Class of Sequential Pay Certificates and the
Class X Certificates outstanding immediately before and immediately after
such Distribution Date, separately identifying any reduction therein due to
the allocation of Realized Losses and Additional Trust Fund Expenses on
such Distribution Date; (xvi) the aggregate amount of servicing fees paid
to the Master Servicer and the Special Servicer, collectively and
separately, during the Collection Period for the prior Distribution Date;
and (xvii) a brief description of any material waiver, modification or
amendment of any Mortgage Loan entered into by the Master Servicer or
Special Servicer pursuant to the Pooling and Servicing Agreement during the
related Collection Period. In the case of information furnished pursuant to
clauses (i) and (ii) above, the amounts shall be expressed as a dollar
amount in the aggregate for all Certificates of each applicable Class and
per a specified denomination.
(2) A report containing information regarding the Mortgage Loans as of
the close of business on the immediately preceding Determination Date,
which report shall contain certain of the categories of information
regarding the Mortgage Loans set forth in this Prospectus Supplement in the
tables under the caption "Annex A: Certain Characteristics of the Mortgage
Loans" (calculated, where applicable, on the basis of the most recent
relevant information provided by the borrowers to the Master Servicer or
the Special Servicer and by the Master Servicer or the Special Servicer, as
the case may be, to the Trustee) and such information shall be presented in
a loan-by-loan and tabular format substantially similar to the formats
utilized in this Prospectus Supplement on Annex A (provided that no
information will be provided as to any repair and replacement or other cash
reserve and the only financial information to be reported on an ongoing
basis will be actual expenses, actual revenues and actual net operating
income for the respective Mortgage Properties and a debt service coverage
ratio calculated on the basis thereof).
The reports set forth in Annex C will include:
(a) A "Delinquent Loan Status Report" containing substantially the
content set forth in Annex D attached hereto, prepared by the Master
Servicer setting forth, among other things, those Mortgage Loans that were
delinquent 30-59 days, delinquent 60-89 days, delinquent 90 days or more,
current but specially serviced, or in foreclosure but not REO Property.
(b) An "Historical Loan Modification Report" setting forth, among
other things, those Mortgage Loans that have been modified pursuant to the
Pooling and Servicing Agreement (i) during the related Collection Period
and (ii) since the Cut-Off Date, showing the original and revised terms
thereof.
(c) An "Historical Loss Estimate Report" setting forth, among other
things, (i) the aggregate amount of liquidation proceeds and expenses
relating to each Final Recovery Determination (as defined in the Pooling
and Servicing Agreement), both during the related Collection Period and
historically, and (ii) the amount of Realized Losses occurring during the
related Collection Period, set forth on a loan-by-loan basis.
(d) An "REO Status Report" setting forth, among other things, with
respect to each REO Property then currently included in the Trust Fund, (i)
the acquisition date of such REO Property, (ii) the amount of income
collected with respect to such REO Property (net of related expenses) and
other amounts, if any, received on such REO Property during the related
Collection Period and (iii) the value of the REO Property based on the most
recent appraisal or other valuation thereof available to the Special
Servicer as of such Determination Date (including any prepared internally
by the Special Servicer).
(e) A "Servicer Watch List" prepared by the Master Servicer
identifying each Mortgage Loan that is not a Specially Serviced Mortgage
Loan (i) with a debt service coverage ratio of less than 1.05x, (ii) that
has a stated
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maturity date occurring in the next sixty days, (iii) that is delinquent in
respect of its real estate taxes, (iv) for which any outstanding Advances
exist, (v) that has been a Specially Serviced Mortgage Loan in the past 90
days, (vi) for which the debt service coverage ratio has decreased by more
than 10% in the prior 12 months, (vii) for which any lease relating to more
than 25% of the related Mortgaged Property has expired, been terminated, is
in default or will expire within the next three months, (viii) that is late
in making its Monthly Payment three or more times in the preceding 12
months, (ix) with material deferred maintenance at the related Mortgaged
Property or (x) that is 30 or more days delinquent.
(f) An "Operating Statement Analysis Report" together with copies of
the operating statements and rent rolls (but only to the extent the related
borrower is required by the Mortgage to deliver, or otherwise agrees to
provide, such information). The Special Servicer is required consistent
with the servicing standards described herein to endeavor to obtain such
operating statements and rent rolls.
(g) With respect to any Mortgaged Property or REO Property, an "NOI
Adjustment Worksheet" presenting the computations to "normalize" the full
year net operating income and debt service coverage numbers used by the
Special Servicer in the other reports referenced above.
(h) A "Comparative Financial Status Report" setting forth, among other
things, the occupancy, revenue, net operating income and DSCR for each
Mortgaged Loan or the Related Mortgaged Property, as applicable, as of the
end of the calendar month immediately preceding the preparation of such
report for each of the following three periods (to the extent such
information is in the Special Servicer's possession); (i) the most current
available year-to-date, (ii) each of the previous two full fuscal years
stated separately; and (iii) the "base year" (representing the original
analysis of information used as of the Cut-Off Date).
The reports identified in clauses (a), (b), (c) and (d) above are referred
to herein as the "Unrestricted Servicer Reports", and the reports identified in
clauses (e), (f), (g) and (h) above are referred to herein as the "Restricted
Servicer Reports".
Although the form of the Distribution Date Statement may change at the
discretion of the Trustee, the content will be consistent with the requirements
of the Pooling and Servicing Agreement. It is anticipated that a portion of the
Distribution Date Statement may include certain operating information for the
respective Mortgaged Properties. See "SERVICING OF THE MORTGAGE
LOANS--Inspections" herein. Such information will generally be obtained from the
related borrowers, and neither the Master Servicer, the Special Servicer nor the
Trustee will assume any responsibility therefor.
The Trustee will make available each month, to any interested party, the
Distribution Date Statement via the Trustee's Website, electronic bulletin board
and its fax-on-demand service. In addition, the Trustee will make available each
month the Unrestricted Servicer Reports on the Trustee's Internet Website. The
Trustee's Internet Website will initially be located at
"www.securitieslink.net/cmbs". The Trustee's electronic bulletin board may be
accessed by calling (301) 815-6620, and its fax-on demand service may be
accessed by calling (301) 815-6610. For assistance with the above mentioned
servicer, investors may call (301) 815-6600. In addition, the Trustee will also
make Mortgage Loan information as presented in the CSSA loan setup file and CSSA
loan periodic update file format available each month to any Certificateholder,
the Rating Agencies or any other interested party via the Trustee's Internet
Website. In addition, pursuant to the Pooling and Servicing Agreement, the
Trustee will make available, as a convenience for interested parties (and not in
furtherance of the distribution of the Prospectus or the Prospectus Supplement
under the securities laws), the Pooling and Servicing Agreement, the Prospectus
and the Prospectus Supplement via the Trustee's Internet Website. The Trustee
will make no representations or warranties as to the accuracy or completeness of
such documents and will assume no responsibility therefor.
The Trustee will make available each month, the Restricted Servicer
Reports, to any holder or Certificate Owner of an Offered Certificate or any
person identified to the Trustee by any such holder or Certificate Owner as a
prospective transferee of an Offered Certificate or any interest therein, the
Rating Agencies, the Underwriters and to any of the parties to the Pooling and
Servicing Agreement (collectively, "Privileged Persons") via the Trustee's
internet website with the use of a password provided by the Trustee to such
person upon receipt by the Trustee from such person of a certification in the
form attached to the Pooling and Servicing Agreement; provided, however, that
the Rating Agencies, and the parties to the Pooling and Servicing Agreement will
not be required to provide such certification.
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In connection with providing access to the Trustee's Internet Website or
electronic bulletin board, the Trustee may require registration and the
acceptance of a disclaimer. The Trustee shall not be liable for the
dissemination of information in accordance with the Pooling and Servicing
Agreement.
Except as described above, until such time as Definitive Offered
Certificates are issued in respect of a Class of Offered Certificates, the
foregoing information will be available to the related Certificate Owners only
to the extent it is forwarded by or otherwise available through DTC and its
Participants. The manner in which notices and other communications are conveyed
by DTC to Participants, and by Participants to the Certificate Owners, will be
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time. The Master Servicer, the
Trustee and the Depositor may recognize as owner of a Certificate the person in
whose name the Certificate is registered on the books and records of the
Trustee, as registrar in respect of the Certificates (in such capacity, the
"Certificate Registrar").
The Pooling and Servicing Agreement requires that the Trustee make
available at its offices, during normal business hours, for review by any
Certificate Owner owning an interest in a Certificate, the Controlling Class
Representative or any person identified to the Trustee as a prospective
transferee of such an interest, originals or copies of, among other things, the
following items: (a) the Pooling and Servicing Agreement and any amendments
thereto, (b) all Distribution Date Statements delivered to holders of the
relevant Class of Offered Certificates since the Closing Date, (c) all officer's
certificates delivered to the Trustee since the Closing Date, (d) all
accountants' reports delivered to the Trustee since the Closing Date, (e) the
most recent property inspection report prepared in respect of each Mortgaged
Property and delivered to the Trustee, (f) the most recent Mortgaged Property
annual operating statements and rent roll, if any, collected and delivered to
the Trustee, (g) any and all modifications, waivers and amendments of the terms
of a Mortgage Loan entered into by the Special Servicer and delivered to the
Trustee and (h) any and all officers' certificates and other evidence delivered
to the Trustee to support the Master Servicer's (or the Trustee's) determination
that any Advance was or, if made, would not be recoverable from related
proceeds. Copies of any and all of the foregoing items will be available from
the Trustee upon request; however, the Trustee will be permitted to require
payment of a sum sufficient to cover the reasonable costs and expenses of
providing such information to the Certificate Owners, including, without
limitation, copy charges and reasonable fees for employee time and for space.
The Trustee will make available, upon reasonable advance written notice and
at the expense of the requesting party, copies of the items referred to in the
prior paragraph that are maintained thereby, to Certificateholders, Certificate
Owners and prospective purchasers of Certificates and interests therein;
provided that the Trustee may require (a) in the case of a Certificate Owner, a
written confirmation executed by the requesting person or entity, in a form
reasonably acceptable to the Trustee, generally to the effect that such person
or entity is a beneficial owner of any Class of Certificates, is requesting the
information solely for use in evaluating such person's or entity's investment in
such Certificates and will otherwise keep such information confidential and (b)
in the case of a prospective purchaser, confirmation executed by the requesting
person or entity, in a form reasonably acceptable to the Trustee, generally to
the effect that such person or entity is a prospective purchaser of any Class of
Certificates or an interest therein, is requesting the information solely for
use in evaluating a possible investment in such Certificates and will otherwise
keep such information confidential. Certificateholders, by the acceptance of
their Certificates, will be deemed to have agreed to keep such information
confidential. Notwithstanding the foregoing, however, no Certificateholder,
Certificate Owner or prospective purchaser will be required to keep confidential
any information received from the Trustee as described above that has previously
been filed with the Securities and Exchange Commission (the "SEC"), and the
Trustee will not be required to obtain either of the confirmations referred to
in the second preceding sentence in connection with providing any information
that has previously been filed with the SEC.
Upon written request of any Certificateholder of record made for purposes
of communicating with other Certificateholders with respect to their rights
under the Pooling and Servicing Agreement, the Certificate Registrar will
furnish such Certificateholder with a list of the other Certificateholders then
of record.
The Master Servicer, the Special Servicer, the Trustee, the Depositor and
the Certificate Registrar are required to recognize as Certificateholders only
those persons in whose names the Certificates are registered on the books and
records of the Certificate Registrar.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Offered Certificates, Willkie Farr & Gallagher,
special tax counsel to the Depositor, will deliver and file with the Commission
its opinion generally to the effect that, assuming compliance with all
provisions of the Pooling and Servicing Agreement, for federal income tax
purposes each portion of the Trust Fund designated in the Pooling and Servicing
Agreement as a REMIC will qualify as a REMIC under the Code. The assets of one
of such REMICs will generally consist of the Mortgage Loans, any REO Properties
acquired by the Trust Fund on behalf of the Certificateholders and the
Certificate Account. For federal income tax purposes, the Regular Certificates
(or, in the case of the Class X Certificates, each Component thereof) will
represent the "regular interests" in one of such REMICs and generally will be
treated as debt instruments of such REMIC. See "MATERIAL FEDERAL INCOME TAX
CONSEQUENCES--Federal Income Tax Consequences For REMIC Certificates" in the
Prospectus.
The Class A-1, Class A-2, Class A-3, Class B, Class C, Class D and Class E
Certificates will not, and the Class X Certificates will, be treated as having
been issued with original issue discount for federal income tax reporting
purposes. The prepayment assumption that will be used in determining the rate of
accrual of original issue discount, market discount and premium, if any, for
federal income tax purposes will be based on the assumption that subsequent to
the date of any determination the Mortgage Loans will prepay at a rate equal to
a CPR of 0%. No representation is made that the Mortgage Loans will prepay at
that rate or at any other rate. See "MATERIAL FEDERAL INCOME TAX
CONSEQUENCES--Federal Income Tax Consequences For REMIC Certificates--Taxation
of REMIC Regular Certificates" in the Prospectus.
If the method for computing original issue discount described in the
Prospectus results in a negative amount for any period with respect to a
Certificateholder (in particular, the holder of a Class X Certificate), the
amount of original issue discount allocable to such period would be zero and
such Certificateholder would be permitted to offset such negative amount only
against future original issue discount (if any) attributable to such
Certificates. Although the matter is not free from doubt, a holder of a Class X
Certificate may be permitted to deduct a loss to the extent that his or her
respective remaining basis in such Certificate exceeds the maximum amount of
future payments to which such Certificateholder is entitled, assuming no further
prepayments of the Mortgage Loans. Any such loss might be treated as a capital
loss.
The Internal Revenue Service (the "IRS") has issued regulations (the "OID
Regulations") under Sections 1271 through 1275 of the Code generally addressing
the treatment of debt instruments issued with original issue discount. The OID
Regulations in some circumstances permit the holder of a debt instrument to
recognize original issue discount under a method that differs from that used by
the issuer. Accordingly, it is possible that the holder of an Offered
Certificate may be able to select a method for recognizing original issue
discount that differs from that used by the Trustee in preparing reports to the
Certificateholders and the IRS. Prospective purchasers of Offered Certificates
are advised to consult their tax advisors concerning the tax treatment of such
Certificates.
The Offered Certificates will be treated as "real estate assets" within the
meaning of Section 856(c)(4)(A) of the Code. In addition, interest (including
original issue discount) on the Offered Certificates will be interest described
in Section 856(c)(3)(B) of the Code. However, each Class of the Offered
Certificates will generally only be considered assets described in Section
7701(a)(19)(C) of the Code to the extent of the percentage of the total Mortgage
Pool which is represented by the Mortgage Loans that are secured by residential
property and, accordingly, investment in the Offered Certificates may not be
suitable for certain thrift institutions.
Prepayment Premiums actually collected will be distributed to the holders
of the Offered Certificates as described herein. It is not entirely clear under
the Code when the amount of a Prepayment Premium should be taxed to the holder
of an Offered Certificate, but it is not expected, for federal income tax
reporting purposes, that Prepayment Premiums will be treated as giving rise to
any income to the holders of the Offered Certificates prior to the Master
Servicer's actual receipt of a Prepayment Premium. It appears that Prepayment
Premiums, if any, will be treated as ordinary income rather than capital gain.
However, that is not entirely clear and Certificateholders should consult their
own tax advisors concerning the treatment of Prepayment Premiums. For further
information regarding the federal income tax consequences of investing in the
Offered Certificates, see "MATERIAL FEDERAL INCOME TAX CONSEQUENCES--Federal
Income Tax Consequences For REMIC Certificates" in the Prospectus.
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ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and Section 4975 of the Code impose certain restrictions on (a) employee benefit
plans (as defined in Section 3(3) of ERISA) that are subject to Title I of
ERISA, (b) plans (as defined in Section 4975 of the Code) that are subject to
Section 4975 of the Code, (c) entities whose underlying assets include plan
assets by reason of a plan's investment in such entities (each of (a), (b), and
(c) a "Plan") and (d) persons who have certain specified relationships to such
Plans ("Parties in Interest" under ERISA and "Disqualified Persons" under the
Code). Moreover, based on the reasoning of the United States Supreme Court in
John Hancock Mutual Life Insurance Co. v. Harris Trust and Savings Bank, 114 S.
Ct. 517 (1993), an insurance company's general account may be deemed to include
assets of the Plans investing in the general account (e.g., through the purchase
of an annuity contract), and the insurance company might be treated as a Party
in Interest with respect to such Plans by virtue of such investment. ERISA also
imposes certain duties on persons who are fiduciaries of Plans subject to ERISA,
and both ERISA and the Code prohibit certain transactions involving "plan
assets" between a Plan and Parties in Interest, fiduciaries or Disqualified
Persons with respect to such Plan. Violation of these rules may result in the
imposition of an excise tax or penalty. Under ERISA, any person who exercises
any authority or control respecting the management or disposition of the assets
of a Plan is considered to be a fiduciary of such Plan (subject to certain
exceptions not here relevant).
Accordingly a fiduciary of any Plan should carefully review with its legal
advisors whether the purchase or holding of Offered Certificates could give rise
to a transaction that is prohibited or is not otherwise permitted either under
ERISA or Section 4975 of the Code or whether there exists any statutory or
administrative exemption applicable thereto.
Neither ERISA nor the Code defines the term "plan assets." However, the
Department of Labor ("DOL") has issued a final regulation (29 C.F.R. Section
2510.3-101) concerning the definition of what constitutes the assets of a Plan.
This regulation provides that, as a general rule, the underlying assets and
properties of corporations, partnerships, trusts and certain other entities in
which a Plan makes an "equity" investment will be deemed for certain purposes,
including the prohibited transaction provisions of ERISA and Section 4975 of the
Code, to be assets of the investing Plan unless certain exceptions apply.
Under the terms of the regulation, if the assets of the Trust Fund were
deemed to constitute Plan assets by reason of a Plan's investment in an Offered
Certificate, such Plan assets would include an undivided interest in the
Mortgage Loans and any other assets of the Trust Fund, which in turn could have
the consequence that certain aspects of such investment, including (i) the
deemed extension of credit by such Plan to the borrowers and (ii) the operation
of the Trust Fund might give rise to or result in prohibited transactions under
ERISA and Section 4975 of the Code.
The Final Regulation provides an exemption from "plan asset" treatment for
securities issued by an entity if, immediately after the most recent acquisition
of any equity interest in the entity, less than 25% of the value of each Class
of equity interests in the entity, excluding interests held by any person who
has discretionary authority or control with respect to the assets of the entity
(or any affiliate of such a person), are held by "benefit plan investors" (e.g.,
Plans, governmental, foreign and other plans not subject to ERISA and entities
holding assets deemed to be "plan assets"). Because the availability of this
exemption to the Trust Fund depends upon the identity of the holders of the
Offered Certificates at any time, there can be no assurance that any Class of
the Offered Certificates will qualify for this exemption.
Certain employee benefit plans, such as governmental plans and church plans
(if no election has been made under Section 410(d) of the Code), are not subject
to the restrictions of ERISA, and assets of such plans may be invested in the
Offered Certificates without regard to the ERISA considerations described below,
subject to the "25% of the value of equity interests held by benefit plan
investors" rule discussed above, and to other applicable federal and state law.
However, any such governmental or church plan which is qualified under Section
401(a) of the Code and exempt from taxation under Section 501(a) of the Code is
subject to the prohibited transaction rules set forth in Section 503 of the
Code.
The U.S. Department of Labor issued to Merrill Lynch an individual
prohibited transaction exemption, Prohibited Transaction Exemption 90-29, as
amended by Prohibited Transaction Exemption 97-34 (the "Exemption"), which
generally exempts from the application of the prohibited transaction provisions
of Section 406(a) and (b) and 407(a) of ERISA, and the excise taxes imposed on
such prohibited transactions pursuant to Sections 4975(a) and (b) of the Code
and Section 501(i) of ERISA, certain transactions, among others, relating to the
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servicing and operation of mortgage pools, such as the Mortgage Pool, and the
purchase, sale and holding of mortgage pass-through certificates, such as the
Senior Certificates, underwritten by an "underwriter," provided that certain
conditions set forth in the Exemption are satisfied. For purposes of this
discussion, the term "underwriter" shall include (a) Merrill Lynch, (b) any
person directly or indirectly, through one or more intermediaries, controlling,
controlled by or under common control with Merrill Lynch and (c) any member of
the underwriting syndicate or selling group of which a person described in (a)
or (b) is a manager or co-manager with respect to the Senior Certificates.
The Exemption sets forth six general conditions that must be satisfied for
a transaction involving the purchase, sale and holding of Class A-1, Class A-2,
Class A-3 and Class X Certificates to be eligible for exemptive relief
thereunder. First, the acquisition of the Certificates by a Plan must be on
terms that are at least as favorable to the Plan as they would be in an
arm's-length transaction with an unrelated party. Second, the rights and
interests evidenced by such Certificates must not be subordinated to the rights
and interests evidenced by the other certificates of the same trust. Third, such
Certificates at the time of acquisition by the Plan must be rated in one of the
three highest generic rating categories by S & P, DCR, Moody's Investors'
Service, Inc. ("Moody's") or Fitch. Fourth, the Trustee cannot be an affiliate
of any other member of the "Restricted Group," which consists of the
Underwriters, the Depositor, the Master Servicer, the Special Servicer, the
Trustee, any sub-servicer, and any borrower with respect to Mortgage Loans
constituting more than 5% of the aggregate unamortized principal balance of the
Mortgage Loans as of the date of initial issuance of such Certificates. Fifth,
the sum of all payments made to and retained by the Underwriters must represent
not more than reasonable compensation for underwriting such Certificates; the
sum of all payments made to and retained by the Depositor pursuant to the
assignment of the Mortgage Loans to the Trust Fund must represent not more than
the fair market value of such obligations; and the sum of all payments made to
and retained by the Master Servicer, the Special Servicer or any sub-servicer
must represent not more than reasonable compensation for such person's services
under the Pooling and Servicing Agreement and reimbursement of such person's
reasonable expenses in connection therewith. Sixth, the investing Plan must be
an accredited investor as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission under the Securities Act.
Because none of the Class A-1, Class A-2, A-3 and Class X Certificates are
subordinated to any other Class of Certificates, the second general condition
set forth above is satisfied with respect to such Certificates. It is a
condition of the issuance of the Class A-1, Class A-2 and A-3 Certificates that
they be rated not lower than "AAA" by DCR and "AAA" by S & P and that the Class
X Certificates be rated not lower than "AAA" by DCR and "AAAr" by S & P; thus,
the third general condition set forth above is satisfied with respect to such
Certificates as of the Closing Date. In addition, the fourth general condition
set forth above is also satisfied as of the Closing Date. A fiduciary of a Plan
contemplating purchasing any such Certificate in the secondary market must make
its own determination that, at the time of such purchase, such Certificate
continues to satisfy the third and fourth general conditions set forth above. A
fiduciary of a Plan contemplating the purchase of any such Certificate must make
its own determination that the first, fifth and sixth general conditions set
forth above will be satisfied with respect to such Certificate as of the date of
such purchase.
The Exemption also requires that the Trust Fund meet the following
requirements: (i) the Trust Fund must consist solely of assets of the type that
have been included in other investment pools; (ii) certificates in such other
investment pools must have been rated in one of the three highest categories of
S & P, DCR, Moody's or Fitch for at least one year prior to the Plan's
acquisition of such Certificates; and (iii) certificates in such other
investment pools must have been purchased by investors other than Plans for at
least one year prior to any Plan's acquisition of such Certificates. The
Depositor has confirmed to its satisfaction that such requirements have been
satisfied as of the date hereof.
If the general conditions of the Exemption are satisfied, the Exemption may
provide an exemption from the restrictions imposed by Sections 406(a) and 407(a)
of ERISA (as well as the excise taxes imposed by Sections 4975(a) and (b) of the
Code by reason of Sections 4975(c)(1)(A) through (D) of the Code) in connection
with (i) the direct or indirect sale, exchange or transfer of such Certificates
in the initial issuance of Certificates between the Depositor or an Underwriter
and a Plan when the Depositor, an Underwriter, Trustee, Master Servicer, Special
Servicer, sub-servicer or borrower is a Plan or person who has certain specified
relationships to the investing Plan (a "Party in Interest"), (ii) the direct or
indirect acquisition or disposition in the secondary market of Senior
Certificates by a Plan and (iii) the holding of Senior Certificates by a Plan.
However, no exemption is provided from the restrictions of Sections
406(a)(1)(E), 406(a)(2) and 407 of ERISA for the acquisition or holding of such
Certificate on behalf of an
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<PAGE>
"Excluded Plan" by any person who has discretionary authority or renders
investment advice with respect to the assets of such Excluded Plan. For purposes
hereof, an Excluded Plan is a Plan sponsored by any member of the Restricted
Group.
If certain specific conditions of the Exemption are also satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(b)(1) and (b)(2) of ERISA and the taxes imposed by Section 4975(c)(1)(E) of
the Code in connection with (1) the direct or indirect sale, exchange or
transfer of Senior Certificates in the initial issuance of Certificates between
the Depositor or an underwriter and a Plan when the person who has discretionary
authority or renders investment advice with respect to the investment of such
Plan's assets in such Certificates is (a) a borrower with respect to 5% or less
of the fair market value of the Mortgage Loans or (b) an affiliate of such a
person, (2) the direct or indirect acquisition or disposition in the secondary
market of Senior Certificates by such Plan and (3) the holding of such
Certificates by such Plan.
Further, if certain specific conditions of the Exemption are satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(a), 406(b) and 407(a) of ERISA, and the taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Section 4975(c) of the Code for transactions in
connection with the servicing, management and operation of the Mortgage Pool.
The Depositor expects that the specific conditions of the Exemption required for
this purpose will be satisfied with respect to the Senior Certificates.
The Exemption also may provide an exemption from the restrictions imposed
by Sections 406(a) and 407(a) of ERISA, and the taxes imposed by Sections
4975(a) and (b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of
the Code if such restrictions are deemed to otherwise apply merely because a
person is deemed to be a Party in Interest with respect to an investing Plan by
virtue of providing services to the Plan (or by virtue of having certain
specified relationships to such a person) solely as a result of the Plan's
ownership of the Senior Certificates. A purchaser of any such Certificate should
be aware, however, that even if the conditions specified in one or more
Exemptions are satisfied, the scope of relief provided by an Exemption may not
cover all acts that may be considered prohibited transactions.
Before purchasing any Senior Certificate, a fiduciary of a Plan should
itself confirm that the specific and general conditions of the Exemption and the
other requirements set forth in the Exemption would be satisfied. In addition to
making its own determination as to the availability of the exemptive relief
provided in the Exemption, the Plan fiduciary should consider the availability
of any other prohibited transaction exemptions. See "ERISA CONSIDERATIONS" in
the Prospectus.
Moreover, and in accordance with ERISA's general fiduciary standards, a
Plan fiduciary should determine whether investing in an Offered Certificate is
permitted under the governing Plan instruments and is appropriate for the Plan
in view of its overall investment policy and the composition and diversification
of its portfolio. A Plan fiduciary should especially consider the ERISA
requirement of investment prudence and the sensitivity of the return on the
Certificates to the rate of principal repayments (including voluntary
prepayments by the borrowers and involuntary liquidations) on the Mortgage
Loans, as discussed in "YIELDS AND MATURITY CONSIDERATIONS" herein.
The characteristics of the Class B, Class C, Class D and Class E
Certificates do not meet the requirements of the Exemptions. Accordingly,
Certificates of those Classes may not be acquired by a Plan, on behalf of or
with assets of (A) a Plan, (B) a governmental plan subject to any federal, state
or local law ("Similar Law") that is, to a material extent, similar to the
provisions of ERISA or the Code ("Other Plans"), (C) a collective investment
fund in which Plans or Other Plans are invested, or (D) other persons acting on
behalf of any Plan or Other Plans or using the assets of any Plan or Other Plans
or any entity whose underlying assets include plan assets by reason of a Plan's
or Other Plan's investment in the entity (within the meaning of DOL Regulations
Section 2510.3-101).
Each prospective transferee of a Subordinate Certificate will be required
to deliver to the Depositor, the Certificate Registrar and the Trustee, (i) a
transferee representation letter, substantially in the form attached as an
Exhibit to the Pooling and Servicing Agreement, stating that such prospective
transferee is not a person referred to in clause (A), (B), (C) or (D) above, or
(ii) an opinion of counsel which establishes to the satisfaction of the
Depositor, the Trustee and the Certificate Registrar that the purchase or
holding of such Certificate will not result in the assets of the Trust Fund
being deemed to be "plan assets" and subject to the fiduciary responsibility or
prohibited transaction provisions of ERISA, the Code or any Similar Law, and
will not constitute or result in a prohibited transaction within the meaning of
Section 406 or 407 of ERISA, Section 4975 of the Code or any Similar Law, and
will not subject the
S-108
<PAGE>
Master Servicer, the Special Servicer, the Depositor, the Trustee or the
Certificate Registrar to any obligation or liability (including obligations or
liabilities under ERISA or Section 4975 of the Code), which opinion of counsel
will not be an expense of the Trustee, the Trust Fund, the Master Servicer, the
Special Servicer, the Certificate Registrar or the Depositor.
Purchasers that are insurance companies should consult their legal advisors
with respect to the applicability of the Prohibited Transaction Class Exemption
95-60 ("PTCE 95-60"), regarding transactions by insurance company general
accounts. In addition to any exemption that may be available under PTCE 95-60
for the purchase and holding of Certificates by an insurance company general
account, the Small Business Job Protection Act of 1996 added a new Section
401(c) to ERISA, which provides certain exemptive relief from the provisions of
Part 4 of Title I of ERISA and Section 4975 of the Code, including the
prohibited transaction restrictions imposed by ERISA and the related excise
taxes imposed by the Code, for transactions involving an insurance company
general account. The DOL issued proposed regulations under Section 401(c) on
December 22, 1997, but the required final regulations have not been issued as of
the date hereof. Section 401(c) of ERISA required the DOL to issue final
regulations ("401(c) Regulations") no later than December 31, 1997, to provide
guidance for the purpose of determining, in cases where insurance policies or
annuity contracts supported by an insurer's general account are issued to or for
the benefit of a Plan on or before December 31, 1998, which general account
assets constitute plan assets. Section 401(c) of ERISA generally provides that,
until the date that is 18 months after the 401(c) Regulations become final, no
person shall be subject to liability under Part 4 of Title I of ERISA and
Section 4975 of the Code on the basis of a claim that the assets of an insurance
company general account constitute plan assets of any plan, unless (i) as
otherwise provided by the Secretary of Labor in the 401(c) Regulations to
prevent avoidance of the regulations or (ii) an action is brought by the
Secretary of Labor for certain breaches of fiduciary duty which would also
constitute a violation of federal or state criminal law. Any assets of an
insurance company general account that support insurance policies or annuity
contracts issued to a Plan after December 31, 1998, or issued to Plans on or
before December 31, 1998, for which the insurance company does not comply with
the 401(c) Regulations may be treated as plan assets. In addition, because
Section 401(c) does not relate to insurance company separate accounts, separate
account assets are still treated as plan assets of any Plan invested in such
separate account. Insurance companies contemplating the investment of general
account assets in the Certificates should consult their legal counsel with
respect to the applicability of Section 401(c) of ERISA, including the general
account's ability to continue to hold the Certificates after the date which is
18 months after the date the 401(c) Regulations become final.
LEGAL INVESTMENT
The Offered Certificates will not constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA").
The appropriate characterization of the Certificates under various legal
investment restrictions, and thus the ability of investors subject to these
restrictions to purchase the Certificates, may be subject to significant
interpretive uncertainties.
The Depositor makes no representations as to the proper characterization of
the Offered Certificates for legal investment purposes, financial institution
regulatory purposes or other purposes or as to the ability of particular
investors to purchase the Offered Certificates under applicable legal investment
restrictions. These uncertainties (and any unfavorable future determinations
concerning legal investment or financial institution regulatory characteristics
of the Offered Certificates) may adversely affect the liquidity of the
Certificates. Accordingly, all institutions whose investment activities are
subject to legal investment laws and regulations, regulatory capital
requirements or review by regulatory authorities should consult their own legal
advisors in determining whether and to what extent the Certificates constitute a
legal investment or are subject to investment, capital or other restrictions.
S-109
<PAGE>
PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in the underwriting agreement
(the "Underwriting Agreement") between the Depositor and the Underwriters, the
Depositor has agreed to sell to Merrill Lynch and GNL and Merrill Lynch and GNL
have agreed to purchase 75.8% and 24.2%, respectively, of the respective
Certificate Balances of each Class of Offered Certificates.
PNC Capital Markets, Inc., an affiliate of Midland, is acting as selling
agent for the Certificates.
In the Underwriting Agreement, the Underwriters have generally agreed to
purchase all of the Offered Certificates if any are purchased. In the event of a
default by either Underwriter, the Underwriting Agreement provides that the
purchase commitment of the non-defaulting Underwriter may be increased. Proceeds
to the Depositor from the sale of the Offered Certificates, before deducting
expenses payable by the Depositor, will be approximately $2,803,081,086, which
includes accrued interest.
Distribution of the Offered Certificates will be made by each Underwriter
from time to time in negotiated transactions or otherwise at varying prices to
be determined at the time of sale. Each Underwriter may effect such transactions
by selling the Offered Certificates to or through dealers, and such dealers may
receive compensation in the form of underwriting discounts, concessions or
commissions from such Underwriter. In connection with the purchase and sale of
the Offered Certificates, the Underwriters may be deemed to have received
compensation from the Depositor in the form of underwriting discounts. Each
Underwriter and any dealers that participate with such Underwriter in the
distribution of the Offered Certificates may be deemed to be underwriters and
any profit on the resale of the Offered Certificates positioned by them may be
deemed to be underwriting discounts and commissions under the Securities Act.
Purchasers of the Offered Certificates, including dealers, may, depending
on the facts and circumstances of such purchases, be deemed to be "underwriters"
within the meaning of the Securities Act in connection with reoffers and sales
by them of Offered Certificates. Certificateholders should consult with their
legal advisors in this regard prior to any such reoffer or sale.
The Depositor also has been advised by the Underwriters that each of them,
through one or more of its affiliates, currently intends to make a market in the
Offered Certificates; however, neither Underwriter has any obligation to do so,
any market making may be discontinued at any time and there can be no assurance
that an active public market for the Offered Certificates will develop. See
"RISK FACTORS--Limited Liquidity" herein and "RISK FACTORS--Limited Liquidity;
Lack of Market for Resale" in the Prospectus.
The Depositor has agreed to indemnify the Underwriters and each person, if
any, who controls such Underwriter within the meaning of Section 15 of the
Securities Act against, or make contributions to each Underwriter and each such
controlling person with respect to, certain liabilities, including liabilities
under the Securities Act.
GNL, a United Kingdom broker-dealer and a member of the Securities and
Futures Authority Limited, has agreed that, as part of the distribution of the
Certificates offered hereby and subject to certain exceptions, it will not offer
or sell any Certificates within the United States, its territories or
possessions or to persons who are citizens thereof or residents therein. The
Underwriting Agreement does not limit sales of Certificates offered hereby
outside of the United States.
Each of the Underwriters has represented that: (i) it has not offered or
sold and will not offer or sell, prior to the date six months after their date
of issuance, any of the Certificates to persons in the United Kingdom, except to
persons whose activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purposes of their
businesses or otherwise in circumstances which have not resulted in and will not
result in an offer to the public in the United Kingdom within the meaning of the
Public Offers of Securities Regulations 1995; (ii) it has complied and will
comply with all applicable provisions of the Financial Services Act 1986 with
respect to anything done by it in relation to the Certificates in, from or
otherwise involving the United Kingdom; and (iii) it has only issued or passed
on and will only issue or pass on in the United Kingdom any document received by
it in connection with the issuance of the Certificates to a person who is of a
kind described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 (as amended) or is a person to whom the
document can otherwise lawfully be issued or passed on.
S-110
<PAGE>
USE OF PROCEEDS
The Depositor will use net proceeds from the sale of the Offered
Certificates to pay part of the purchase price for the Mortgage Loans and to pay
the costs of structuring, issuing and underwriting the Offered Certificates.
EXPERTS
Cushman & Wakefield of Illinois, Inc., Cushman Wakefield, Inc. and
Hospitality Valuation Services, a Division of Hotel Consulting Services, Inc.
are each an independent real estate brokerage, appraisal, management or
consulting firm, and have either appraised or rendered an opinion on the current
fair market value of the Mortgaged Properties described in Annex D or prepared a
market study of such Mortgaged Properties. The results of such appraisals,
marketability study and market studies and references to such firms are set
forth in the information included in this Prospectus Supplement under the
heading "DESCRIPTION OF THE MORTGAGED POOL" and in the complete reports of such
firms included in the CD ROM attached hereto, and have been included in this
Prospectus Supplement in reliance upon the authority of Cushman & Wakefield of
Illinois, Inc., Cushman & Wakefield, Inc. and Hospitality Valuation Services, A
Division of Hotel Consulting Services, Inc. as experts in the field of appraisal
or market valuation of real estate.
LEGAL MATTERS
The legality of the Offered Certificates will be passed upon for the
Depositor by Morrison & Hecker, L.L.P., Kansas City, Missouri. The material
federal income tax consequences of investing in the Offered Certificates will be
passed upon by Willkie Farr & Gallagher, New York, New York, as special tax
counsel for the Depositor. Certain legal matters with respect to the Offered
Certificates will be passed upon for the Underwriters by Willkie Farr &
Gallagher.
RATINGS
It is a condition of their issuance that the Class A-1, Class A-2 and Class
A-3 Certificates be rated not lower than "AAA" by Standard & Poor's and "AAA" by
DCR, that the Class X Certificates be rated not lower than "AAAr" by S & P and
"AAA" by DCR, that the Class B Certificates be rated not lower than "AA" by S&P
and "AA" by DCR, that the Class C Certificates be rated not lower than "A" by S
& P and "A" by DCR, that the Class D Certificates be rated not lower than "BBB"
by S & P and "BBB" by DCR and that the Class E Certificates be rated not lower
than "BBB-" by S & P and "BBB-" by DCR.
The ratings on the Offered Certificates address the likelihood of the
timely receipt by holders thereof of distributions of interest to which they are
entitled and, except in the case of the Class X Certificates, distributions of
principal sufficient to reduce the Certificate Balance of each Class of Offered
Certificates to zero by the Rated Final Distribution Date, which is the first
Distribution Date that follows the second anniversary of the end of the
amortization term for the Mortgage Loan that, as of the Cut-Off Date, has the
longest remaining amortization term. The ratings take into consideration the
credit quality of the Mortgage Pool, structural and legal aspects associated
with the Offered Certificates, and the extent to which the payment stream from
the Mortgage Pool is adequate to make payments required under the Offered
Certificates. A security rating does not represent any assessment of (i) the
likelihood or frequency of principal prepayments on the Mortgage Loans, (ii) the
degree to which such prepayments might differ from those originally anticipated
or (iii) whether and to what extent Prepayment Premiums and Additional Interest
will be received. Also, a security rating does not represent any assessment of
the yield to maturity that investors may experience or the possibility that the
holders of the Class X Certificates might not fully recover their investment in
the event of rapid prepayments of the Mortgage Loans (including both voluntary
and involuntary prepayments). As described herein, the amounts payable with
respect to the Class X Certificates consist only of interest. If the Mortgage
Pool were to entirely prepay in the initial month, with the result that holders
of the Class X Certificates receive only a single month's interest and thus
suffer a nearly complete loss of their investment, all amounts "due" to such
Certificateholders will nevertheless have been paid, and such result is
consistent with the ratings received on the Class X Certificates. The Class X
Certificate Notional Amount upon which interest is calculated is reduced by the
allocation of Realized Losses, Additional Trust Fund Expenses and prepayments,
whether voluntary or involuntary. The rating does not address the timing or
magnitude of reductions of such Notional
S-111
<PAGE>
Amount, but only the obligation to pay interest timely on the Notional Amount as
so reduced from time to time. Accordingly, the ratings of the Class X
Certificates should be evaluated independently from similar ratings on other
types of securities.
S&P assigns the additional symbol of "r" to highlight classes of securities
that S&P believes may experience high volatility or high variability in expected
returns due to non-credit risks; however, the absence of an "r" symbol should
not be taken as an indication that a class will exhibit no volatility or
variability in total return.
There can be no assurance that any rating agency not requested to rate the
Offered Certificates will not nonetheless issue a rating to any or all Classes
thereof and, if so, what such rating or ratings would be. A rating assigned to
any Class of Offered Certificates by a rating agency that has not been requested
by the Depositor to do so may be lower than the rating assigned thereto by any
of the Rating Agencies.
The ratings on the Offered Certificates should be evaluated independently
from similar ratings on other types of securities. A security rating is not a
recommendation to buy, sell or hold securities and may be subject to revision or
withdrawal at any time by the assigning rating agency. See "RISK
FACTORS--Limited Nature of Credit Ratings" in the Prospectus.
S-112
<PAGE>
INDEX OF DEFINITIONS
1933 Act ....................................................S-3
30/360 basis ...............................................S-42
401(c) Regulations ........................................S-109
Accrued Certificate Interest .........................S-14, S-69
actual/360 basis ...........................................S-42
Additional Interest ........................................S-42
Additional Trust Fund Expenses .............................S-74
Adjusted Mortgage Rate .....................................S-42
Administrative Cost Rate ...................................S-48
Advance Rate ...............................................S-17
Advances .............................................S-17, S-90
Anticipated Repayment Date ...........................S-22, S-42
Appraisal Reduction Amount .................................S-72
ARD Loans ............................................S-25, S-42
Asset Status Report ........................................S-99
Assumed Scheduled Payment ..................................S-70
Available Distribution Amount ..............................S-65
Balloon Loans ..................................S-25, S-35, S-42
Balloon Payment ......................................S-25, S-42
Beneficial Owners ..........................................S-76
Casualty or Condemnation Rights ............................S-46
CBE ........................................................S-83
CEDEL .................................................S-9, S-78
CEDEL Participants .........................................S-78
Certificate Account ........................................S-90
Certificate Balance ............................Cover, S-9, S-64
Certificate Registrar ...............................S-79, S-104
Certificateholders ..................................Cover, S-65
Certificates .........................................Cover, S-7
Chase ......................................................S-76
Citibank ...................................................S-76
CMBS Portfolio .............................................S-62
Code .......................................................S-20
Class A Certificates ................................Cover, S-63
Class X Certificates .......................................S-63
Closing Date ................................................S-8
Collection Period ..........................................S-65
Commission ..................................................S-3
Compensating Interest Payment .......................S-19, S-97
Component ..................................................S-64
Constant Prepayment Rate ...................................S-82
Controlling Class of Sequential Pay Certificates ...........S-98
Controlling Class Representative ......................S-7, S-98
Cooperative ................................................S-78
Corrected Mortgage Loan ....................................S-99
CPR ........................................................S-82
Credit Lease Assignment ....................................S-46
Credit Lease Loans .........................................S-27
Credit Lease ...............................................S-27
Credit Lease Tenant ........................................S-27
Cross-Collateralized Loans .................................S-37
Custodian ..................................................S-58
Cut-Off Date ................................................S-8
Cut-Off Date Balance .................................S-23, S-41
Cut-Off Date DSCR ..........................................S-47
Cut-Off Date LTV ...........................................S-47
<PAGE>
DCR .................................................Cover, S-21
Debt Service Coverage Ratio ................................S-47
Debt Service Coverage Ratios ...............................S-46
Defeasance Collateral ................................S-27, S-43
Definitive Certificate .....................................S-76
Depositaries ...............................................S-76
Depositor ............................................Cover, S-7
Determination Date ....................................S-8, S-65
Discount Rate ..............................................S-71
Disqualified Persons ......................................S-106
Distributable Certificate Interest ...................S-14, S-69
Distribution Account .......................................S-91
Distribution Date .....................................S-8, S-65
Distribution Date Statement ...............................S-101
DOL .......................................................S-106
DSCR .......................................................S-46
DTC ............................................Cover, S-8, S-77
Due Date ...................................................S-25
ERISA ...............................................S-21, S-106
Euroclear Operator .........................................S-78
Euroclear .............................................S-9, S-78
Euroclear Participants .....................................S-78
Exemption .................................................S-107
Excluded Plan .............................................S-108
Fitch ......................................................S-63
Form 8-K ...................................................S-60
Fully Amortizing Loans ...............................S-26, S-42
GCFP ........................................................S-7
GNL .......................................................Cover
Guarantor ..................................................S-32
Indirect Participants ......................................S-77
Initial Pool Balance .................................S-22, S-41
Initial Reserves at Closing ................................S-48
Interest Accrual Period .....................................S-8
IRS .......................................................S-105
Loan per Sq ft, Unit, Pad, Room or Bed .....................S-48
Lockout Period .......................................S-26, S-42
Loss of Rents ..............................................S-46
Major Tenant ...............................................S-37
Majority Subordinate Certificateholder .....................S-93
Master Servicer ......................................Cover, S-7
Master Servicing Fee .......................................S-97
Meidinger Tower Loan .......................................S-44
Merrill Lynch .............................................Cover
Midland ...............................................S-7, S-61
MLMCI .......................................................S-7
Moody's ...................................................S-107
Mortgage File ..............................................S-58
Mortgage Loan Purchase Agreement ......................S-7, S-58
Mortgage Purchase Agreements ...............................S-58
Mortgage Loans .............................................S-22
Mortgage Notes .............................................S-38
Mortgage Rate ........................................S-25, S-48
Mortgaged Property ...................................S-23, S-41
Net Aggregate Prepayment Interest
Shortfall .....................................S-14, S-19, S-69
S-113
<PAGE>
Net Cash Flow ..............................................S-47
Net Mortgage Rate ....................................S-10, S-65
Net REO Proceeds ...........................................S-91
Nonrecoverable Advance .....................................S-90
Norwest Bank ...............................................S-95
Notional Amount ...........................................Cover
Occupancy Percentage .......................................S-48
Offered Certificates ......................................Cover
OID Regulations ...........................................S-105
Other Plans ...............................................S-108
P&I Advance ..........................................S-17, S-89
Participants ...............................................S-77
Party in Interest ..................................S-104, S-107
Pass-Through Rate .........................................Cover
Paying Agent ...............................................S-77
Percentage Premium .........................................S-71
Periodic Payments ..........................................S-25
Plan ................................................S-21, S-106
PNC ...................................................S-7, S-61
Pooling and Servicing Agreement ................Cover, S-7, S-88
Prepayment Interest Excess ...........................S-19, S-97
Prepayment Interest Shortfall ........................S-19, S-97
Prepayment Premium .........................................S-71
Primary Term ...............................................S-46
Principal Distribution Amount ........................S-14, S-69
Principal Window ............................................S-6
Private Certificates ........................................S-7
Privileged Persons ........................................S-104
PTCE 95-60 ................................................S-109
Purchase Price .............................................S-58
Qualified Appraisor ........................................S-72
Qualified Substitute Mortgage Loan .........................S-59
Rate Differential ..........................................S-71
Rating Agencies ............................................S-21
Realized Losses ............................................S-74
Record Date ...........................................S-8, S-65
Recovery Fee ...............................................S-98
Reimbursement Rate .........................................S-90
Related Proceeds ...........................................S-90
Remain Amort. Term .........................................S-46
Remaining Cash Flow ..................................S-26, S-42
REMIC ......................................................S-20
REMIC Administrator ........................................S-96
Rental Property ............................................S-47
REO Account ................................................S-63
REO Loan ...................................................S-71
REO Property .........................................S-63, S-99
<PAGE>
Repayment LTV ..............................................S-48
Required Appraisal Date ....................................S-72
Required Appraisal Loan ....................................S-72
Restricted Group ..........................................S-107
Restricted Servicer Reports ...............................S-103
Scenario ...................................................S-84
Scheduled Final Distribution Date .....................S-8, S-74
Scheduled Payment ..........................................S-70
SEC .......................................................S-104
Sellers .....................................................S-7
Senior Certificates .....................Cover, S-18, S-63, S-73
Senior Meidinger Tower Interest ............................S-44
Sequential Pay Certificates .................................S-9
Servicing Advance ....................................S-17, S-90
Servicing Fees .............................................S-97
Similar Law ...............................................S-108
SMMEA .....................................................S-109
Special Servicer .....................................Cover, S-7
Special Servicing Fee ......................................S-98
Special Servicing Fee Rate .................................S-98
Specially Serviced Mortgage Loans ..........................S-99
Specially Serviced Trust Fund Assets .......................S-99
S & P ...............................................Cover, S-21
Stated Principal Balance .............................S-10, S-65
Stated Remaining Term ......................................S-48
Subordinate Certificates .......................S-18, S-63, S-73
Subordinate Meidinger Tower Interest .......................S-44
Substitution Shortfall Amount ..............................S-58
Sub-Servicer ..............................................S-101
Table Assumptions ..........................................S-83
Terms and Conditions .......................................S-78
Trust Fund ...........................................Cover, S-9
Trustee ..............................................Cover, S-8
Trustee Fee ................................................S-96
Trustee Fee Rate ...........................................S-96
Underwriters ..............................................Cover
Underwriting Agreement ....................................S-110
Underwriting Reserves ......................................S-48
Unrestricted Servicer Reports .............................S-103
Voting Rights ..............................................S-75
Weighted Average Net Mortgage Rate ...................S-10, S-65
Weighted averages ..........................................S-48
WMF ........................................................S-41
Year Built .................................................S-48
Yield Maintenance Charges ..................................S-71
Zoning Laws ..........................................S-36, S-45
S-114
<PAGE>
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
ANNEX A
<TABLE>
<CAPTION>
Loan Control
Source No. Property Name Address City
====================================================================================================================================
<S> <C> <C> <C> <C>
MLMI MLMI-001 One Liberty Plaza 149 - 171 Broadway New York
MLMI MLMI-002a Holiday Hills Village 2000 West 92nd Avenue Federal Heights
MLMI MLMI-002b California-Hawaiian 3637 Snell Avenue San Jose
MLMI MLMI-002c Contempo Marin 400 Yosemite Road San Rafael
MLMI MLMI-002d Green Acres 8785 Turkey Ridge Road Breinigsville
MLMI MLMI-002e Hillcrest Village 1600 Sable Boulevard Aurora
MLMI MLMI-002f Concord Cascade 245 Aria Drive Pacheco
MLMI MLMI-002g Bonanza Village 3700 East Stewart Avenue Las Vegas
MLMI MLMI-002h Golden Terrace Village West 431 Zeta Street Golden
MLMI MLMI-002i Windmill Village 16131 North Cleveland Avenue North Fort Myers
MLMI MLMI-002j Lamplighter Village 10767 Jamacha Boulevard Spring Valley
MLMI MLMI-002k The Meadows 2401 West Southern Avenue Tempe
MLMI MLMI-002l Windmill Village North 4000 North Tuttle Avenue Sarasota
MLMI MLMI-002m Hacienda De Valencia 201 South Greenfield Road Mesa
MLMI MLMI-002n Cimarron 12205 North Perry Street Broomfield
MLMI MLMI-002o Lake Haven 1415 Main Street Dunedin
MLMI MLMI-002p Golden Terrace Village 17601 West Colfax Avenue Golden
MLMI MLMI-002q Casa Village 422 South 24th Street West Billings
MLMI MLMI-002r Central Park Village 205 West Bell Road Phoenix
MLMI MLMI-002s Camelot Acres 14750 West Burnsville Parkway Burnsville
MLMI MLMI-002t Casa del Sol #2 10960 North 67th Avenue Glendale
MLMI MLMI-002u Casa del Sol #1 11411 North 91st Avenue Peoria
MLMI MLMI-002v East Bay Oaks 601 Starkey Road Largo
MLMI MLMI-002w Holiday Village Colorado 3405 Sinton Road Colorado Springs
MLMI MLMI-002x Oak Tree Village 254 Sandalwood Avenue Portage
MLMI MLMI-002y Windmill Village South 3000 North Tuttle Avenue Sarasota
MLMI MLMI-002z Rancho Valley Village 12970 Highway 8 Business El Cajon
MLMI MLMI-002aa Eldorado Village 2505 East Bay Drive Largo
MLMI MLMI-002ab Country Place Village 2535 Country Place Boulevard New Port Richey
MLMI MLMI-002ac Pueblo Grande Village 999 Fortino Boulevard West Pueblo
- ------------------------------------------------------------------------------------------------------------------------------------
MLMI MLMI-002
MLMI MLMI-003 Sheraton Chicago Hotel & Towers 301 East North Water St Chicago
WMFG WMFG-108 Evening Star Building 1101 Pennsylvania Avenue N.W. Washington
WMFG WMFG-018a Lenox Court 5289-5299 85th Avenue New Carrollton
WMFG WMFG-018b Sutton Walk 5306 85th Avenue New Carrollton
WMFG WMFG-018c Brittany 4500 South Four Mile Run Drive Arlington
WMFG WMFG-018d Crestleigh 9556 Muirkirk Road Laurel
- ------------------------------------------------------------------------------------------------------------------------------------
WMFG WMFG-018
MLMI MLMI-093 Doral Plaza 151-155 N. Michigan Ave. Chicago
WMFG WMFG-106 1900 Market Street 1900 Market Street Philadelphia
WMFG WMFG-114 Shore Mall 6725 Black Horse Pike Egg Harbor Township
MLMI MLMI-133 Bell Atlantic Building One Washington Street Newark
WMFG WMFG-092 Bay Landing 121 Roble Road Walnut Creek
WMFG WMFG-074 499 Thornall 499 Thornall Street Edison
WMFG WMFG-077 Flamingo Pines Shopping Center SWC of Flamingo Road and Pines Blvd. Pembroke Pines
MLMI MLMI-075 330 South Warminster Road 330 South Warminster Road Hatboro
MLMI MLMI-068 Wharton Warehouse Business 20 Harry Shupe Boulevard Wharton
WMFG WMFG-005 Gateway Shopping Center 125 East Swedesford Road Tredyffrin
WMFG WMFG-112 St. Paul Plaza 200 St. Paul Place Baltimore
MLMI MLMI-182 Omni Richardson Hotel 701 East Campbell Road Richardson
GCM GCM-196 Meidinger Tower 462 South Fourth Ave Louisville
MIDLAND MID-172 Oak Tree Center Oak Tree Road and Wood Avenue Edison
WMFG WMFG-093 Connemara 3070 230th Lane South East Issaquah
WMFG WMFG-179 Applewood Center 5529-5605 E Scatterfield Rd Anderson
GCM GCM-108 Sheraton Newport 4545 MacArthur Boulevard Newport Beach
MLMI MLMI-151 Broadwater Apartments 15000 Southwest 104th Street Miami
MIDLAND MID-140 Bay View Summit Apartments 3101-3180 Clairemont Dr. San Diego
WMFG WMFG-017 Andrews Manor 6375 Maxwell Drive Camp Springs
WMFG WMFG-180 Tippecanoe Court 2513 E. Maple Point Drive Lafayette
WMFG WMFG-011 Chesapeake Square Shopping Center 6716 Ritchie Highway Glen Burnie
MIDLAND MID-099 IRS District Headquarters 210 East Earll Drive Phoenix
MLMI MLMI-099 Edgewood Village 2190 Uecker Street Lewisville
MLMI MLMI-091 Plum Tree Shopping Center 2250 N. University Parkway Provo
GCM GCM-076 Bonita Glen Apartments 250 Bonita Glen Dr. Chula Vista
MIDLAND MID-076 Greens of Bedford Apartments 6508 South 106th East Place Tulsa
MLMI MLMI-098 Sunset Oaks Apartments 3550 Timberglen Road Carrollton
MLMI MLMI-035 Venetian Bridges 2244 Rosemarie Lane Stockton
WMFG WMFG-042 HRB SYSTEMS, INC 300 N. Science Park Road State College
WMFG WMFG-162 Capitol Chevrolet/Guarantor Frontier Ins 600 Murfreesboro Road Nashville
MIDLAND MID-001 Hampton Ridge Apartments 3464 Hampton Ridge Drive Rockford
GCM GCM-012 Quail Ridge Apartments 2609 Featherstone Road Oklahoma City
GCM GCM-083 Sunset Gardens Apartments 1231 West Francisquito Avenue West Covina
WMFG WMFG-051 Harbor View Hotel 131 North Water Street Edgartown
WMFG WMFG-105 Fairfax Centre I Shopping Center 11211-11219 Lee Highway Fairfax
MIDLAND MID-038 Sandpiper Village Apartments 999 Marshall Rd. Vacaville
MLMI MLMI-124 Park City Square Apartments 1246 and 1247 West 30th Street Los Angeles
<CAPTION>
Cumulative % of
Loan Zip Original Cut-Off % of Initial Initial Pool
Source State Code Property Type Balance Date Balance Pool Balance Balance
===========================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
MLMI NY 10006 Office $ 275,000,000 $ 273,132,900 9.45% 9.45%
MLMI CO 80221 Manufactured Home Communities 19,648,519 19,648,519
MLMI CA 95136 Manufactured Home Communities 18,172,398 18,172,398
MLMI CA 94903 Manufactured Home Communities 16,324,454 16,324,454
MLMI PA 18031 Manufactured Home Communities 16,189,222 16,189,222
MLMI CO 80011 Manufactured Home Communities 15,646,311 15,646,311
MLMI CA 94553 Manufactured Home Communities 10,495,213 10,495,213
MLMI NV 89110 Manufactured Home Communities 10,097,035 10,097,035
MLMI CO 80401 Manufactured Home Communities 9,842,768 9,842,768
MLMI FL 33903 Manufactured Home Communities 9,508,774 9,508,774
MLMI CA 91978 Manufactured Home Communities 9,496,024 9,496,024
MLMI AZ 49201 Manufactured Home Communities 9,360,469 9,360,469
MLMI FL 34234 Manufactured Home Communities 9,167,990 9,167,990
MLMI AZ 85206 Manufactured Home Communities 8,512,440 8,512,440
MLMI CO 80020 Manufactured Home Communities 8,175,494 8,175,494
MLMI FL 34698 Manufactured Home Communities 8,159,907 8,159,907
MLMI CO 80401 Manufactured Home Communities 8,128,750 8,128,750
MLMI MT 59102 Manufactured Home Communities 8,127,230 8,127,230
MLMI AZ 85023 Manufactured Home Communities 7,262,981 7,262,981
MLMI MN 55306 Manufactured Home Communities 7,079,041 7,079,041
MLMI AZ 85304 Manufactured Home Communities 6,995,402 6,995,402
MLMI AZ 85345 Manufactured Home Communities 6,860,369 6,860,369
MLMI FL 33771 Manufactured Home Communities 6,747,204 6,747,204
MLMI CO 80907 Manufactured Home Communities 6,332,387 6,332,387
MLMI IN 46368 Manufactured Home Communities 6,158,305 6,158,305
MLMI FL 34234 Manufactured Home Communities 5,624,197 5,624,197
MLMI CA 92021 Manufactured Home Communities 4,696,354 4,696,354
MLMI FL 33771 Manufactured Home Communities 4,626,080 4,626,080
MLMI FL 34655 Manufactured Home Communities 4,051,025 4,051,025
MLMI CO 81008 Manufactured Home Communities 3,513,657 3,513,657
MLMI 265,000,000 265,000,000 9.17% 18.61%
- ---------------------------------------------------------------------------------------------------------------------------------
MLMI IL 60611 Hospitality 160,000,000 159,014,062 5.50% 24.11%
WMFG DC 20004 Office 69,500,000 69,454,752 2.40% 26.51%
WMFG MD 20784 Multifamily 3,986,000 3,977,644
WMFG MD 20784 Multifamily 7,714,000 7,697,829
WMFG VA 22204 Multifamily 26,791,000 26,734,838
WMFG MD 20708 Multifamily 18,966,000 18,926,240
- ---------------------------------------------------------------------------------------------------------------------------------
WMFG Multifamily 57,457,000 57,336,551 1.98% 28.50%
MLMI IL 60601 Multifamily 46,000,000 45,856,749 1.59% 30.08%
WMFG PA 19103 Office 44,000,000 43,971,224 1.52% 31.60%
WMFG NJ 08232 Retail 33,750,000 33,728,960 1.17% 32.77%
MLMI NJ 07102 Office 32,950,000 32,950,000 1.14% 33.91%
WMFG CA 94596 Multifamily 31,250,000 31,229,864 1.08% 34.99%
WMFG NJ 08818 Office 30,000,000 29,981,808 1.04% 36.03%
WMFG FL 33027 Retail 28,000,000 27,969,514 0.97% 36.99%
MLMI PA 19040 Mixed Use 25,600,000 26,930,301 0.93% 37.93%
MLMI NJ 07885 Industrial 25,500,000 25,500,000 0.88% 38.81%
WMFG PA 19087 Retail 25,500,000 25,390,358 0.88% 39.69%
WMFG MD 21202 Office 24,750,000 24,734,374 0.86% 40.54%
MLMI TX 75081 Hospitality 24,000,000 23,975,444 0.83% 41.37%
GCM KY 40202 Office 21,000,000 21,000,000 0.73% 42.10%
MIDLAND NJ 08820 Retail 19,750,000 19,737,501 0.68% 42.78%
WMFG WA 98027 Multifamily 18,750,000 18,737,918 0.65% 43.43%
WMFG IN 46013 Retail 16,800,000 16,790,658 0.58% 44.01%
GCM CA 92660 Hospitality 16,200,000 16,181,886 0.56% 44.57%
MLMI FL 33196 Multifamily 16,100,000 16,051,332 0.56% 45.12%
MIDLAND CA 92117 Multifamily 16,000,000 15,989,350 0.55% 45.68%
WMFG MD 20746 Multifamily 15,256,000 15,224,018 0.53% 46.20%
WMFG IN 47905 Retail 15,200,000 15,191,548 0.53% 46.73%
WMFG MD 21060 Retail 14,800,000 14,763,234 0.51% 47.24%
MIDLAND AZ 85012 Office 14,250,000 14,240,900 0.49% 47.73%
MLMI TX 75067 Multifamily 13,440,000 13,355,066 0.46% 48.19%
MLMI UT 84604 Retail 13,200,000 13,137,941 0.45% 48.65%
GCM CA 91910 Multifamily 13,200,000 13,121,731 0.45% 49.10%
MIDLAND OK 74133 Multifamily 12,200,000 12,165,638 0.42% 49.52%
MLMI TX 75287 Multifamily 11,520,000 11,443,425 0.40% 49.92%
MLMI CA 95207 Multifamily 10,800,000 10,749,828 0.37% 50.29%
WMFG PA 16803 Industrial 10,618,000 10,611,610 0.37% 50.66%
WMFG TN 37210 CTL 10,400,000 10,388,234 0.36% 51.02%
MIDLAND IL 61109 Multifamily 10,330,000 10,250,232 0.35% 51.37%
GCM OK 73120 Multifamily 10,300,000 10,203,470 0.35% 51.72%
GCM CA 91790 Multifamily 9,600,000 9,534,994 0.33% 52.05%
WMFG MA 02539 Hospitality 9,500,000 9,491,150 0.33% 52.38%
WMFG VA 22030 Retail 9,500,000 9,490,541 0.33% 52.71%
MIDLAND CA 95687 Multifamily 9,250,000 9,230,674 0.32% 53.03%
MLMI CA 90007 Multifamily 9,200,000 9,193,564 0.32% 53.35%
<CAPTION>
Loan Affiliated
Source Borrower
========================================================
<S> <C>
MLMI
MLMI
MLMI
MLMI
MLMI
MLMI
MLMI
MLMI
MLMI
MLMI
MLMI
MLMI
MLMI
MLMI
MLMI
MLMI
MLMI
MLMI
MLMI
MLMI
MLMI
MLMI
MLMI
MLMI
MLMI
MLMI
MLMI
MLMI
MLMI
MLMI
MLMI
- --------------------------------------------------------
MLMI
WMFG WMFG-106, WMFG-095
WMFG
WMFG
WMFG
WMFG
- --------------------------------------------------------
WMFG WMFG-017
MLMI
WMFG WMFG-108, WMFG-095
WMFG
MLMI
WMFG WMFG-093
WMFG
WMFG
MLMI
MLMI
WMFG
WMFG
MLMI
GCM
MIDLAND
WMFG WMFG-092
WMFG WMFG-180
GCM GCM-199
MLMI
MIDLAND
WMFG WMFG-018
WMFG WMFG-179
WMFG
MIDLAND
MLMI
MLMI
GCM MID-065
MIDLAND MID-020, MID-034, MID-037, MID-078, MID-090
MLMI
MLMI
WMFG
WMFG
MIDLAND MID-002
GCM MID-139, GCM-013, GCM-042, GCM-043
GCM
WMFG
WMFG WMFG-089
MIDLAND MID-047
MLMI
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Rem
Orig Rem Amort Amort
Interest Accrual Mortgage Administrative Term Term Term Term Origination Repayment
Crossed Method Rate Cost Rate (Mos.) (Mos.) (Mos.) (Mos.) Date Date
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Actual/360 6.900% 0.09675% 120 112 360 352 12/19/97 12/19/2007
- -----------------------------------------------------------------------------------------------------------------------------------
30/360 7.098 0.09675 120 112 IO IO 12/12/97 12/31/2007
Actual/360 6.832 0.09675 84 79 300 295 03/25/98 04/01/2005
Actual/360 6.865 0.09675 120 119 360 359 07/30/98 08/01/2008
- -----------------------------------------------------------------------------------------------------------------------------------
Actual/360 6.977 0.09675 120 117 360 357 05/15/98 06/01/2008
Actual/360 6.838 0.08675 120 116 360 356 04/22/98 05/01/2008
Actual/360 6.850 0.09675 120 119 360 359 07/30/98 08/01/2008
Actual/360 7.010 0.09675 120 119 360 359 07/28/98 08/01/2008
Actual/360 7.500 0.09675 120 120 300 300 08/05/98 09/01/2008
WMFG-093 Actual/360 6.900 0.09675 120 119 360 359 07/31/98 08/01/2008
Actual/360 7.100 0.09675 120 119 360 359 07/31/98 08/01/2008
Actual/360 7.450 0.06675 120 118 360 358 06/23/98 07/01/2008
Actual/360 7.575 0.09675 143 134 360 351 10/21/97 11/01/2009
Actual/360 7.500 0.09675 180 180 360 360 08/04/98 09/01/2013
Actual/360 7.110 0.09675 180 176 300 296 04/03/98 05/01/2013
Actual/360 6.968 0.09675 120 119 360 359 07/16/98 08/01/2008
Actual/360 7.400 0.09675 120 119 300 299 07/31/98 08/01/2008
30/360 7.600 0.03675 84 79 360 360(2) 04/01/98 04/15/2005
Actual/360 6.960 0.08175 120 119 360 359 07/27/98 08/01/2008
WMFG-092 Actual/360 6.900 0.09675 120 119 360 359 07/31/98 08/01/2008
WMFG-180 Actual/360 7.375 0.09675 120 119 360 359 07/31/98 08/01/2008
30/360 7.620 0.09675 192 191 300 299 07/08/98 08/01/2014
Actual/360 6.970 0.13675 120 116 360 356 04/15/98 05/01/2008
Actual/360 6.790 0.08175 120 119 360 359 07/28/98 08/01/2008
Actual/360 6.977 0.09675 120 117 360 357 05/15/98 06/01/2008
WMFG-179 Actual/360 7.375 0.09675 120 119 360 359 07/31/98 08/01/2008
Actual/360 7.330 0.09675 180 176 360 356 04/30/98 05/01/2013
Actual/360 6.930 0.08175 144 143 360 359 07/10/98 08/01/2010
Actual/360 6.660 0.13675 120 113 360 353 01/20/98 02/01/2008
Actual/360 6.930 0.09675 144 138 360 354 02/12/98 03/01/2010
Actual/360 7.130 0.20175 120 112 360 352 12/22/97 01/01/2008
Actual/360 6.870 0.08175 120 116 360 356 04/28/98 05/01/2008
Actual/360 7.010 0.13675 84 76 360 352 12/31/97 01/01/2005
Actual/360 6.985 0.09675 120 114 360 354 02/25/98 03/01/2008
Actual/360 7.125 0.09675 120 119 360 359 07/06/98 08/01/2008
Actual/360 6.875 0.09675 300 299 300 299 07/31/98 07/31/2023
MID-002 Actual/360 7.300 0.08175 120 109 360 349 09/30/97 10/01/2007
30/360 7.840 0.20175 60 47 360 347 07/28/97 08/01/2002
30/360 6.940 0.09675 120 112 360 352 12/29/97 01/01/2008
Actual/360 7.500 0.09675 120 119 300 299 07/30/98 08/01/2008
30/360 7.040 0.09675 120 119 330 329 07/29/98 08/01/2008
Actual/360 6.990 0.08175 120 117 360 357 05/07/98 06/01/2008
Actual/360 6.970 0.09675 120 119 360 359 07/09/98 08/01/2008
<CAPTION>
Annual Underwriting Underwriting
Balloon/Repayment Debt Total Total
Balance Maturity Term Prepayment Restrictions Service Revenue Expenses
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
$236,388,184 Hyperam L(32), Def(84),O(4) $ 21,952,805 $ 79,928,516 $ 39,954,894
3,139,781 980,889
3,219,075 1,356,283
2,694,058 900,400
2,543,272 764,472
2,498,893 779,746
1,940,471 787,304
1,699,624 590,207
1,451,142 369,663
1,602,577 557,796
1,724,694 681,313
1,729,933 701,446
1,640,339 633,001
1,363,415 428,106
1,374,614 476,327
1,480,893 584,319
1,234,845 341,694
1,433,764 540,780
1,155,736 357,712
1,460,616 682,802
1,085,620 316,996
1,035,042 281,256
1,205,635 464,283
972,521 276,746
1,145,985 469,338
1,070,893 452,931
873,520 357,505
836,933 328,640
867,204 422,095
662,914 276,849
- ------------------------------------------------------------------------------------------------------------------------------------
265,000,000 Hyperam L(32), Def(84),O(4) 18,809,170 45,144,009 16,160,899
138,805,322 Hyperam L(29), Def(53),O(2) 13,487,722 86,350,500 61,747,595
60,502,361 Balloon L(25),Def(91),O(4) 5,473,215 10,347,518 3,391,636
717,071 334,570
1,482,855 684,812
4,275,624 1,681,357
3,746,317 1,923,231
- ------------------------------------------------------------------------------------------------------------------------------------
50,168,395 Hyperam L(27),D(89),O(4) 4,576,509 10,221,867 4,623,970
39,498,254 Hyperam L(28), Def(88), O(4) 3,650,035 11,668,518 7,029,565
38,288,349 Balloon L(25),D(91),O(4) 3,459,769 10,157,885 5,293,434
29,493,402 Balloon L(48),Def(68),O(4) 2,697,196 6,311,445 2,677,051
26,421,187 Hyperam L(24), Def(92), O(4) 2,949,953 7,301,333 2,991,904
27,229,610 Balloon L(25),Def(91),O(4) 2,469,750 4,374,431 1,337,934
26,277,980 Balloon L(48),Def(68),O(4) 2,419,315 5,436,722 1,999,004
24,754,978 Balloon L(60),Def(56),O(4) 2,337,868 4,203,102 1,246,609
22,641,953 balloon L(33), Def (103), O(7) 2,315,918 4,245,229 1,131,333
19,366,677 Balloon L(24), Def(152), O(4) 2,162,410 4,268,922 1,311,175
16,318,785 Balloon L(28),Def(148),O(4) 2,184,264 4,826,573 1,704,470
21,604,636 Balloon L(25),Def(91),O(4) 1,969,570 5,643,870 2,748,586
19,193,289 Balloon L(60), >YM or 1% ( 56), O(4) 2,129,876 13,722,637 10,532,056
20,168,005 Balloon L(60),> of YM or 1% (20),O(4) 1,596,000 4,918,564 2,344,058
17,236,435 Hyperam L(48),> YM or 1%(60),O(12) 1,570,405 3,570,410 1,242,748
16,337,770 Balloon L(25),Def(91),O(4) 1,481,850 2,885,164 1,025,314
14,819,605 Balloon L(25),Def(91),O(4) 1,392,401 2,426,220 664,785
9,495,898 Hyperam L(120), > of YM or 1% (68),O(4) 1,451,807 10,017,916 7,884,296
13,867,597 Hyperam L(28), Def(88), O(4) 1,294,900 3,429,523 1,816,845
13,900,709 Balloon L(60),> YM or 1%(54),O(6) 1,250,418 2,634,935 1,013,126
13,320,725 Hyperam L(27),Def(89),O(4) 1,215,156 2,962,392 1,492,491
13,408,212 Balloon L(25),Def(91),O(4) 1,259,791 2,077,476 503,545
11,530,487 Balloon L(28),Def(139),O(13) 1,221,197 2,075,592 433,658
11,877,787 Balloon L(72),> YM or 1%(66),O(6) 1,129,640 2,809,008 1,255,276
11,486,634 Balloon L(60), >YM or 1% ( 56), O(4) 1,046,549 2,342,913 1,079,973
10,808,475 Hyperam L(30), Def (107), O(7) 1,057,352 1,911,427 365,345
11,565,723 Balloon L(60),> of YM or 1% (54),O(6) 1,067,705 2,278,989 898,221
10,625,741 Balloon L(60),> YM or 1%(54),O(6) 961,255 2,230,624 1,028,281
10,532,785 Balloon L(24), >YM or 1% ( 56), O(4) 930,004 2,344,366 1,126,417
9,307,541 Balloon L(60), >YM or 1% ( 56), O(4) 869,977 2,591,627 1,243,465
9,306,690 Balloon L(25),Def(91),O(4) 858,425 1,601,654 110,466
NAP Fully Amort L(180),5%(120) 880,029 900,000 -
9,094,055 Hyperam L(48),> YM or 1%(66),O(6) 849,834 1,860,359 760,439
9,788,132 Balloon > of YM or 5% (48),1%(6),O(6) 893,185 2,551,546 1,355,022
8,242,140 Balloon > of YM or 1% (84),3%(12),2%(12),1%(5),O(7) 761,792 1,660,630 696,513
7,738,024 Balloon L(25),Def(88),O(7) 842,450 7,552,874 6,319,842
7,878,094 Balloon L(25),Def(91),O(4) 782,312 1,452,604 373,626
8,079,369 Balloon L(48),YM(66),O(6) 737,740 1,760,605 760,451
7,922,822 Hyperam L(25), Def (88), O(7) 739,846 1,599,442 596,527
<CAPTION>
Underwriting Underwriting Appraised
NCF DSCR Value
=========================================================
<S> <C> <C>
$ 39,973,622 1.82x $ 430,000,000
2,158,892 25,847,024 (3)
1,862,792 15,583,294 (3)
1,793,658 22,464,847 (3)
1,778,800 19,474,000 (3)
1,719,147 20,635,482 (3)
1,153,167 14,176,635 (3)
1,109,417 14,099,235 (3)
1,081,479 13,242,259 (3)
1,044,781 17,398,729 (3)
1,043,381 12,397,765 (3)
1,028,487 12,484,400 (3)
1,007,338 12,794,576 (3)
935,309 11,083,341 (3)
898,287 11,044,906 (3)
896,574 11,062,341 (3)
893,151 10,926,941 (3)
892,984 10,750,012 (3)
798,024 9,079,553 (3)
777,814 8,834,424 (3)
768,624 9,472,835 (3)
753,786 8,971,765 (3)
741,352 9,373,082 (3)
695,775 8,309,647 (3)
676,647 13,496,706 (3)
617,962 7,959,600 (3)
516,015 6,117,176 (3)
508,293 6,398,729 (3)
445,109 5,246,941 (3)
386,065 4,939,200 (3)
- ---------------------------------------------------------
28,983,110 1.54 353,665,447
24,602,905 1.82 247,000,000
6,906,544 1.26 87,000,000
382,501 4,840,000
798,043 10,060,000
2,594,267 32,200,000
1,823,086 23,850,000
- ---------------------------------------------------------
5,597,897 1.22 70,950,000
4,621,792 1.27 67,400,000
4,439,875 1.28 57,000,000
3,529,654 1.31 52,500,000
4,007,967 1.36 43,500,000
3,036,496 1.23 40,000,000
3,131,747 1.29 41,785,000
2,868,871 1.23 35,500,000
2,998,621 1.29 34,800,000
2,884,139 1.33 33,300,000
2,918,645 1.34 35,770,000
2,611,500 1.33 35,500,000
3,190,581 1.50 40,000,000
2,574,507 1.61(1)(2) 29,200,000
2,222,619 1.42 26,400,000
1,859,850 1.26 25,250,000
1,715,009 1.23 21,400,000
2,133,620 1.47 27,400,000
1,612,678 1.25 20,130,000
1,621,809 1.30 20,974,496
1,469,901 1.21 20,200,000
1,518,803 1.21 19,500,000
1,575,542 1.29 18,500,000
1,412,122 1.25 22,500,000
1,262,940 1.21 16,800,000
1,464,795 1.39 16,500,000
1,380,768 1.29 16,135,000
1,202,342 1.25 15,400,000
1,217,949 1.31 14,400,000
1,337,251 1.54 14,000,000
1,372,407 1.60 13,700,000
900,000 1.02 10,500,000
1,099,920 1.29 13,400,000
1,196,524 1.34 14,000,000
964,117 1.27 12,000,000
1,233,033 1.46 16,000,000
1,011,942 1.29 12,800,000
1,000,154 1.36 13,150,000
1,002,915 1.36 11,800,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Loan per
Sq Ft, Units, Sq Ft, Unit, Initial
Appraisal Current Repayment Year Beds, Pads, Bed, Pad, Occupancy Reserves
Year LTV LTV Built or Room or Room Percentage At Closing
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
1997 63.52 54.97 1971 2,124,775 Sq. Ft. 129 per sq. ft. 100% --
1997 1961 737 Pads 26,660 per pad 98%
1997 1971 412 Pads 44,108 per pad 100%
1997 1972 396 Pads 41,223 per pad 100%
1997 1969 595 Pads 27,209 per pad 99%
1997 1970 604 Pads 25,904 per pad 95%
1997 1969 283 Pads 37,086 per pad 99%
1997 1971 353 Pads 28,603 per pad 99%
1997 1971 316 Pads 31,148 per pad 98%
1997 1969 491 Pads 19,366 per pad 99%
1997 1969 270 Pads 35,170 per pad 96%
1997 1971 391 Pads 23,940 per pad 98%
1997 1969 471 Pads 19,465 per pad 100%
1997 1970 366 Pads 23,258 per pad 96%
1997 1970 327 Pads 25,002 per pad 98%
1997 1962 379 Pads 21,530 per pad 98%
1997 1971 262 Pads 31,026 per pad 99%
1997 1962 491 Pads 16,552 per pad 96%
1997 1973 293 Pads 24,788 per pad 95%
1997 1971 319 Pads 22,191 per pad 98%
1997 1979 239 Pads 29,269 per pad 99%
1997 1971 246 Pads 27,888 per pad 99%
1997 1969 328 Pads 20,571 per pad 99%
1997 1970 240 Pads 26,385 per pad 98%
1997 1969 380 Pads 16,206 per pad 99%
1997 1979 306 Pads 18,380 per pad 100%
1997 1969 140 Pads 33,545 per pad 94%
1997 1968 227 Pads 20,379 per pad 100%
1997 1986 515 Pads 7,866 per pad 72%
1997 1972 252 Pads 13,943 per pad 98%
- ------------------------------------------------------------------------------------------------------------------------------------
74.93 74.93 10,629 Pads 24,932 per pad --
1998 64.38 56.20 1988 1,204 Rooms 132,071 per room NAP 4,641,327
1998 79.83 69.54 1898 218,447 Sq. Ft. 318 per sq. ft. 100% --
1998 1961 89 Units 44,693 per unit 98%
1998 1966 184 Units 41,836 per unit 97%
1998 1975 408 Units 65,527 per unit 96%
1998 1970 389 Units 48,654 per unit 95%
- ------------------------------------------------------------------------------------------------------------------------------------
1998 80.81 70.71 1,070 Units 53,586 per unit 96% 867,251
1997 68.04 58.60 1982 717 Units 63,956 per unit 94% 144,081
1998 77.14 67.17 1981 456,374 Sq. Ft. 96 per sq. ft. 96% --
1998 64.25 56.18 1968 616,730 Sq. Ft. 55 per sq. ft. 96% 160,103
1998 75.75 60.74 1983 370,671 Sq. Ft. 89 per sq. ft. 97% 60,485
1998 78.07 68.07 1988 360 Units 86,750 per unit 99% --
1998 71.75 62.89 1981 257,430 Sq. Ft. 116 per sq. ft. 97% 40,000
1998 78.79 69.73 1986 257,370 Sq. Ft. 109 per sq. ft. 99% 257,577
1997 77.39 65.06 1963 423,374 Sq. Ft. 64 per sq. ft. 98% 490,625
1998 76.58 58.16 1998 609,426 Sq. Ft. 42 per sq. ft. 100% --
1998 70.98 45.62 1968 218,595 Sq. Ft. 116 per sq. ft. 99% 116,375
1998 69.67 60.86 1989 264,626 Sq. Ft. 93 per sq. ft. 100% 29,375
1998 59.94 47.98 1987 342 Rooms 70,104 per room NAP --
1998 71.92(1) 69.07 1982 331,054 Sq. Ft. 63 per sq. ft. 96% 186,025
1998 74.76 65.29 1986 189,610 Sq. Ft. 104 per sq. ft. 95% 500,000
1998 74.21 64.70 1988 266 Units 70,443 per unit 95% --
1998 78.46 69.25 1985 233,450 Sq. Ft. 72 per sq. ft. 93% 500
1998 59.06 34.66 1975 337 Rooms 48,017 per Room NAP 54,000
1998 79.74 68.89 1987 424 Units 37,857 per unit 96% 10,063
1998 76.23 66.27 1955 324 Units 49,350 per unit 97% 184,000
1998 75.37 65.94 1959 414 Units 36,773 per unit 91% 140,601
1998 77.91 68.76 1997 246,338 Sq. Ft. 62 per sq. ft. 90% --
1998 79.80 62.33 1986 213,716 Sq. Ft. 69 per sq. ft. 98% --
1998 63.29 52.79 1992 128,845 Sq. Ft. 111 per sq. ft. 100% --
1997 79.49 68.37 1997 260 Units 51,366 per unit 94% --
1997 79.62 65.51 1989 159,294 Sq. Ft. 82 per sq. ft. 100% --
1997 81.32 71.68 1970 294 Units 44,632 per unit 96% --
1998 79.00 69.00 1984 384 Units 31,681 per unit 96% --
1997 79.47 73.14 1985 320 Units 35,761 per unit 92% --
1997 76.78 66.48 1978 354 Units 30,367 per unit 90% 133,125
1998 77.46 67.93 1985 102,880 Sq. Ft. 103 per sq. ft. 100% 37,750
1998 98.94 0.00 1968 135,400 Sq. Ft. 77 per sq. ft. 100% 109,700
1997 76.49 67.87 1988 252 Units 40,676 per unit 95% 61,750
1997 72.88 69.92 1984 628 Units 16,248 per unit 95% 19,163
1997 79.46 68.68 1977 200 Units 47,675 per unit 98% 59,565
1998 59.32 48.36 1891 124 Rooms 76,542 per room NAP 2,313
1998 74.14 61.55 1986 80,871 Sq. Ft. 117 per sq. ft. 90% --
1998 70.20 61.44 1986 210 Units 43,956 per unit 97% --
1998 77.91 67.14 1991 132 Units 69,648 per unit 100% --
<CAPTION>
Largest Tenant
----------------------------------------------------------------
Appraisal Underwriting Reserves Area Leased Lease Control
Year Reserves Collected Name (Sq. Ft.) Exp Date No.
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
1997 0.20 0.20 per sq. ft. Cleary, Gottlieb, Steen & Hamilton 300,756 12/31/2010 MLMI-001
1997 MLMI-002a
1997 MLMI-002b
1997 MLMI-002c
1997 MLMI-002d
1997 MLMI-002e
1997 MLMI-002f
1997 MLMI-002g
1997 MLMI-002h
1997 MLMI-002i
1997 MLMI-002j
1997 MLMI-002k
1997 MLMI-002l
1997 MLMI-002m
1997 MLMI-002n
1997 MLMI-002o
1997 MLMI-002p
1997 MLMI-002q
1997 MLMI-002r
1997 MLMI-002s
1997 MLMI-002t
1997 MLMI-002u
1997 MLMI-002v
1997 MLMI-002w
1997 MLMI-002x
1997 MLMI-002y
1997 MLMI-002z
1997 MLMI-002aa
1997 MLMI-002ab
1997 MLMI-002ac
- ------------------------------------------------------------------------------------------------------------------------------------
50 25 per pad MLMI-002
1998 4% 4% of revenue MLMI-003
1998 0.20 0.04 per sq. ft. McKinsey & Company 57,729 12/31/1999 WMFG-108
1998 WMFG-018a
1998 WMFG-018b
1998 WMFG-018c
1998 WMFG-018d
- ------------------------------------------------------------------------------------------------------------------------------------
1998 239.31 239.31 per unit WMFG-018
1997 224 204 / $0.16 per unit / sq.ft. MLMI-093
1998 0.20 0.20 per sq. ft. Cozen & O'Connor 151,015 12/31/2010 WMFG-106
1998 0.19 0.19 per sq. ft. Boscov's 158,682 09/19/2008 WMFG-114
1998 0.15 none per sq.ft. Bell Atlantic 348,821 02/28/2003 MLMI-133
1998 202 none per unit WMFG-092
1998 0.15 none per sq. ft. US Energy Corporation 72,714 06/30/2003 WMFG-074
1998 0.10 none per sq. ft. Publix Supermarket 55,000 07/31/2018 WMFG-077
1997 0.17 none per sq.ft. Conti Mortgage 203,114 08/01/2009 MLMI-075
1998 0.15 0.15 per sq.ft. Nestle Beverage Co. 409,663 05/31/2008 MLMI-068
1998 0.20 0.20 per sq. ft. TJ Maxx 28,000 08/01/2006 WMFG-005
1998 0.10 0.10 per sq. ft. MD Attorney General 100,375 09/30/2005 WMFG-112
1998 4% 4% of revenue MLMI-182
1998 0.25 none per sq. ft. William M Mercer Inc 116,176 07/31/2002 GCM-196
1998 0.15 none per sq. ft. Shop Rite 74,000 11/30/2005 MID-172
1998 209 none per unit WMFG-093
1998 0.20 0.20 per sq. ft. Pay Less Super Markets, Inc. 72,000 11/01/2008 WMFG-179
1998 0.04 2% of revenue GCM-108
1998 225 225 per unit MLMI-151
1998 250 250 per unit MID-140
1998 230 230 per unit WMFG-017
1998 0.10 0.10 per sq. ft. Payless Super Markets, Inc. 83,878 11/30/2015 WMFG-180
1998 0.12 0.12 per sq. ft. K-Mart (Bradlees Sublease 5/88) 85,100 10/01/2009 WMFG-011
1998 0.23 none per sq. ft. General Services Admin 128,845 09/17/2007 MID-099
1997 200 150 per unit MLMI-099
1997 0.15 none per sq. ft. Food 4 Less 61,000 04/01/2007 MLMI-091
1997 250 none per unit GCM-076
1998 250 none per unit MID-076
1997 250 246 per unit MLMI-098
1997 260 260 per unit MLMI-035
1998 0.12 0.12 per sq. ft. HRB Systems, Inc. 102,880 12/22/2005 WMFG-042
1998 0.00 none per sq. ft. Capitol Chevrolet/Guarantor Frontier Ins 135,400 07/31/2023 WMFG-162
1997 200 251 per unit MID-001
1997 225 none per unit GCM-012
1997 206 206 per unit GCM-083
1998 2436 2436 per room WMFG-051
1998 0.34 0.34 per sq. ft. Cellco Partnership 9,615 09/30/2003 WMFG-105
1998 250 none per unit MID-038
1998 300 300 per unit MLMI-124
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Loan Control
Source No. Property Name Address City
====================================================================================================================================
<S> <C> <C> <C> <C>
WMFG WMFG-107a Best Western - Orange/GULF HOTELS 2630 Interstate 10 Orange
WMFG WMFG-107b Ramada Inn - Orange/GULF HOTELS 2610 Interstate 10 Orange
WMFG WMFG-107c Ramada Inn - Port Arthur/GULF HOTELS 3801 Highway 73 Port Arthur
WMFG WMFG-107
MLMI MLMI-090 Minyard Shopping Center 1401 Jupiter Road Plano
GCM GCM-034 The Colonnade 6723 to 6815 West Canal Drive Kennewick
MLMI MLMI-061 Fiesta Inn 2100 South Priest Drive Tempe
MIDLAND MID-168 Nexus Centre Torrey Pines Building 2 11149 N. Torrey Pines Road San Diego
MIDLAND MID-046 1601 Las Plumas Ave. 1601 Las Plumas Ave. San Jose
WMFG WMFG-185 Riverbirch Apartments 8025 River Birch Drive Charlotte
MIDLAND MID-090 The Links Apartments 2121 West Royal Palm Road Phoenix
GCM GCM-110 Roswell Shopping Center 11060 Alpharetta Highway Roswell
WMFG WMFG-098 Shoppes at Lakewood 2000 Chapel Hill Road Durham
MLMI MLMI-069 Mariner's Cove 939 River Road Edgewater
MLMI MLMI-094 Three Rivers Apartments 101 Three Rivers North Fort Wayne
MLMI MLMI-081 McCallum Highlands I 6565 McCallum Blvd Dallas
WMFG WMFG-076 Liberty Tree Building 630 Washington Street Boston
MLMI MLMI-107 Holiday Inn - Buena Park 7000 Beach Blvd Buena Park
GCM GCM-157 Leewood Heathcare Center 7120 Braddock Rd. Annandale
WMFG WMFG-034 2020 Office Building 2020 East First Street Santa Ana
GCM GCM-075 Olde Orchard Park Condominiums 12-20 Fayette Road S. Burlington
WMFG WMFG-165 BJ's Wholesale Club 3985 Plank Road Fredericksburg
GCM GCM-060 Woodinville Commerce Center 18500-18800 142nd Avenue Northeast Woodinville
GCM GCM-008 Atrium Office Park @ Southpointe 851-865 Southwest 78th Ave. Plantation
MLMI MLMI-080 The Bentley 3362 Forest Lane Dallas
MLMI MLMI-070 The Missions at Vista Primera 7434 La Carrera Santa Fe
MLMI MLMI-121 North Fork Plaza Shopping Ctr 13945 Highway 183 Austin
MIDLAND MID-010 Albers Mill Building 1200 NW Front Avenue Portland
GCM GCM-092 Clairridge Estates Apartments 36770 Harper Avenue Clinton Township
GCM GCM-043 Stonebrook Apartments 9301 N. MacArthur Boulevard Oklahoma City
WMFG WMFG-035 Springfield Shopping Center 295 Route 22 East Springfield
WMFG WMFG-119 5555/5575 Wilshire Boulevard 5555 and 5575 Wilshire Boulevard Los Angeles
MIDLAND MID-154 Trainers Station 2 North West End Blvd. Quakertown
WMFG WMFG-062 Village Park Apartments 850-980 W. 74th Street Hialeah
GCM GCM-001 Consumer Square Plaza 821 and 845 County Route 64 Big Flats
WMFG WMFG-004 Chelsea Village Providence Court at Fairmont Ave. Atlantic City
MIDLAND MID-133 Strawberry Square Corner of Market and North Third Streets Harrisburg
MLMI MLMI-130 Best Western Kissimmee 2261 E. Irlo Bronson Highway Kissimmee
MLMI MLMI-095 Oak Park - Oak Green Apartments 40-60 Reservoir-30-50 Oak Ext Brockton
GCM GCM-071 Silver Creek Apartment 10710 East 41st St Tulsa
GCM GCM-056 Patrick Airport Park 3035- 3095 East Patrick Lane Las Vegas
GCM GCM-026 7421 Chapman Avenue 7421 Chapman Ave. Garden Grove
MIDLAND MID-123 McKesson Industrial Building 915 Chad Lane Tampa
GCM GCM-165 Villa Del Sol Apartments 6231 West McDowell Road Phoenix
WMFG WMFG-088 Backlick Center 6651-6691 Backlick Road Springfield
MLMI MLMI-056 Midway Tower Office Center 4230 LBJ Freeway Dallas
MLMI MLMI-034 Morrowfield Apartments 2715 Murray Avenue Pittsburgh
MIDLAND MID-034 The Lewiston Apartments 5270 South Lewis Avenue Tulsa
MLMI MLMI-042 Hillsborough Village Apartments 11902 Central Ave Chino
MLMI MLMI-179 Huntington Green Apartments 13100 Stonefield Drive Houston
GCM GCM-137 Grancare Medical Center 16640 N. 38th Street Phoenix
GCM GCM-069 Wau-Lin-Cree Apartments 4335 NW Line Creek Dr. Kansas City
GCM GCM-079 Raintree Apartments 2915 North Texas Street Fairfield
MLMI MLMI-113 Westwood Apts 70 Kane Street West Hartford
MLMI MLMI-063 Daybreak Plaza 960-990 Ontario Mills Drive Ontario
GCM GCM-129 4142 Lankershim Boulevard 4142, 4144, 4146 & 4153 Lankershim Boulevard North Hollywood
GCM GCM-072 Fox Run Apartments 1157 South Webb Street Wichita
MLMI MLMI-104 Presidents Village 2500 Dunstan Street Houston
MIDLAND MID-105 Moon Nissan 18707 Studebaker Road Cerritos
MLMI MLMI-149 Canyon Cove Apartments 1455 Valley Drive Ogden
WMFG WMFG-057 DeVille Southwest Apartments 820 Southwest Avenue Jefferson City
MLMI MLMI-054 Best Western Hood River Inn 1108 East Marina Way Hood River
GCM GCM-090 Rivermont Square Shopping Center 8560 Holcomb Bridge Road Alpharetta
GCM GCM-113 Rockwood Gardens Apartments 200-240 SE 188th Ave Gresham
MLMI MLMI-138 Best Buy - Allentown 1504 MacArthur Rd Whitehall
GCM GCM-161 Berkeley Center Building 2000 Center Street Berkeley
GCM GCM-127 Oaks of Kingsbridge Apartments 11888 Longridge Dr. Baton Rouge
MLMI MLMI-116 Princeton House Retail Condo 2538 Broadway New York
MLMI MLMI-189 Leben Home for Adults 80-08 45th Avenue Elmhurst
MLMI MLMI-041 City Promenade Apartments 405-445 S. Clementine St. Anaheim
GCM GCM-116 Orchard Supply Hardware Center 1041-1061 Market Place San Ramon
MIDLAND MID-085 The Sunridge Apartments 4502 N. University Dr. Nacogdoches
GCM GCM-002 The Biltmore Apartments 5225 Verde Valley Lane Dallas
GCM GCM-198 The Greens of Carrollwood 3820 Ehrlich Rd. Tampa
MIDLAND MID-104 Remington Park Apartments 6801 Par Lane Wichita
WMFG WMFG-050 Holiday Inn - East Belt 15157 Interstate 10 East Channelview
MLMI MLMI-076 Chelsea Village Apartments 37 Bradford Drive Leola
WMFG WMFG-073 4350 Weaver Parkway 4350 Weaver Parkway Warrenville
WMFG WMFG-102 Kent Towne Market US Route 50 and Maryland Route 522 Chester
MLMI MLMI-117 The Savannah Retail Condo 2409 Broadway New York
GCM GCM-086 Chapman Shopping Center 3451 West 6th Street Los Angeles
GCM GCM-114 Seranado Fountain Apartments 100 South Seranado Street Orange
GCM GCM-080 Union Square Apartments 424 North 300 East Provo
<CAPTION>
Cumulative % of
Loan Zip Original Cut-Off % of Initial Initial Pool
Source State Code Property Type Balance Date Balance Pool Balance Balance
======================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
WMFG TX 77632 Hospitality 1,707,576 1,706,074
WMFG TX 77632 Hospitality 2,613,636 2,611,337
WMFG TX 77642 Hospitality 4,878,788 4,874,496
WMFG Hospitality 9,200,000 9,191,907 0.32% 53.67%
MLMI TX 75074 Retail 9,200,000 9,177,466 0.32% 53.98%
GCM WA 99336 Retail 9,100,000 9,026,655 0.31% 54.30%
MLMI AZ 85282 Hospitality 9,000,000 8,941,061 0.31% 54.60%
MIDLAND CA 92121 Industrial 8,900,000 8,891,059 0.31% 54.91%
MIDLAND CA 95133 Industrial 8,900,000 8,847,680 0.31% 55.22%
WMFG NC 28210 Multifamily 8,800,000 8,800,000 0.30% 55.52%
MIDLAND AZ 85021 Multifamily 8,630,000 8,611,498 0.30% 55.82%
GCM GA 30076 Retail 8,600,000 8,593,102 0.30% 56.12%
WMFG NC 27707 Retail 8,500,000 8,494,924 0.29% 56.41%
MLMI NJ 07020 Multifamily 8,500,000 8,473,603 0.29% 56.70%
MLMI IN 46802 Multifamily 8,500,000 8,458,898 0.29% 57.00%
MLMI TX 75252 Multifamily 8,500,000 8,445,641 0.29% 57.29%
WMFG MA 02111 Office 8,400,000 8,394,906 0.29% 57.58%
MLMI CA 90620 Hospitality 8,400,000 8,379,085 0.29% 57.87%
GCM VA 22003 Health Care 8,300,000 8,284,903 0.29% 58.16%
WMFG CA 92705 Office 8,150,000 8,134,627 0.28% 58.44%
GCM VT 05403 Multifamily 8,000,000 7,953,321 0.28% 58.71%
WMFG VA 22407 Retail 7,950,000 7,950,000 0.27% 58.99%
GCM WA 98072 Industrial 8,000,000 7,928,684 0.27% 59.26%
GCM FL 33324 Office 8,000,000 7,928,365 0.27% 59.54%
MLMI TX 75234 Multifamily 8,000,000 7,912,488 0.27% 59.81%
MLMI NM 87505 Multifamily 7,700,000 7,663,404 0.27% 60.07%
MLMI TX 78717 Retail 7,500,000 7,485,369 0.26% 60.33%
MIDLAND OR 97205 Office 7,500,000 7,458,980 0.26% 60.59%
GCM MI 48035 Multifamily 7,300,000 7,271,744 0.25% 60.84%
GCM OK 73132 Multifamily 7,200,000 7,154,095 0.25% 61.09%
WMFG NJ 07081 Retail 7,150,000 7,134,987 0.25% 61.34%
WMFG CA 90036 Retail 7,075,000 7,070,906 0.24% 61.58%
MIDLAND PA 18951 Retail 7,000,000 6,995,729 0.24% 61.82%
WMFG FL 33104 Multifamily 6,844,000 6,840,195 0.24% 62.06%
GCM NY 14844 Retail 7,000,000 6,839,119 0.24% 62.30%
WMFG NJ 08401 Multifamily 6,850,000 6,826,164 0.24% 62.53%
MIDLAND PA 17101 Office 6,600,000 6,578,512 0.23% 62.76%
MLMI FL 34744 Hospitality 6,600,000 6,572,291 0.23% 62.99%
MLMI MA 02403 Multifamily 6,600,000 6,553,143 0.23% 63.21%
GCM OK 74146 Multifamily 6,500,000 6,461,898 0.22% 63.44%
GCM NV 89120 Mixed Use 6,500,000 6,436,998 0.22% 63.66%
GCM CA 92641 Industrial 6,375,000 6,294,785 0.22% 63.88%
MIDLAND FL 33619 Industrial 6,300,000 6,287,873 0.22% 64.10%
GCM AZ 85035 Multifamily 6,200,000 6,192,153 0.21% 64.31%
WMFG VA 22150 Retail 6,160,000 6,156,435 0.21% 64.52%
MLMI TX 75244 Office 6,150,000 6,116,618 0.21% 64.73%
MLMI PA 15217 Multifamily 6,150,000 6,092,190 0.21% 64.94%
MIDLAND OK 74105 Multifamily 6,050,000 6,024,500 0.21% 65.15%
MLMI CA 91710 Multifamily 6,000,000 5,995,498 0.21% 65.36%
MLMI TX 77014 Multifamily 6,000,000 5,986,001 0.21% 65.57%
GCM AZ 85032 Health Care 6,000,000 5,976,792 0.21% 65.77%
GCM MO 64151 Multifamily 6,000,000 5,963,103 0.21% 65.98%
GCM CA 94533 Multifamily 6,000,000 5,959,998 0.21% 66.19%
MLMI CT 06119 Multifamily 5,950,000 5,943,478 0.21% 66.39%
MLMI CA 91764 Retail 5,887,500 5,865,955 0.20% 66.60%
GCM CA 91602 Office 5,820,000 5,813,128 0.20% 66.80%
GCM KS 67207 Multifamily 5,800,000 5,766,079 0.20% 67.00%
MLMI TX 77005 Office 5,750,000 5,717,844 0.20% 67.19%
MIDLAND CA 90701 Retail 5,700,000 5,688,736 0.20% 67.39%
MLMI UT 84401 Multifamily 5,655,000 5,633,454 0.19% 67.59%
WMFG MO 65109 Multifamily 5,600,000 5,596,552 0.19% 67.78%
MLMI OR 97031 Hospitality 5,630,000 5,583,176 0.19% 67.97%
GCM GA 30076 Retail 5,600,000 5,579,084 0.19% 68.16%
GCM OR 97233 Multifamily 5,400,000 5,390,820 0.19% 68.35%
MLMI PA 18052 Retail 5,330,000 5,308,442 0.18% 68.53%
GCM CA 94704 Office 5,300,000 5,296,855 0.18% 68.72%
GCM LA 70816 Multifamily 5,300,000 5,291,493 0.18% 68.90%
MLMI NY 10025 Retail 5,300,000 5,277,779 0.18% 69.08%
MLMI NY 11373 Health Care 5,290,000 5,256,837 0.18% 69.27%
MLMI CA 92805 Multifamily 5,180,000 5,160,798 0.18% 69.44%
GCM CA 94583 Retail 5,100,000 5,096,859 0.18% 69.62%
MIDLAND TX 75961 Multifamily 5,080,000 5,073,609 0.18% 69.80%
GCM TX 75240 Multifamily 5,100,000 5,056,972 0.17% 69.97%
GCM FL 33624 Multifamily 5,025,000 5,021,906 0.17% 70.14%
MIDLAND KS 67212 Multifamily 5,005,000 4,994,269 0.17% 70.32%
WMFG TX 77530 Hospitality 5,000,000 4,990,389 0.17% 70.49%
MLMI PA 17540 Multifamily 5,000,000 4,967,713 0.17% 70.66%
WMFG IL 60555 Office 4,800,000 4,797,089 0.17% 70.83%
WMFG MD 21619 Retail 4,750,000 4,747,146 0.16% 70.99%
MLMI NY 10024 Retail 4,750,000 4,730,085 0.16% 71.16%
GCM CA 90020 Retail 4,750,000 4,698,598 0.16% 71.32%
GCM CA 92669 Multifamily 4,700,000 4,697,097 0.16% 71.48%
GCM UT 84606 Multifamily 4,700,000 4,670,158 0.16% 71.64%
<CAPTION>
Loan Affiliated
Source Borrower
==========================================================
<S> <C>
WMFG
WMFG
WMFG
WMFG
MLMI
GCM
MLMI
MIDLAND
MIDLAND
WMFG
MIDLAND MID-020, MID-034, MID-037, MID-076, MID-078
GCM GCM-109
WMFG
MLMI
MLMI
MLMI MLMI-086
WMFG
MLMI
GCM
WMFG
GCM
WMFG
GCM
GCM
MLMI
MLMI
MLMI
MIDLAND
GCM
GCM GCM-012, GCM-013, GCM-042
WMFG WMFG-036
WMFG WMFG-080
MIDLAND
WMFG WMFG-063
GCM
WMFG WMFG-181
MIDLAND
MLMI
MLMI
GCM GCM-072
GCM
GCM
MIDLAND
GCM
WMFG WMFG-104
MLMI MLMI-055, MLMI-057, MLMI-058
MLMI
MIDLAND MID-020, MID-037, MID-076, MID-078, MID-090
MLMI
MLMI
GCM
GCM
GCM
MLMI MLMI-111, MLMI-112
MLMI
GCM
GCM GCM-071
MLMI
MIDLAND
MLMI
WMFG
MLMI
GCM
GCM
MLMI
GCM
GCM
MLMI MLMI-117
MLMI
MLMI
GCM
MIDLAND MID-083, MID-084
GCM
GCM
MIDLAND MID-011, MID-025, MID-106, MID-107
WMFG
MLMI
WMFG
WMFG
MLMI MLMI-116
GCM
GCM
GCM
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Rem
Orig Rem Amort Amort
Interest Accrual Mortgage Administrative Term Term Term Term Origination Repayment
Crossed Method Rate Cost Rate (Mos.) (Mos.) (Mos.) (Mos.) Date Date
========================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Actual/360 7.750 0.09675 120 119 300 299 07/31/98 08/01/2008
Actual/360 6.700 0.09675 120 117 360 357 05/01/98 06/01/2008
30/360 8.180 0.20175 120 108 360 348 08/28/97 09/01/2007
Actual/360 7.500 0.09675 120 114 300 294 02/12/98 03/01/2008
Actual/360 7.160 0.166050003 120 119 300 299 07/28/98 08/01/2008
Actual/360 7.100 0.08175 180 178 180 178 06/11/98 07/01/2013
Actual/360 6.750 0.09675 144 144 360 360 08/03/98 09/01/2010
Actual/360 6.890 0.08175 120 117 360 357 05/12/98 06/01/2008
30/360 7.110 0.09675 120 119 360 359 07/22/98 08/01/2008
Actual/360 7.150 0.11675 120 119 360 359 07/30/98 08/01/2008
30/360 7.320 0.09675 240 236 360 356 04/03/98 05/01/2018
Actual/360 6.800 0.13675 120 114 360 354 02/09/98 03/01/2008
Actual/360 7.210 0.09675 120 112 360 352 12/02/97 01/01/2008
Actual/360 7.100 0.09675 120 119 360 359 07/23/98 08/01/2008
Actual/360 8.040 0.12675 264 262 264 262 06/08/98 07/01/2020
Actual/360 7.620 0.09675 84 82 300 298 06/26/98 07/01/2005
Actual/360 7.375 0.09675 120 117 360 357 05/29/98 06/01/2008
Actual/360 7.200 0.20175 120 112 360 352 12/22/97 01/01/2008
Actual/360 7.188 0.09675 180 180 360 360 08/05/98 09/01/2013
Actual/360 7.360 0.24175 120 112 300 292 12/08/97 01/01/2008
30/360 8.460 0.20175 120 106 360 346 06/27/97 07/01/2007
Actual/360 7.140 0.09675 120 111 300 291 11/12/97 12/01/2007
Actual/360 6.880 0.12675 120 114 360 354 02/27/98 03/01/2008
Actual/360 7.720 0.12675 120 117 360 357 05/07/98 06/01/2008
Actual/360 7.180 0.14175 120 115 300 295 03/30/98 04/01/2008
30/360 7.350 0.09675 180 175 360 355 03/26/98 04/01/2013
GCM-042 Actual/360 7.250 0.20175 120 111 360 351 11/18/97 12/01/2007
WMFG-036 Actual/360 6.970 0.09675 120 118 300 298 06/03/98 07/01/2008
Actual/360 7.250 0.09675 360 359 360 359 07/31/98 08/01/2028
Actual/360 7.080 0.08175 120 119 360 359 07/16/98 08/01/2008
WMFG-063 Actual/360 7.375 0.09675 120 119 360 359 07/31/98 08/01/2008
Actual/360 8.010 0.24175 180 172 180 172 12/01/97 01/01/2013
Actual/360 7.090 0.09675 120 115 360 355 03/31/98 04/01/2008
Actual/360 7.400 0.08175 120 118 240 238 06/29/98 07/01/2008
Actual/360 7.670 0.09675 264 261 264 261 05/27/98 06/01/2020
Actual/360 7.310 0.09675 120 110 360 350 10/14/97 11/01/2007
Actual/360 7.180 0.20175 120 112 360 352 12/18/97 01/01/2008
Actual/360 7.490 0.24175 120 111 300 291 11/20/97 12/01/2007
30/360 8.250 0.20175 180 168 300 288 08/28/97 09/01/2012
Actual/360 7.300 0.16175 120 117 360 357 05/06/98 06/01/2008
Actual/360 6.970 0.09675 120 118 360 358 06/26/98 07/01/2008
Actual/360 7.250 0.09675 120 119 360 359 07/16/98 08/01/2008
Actual/360 7.590 0.12675 120 115 300 295 03/06/98 04/01/2008
30/360 8.580 0.09675 120 105 360 345 05/24/97 06/01/2007
Actual/360 6.990 0.13175 180 174 360 354 02/17/98 03/01/2013
Actual/360 6.690 0.12675 120 119 360 359 07/17/98 08/01/2008
Actual/360 6.920 0.13675 120 117 360 357 05/29/98 06/01/2008
Actual/360 7.630 0.09675 120 116 300 296 04/20/98 05/01/2008
Actual/360 6.970 0.10175 120 112 360 352 12/18/97 01/01/2008
30/360 7.020 0.09675 120 112 360 352 12/12/97 01/01/2008
Actual/360 7.125 0.12675 120 119 300 299 07/16/98 08/01/2008
Actual/360 7.310 0.09675 120 115 360 355 03/24/98 04/01/2008
30/360 7.280 0.09675 120 119 300 299 07/28/98 08/01/2008
Actual/360 7.190 0.15175 120 112 360 352 12/05/97 01/01/2008
Actual/360 7.410 0.09675 132 127 300 295 03/30/98 04/01/2009
Actual/360 7.250 0.160650003 120 118 300 298 06/22/98 07/01/2008
Actual/360 7.120 0.09675 120 116 324 320 04/01/98 05/01/2008
Actual/360 7.050 0.09675 180 179 360 359 07/08/98 08/01/2013
Actual/360 7.990 0.12675 240 235 240 235 03/20/98 04/01/2018
30/360 7.530 0.09675 240 235 360 355 03/25/98 04/01/2018
30/360 6.830 0.09675 120 118 360 358 06/17/98 07/01/2008
Actual/360 7.610 0.09675 240 234 360 354 02/24/98 03/01/2018
Actual/360 7.170 0.09675 180 179 360 359 07/10/98 08/01/2013
Actual/360 7.470 0.09675 240 239 240 239 07/29/98 08/01/2018
Actual/360 7.450 0.12675 240 234 360 354 02/03/98 03/01/2018
Actual/360 7.750 0.09675 300 294 300 294 02/19/98 03/01/2023
Actual/360 7.250 0.12675 180 175 360 355 03/06/98 04/01/2013
Actual/360 7.050 0.09675 120 119 360 359 07/22/98 08/01/2008
Actual/360 6.990 0.08175 120 118 360 358 06/09/98 07/01/2008
30/360 7.950 0.20175 120 108 360 348 08/04/97 09/01/2007
Actual/360 7.050 0.09675 120 119 360 359 07/29/98 08/01/2008
Actual/360 6.890 0.08175 120 117 360 357 05/27/98 06/01/2008
Actual/360 7.375 0.09675 120 118 300 298 06/09/98 07/01/2008
Actual/360 7.160 0.09675 120 112 360 352 12/24/97 01/01/2008
Actual/360 7.100 0.07675 120 119 360 359 07/28/98 08/01/2008
Actual/360 7.130 0.09675 180 179 360 359 07/27/98 08/01/2013
Actual/360 7.450 0.12675 240 234 360 354 02/03/98 03/01/2018
30/360 7.640 0.09675 120 114 240 234 02/25/98 03/01/2008
Actual/360 7.040 0.09675 120 119 360 359 07/17/98 08/01/2008
30/360 7.270 0.09675 120 112 360 352 12/15/97 01/01/2008
<CAPTION>
Annual
Balloon/Repayment Debt
Balance Maturity Term Prepayment Restrictions Service
===================================================================================================================================
<S> <C> <C> <C>
7,548,893 Balloon L(25),Def(95) 833,883
7,870,949 Balloon L(60), >YM or 1% ( 56), O(4) 719,678
8,025,456 Balloon > of YM or 4% (96),3%(12),O(12) 815,016
7,219,677 Balloon L(60), >YM or 1% ( 56), O(4) 805,980
7,175,564 Balloon L(60),> YM or 1%(54),O(6) 765,776
NAP Fully Amort L(90),> YM or 5%(84),O(6) 965,929
7,289,323 Balloon L(49), > YM or 1% (59),O(36) 684,920
7,517,945 Balloon L(60),> YM or 1%(54),O(6) 681,354
7,412,782 Balloon L(60),> of YM or 1% (53),O(7) 694,233
7,455,078 Balloon L(25),Def(91),O(4) 688,915
4,986,103 Balloon L(120), >YM or 1% (116),O(4) 700,669
7,293,326 Balloon L(66), >YM or 1% (47), O(7) 671,844
7,359,096 Balloon L(60), >YM or 1% ( 56), O(4) 700,214
7,357,839 Balloon L(25),Def(91),O(4) 677,408
NAP Fully Amort L(26), Def (234), 0(4) 822,928
7,371,971 Hyperam L(48),Def(29),O(7) 743,827
7,189,502 Balloon L(27),Def(89),O(4) 675,480
7,022,142 Balloon L(60),> of YM or 1% (48),O(12) 651,637
6,149,112 Balloon L(24),Def(152),O(4) 646,757
6,485,481 Balloon L(48),> of YM or 5% (66),O(6) 700,713
7,094,010 Balloon > of YM or 1% (96),1%(12),O(12) 735,437
6,352,709 Balloon L(48), > YM or 1% (65), O(7) 693,493
6,619,522 Balloon L(36), >YM or 1% (77), O(7) 613,639
6,567,601 Balloon L(27), Def(89), O(4) 649,962
6,050,928 Balloon L(48),> YM or 1%(66),O(6) 646,473
5,492,373 Balloon > of YM or 1% (120),5%(12),4%(12),3%(12),2%(12),1%(5),O(7) 603,540
6,330,247 Balloon L(60),> of YM or 5% (54),O(6) 589,400
5,733,140 Balloon L(26),Def(90),O(4) 604,776
NAP Fully Amort L(25),Def(250),O(85) 579,168
6,128,344 Hyperam L(48),> YM or 1%(66),O(6) 563,374
6,037,225 Balloon L(25),Def(91),O(4) 567,238
NAP Fully Amort L(84),> of YM or 1% (90),O(6) 803,233
5,998,932 Balloon L(60),Def(56),O(4) 551,856
4,584,191 Hyperam L(48),> YM or 1%(66),O(6) 633,196
NAP Fully Amort L(27), Def (233), 0(4) 627,540
5,809,721 Balloon > YM or 1% (114), 1% (2), O(4) 543,510
5,702,568 Balloon L(48),> of YM or 1% (66),O(6) 528,399
5,291,958 Balloon L(48),> of YM or 3% (66),O(6) 575,906
4,119,992 Balloon L(48),> of YM or 5% (60),5%(12),4%(12),3%(12),2%(12),1%(12),O(12) 603,164
5,546,981 Hyperam L(48),> YM or 1%(66),O(6) 518,292
5,414,162 Hyperam L(60),Def(53),O(7) 493,487
5,416,639 Balloon L(48),Def(68),O(4) 504,265
4,942,181 Balloon L(60), >YM or 1% ( 56), O(4) 555,165
5,465,960 Balloon L(39),Def(9),Def or >YM or 1%(68),O(4) 571,648
4,644,308 Balloon L(90),> YM or 1%(84),O(6) 482,522
5,132,672 Balloon L(25), Def (35), Def or > YM or 1% ( 56), O(4) 468,810
5,160,989 Balloon L(60), >YM or 1% ( 56), O(4) 480,061
4,908,128 Hyperam L(28),Def(85),O(7) 538,177
5,235,322 Balloon L(60),> of YM or 1% (54),O(6) 477,568
5,160,970 Balloon > of YM or 0% (113),O(7) 479,985
4,722,891 Balloon L(60), > of YM or 1% ( 56), O(4) 515,137
5,109,771 Balloon L(60), >YM or 1% ( 56), O(4) 490,012
4,626,185 Balloon L(60),> of YM or 1% (56),O(4) 506,159
5,089,750 Balloon L(48),> of YM or 1% (66),O(6) 471,966
4,428,712 Balloon L(29), Def (96), O(7) 510,763
4,609,895 Balloon L(60),> YM or 1%(54),O(6) 494,400
4,672,274 Balloon L(60), > of YM or 1% ( 56), O(4) 476,741
4,306,211 Balloon L(48),Def(128),O(4) 449,342
NAP Fully Amort L(29), Def(207),O(4) 569,644
3,322,448 Balloon L(120), > of YM or 1% (60), 5%(12), 4%(12), 3%(12), 2%(12), 1%(5), O(7) 471,253
4,624,162 Balloon > of YM or 1% (113),O(7) 423,743
3,196,095 Balloon L(30), Def(206),O(4) 457,033
4,097,509 Hyperam L(36),Def(137),O(7) 430,418
NAP Fully Amort L(25),Def(211),O(4) 511,191
3,150,877 Hyperam L(120), >YM or 1% (116),O(4) 447,351
NAP Fully Amort L(156), > of YM or 1% (140), O(4) 484,309
3,897,911 Balloon L(29), Def(147), O(4) 428,547
4,461,447 Balloon > of YM or 1% (113),O(7) 409,222
4,438,460 Balloon L(36),YM(72),O(12) 405,159
4,476,923 Balloon > of YM or 0% (108),O(12) 446,933
4,395,837 Balloon L(60),> of YM or 1% (56),O(4) 403,204
4,360,059 Balloon L(60),> YM or 1%(54),O(6) 395,154
4,059,055 Balloon L(26),Def(94) 438,528
4,323,965 Balloon L(60), > of YM or 1% (53), O(7) 409,824
4,204,476 Balloon L(25),Def(91),O(4) 387,090
3,665,735 Balloon L(48),Def(119),O(13) 384,212
2,823,897 Hyperam L(120), >YM or 1% (116),O(4) 400,928
3,256,001 Balloon > of YM or 1% (84),3%(12),2%(12),1%(5),O(7) 464,080
4,110,456 Balloon L(60),> of YM or 1% (53),O(7) 376,747
4,065,925 Balloon > of YM or 0% (84),3%(12),2%(12),1%(5),O(7) 385,513
<CAPTION>
Underwriting Underwriting
Total Total Underwriting Underwriting Appraised
Revenue Expenses NCF DSCR Value
===================================================================================
<S> <C> <C> <C> <C>
701,593 437,495 264,097 2,450,000
1,219,305 957,723 261,582 3,750,000
1,791,828 1,136,284 655,543 7,000,000
3,712,726 2,531,503 1,181,223 1.42 13,200,000
1,416,579 432,117 969,180 1.35 11,600,000
1,260,432 243,470 1,004,415 1.23 12,000,000
6,551,741 4,572,782 1,978,959 2.46 18,100,000
1,639,404 454,505 1,096,924 1.43 12,500,000
2,030,052 509,585 1,447,042 1.50 12,500,000
1,516,897 637,419 879,478 1.28 11,600,000
1,457,418 596,203 861,215 1.26 10,700,000
1,673,132 396,279 1,162,361 1.67 12,070,000
1,321,313 388,712 878,695 1.28 10,700,000
1,370,280 298,879 1,071,401 1.53 13,600,000
2,073,344 1,173,409 899,935 1.34 10,900,000
1,788,502 800,406 988,096 1.41 10,650,000
1,253,424 337,645 915,780 1.35 10,500,000
5,643,058 4,520,152 1,122,906 1.36 12,000,000
6,638,925 5,451,431 1,187,494 1.60 10,700,000
1,789,705 826,474 848,030 1.26 12,600,000
1,352,553 405,359 947,194 1.45 10,500,000
877,742 17,555 860,187 1.33 10,600,000
1,285,605 298,928 894,413 1.28 10,700,000
1,626,784 559,321 995,608 1.35 10,700,000
2,041,026 1,019,259 1,021,767 1.47 10,000,000
1,374,530 586,705 787,825 1.28 10,200,000
1,225,651 310,244 855,844 1.32 10,700,000
1,715,963 569,622 996,303 1.54 11,900,000
1,468,281 661,590 806,691 1.34 9,200,000
1,609,936 814,162 795,774 1.35 9,500,000
1,145,280 340,785 797,444 1.32 9,850,000
933,733 179,912 743,038 1.28 8,875,000
1,094,368 255,086 803,978 1.43 9,300,000
1,367,892 647,614 720,278 1.27 8,550,000
1,383,656 338,557 1,015,085 1.26 11,500,000
1,542,551 792,543 750,008 1.36 8,600,000
2,410,760 1,335,790 918,446 1.45 11,300,000
4,235,039 3,152,566 1,082,473 1.72 9,470,000
2,258,011 1,329,165 928,846 1.71 9,200,000
1,360,393 698,134 662,258 1.25 8,250,000
1,035,863 210,257 739,511 1.28 9,000,000
1,197,761 351,071 826,606 1.37 9,100,000
909,771 217,035 665,502 1.28 7,930,000
1,549,166 913,629 635,537 1.29 7,750,000
1,027,181 299,591 683,654 1.36 7,700,000
1,787,328 794,319 840,450 1.51 9,500,000
1,289,370 519,317 738,277 1.29 7,750,000
1,359,947 722,456 637,490 1.32 7,800,000
1,279,964 669,873 610,091 1.30 8,100,000
1,460,742 845,638 615,104 1.28 7,600,000
8,780,770 7,739,897 1,040,876 1.93 8,700,000
1,715,298 921,967 793,331 1.66 9,550,000
1,101,643 525,672 575,971 1.20 8,000,000
1,507,730 813,701 694,028 1.35 7,900,000
991,059 238,640 727,783 1.49 7,850,000
1,075,694 314,494 700,430 1.38 8,000,000
1,341,737 730,290 611,447 1.30 7,400,000
1,017,991 309,783 655,121 1.28 7,700,000
1,089,009 153,793 880,796 1.78 9,250,000
1,269,683 671,026 598,657 1.26 7,220,000
1,473,180 836,702 636,478 1.42 7,000,000
4,538,676 3,722,897 815,779 1.43 9,420,000
1,009,081 295,425 658,959 1.40 7,200,000
1,110,674 530,786 579,888 1.37 7,110,000
673,087 42,719 630,368 1.38 7,300,000
985,682 346,135 587,548 1.37 7,000,000
1,472,511 803,231 669,280 1.31 7,550,000
898,598 314,220 578,112 1.29 7,500,000
1,185,200 458,565 726,635 1.50 7,440,000
916,983 401,621 515,362 1.20 7,000,000
664,537 118,126 543,495 1.33 6,475,000
1,155,765 565,442 590,323 1.46 6,500,000
1,075,454 440,477 634,977 1.42 7,285,000
776,671 270,522 506,149 1.26 6,510,000
1,018,899 504,855 514,044 1.30 7,100,000
3,424,197 2,752,475 671,722 1.53 7,600,000
1,452,346 834,811 617,535 1.51 6,800,000
667,473 129,771 510,279 1.32 6,100,000
836,687 293,849 509,432 1.33 6,700,000
884,744 348,014 530,225 1.32 6,400,000
1,017,605 370,404 625,639 1.35 6,500,000
889,186 403,418 485,768 1.29 6,000,000
895,436 376,562 518,874 1.35 6,110,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Loan per
Sq Ft, Units, Sq Ft, Unit, Initial
Appraisal Current Repayment Year Beds, Pads, Bed, Pad, Occupancy Reserves Underwriting
Year LTV LTV Built or Room or Room Percentage At Closing Reserves
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998 1978 60 Rooms NAP
1998 1976 125 Rooms NAP
1998 1982 125 Rooms NAP
1998 69.64 57.19 1986 310 Rooms 29,651 per room 64,456 599
1998 79.12 67.85 1997 99,237 Sq. Ft. 92 per sq. ft. 95% -- 0.10
1997 75.22 66.88 1996 126,878 Sq. Ft. 71 per sq. ft. 95% -- 0.10
1997 49.40 39.89 1975 270 Rooms 33,115 per room NAP -- 4%
1998 71.13 57.40 1989 42,873 Sq. Ft. 207 per sq. ft. 100% -- 0.20
1998 70.78 0.00 1956 230,025 Sq. Ft. 38 per sq. ft. 100% -- 0.16
1998 75.86 62.84 1983 210 Units 41,905 per unit 95% 16,800 210
1998 80.48 70.26 1980 207 Units 41,601 per unit 88% 1,000 250
1998 71.19 61.41 1986 148,124 Sq. Ft. 58 per sq. ft. 86% 4,240 0.13
1998 79.39 69.67 1964 200,451 Sq. Ft. 42 per sq. ft. 97% 5,620 0.17
1998 62.31 36.66 1997 44 Units 192,582 per unit 95% 14,500 324
1997 77.60 66.91 1967 355 Units 23,828 per unit 98% 130,620 293
1997 79.30 69.10 1983 277 Units 30,490 per unit 97% 84,250 225
1998 79.95 70.07 1850 37,179 Sq. Ft. 226 per sq. ft. 100% -- 0.15
1998 69.83 0.00 1974 245 Rooms 34,200 per room NAP -- 4%
1998 77.43 68.90 1968 176 Beds 47,073 per bed 93% 1,563 250
1998 64.56 57.06 1985 110,489 Sq. Ft. 74 per sq. ft. 99% 19,625 0.20
1997 75.75 66.88 1993 150 Units 53,022 per nit 100% -- 200
1998 75.00 58.01 1994 115,310 Sq. Ft. 69 per sq. ft. 100% 9,900 0.00
1997 74.10 60.61 1982 148,112 Sq. Ft. 54 per sq. ft. 98% -- 0.15
1997 74.10 66.30 1997 98,250 Sq. Ft. 81 per sq. ft. 100% -- 0.20
1997 79.12 63.53 1997 117 Units 67,628 per unit 100% -- 200
1997 75.13 64.90 1994 208 Units 36,843 per unit 90% -- 207
1998 69.96 61.38 1985 163,148 Sq. Ft. 46 per sq. ft. 91% 12,625 0.15
1998 62.68 50.85 1911 119,392 Sq. Ft. 62 per sq. ft. 100% -- 0.25
1998 79.04 59.70 1970 234 Units 31,076 per unit 98% 16,000 230
1997 75.31 66.63 1983 360 Units 19,872 per unit 92% 165,000 225
1998 72.44 58.20 1996 55,209 Sq. Ft. 129 per sq. ft. 100% -- 0.10
1998 79.67 0.00 1946 33,070 Sq. Ft. 214 per sq. ft. 100% -- 0.10
1998 75.22 65.90 1995 82,982 Sq. Ft. 84 per sq. ft. 99% 4,156 0.15
1998 80.00 70.61 1974 201 Units 34,031 per unit 87% 315,034 312
1997 59.47 0.00 1994 133,750 Sq. Ft. 51 per sq. ft. 96% -- 0.12
1998 79.37 69.76 1937 261 Units 26,154 per unit 93% 326,750 265
1998 58.22 40.57 1900 172,828 Sq. Ft. 38 per sq. ft. 93% 4,500 0.20
1998 69.40 0.00 1974 282 Rooms 23,306 per room NAP 169,693 0.04
1997 71.23 63.15 1971 282 Units 23,238 per unit 96% 128,300 225
1997 78.33 69.12 1980 320 Units 20,193 per unit 96% 192,500 225
1997 71.52 58.80 1993 109,523 Sq. Ft. 59 per sq. ft. 99% -- 0.20
1997 69.17 45.27 1984 207,000 Sq. Ft. 30 per sq. ft. 100% -- 0.10
1998 79.29 69.95 1988 171,151 Sq. Ft. 37 per sq. ft. 83% -- 0.12
1998 79.90 69.86 1984 320 Units 19,350 per unit 97% 4,625 250
1998 79.95 70.35 1980 53,427 Sq. Ft. 115 per sq. ft. 95% 8,631 0.28
1997 64.39 52.02 1971 161,799 Sq. Ft. 38 per sq. ft. 90% 31,875 0.15
1997 78.61 70.53 1922 156 Units 39,052 per unit 99% 39,938 200
1998 77.24 59.54 1972 272 Units 22,149 per unit 90% 40,688 250
1998 74.02 63.37 1987 196 Units 30,589 per unit 98% -- 264
1998 78.76 67.91 1984 264 Units 22,674 per unit 99% -- 250
1997 68.70 56.42 1985 200 Beds 29,884 per bed 95% -- 250
1997 62.44 54.82 1973 286 Units 20,850 per unit 91% 1,000 250
1997 74.50 64.51 1985 136 Units 43,824 per unit 95% 5,631 248
1998 75.23 59.78 1972 200 Units 29,717 per unit 91% 32,800 290
1997 74.73 65.09 1997 42,476 Sq. Ft. 138 per sq. ft. 95% -- 0.15
1998 72.66 57.83 1977 51,105 Sq. Ft. 114 per sq. ft. 100% 314,760 0.26
1997 77.92 68.78 1978 336 Units 17,161 per unit 97% 1,000 250
1998 74.26 57.52 1965 79,245 Sq. Ft. 72 per sq. ft. 82% 232,925 0.15
1998 61.50 49.84 1980 47,031 Sq. Ft. 121 per sq. ft. 100% -- 0.20
1998 78.03 64.71 1974 192 Units 29,341 per unit 93% 18,263 285
1998 79.95 61.52 1967 362 Units 15,460 per unit 96% 25,563 232
1998 59.27 0.00 1967 149 Rooms 37,471 per room NAP -- 0.04
1998 77.49 46.15 1984 100,152 Sq. Ft. 56 per sq. ft. 93% 16,940 0.19
1998 75.82 65.04 1974 180 Units 29,949 per unit 96% 52,444 281
1998 72.72 43.78 1997 46,368 Sq. Ft. 114 per sq. ft. 100% -- 0.20
1998 75.67 58.54 1971 47,511 Sq. Ft. 111 per sq. ft. 100% 1,665 0.14
1998 70.09 0.00 1974 343 Units 15,427 per unit 83% 770,266 200
1998 70.37 42.01 1986 28,091 Sq. Ft. 188 per sq. ft. 100% -- 0.15
1998 70.66 0.00 1926 99,600 Sq. Ft. 53 per sq. ft. 100% 20,625 300
1997 73.73 55.68 1991 102 Units 50,596 per unit 95% -- 251
1998 78.72 68.90 1989 54,704 Sq. Ft. 93 per sq. ft. 100% -- 0.10
1998 78.06 68.28 1985 208 Units 24,392 per unit 94% -- 275
1997 69.42 61.45 1972 137 Units 36,912 per unit 96% 25,056 200
1998 77.14 67.52 1988 69 Units 72,781 per unit 96% -- 293
1997 70.34 61.41 1977 253 Units 19,740 per unit 92% -- 250
1998 65.66 53.41 1980 181 Rooms 27,571 per room NAP 11,438 757
1997 73.05 63.59 1964 238 Units 20,873 per unit 92% 75,375 250
1998 78.64 68.93 1998 39,620 Sq. Ft. 121 per sq. ft. 100% -- 0.10
1998 70.85 54.71 1986 63,241 Sq. Ft. 75 per sq. ft. 97% 18,750 0.34
1998 73.91 44.12 1985 20,947 Sq. Ft. 226 per sq. ft. 100% -- 0.15
1998 72.29 50.09 1929 36,545 Sq. Ft. 129 per sq. ft. 100% -- 0.12
1998 78.28 68.51 1972 106 Units 44,312 per unit 94% 151,125 213
1997 76.43 66.55 1991 139 Units 33,598 per unit 100% 1,250 300
<CAPTION>
Largest Tenant
---------------------------------------------------------------------------
Appraisal Reserves Area Leased Lease Control
Year Collected Name (Sq. Ft.) Exp Date No.
============================================================================================================================
<S> <C> <C> <C> <C> <C>
1998 WMFG-107a
1998 WMFG-107b
1998 WMFG-107c
1998 599 per room WMFG-107
1998 none per sq. ft. Minyard's Grocery 62,137 11/01/2017 MLMI-090
1997 none per sq. ft. Future Shop 33,308 05/15/2011 GCM-034
1997 none of revenue MLMI-061
1998 0.20 per sq. ft. SDK 26,383 10/15/1999 MID-168
1998 0.21 per sq. ft. Therma Corporation 230,025 06/09/2018 MID-046
1998 210 per unit WMFG-185
1998 none per unit MID-090
1998 0.13 per sq. ft. Sportslife Health Club 36,476 10/31/2008 GCM-110
1998 0.17 per sq. ft. Food Lion 29,000 02/28/2017 WMFG-098
1998 324 per unit MLMI-069
1997 none per unit MLMI-094
1997 225 per unit MLMI-081
1998 0.15 per sq. ft. Commonwealth of MA 36,000 03/31/2013 WMFG-076
1998 4% of revenue MLMI-107
1998 215 per bed GCM-157
1998 0.20 per sq. ft. Option One Mortgage Corporation 54,671 04/30/1999 WMFG-034
1997 none per nit GCM-075
1998 none per sq. ft. BJ's Wholesale Club 115,310 11/23/2016 WMFG-165
1997 none per sq. ft. Orca Bay 10,915 12/31/1998 GCM-060
1997 none per sq. ft. American Telnet, Inc. 44,775 03/31/2006 GCM-008
1997 200 per unit MLMI-080
1997 207 per unit MLMI-070
1998 none per sq. ft. Michael's Stores 51,000 02/28/1999 MLMI-121
1998 0.28 per sq. ft. Physician Partners 15,303 11/30/1999 MID-010
1998 230 per unit GCM-092
1997 none per unit GCM-043
1998 0.10 per sq. ft. The Sports Authority 42,679 05/31/2016 WMFG-035
1998 0.10 per sq. ft. Rite-Aid 16,690 08/31/2017 WMFG-119
1998 none per sq. ft. Sears 23,775 03/12/2006 MID-154
1998 312 per unit WMFG-062
1997 none per sq. ft. MJ Designs 32,000 01/31/2005 GCM-001
1998 265 per unit WMFG-004
1998 none per sq. ft. State Civil Srevice 60,768 06/01/2003 MID-133
1998 none per room MLMI-130
1997 200 per unit MLMI-095
1997 none per unit GCM-071
1997 none per sq. ft. Associated Business 14,831 03/31/1998 GCM-056
1997 none per sq. ft. Aaron Thomas Co. 207,000 08/31/2022 GCM-026
1998 none per sq. ft. McKesson Corporation 141,918 04/30/2003 MID-123
1998 250 per unit GCM-165
1998 0.28 per sq. ft. Outback Steakhouse 6,000 03/31/2002 WMFG-088
1997 none per sq. ft. W. Max Frankum M.D. 9,662 12/31/2000 MLMI-056
1997 237 per unit MLMI-034
1998 none per unit MID-034
1998 264 per unit MLMI-042
1998 239 per unit MLMI-179
1997 none per bed GCM-137
1997 none per unit GCM-069
1997 248 per unit GCM-079
1998 290 per unit MLMI-113
1997 none per sq.ft. Discount Bigscreen 8,800 08/31/2008 MLMI-063
1998 0.23 per sq. ft. Editing Solutions, Inc. 51,105 02/28/2008 GCM-129
1997 none per unit GCM-072
1998 none per sq.ft. Balley's 65,023 08/25/2008 MLMI-104
1998 0.20 per sq. ft. Moon Nissan 47,031 08/31/2006 MID-105
1998 285 per unit MLMI-149
1998 232 per unit WMFG-057
1998 none per room MLMI-054
1998 none per sq. ft. Steinmart/Winn Dixie 35,928 06/19/2005 GCM-090
1998 281 per unit GCM-113
1998 none per sq.ft. Best Buy, Inc. 46,368 02/28/2018 MLMI-138
1998 0.14 per sq. ft. County of Alameda 14,593 05/01/2001 GCM-161
1998 200 per unit GCM-127
1998 none per sq.ft. Mallan Parking 19,060 05/31/2010 MLMI-116
1998 250 per sq. ft. Leben Home for Adults 99,600 02/01/1925 MLMI-189
1997 251 per unit MLMI-041
1998 0.10 per sq. ft. Orchard Supply Hardware Store 51,518 09/26/2014 GCM-116
1998 none per unit MID-085
1997 none per unit GCM-002
1998 none per unit GCM-198
1997 250 per unit MID-104
1998 757 per room WMFG-050
1997 250 per unit MLMI-076
1998 0.10 per sq. ft. Reltec Corporation 39,620 01/31/2008 WMFG-073
1998 0.34 per sq. ft. Ace Hardware 8,796 06/30/2001 WMFG-102
1998 none per sq. ft. Hoffland Garage 12,813 08/31/2004 MLMI-117
1998 0.12 per sq. ft. Renaissance Billiards 4,841 09/30/2002 GCM-086
1998 213 per unit GCM-114
1997 300 per unit GCM-080
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Loan Control
Source No. Property Name Address
====================================================================================================================================
<S> <C> <C> <C>
MIDLAND MID-060 Longs Drugs Store 352 University Avenue
MLMI MLMI-160 University Park Apartments 20 Easthampton Road
MLMI MLMI-137 Riverwood Apartments 1625 SE "N" Street
MIDLAND MID-089 The Robert V. Jones Corporation Office Building 3275 South Jones Blvd.
WMFG WMFG-049 Fairfield Inn - Frederick 5220 Westview Drive
GCM GCM-082 Mainstream Apartments 3000 Murworth Drive
MIDLAND MID-115 The Shoppes of Loveland 10671 Loveland -Madeira Road
GCM GCM-085 The Willows Apartments 1201 40th Street
GCM GCM-040 Chapel Hill Square Shopping Center 1912 - 1952 Buchholzer Blvd.
WMFG WMFG-089 Jermantown Square Shopping Center 11190 Lee Highway
GCM GCM-102 The Cannery West Shopping Center 3455 E. Flamingo Road
MIDLAND MID-088 Oxford Hall I and II 1368 Hartman Street
MLMI MLMI-044 Harbour Bay Plaza 3700-3754 SE Ocean Boulevard
GCM GCM-163 Everett Medical and Dental Building 2722 Colby Avenue
GCM GCM-042 Quail Run Apartments 3624 West Memorial Road
MLMI MLMI-161 Colonial Gardens Apartments Highview Dr. & 1175 Dalton Ave.
MIDLAND MID-043 Northgate Station 9580 1st Avenue NE
MIDLAND MID-006 Terrace Pond Apartments 723 Riverside Street
GCM GCM-009 Pate Foods Building 1450 Pate Plaza Road and 1455 Gardner Street
GCM GCM-112 GE Distribution Center 1736 Lammers Pike
GCM GCM-041 Westview Gardens Apartments 4800 Hall Road
WMFG WMFG-104 Spring Mall Square 6701 Loisdale Road
MIDLAND MID-073 Atrium Office Building 1001 Cross Timbers Road
MIDLAND MID-037 Summerstone Duplexes 1801 South 132nd East Place
GCM GCM-073 Best Buy Store #187 1550 Lake Woodlands Parkway
GCM GCM-033 Sahara Vista I Professional Office Building 5440 West Sahara Avenue
WMFG WMFG-086 Cinema Park Shopping Center 23300 Cinema Drive
MIDLAND MID-103 12th & Walnut Street Parking Garage 1201-11 Walnut Street
MLMI MLMI-077 Quality Inn Haywood 50 Orchard Park Drive
MLMI MLMI-046 Twain Swenson Plaza Twain Avenue
MIDLAND MID-100 Lincoln Village Shops 6202-6208 North Scottsdale Road
MLMI MLMI-065 Crossroad Village Center 601-69 S Ventura Rd/1562-76 5th St.
MIDLAND MID-106 Kings Crossing Apartments 330 South Tyler Road
WMFG WMFG-001 Pebble Hill 2353 Mission Road & 750 White Drive
MIDLAND MID-011 Ashley Park Apartments 5477 East 71st Street
MIDLAND MID-121 Evergreen Square Shopping Center East Red Bank Avenue & North Evergreen Avenue
WMFG WMFG-096a Olde Oaks Shopping Center 3702 FM 1960 West & 7314 Louetta Road
WMFG WMFG-096b Kleinwood Shopping Center 7314 Louetta Road
- ------------------------------------------------------------------------------------------------------------------------------------
WMFG WMFG-096
WMFG WMFG-006 Montego Palms 2323 E. Flower St
MIDLAND MID-067 Parkway Apartments 101 Spruce Road
WMFG WMFG-113 Englewood Plaza 400-800 Northwest Englewood Rd.
MIDLAND MID-175 Mesa Commerce Center 1930 South Alma School Road
GCM GCM-117 Los Altos Retail/Office Building 170 State St.
MIDLAND MID-007 Northgate Business Park 119 W. Naylor Mill Road
MLMI MLMI-105 Hidden Vale Apartments 5726 59th Street Court West
MLMI MLMI-118 The Shenango Inn 1330 Kimberly Road
MLMI MLMI-062 Plaza West Shopping Center 11628 Santa Monica Blvd
MIDLAND MID-094 PDS Warehouse/ Distribution Building 12154 Montague Street
MLMI MLMI-039 1881 - 1899 Dobbin Dr. 1881 - 1899 Dobbin Dr.
MLMI MLMI-135 230-244 West 125th Street 230-244 West 125th Street
MIDLAND MID-084 Saddle Brook Apartments 1400 H.G. Mosley
GCM GCM-019 Imation Building 1185 Wolters Boulevard
GCM GCM-125 The Timbers Apartments 2928 Ruddell Road Southeast
MLMI MLMI-089 Fielder Crossing 1727 Westview Terrace
MIDLAND MID-014 The Hemet West Shopping Center 3100-3232 Florida Avenue
MIDLAND MID-072 Lindenshire Apartments 5950 Lindenshire Lane
GCM GCM-087 Carriage House Apartments 433-437 South Mary Avenue
MIDLAND MID-071 John Alden Building 1005 Main Street
GCM GCM-061 Plaza Costa Mesa 1815 Newport Boulevard
WMFG WMFG-181 Towne Oaks 159 Main Street
GCM GCM-098 Willow Brook Apartments 1455 East 4705 South
WMFG WMFG-109 3 Industrial Avenue 3 Industrial Avenue
MLMI MLMI-165 Millport Apartments 1001 Islington Street
MIDLAND MID-066 Three Fountains Apartments 2102 Fountains Blvd.
GCM GCM-013 Kickingbird Hills Apartments 1900 Kickingbird Road
GCM GCM-015 Minikahda Mini-Storage VI 10830 Greenbrier Road
MIDLAND MID-170 Olde Andover Village 83-93 Main Street
WMFG WMFG-172 Circuit City Houston 9950 Kleckley Street
WMFG WMFG-037 Mustang Square Shopping Center 3105 Ira E. Woods Avenue
GCM GCM-199 Holiday Inn U.S. Route 219 & Interstate 80
MLMI MLMI-110 Poet's Row Apartments 1001-1055 Sherman Street
MLMI MLMI-129 Savannah Apartments 4055 Mac Eachen Boulevard
MLMI MLMI-082 Versailles/Marrakesh Apartments 4625 Cedar Springs
WMFG WMFG-063 Westland Gardens Apartments 1751 West 62nd Street
GCM GCM-124 Lynnwood Garden Village Apartments 4816 176th Street SW
GCM GCM-068 QDS Building 9500 Toledo Way
MLMI MLMI-162 Riviera Apartments 1-122 Riviera Drive
GCM GCM-088 Stierlin Arms Apartments 465 Stierlin Road
GCM GCM-109 Spalding Centre 6365-6395 Spalding Drive
MLMI MLMI-115 188 Second Avenue 188 Second Avenue
MLMI MLMI-067 Hampton Inn - Branson 2350 Green Mountain Drive
WMFG WMFG-070 Parkview 1138 West 10th Ave.
<CAPTION>
Loan Zip Original Cut-Off
Source City State Code Property Type Balance Date Balance
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
MIDLAND Palo Alto CA 94301 Retail 4,600,000 4,580,846
MLMI Holyoke MA 01040 Multifamily 4,572,000 4,541,816
MLMI Grants Pass OR 97526 Multifamily 4,525,000 4,514,919
MIDLAND Las Vegas NV 89102 Office 4,500,000 4,494,890
WMFG Frederick MD 21703 Hospitality 4,500,000 4,491,108
GCM Houston TX 77025 Multifamily 4,500,000 4,471,817
MIDLAND Loveland OH 45140 Retail 4,450,000 4,444,702
GCM Bakersfield CA 93301 Multifamily 4,450,000 4,427,134
GCM Akron OH 44310 Retail 4,450,000 4,410,317
WMFG Fairfax VA 22030 Retail 4,400,000 4,395,549
GCM Las Vegas NV 89121 Retail 4,400,000 4,393,475
MIDLAND Boise ID 83704 Multifamily 4,400,000 4,390,801
MLMI Sewalls Point FL 34997 Retail 4,325,000 4,307,264
GCM Everett WA 98201 Office 4,300,000 4,295,857
GCM Oklahoma City OK 73134 Multifamily 4,300,000 4,272,585
MLMI Pittsfield MA 01201 Multifamily 4,279,000 4,250,750
MIDLAND Seattle WA 98105 Retail 4,250,000 4,244,766
MIDLAND Portland ME 04103 Multifamily 4,240,000 4,229,139
GCM South Beloit IL 61080 Industrial 4,260,000 4,205,151
GCM Batesville IN 47006 Industrial 4,200,000 4,195,124
GCM Columbus OH 43228 Multifamily 4,200,000 4,178,416
WMFG Springfield VA 22150 Retail 4,120,000 4,117,521
MIDLAND Flower Mound TX 75028 Office 4,100,000 4,092,044
MIDLAND Tulsa OK 74108 Multifamily 4,100,000 4,082,360
GCM The Woodlands TX 77380 Retail 4,100,000 4,076,338
GCM Las Vegas NV 89102 Office 4,080,000 4,022,034
WMFG Santa Clarita CA 91335 Retail 4,000,000 3,995,297
MIDLAND Philadelphia PA 19107 Other 4,000,000 3,992,008
MLMI Greenville SC 29615 Hospitality 4,000,000 3,981,257
MLMI Las Vegas NV 89109 Mixed Use 3,990,000 3,972,791
MIDLAND Scottsdale AZ 85253 Retail 3,960,000 3,952,192
MLMI Oxnard CA 93030 Retail 4,000,000 3,925,694
MIDLAND Wichita KS 67209 Multifamily 3,900,000 3,891,639
WMFG Tallahassee FL 32301 Multifamily 3,900,000 3,886,669
MIDLAND Tulsa OK 74136 Multifamily 3,835,000 3,826,778
MIDLAND Woodbury NJ 08096 Retail 3,825,000 3,809,550
WMFG Houston TX 77068 Retail 2,016,327 2,014,746
WMFG Houston TX 77070 Retail 1,783,673 1,782,275
- ----------------------------------------------------------------------------------------------------------------------------------
WMFG Retail 3,800,000 3,797,021
WMFG Phoenix AZ 85016 Multifamily 3,725,000 3,715,192
MIDLAND Elko NV 89801 Multifamily 3,720,000 3,707,414
WMFG Kansas City MO 64118 Retail 3,650,000 3,647,888
MIDLAND Mesa AZ 85210 Office 3,650,000 3,642,834
GCM Los Altos CA 94022 Mixed Use 3,620,000 3,617,971
MIDLAND Salisbury MD 21801 Office 3,620,000 3,609,032
MLMI University Place WA 98467 Multifamily 3,600,000 3,594,917
MLMI Sharon PA 16146 Health Care 3,650,000 3,555,027
MLMI Los Angeles CA 90015 Mixed Use 3,540,000 3,537,192
MIDLAND Pacoima CA 91331 Industrial 3,500,000 3,493,159
MLMI San Jose CA 95133 Industrial 3,500,000 3,477,093
MLMI New York NY 10021 Retail 3,500,000 3,475,446
MIDLAND Longview TX 75604 Multifamily 3,460,000 3,455,647
GCM Vadnais Heights MN 55127 Mixed Use 3,500,000 3,451,361
GCM Lacey WA 98503 Multifamily 3,450,000 3,444,277
MLMI Arlington TX 76013 Multifamily 3,440,000 3,423,114
MIDLAND Hemet CA 92543 Retail 3,400,000 3,396,804
MIDLAND Dallas TX 75230 Multifamily 3,400,000 3,395,723
GCM Sunnyvale CA 94086 Multifamily 3,410,000 3,392,916
MIDLAND Boise ID 83702 Office 3,404,000 3,390,082
GCM Costa Mesa CA 92627 Retail 3,400,000 3,380,252
WMFG S.Bound Brook NJ 08880 Multifamily 3,350,000 3,347,237
GCM Salt Lake City UT 84117 Multifamily 3,320,000 3,315,811
WMFG Mahwah NJ 07430 Industrial 3,300,000 3,298,209
MLMI Portsmouth NH 03801 Multifamily 3,300,000 3,273,397
MIDLAND Kissimmee FL 34741 Multifamily 3,260,000 3,253,458
GCM Edmond OK 73120 Multifamily 3,250,000 3,230,993
GCM Minnetonka MN 55305 Industrial 3,250,000 3,208,688
MIDLAND Andover MA 02193 Mixed Use 3,200,000 3,200,000
WMFG Houston TX 77075 Retail 3,200,000 3,196,934
WMFG Grapevine TX 76092 Retail 3,200,000 3,195,294
GCM DuBois PA 15801 Hospitality 3,200,000 3,194,547
MLMI Denver CO 80203 Multifamily 3,200,000 3,189,243
MLMI Sarasota FL 34233 Multifamily 3,200,000 3,187,486
MLMI Dallas TX 75219 Multifamily 3,200,000 3,179,693
WMFG Hialeah FL 33012 Multifamily 3,181,000 3,179,231
GCM Lynnwood WA 98037 Multifamily 3,150,000 3,139,963
GCM Irvine CA 92618 Office 3,150,000 3,135,609
MLMI Agawam MA 01001 Multifamily 3,156,000 3,135,164
GCM Mountain View CA 94043 Multifamily 3,150,000 3,134,219
GCM Norcross GA 30092 Retail 3,100,000 3,097,562
MLMI New York NY 10003 Multifamily 3,100,000 3,087,877
MLMI Branson MO 65616 Hospitality 3,095,000 3,086,574
WMFG Kennewick WA 99336 Multifamily 3,080,000 3,078,111
<CAPTION>
Cumulative % of
Loan % of Initial Initial Pool Affiliated
Source Pool Balance Balance Borrower
==================================================================================================
<S> <C> <C> <C>
MIDLAND 0.16% 71.80%
MLMI 0.16% 71.96% MLMI-159, MLMI-161, MLMI-162
MLMI 0.16% 72.11%
MIDLAND 0.16% 72.27%
WMFG 0.16% 72.42%
GCM 0.15% 72.58%
MIDLAND 0.15% 72.73%
GCM 0.15% 72.89%
GCM 0.15% 73.04%
WMFG 0.15% 73.19% WMFG-105
GCM 0.15% 73.34%
MIDLAND 0.15% 73.49%
MLMI 0.15% 73.64%
GCM 0.15% 73.79%
GCM 0.15% 73.94% GCM-012, GCM-013, GCM-043
MLMI 0.15% 74.09% MLMI-159, MLMI-160, MLMI-162
MIDLAND 0.15% 74.23%
MIDLAND 0.15% 74.38%
GCM 0.15% 74.52%
GCM 0.15% 74.67%
GCM 0.14% 74.81%
WMFG 0.14% 74.96% WMFG-088
MIDLAND 0.14% 75.10%
MIDLAND 0.14% 75.24% MID-020, MID-034, MID-076, MID-078, MID-090
GCM 0.14% 75.38%
GCM 0.14% 75.52%
WMFG 0.14% 75.66%
MIDLAND 0.14% 75.80%
MLMI 0.14% 75.93%
MLMI 0.14% 76.07%
MIDLAND 0.14% 76.21% MID-068, MID-069, MID-070, MID-113
MLMI 0.14% 76.34%
MIDLAND 0.13% 76.48% MID-011, MID-025, MID-104, MID-107
WMFG 0.13% 76.61%
MIDLAND 0.13% 76.74% MID-025, MID-104, MID-106, MID-107
MIDLAND 0.13% 76.88%
WMFG
WMFG
- --------------------------------------------------------------------------------------------------
WMFG 0.13% 77.01%
WMFG 0.13% 77.14%
MIDLAND 0.13% 77.26%
WMFG 0.13% 77.39%
MIDLAND 0.13% 77.52%
GCM 0.13% 77.64%
MIDLAND 0.12% 77.77%
MLMI 0.12% 77.89%
MLMI 0.12% 78.01%
MLMI 0.12% 78.14%
MIDLAND 0.12% 78.26%
MLMI 0.12% 78.38%
MLMI 0.12% 78.50%
MIDLAND 0.12% 78.62% MID-083, MID-085
GCM 0.12% 78.74%
GCM 0.12% 78.86% GCM-124
MLMI 0.12% 78.97%
MIDLAND 0.12% 79.09%
MIDLAND 0.12% 79.21%
GCM 0.12% 79.33% GCM-088
MIDLAND 0.12% 79.44%
GCM 0.12% 79.56%
WMFG 0.12% 79.68% WMFG-004
GCM 0.11% 79.79%
WMFG 0.11% 79.91%
MLMI 0.11% 80.02%
MIDLAND 0.11% 80.13%
GCM 0.11% 80.24% MID-139, GCM-012, GCM-042, GCM-043
GCM 0.11% 80.35% GCM-014
MIDLAND 0.11% 80.46%
WMFG 0.11% 80.57%
WMFG 0.11% 80.69%
GCM 0.11% 80.80% GCM-108
MLMI 0.11% 80.91%
MLMI 0.11% 81.02%
MLMI 0.11% 81.13%
WMFG 0.11% 81.24% WMFG-062
GCM 0.11% 81.34% GCM-125
GCM 0.11% 81.45%
MLMI 0.11% 81.56% MLMI-159, MLMI-160, MLMI-161
GCM 0.11% 81.67% GCM-087
GCM 0.11% 81.78% GCM-110
MLMI 0.11% 81.88% MLMI-114
MLMI 0.11% 81.99%
WMFG 0.11% 82.10% WMFG-009
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Rem
Orig Rem Amort Amort
Interest Accrual Mortgage Administrative Term Term Term Term Origination
Crossed Method Rate Cost Rate (Mos.) (Mos.) (Mos.) (Mos.) Date
===============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Actual/360 7.270 0.08175 120 116 300 296 04/22/98
MLMI-159, MLMI-161, MLMI-162 Actual/360 7.100 0.09675 240 234 300 294 02/27/98
Actual/360 7.130 0.09675 120 117 360 357 05/29/98
Actual/360 7.320 0.18175 120 118 360 358 06/19/98
Actual/360 7.250 0.09675 180 178 300 298 07/01/98
30/360 7.340 0.09675 120 112 360 352 12/29/97
Actual/360 7.170 0.08175 120 118 360 358 06/26/98
30/360 6.850 0.09675 120 114 360 354 02/23/98
Actual/360 7.940 0.14175 120 111 300 291 11/25/97
30/360 6.950 0.09675 120 119 330 329 07/10/98
30/360 7.520 0.09675 120 118 360 358 06/17/98
Actual/360 6.990 0.18175 120 118 300 298 06/17/98
Actual/360 7.720 0.12675 120 116 300 296 04/30/98
Actual/360 7.350 0.09675 180 179 300 299 07/27/98
GCM-043 Actual/360 7.250 0.20175 120 111 360 351 11/18/97
MLMI-159, MLMI-160, MLMI-162 Actual/360 7.100 0.09675 240 234 300 294 02/27/98
Actual/360 7.060 0.18175 120 118 360 358 06/04/98
Actual/360 7.220 0.08175 120 116 360 356 04/03/98
30/360 8.630 0.20175 120 107 300 287 07/14/97
Actual/360 7.250 0.09675 180 178 360 358 06/16/98
Actual/360 7.740 0.14175 120 112 360 352 12/01/97
Actual/360 7.125 0.09675 120 119 360 359 07/30/98
Actual/360 7.270 0.08175 84 81 360 357 05/13/98
Actual/360 6.910 0.13175 120 114 360 354 02/10/98
Actual/360 7.660 0.20175 240 231 360 351 11/21/97
30/360 8.010 0.20175 120 107 300 287 07/18/97
Actual/360 7.210 0.09675 120 118 360 358 06/29/98
Actual/360 7.200 0.08175 120 118 300 298 06/30/98
Actual/360 8.340 0.12675 240 237 240 237 05/08/98
Actual/360 7.440 0.12675 120 116 300 296 04/16/98
MID-113 Actual/360 7.260 0.08175 120 118 300 298 06/03/98
Actual/360 7.125 0.09675 180 174 180 174 02/27/98
Actual/360 6.890 0.08175 120 117 360 357 05/27/98
Actual/360 7.160 0.09675 120 115 360 355 03/25/98
Actual/360 6.890 0.08175 120 117 360 357 05/27/98
Actual/360 7.420 0.08175 120 116 300 296 04/27/98
- -------------------------------------------------------------------------------------------------------------------------------
Actual/360 7.120 0.09675 120 119 330 329 07/07/98
Actual/360 7.120 0.09675 120 116 360 356 04/08/98
Actual/360 7.200 0.18175 120 115 360 355 03/30/98
Actual/360 7.250 0.09675 120 119 360 359 07/31/98
Actual/360 7.280 0.08175 120 118 300 298 06/11/98
Actual/360 7.350 0.09675 120 119 360 359 07/20/98
Actual/360 7.490 0.18175 120 117 300 297 05/08/98
Actual/360 6.950 0.09675 120 118 360 358 06/01/98
Actual/360 7.410 0.12675 72 68 108 104 04/23/98
Actual/360 7.440 0.12675 180 179 330 329 07/09/98
Actual/360 7.300 0.08175 120 118 300 298 06/05/98
30/360 7.875 0.12675 120 114 300 294 02/19/98
Actual/360 7.100 0.09675 120 114 300 294 02/19/98
Actual/360 6.990 0.08175 120 118 360 358 06/09/98
30/360 8.150 0.20175 84 71 300 287 07/11/97
30/360 6.955 0.09675 120 118 360 358 06/25/98
Actual/360 6.730 0.09675 84 78 360 354 02/06/98
Actual/360 7.460 0.18175 120 119 300 299 07/01/98
Actual/360 6.990 0.08175 180 178 360 358 06/26/98
30/360 6.980 0.09675 120 114 360 354 02/25/98
Actual/360 7.360 0.08175 120 116 300 296 04/30/98
Actual/360 7.220 0.10175 240 232 360 352 12/24/97
Actual/360 6.920 0.09675 120 119 330 329 07/22/98
Actual/360 6.980 0.09675 120 118 360 358 06/02/98
Actual/360 7.450 0.09675 180 179 360 359 07/30/98
Actual/360 7.250 0.09675 120 113 300 293 01/30/98
Actual/360 7.180 0.08175 180 178 300 298 06/22/98
Actual/360 7.190 0.20175 84 76 360 352 12/17/97
30/360 8.710 0.20175 144 131 300 287 07/03/97
Actual/360 7.170 0.18175 120 120 300 300 08/14/98
Actual/360 7.375 0.09675 180 179 300 299 07/29/98
Actual/360 7.375 0.09675 120 118 330 328 06/03/98
30/360 7.970 0.09675 240 239 240 239 07/08/98
Actual/360 7.290 0.12675 180 177 300 297 05/14/98
Actual/360 7.000 0.12675 120 115 360 355 03/25/98
Actual/360 7.250 0.09675 84 76 360 352 12/04/97
WMFG-062 Actual/360 7.375 0.09675 120 119 360 359 07/24/98
30/360 7.190 0.09675 120 116 360 356 04/28/98
Actual/360 8.220 0.30175 120 112 360 352 12/22/97
MLMI-159, MLMI-160, MLMI-161 Actual/360 7.100 0.09675 240 234 300 294 02/27/98
30/360 6.980 0.09675 120 114 360 354 02/25/98
30/360 7.210 0.09675 120 119 360 359 07/22/98
Actual/360 7.000 0.12675 120 115 360 355 03/20/98
Actual/360 7.500 0.09675 120 118 264 262 06/05/98
Actual/360 7.063 0.09675 180 179 360 359 07/17/98
<CAPTION>
Repayment Balloon/Repayment
Date Balance Maturity Term Prepayment Restrictions
====================================================================================================================================
<S> <C> <C> <C>
05/01/2008 3,722,655 Balloon L(60),> YM or 1%(54),O(6)
03/01/2018 1,842,158 Balloon L(60), >YM or 1% (176), O(4)
06/01/2008 3,911,287 Balloon L(60), >YM or 1% ( 56), O(4)
07/01/2008 3,965,433 Balloon L(48),> YM or 1%(66),O(6)
07/01/2013 2,900,929 Balloon L(26),Def(150),O(4)
01/01/2008 3,899,010 Balloon > of YM or 1% (84),3%(12),2%(12),1%(5),O(7)
07/01/2008 3,906,322 Hyperam L(48),> YM or 1%(66),O(6)
03/01/2008 3,812,466 Balloon > of YM or 1% (84),3%(12),2%(12),1%(5),O(7)
12/01/2007 3,670,746 Balloon L(48),> of YM or 1% (48),1%(12),O(12)
08/01/2008 3,640,441 Balloon L(25),Def(91),O(4)
07/01/2008 3,827,500 Balloon L(60),> of YM or 1% (53),O(7)
07/01/2008 3,530,272 Balloon L(60),> YM or 1%(54),O(6)
05/01/2008 3,488,857 Balloon L(60), >YM or 1% (53), O(7)
08/01/2013 2,784,848 Hyperam L(84),Def(89),O(7)
12/01/2007 3,780,564 Balloon L(60),> of YM or 5% (54),O(6)
03/01/2018 1,724,101 Balloon L(60), > of YM or 1% (176), O(4)
07/01/2008 3,720,105 Balloon L(48),> YM or 1%(60),O(12)
05/01/2008 3,726,891 Hyperam L(48),> YM or 1%(66),O(6)
08/01/2007 3,503,792 Balloon > of YM or 1.5% (108),O(12)
07/01/2013 3,260,357 Balloon L(120), > of YM or 1% (53),O(7)
01/01/2008 3,736,450 Balloon L(60),> of YM or 1% (54),O(6)
08/01/2008 3,611,182 Balloon L(48),Def(68),O(4)
06/01/2005 3,795,429 Balloon L(36),> YM or 1%(42),O(6)
03/01/2008 3,575,533 Balloon L(60),> YM or 1%(54),O(6)
12/01/2017 2,642,578 Balloon L(84),> of YM or 1% (150),O(6)
08/01/2007 3,305,434 Balloon > of YM or 5% (96),5%(12),O(12)
07/01/2008 3,514,925 Balloon L(26),Def(90),O(4)
07/01/2008 3,230,102 Balloon L(48),> YM or 1%(66),O(6)
06/01/2018 NAP Fully Amort L(120), >YM or 1% (116),O(4)
05/01/2008 3,194,952 Balloon L(60), >YM or 1% ( 56), O(4)
07/01/2008 3,203,635 Balloon L(60),> YM or 1%(54),O(6)
03/01/2013 NAP Fully Amort L(96), >YM or 1%(80), O(4)
06/01/2008 3,397,450 Balloon L(60),> YM or 1%(54),O(6)
04/01/2008 3,421,654 Balloon L(48),Def(68),O(4)
06/01/2008 3,340,825 Balloon L(60),> YM or 1%(54),O(6)
05/01/2008 3,109,484 Hyperam L(48),> YM or 1%(66),O(6)
- ------------------------------------------------------------------------------------------------------------------------------------
08/01/2008 3,211,049 Balloon L(48),Def(68),O(4)
05/01/2008 3,265,762 Balloon L(36),Def(80),O(4)
04/01/2008 3,267,096 Balloon L(60),> YM or 1%(54),O(6)
08/01/2008 3,209,533 Balloon L(25),Def(91),O(4)
07/01/2008 2,954,635 Balloon L(36),> YM or 1%(72),O(12)
08/01/2008 3,191,256 Balloon L(60),> of YM or 1% (53),O(7)
06/01/2008 2,947,830 Balloon L(60),> YM or 1%(54),O(6)
07/01/2008 3,099,377 Balloon L(60), >YM or 1% ( 56), O(4)
05/01/2004 1,535,324 Balloon L(12), > of YM or 1% (56), O(4)
08/01/2013 2,479,608 Balloon L(96), >YM or 1%(80), O(4)
07/01/2008 2,834,925 Balloon L(60), >YM or 5%(54),O(6)
03/01/2008 2,825,871 Balloon L(60), > of YM or 1% ( 56), O(4)
03/01/2008 2,777,334 Balloon L(60), > of YM or 1% ( 56), O(4)
07/01/2008 3,023,046 Balloon L(36),YM(72),O(12)
08/01/2004 3,101,373 Balloon L(36),> of YM or 5% (24),1%(12),O(12)
07/01/2008 2,963,061 Balloon L(60),> of YM or 1% (36),1%(11),O(13)
03/01/2005 3,133,237 Balloon L(48), >YM or 1% (32), O(4)
08/01/2008 2,766,108 Balloon L(60),> YM or 1%(54),O(6)
07/01/2013 2,608,697 Balloon L(90),> YM or 1%(84),O(6)
03/01/2008 2,930,420 Balloon > of YM or 1% (113),O(7)
05/01/2008 2,762,259 Balloon L(60),> YM or 1%(54),O(6)
01/01/2018 2,123,350 Balloon L(120), > of YM or 1% (114),O(6)
08/01/2008 2,814,739 Balloon L(36),Def(80),O(4)
07/01/2008 2,899,961 Balloon > of YM or 1% (113),O(7)
08/01/2013 2,583,019 Balloon L(25),Def(151),O(4)
02/01/2008 2,665,961 Balloon L(60), >YM or 1% ( 56), O(4)
07/01/2013 2,093,815 Balloon L(90),> YM or 1%(84),O(6)
01/01/2005 3,004,029 Balloon L(48),> of YM or 5% (30),O(6)
08/01/2009 2,490,278 Balloon > of YM or 5% (60),5%(12),4%(12),3%(12),2%(12),1%(12),O(24)
09/01/2008 2,580,318 Balloon L(48),> YM or 1%(66),O(6)
08/01/2013 2,075,152 Balloon L(25),Def(151),O(4)
07/01/2008 2,724,315 Balloon L(26),Def(90),O(4)
08/01/2018 NAP Fully Amort L(120), > of YM or 1% (72),O(48)
06/01/2013 1,994,095 Balloon L(27), Def (146), O(7)
04/01/2008 2,757,690 Balloon L(60), >YM or 1% ( 56), O(4)
01/01/2005 2,936,357 Balloon L(48), >YM or 1% (29), O(7)
08/01/2008 2,806,021 Balloon L(25),Def(91),O(4)
05/01/2008 2,720,112 Balloon L(60),> of YM or 1% (36),1%(11),O(13)
01/01/2008 2,834,182 Balloon L(60),> of YM or 1% (54),O(6)
03/01/2018 1,271,624 Balloon L(60), >YM or 1% (176), O(4)
03/01/2008 2,706,986 Balloon > of YM or 1% (113),O(7)
08/01/2008 2,678,151 Balloon L(60),> of YM or 1% (53),O(7)
04/01/2008 2,671,513 Balloon L(60), > of YM or 1% (53), O(7)
07/01/2008 2,289,138 Balloon L(26), Def(90), O(4)
08/01/2013 2,369,754 Balloon L(48),Def(128),O(4)
<CAPTION>
Annual Underwriting Underwriting
Debt Total Total Underwriting Underwriting Appraised
Service Revenue Expenses NCF DSCR Value
==============================================================================================
<S> <C> <C> <C> <C> <C>
399,701 647,988 105,742 515,731 1.29 8,310,000
391,274 1,068,039 510,841 557,198 1.42 6,000,000
369,857 830,115 356,242 473,873 1.28 6,400,000
370,943 718,959 155,516 506,213 1.36 5,570,000
390,316 1,722,234 1,145,981 576,253 1.48 6,000,000
371,677 1,578,294 1,023,433 554,861 1.49 7,200,000
361,389 778,308 215,831 512,677 1.42 5,600,000
349,908 1,141,276 619,527 521,749 1.49 5,700,000
410,030 783,163 210,484 524,444 1.28 6,000,000
359,221 717,279 197,613 473,123 1.32 5,800,000
369,909 740,618 220,203 488,423 1.32 5,620,000
372,843 1,023,653 509,920 513,734 1.38 5,825,000
394,910 1,086,582 418,690 607,143 1.54 6,100,000
376,299 1,119,679 530,054 504,486 1.34 6,400,000
352,003 931,429 459,433 471,995 1.34 5,450,000
366,199 1,069,111 548,750 520,362 1.42 5,500,000
341,362 818,013 195,443 584,699 1.71 7,050,000
346,057 864,667 412,840 451,827 1.31 5,300,000
416,120 569,310 42,132 508,805 1.22 5,800,000
343,817 456,633 12,839 422,222 1.23 5,860,000
360,724 1,078,920 579,743 499,177 1.38 5,150,000
333,086 613,224 173,364 416,377 1.25 5,700,000
336,298 853,851 269,120 472,231 1.40 5,510,000
324,360 966,543 530,757 435,786 1.34 5,250,000
349,420 582,083 94,266 487,817 1.40 5,300,000
378,206 738,031 193,278 495,418 1.31 5,580,000
326,143 743,142 197,007 483,515 1.48 6,660,000
345,403 1,515,062 988,420 516,437 1.50 6,400,000
415,423 1,730,470 1,164,668 565,802 1.36 5,820,000
355,407 894,927 303,032 535,684 1.51 5,750,000
343,784 684,545 177,056 478,534 1.39 5,300,000
437,692 1,052,052 283,072 733,777 1.68 7,500,000
307,912 895,892 491,074 404,818 1.31 5,300,000
316,407 716,661 295,951 420,710 1.33 5,458,000
302,780 871,531 483,010 388,521 1.28 5,000,000
336,812 667,106 183,161 434,040 1.29 5,000,000
378,047 125,929 225,199 2,600,000
304,207 110,104 173,216 2,300,000
- ----------------------------------------------------------------------------------------------
315,323 682,254 236,033 398,415 1.26 4,900,000
301,001 859,523 428,082 431,441 1.43 4,815,000
303,011 744,853 311,691 433,162 1.43 4,650,000
298,793 670,184 228,765 387,400 1.30 4,600,000
317,436 918,794 429,229 418,905 1.32 5,340,000
299,289 594,488 182,770 397,689 1.33 4,900,000
320,735 583,820 129,607 416,966 1.30 4,600,000
288,946 822,850 436,597 386,254 1.34 4,825,000
559,441 2,342,026 1,641,888 700,138 1.25 7,720,000
305,849 615,097 165,330 435,773 1.42 4,900,000
304,933 632,862 142,845 462,037 1.52 4,500,000
320,693 654,629 141,358 507,906 1.58 6,000,000
302,384 794,862 259,180 528,634 1.75 5,400,000
275,955 1,144,097 799,169 344,929 1.25 4,420,000
328,347 663,895 205,265 419,461 1.28 5,050,000
274,185 870,588 511,582 359,006 1.31 4,500,000
269,940 831,535 467,386 364,149 1.35 4,400,000
300,448 636,496 192,704 398,760 1.33 5,030,000
271,169 523,369 179,604 343,766 1.27 4,550,000
271,692 536,017 179,811 356,206 1.31 4,550,000
298,153 693,355 252,263 407,884 1.37 4,350,000
277,498 490,005 92,543 397,462 1.43 4,650,000
272,709 776,135 400,191 375,945 1.38 4,200,000
264,522 531,400 187,516 343,883 1.30 4,430,000
275,534 386,576 21,069 353,988 1.28 4,125,000
286,232 651,812 254,188 389,709 1.36 4,400,000
281,000 979,172 610,437 368,735 1.31 5,100,000
264,463 773,034 412,419 360,614 1.36 4,225,000
319,577 767,042 324,553 442,489 1.38 4,370,000
275,582 760,921 325,099 386,965 1.40 4,400,000
280,658 346,038 6,921 339,117 1.21 4,150,000
272,015 518,223 130,941 357,420 1.31 4,300,000
320,476 2,724,693 2,249,518 475,175 1.48 7,600,000
281,207 831,479 434,628 396,851 1.41 4,750,000
258,137 651,148 297,532 353,616 1.37 4,000,000
264,670 646,385 303,899 342,487 1.29 4,040,000
263,645 637,980 308,828 329,152 1.25 4,200,000
256,326 660,720 327,728 332,992 1.30 4,500,000
283,182 596,855 209,027 352,181 1.24 3,775,000
270,092 796,689 462,970 333,719 1.24 4,250,000
250,977 508,556 174,158 334,398 1.33 4,200,000
252,761 606,739 211,596 354,218 1.40 4,250,000
250,070 475,223 135,422 337,804 1.35 3,975,000
290,255 1,408,501 949,593 458,908 1.58 4,300,000
247,449 533,211 243,347 289,864 1.17 3,575,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Loan per
Sq Ft, Units, Sq Ft, Unit, Initial
Appraisal Current Repayment Year Beds, Pads, Bed, Pad, Occupancy Reserves Underwriting
Year LTV LTV Built or Room or Room Percentage At Closing Reserves
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998 55.12 44.80 1949 33,761 Sq. Ft. 136 per sq. ft. 91% -- 0.14
1997 75.70 30.70 1970 152 Units 29,880 per unit 97% 20,813 272
1998 70.55 61.11 1989 151 Units 29,900 per unit 97% -- 250
1998 80.70 71.19 1994 30,611 Sq. Ft. 147 per sq. ft. 100% -- 0.20
1998 74.85 48.35 1996 105 Rooms 42,772 per room NAP -- 656
1997 62.11 54.15 1977 325 Units 13,759 per unit 98% 18,389 237
1997 79.37 69.76 1989 64,567 Sq. Ft. 69 per sq. ft. 100% 9,375 0.15
1997 77.67 66.89 1986 240 Units 18,446 per unit 95% 22,188 284
1997 73.51 61.18 1987 66,221 Sq. Ft. 67 per sq. ft. 98% -- 0.15
1998 75.79 62.77 1981 34,844 Sq. Ft. 126 per sq. ft. 93% -- 0.37
1998 78.18 68.10 1988 37,693 Sq. Ft. 117 per sq. ft. 100% 11,506 0.24
1998 75.38 60.61 1971 200 Units 21,954 per unit 94% 1,000 250
1998 70.61 57.19 1979 61,804 Sq. Ft. 70 per sq. ft. 95% 47,000 0.17
1998 67.12 43.51 1927 96,919 Sq. Ft. 44 per sq. ft. 92% 3,483 0.14
1997 78.40 69.37 1978 208 Units 20,541 per unit 92% 412,500 233
1997 77.29 31.35 1965 156 Units 27,248 per unit 97% 8,250 207
1998 60.21 52.77 1988 35,130 Sq. Ft. 121 per sq. ft. 97% -- 0.15
1998 79.80 70.32 1988 117 Units 36,146 per unit 99% -- 250
1997 72.50 60.41 1984 176,226 Sq. Ft. 24 per sq. ft. 100% -- 0.12
1998 71.59 55.64 1994 150,620 Sq. Ft. 28 per sq. ft. 100% -- 0.06
1997 81.13 72.55 1969 196 Units 21,318 per unit 88% 101,000 250
1998 72.24 63.35 1977 22,837 Sq. Ft. 180 per sq. ft. 100% 3,875 0.44
1998 74.27 68.88 1986 74,445 Sq. Ft. 55 per sq. ft. 97% -- 0.20
1998 77.76 68.11 1974 172 Units 23,735 per unit 98% 1,000 250
1997 76.91 49.86 1997 45,000 Sq. Ft. 91 per sq. ft. 100% -- 0.17
1997 72.08 59.24 1995 38,525 Sq. Ft. 104 per sq. ft. 98% -- 0.20
1998 59.99 52.78 1997 32,000 Sq. Ft. 125 per sq. ft. 86% 156 0.10
1998 62.38 50.47 1980 251,850 Sq. Ft. 16 per sq. ft. 98% 250,000 0.20
1998 68.41 0.00 1985 146 Rooms 27,269 per room NAP -- 4%
1997 69.09 55.56 1986 57,311 Sq. Ft. 69 per sq. ft. 96% -- 0.22
1998 74.57 60.45 1979 34,059 Sq. Ft. 116 per sq. ft. 100% 1,000 0.15
1997 52.34 0.00 1977 80,848 Sq. Ft. 49 per sq. ft. 97% -- 0.33
1997 73.43 64.10 1974 193 Units 20,164 per unit 93% -- 250
1998 71.21 62.69 1988 104 Units 37,372 per unit 100% -- 350
1997 76.54 66.82 1979 192 Units 19,931 per unit 88% 34,366 250
1998 76.19 62.19 1989 53,512 Sq. Ft. 71 per sq. ft. 100% 1,875 0.15
1998 1982 54,120 Sq. Ft. 86%
1998 1981 37,517 Sq. Ft. 86%
1998 77.49 65.53 1980 91,637 Sq. Ft. 41 per sq. ft. 66,875 0.20
1998 77.16 67.82 1972 114 Units 32,589 per unit 93% 100,438 166
1998 79.73 70.26 1990 100 Units 37,074 per unit 98% -- 250
1998 79.30 69.77 1983 74,900 Sq. Ft. 49 per sq. ft. 96% 15,494 0.18
1998 68.22 55.33 1981 71,068 Sq. Ft. 51 per sq. ft. 97% -- 0.20
1998 73.84 65.13 1965 28,058 Sq. Ft. 129 per sq. ft. 100% 6,747 0.21
1998 78.46 64.08 1991 66,188 Sq. Ft. 55 per sq. ft. 93% -- 0.15
1998 74.51 64.24 1985 142 Units 25,316 per unit 98% -- 250
1998 46.05 19.89 1950 137 Beds 25,949 per bed 86% 1,625 223
1998 72.19 50.60 1984 20,090 Sq. Ft. 176 per sq. ft. 97% -- 0.25
1998 77.63 63.00 1974 106,800 Sq. Ft. 33 per sq. ft. 100% -- 0.10
1998 57.95 47.10 1985 78,000 Sq. Ft. 45 per sq. ft. 100% -- 0.15
1998 64.36 51.43 1922 33,400 Sq. Ft. 104 per sq. ft. 100% 65,000 0.73
1998 78.18 68.39 1980 264 Units 13,090 per unit 94% 1,000 250
1997 68.34 61.41 1983 109,927 Sq. Ft. 31 per sq. ft. 100% -- 0.10
1998 76.54 65.85 1976 174 Units 19,795 per unit 94% 118,000 261
1998 77.80 71.21 1984 119 Units 28,766 per unit 95% -- 250
1998 67.53 54.99 1978 61,312 Sq. Ft. 55 per sq. ft. 98% 1,000 0.15
1998 74.63 57.33 1992 29 Units 117,094 per unit 97% -- 250
1997 74.57 64.40 1968 46 Units 73,759 per unit 100% 15,456 235
1998 77.93 63.50 1910 53,812 Sq. Ft. 63 per sq. ft. 91% -- 0.18
1997 72.69 45.66 1997 21,150 Sq. Ft. 160 per sq. ft. 96% -- 0.15
1998 79.70 67.02 1969 97 Units 34,508 per unit 96% 37,875 248
1998 74.85 65.46 1983 78 Units 42,510 per unit 95% -- 326
1998 79.96 62.62 1989 44,614 Sq. Ft. 74 per sq. ft. 100% 12,656 0.21
1997 74.40 60.59 1916 64 Units 51,147 per unit 100% 533 251 / $0.15
1998 63.79 41.06 1974 192 Units 16,945 per unit 95% 1,000 250
1997 76.47 71.10 1980 180 Units 17,950 per unit 99% -- 225
1997 73.43 56.99 1995 854 Units 3,757 per unit 87% -- 20
1998 72.73 58.64 1900 54,587 Sq. Ft. 59 per sq. ft. 98% 10,000 0.19
1998 77.03 50.00 1992 32,090 Sq. Ft. 100 per sq. ft. 100% 3,080 0.00
1998 74.31 63.36 1997 32,794 Sq. Ft. 97 per sq. ft. 100% -- 0.10
1998 42.03 0.00 1969 159 Rooms 20,091 per room NAP 5,000 0.04
1998 67.14 41.98 1933 183 Units 17,428 per unit 100% -- 275
1998 79.69 68.94 1970 81 Units 39,352 per unit 100% -- 250
1997 78.71 72.68 1966 77 Units 41,295 per unit 99% 14,063 200
1998 75.70 66.81 1972 100 Units 31,792 per unit 100% 28,329 243
1998 69.78 60.45 1968 96 Units 32,708 per unit 98% 22,342 277
1997 83.06 75.08 1983 37,779 Sq. Ft. 83 per sq. ft. 100% -- 0.59
1997 73.77 29.92 1974 122 Units 25,698 per unit 89% 5,823 230
1997 74.62 64.45 1967 49 Units 63,964 per unit 100% 4,968 203
1998 72.88 63.02 1984 51,890 Sq. Ft. 60 per sq. ft. 81% 15,955 0.22
1998 77.68 67.21 1903 22 Units 140,358 per unit 96% 38,500 252
1997 71.78 53.24 1992 113 Rooms 27,315 per room NAP -- 4%
1998 86.10 66.29 1996 109 Units 28,240 per unit 93% -- 150
<CAPTION>
Largest Tenant
-----------------------------------------------------------------------------
Appraisal Reserves Area Leased Lease Control
Year Collected Name (Sq. Ft.) Exp Date No.
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
1998 0.14 per sq. ft. Longs Drug Stores 25,761 07/11/2013 MID-060
1997 250 per unit MLMI-160
1998 250 per unit MLMI-137
1998 0.20 per sq. ft. Robert V. Jones Corp. 14,936 06/14/2003 MID-089
1998 656 per room WMFG-049
1997 236 per unit GCM-082
1997 0.15 per sq. ft. Super Food Services, Inc 18,850 11/05/1999 MID-115
1997 284 per unit GCM-085
1997 none per sq. ft. M. C. Sports 14,000 11/30/1999 GCM-040
1998 0.37 per sq. ft. Tysons National Bank 3,063 09/01/2002 WMFG-089
1998 0.24 per sq. ft. JR Food Mart 11,069 06/30/2010 GCM-102
1998 250 per unit MID-088
1998 none per sq. ft. Majik Fish 6,758 06/22/2000 MLMI-044
1998 0.14 per sq. ft. Snohomish County Human Services 25,131 12/31/1999 GCM-163
1997 none per unit GCM-042
1997 144 per unit MLMI-161
1998 0.15 per sq. ft. Silver Platters 9,900 03/31/2002 MID-043
1998 250 per unit MID-006
1997 none per sq. ft. Pate Foods Corporation 91,700 10/31/2013 GCM-009
1998 none per sq. ft. GE Electric Corp 150,620 09/30/2009 GCM-112
1997 none per unit GCM-041
1998 0.44 per sq. ft. The Leather Center 4,000 03/31/2003 WMFG-104
1998 none per sq. ft. Family Health Association 11,458 03/31/2000 MID-073
1998 none per unit MID-037
1997 none per sq. ft. Best Buy 45,000 11/30/2017 GCM-073
1997 none per sq. ft. Saxton 19,224 01/31/2016 GCM-033
1998 0.10 per sq. ft. Juggles 3,664 06/30/2002 WMFG-086
1998 none per sq. ft. Gamerary 2,303 12/31/2001 MID-103
1998 4% of revenue MLMI-077
1997 none per sq. ft. El Rey 10,703 03/31/2001 MLMI-046
1998 0.15 per sq. ft. Trader Joe's 7,578 09/30/2008 MID-100
1997 none per sq. ft. State of California 27,216 12/31/2002 MLMI-065
1997 250 per unit MID-106
1998 350 per unit WMFG-001
1997 250 per unit MID-011
1998 none per sq. ft. Four Corners Health Club 9,510 02/28/2002 MID-121
1998 NCA - Kid Fit 9,320 11/30/2000 WMFG-096a
1998 Spec's Liquors 6,600 12/31/2007 WMFG-096b
1998 0.20 per sq. ft. WMFG-096
1998 166 per unit WMFG-006
1998 250 per unit MID-067
1998 0.18 per sq. ft. National Tire Battery 15,200 04/30/2004 WMFG-113
1998 0.10 per sq. ft. Comcare, Inc. 11,059 02/28/2000 MID-175
1998 0.21 per sq. ft. Design & Interiors 7,168 02/28/2004 GCM-117
1998 none per sq. ft. Immigration & Naturalization Services 11,200 12/31/2006 MID-007
1998 250 per unit MLMI-105
1998 none per bed MLMI-118
1998 none per sq. ft. Western Bagel 3,050 03/31/2005 MLMI-062
1998 0.15 per sq. ft. Promotion Distributor Services Corp. 106,800 05/01/2013 MID-094
1998 none per sq. ft. Touche Electronics 58,000 11/30/2013 MLMI-039
1998 none per sq. ft. 780 Flatbush Leasing Corp. 11,700 12/31/2007 MLMI-135
1998 none per unit MID-084
1997 none per sq. ft. Imation Corporation 109,927 05/31/2002 GCM-019
1998 261 per unit GCM-125
1998 250 per unit MLMI-089
1998 none per sq. ft. Stater Bros. 24,400 11/30/2003 MID-014
1998 250 per unit MID-072
1997 235 per unit GCM-087
1998 0.23 per sq. ft. John Alden Life Insurance 48,875 03/31/2008 MID-071
1997 none per sq. ft. Petco 14,350 09/30/2012 GCM-061
1998 248 per unit WMFG-181
1998 326 per unit GCM-098
1998 0.21 per sq. ft. Wireless Telecom 44,614 05/31/2013 WMFG-109
1997 100.00 per unit / sq.ft. MLMI-165
1998 250 per unit MID-066
1997 none per unit GCM-013
1997 none per unit GCM-015
1998 none per sq. ft. F.C. Church, Inc. 5,664 03/31/2007 MID-170
1998 none per sq. ft. Circuit City 32,090 04/30/2014 WMFG-172
1998 0.10 per sq. ft. Cornerstone Learning Center, Inc. 11,247 05/31/2003 WMFG-037
1998 2% of revenue GCM-199
1998 275 per unit MLMI-110
1998 250 per unit MLMI-129
1997 200 per unit MLMI-082
1998 243 per unit WMFG-063
1998 277 per unit GCM-124
1997 none per sq. ft. Fidelity Federal Bank 20,923 11/30/2002 GCM-068
1997 185 per unit MLMI-162
1997 203 per unit GCM-088
1998 0.22 per sq. ft. Mike Reiss Golf Learning Center 4,822 11/30/2000 GCM-109
1998 250 / $0.16 per unit / sq.ft. MLMI-115
1997 4% of revenue MLMI-067
1998 150 per unit WMFG-070
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Loan Control
Source No. Property Name
======================================================================================
<S> <C> <C>
MIDLAND MID-003 Sunstate Commerce Center
GCM GCM-074 Oracle at the River
MLMI MLMI-058 Westridge Office Center
MIDLAND MID-101 Maxor Plaza Office Building
GCM GCM-156 Sudbury Pines Extended Care Facility
GCM GCM-164 Sun Self-Storage
MIDLAND MID-064 Loveridge Center
MLMI MLMI-096 Royal Oaks Apartments
WMFG WMFG-002 Binford Lofts
MLMI MLMI-122 Amherst Apartments
GCM GCM-107 A & W Restaurant, Inc. Headquarters Building
MLMI MLMI-140 WinnDixie - Greenwood
GCM GCM-037 El Toro Square
MLMI MLMI-152 Forest Creek Commons
WMFG WMFG-075 ARS Office
MIDLAND MID-155 Frankford Square Shopping Center
GCM GCM-111 Fairway Gardens Apartments
MIDLAND MID-139 MEI Building
MIDLAND MID-174 North 30th Street Office Buildings
WMFG WMFG-061 Summit East Plaza
WMFG WMFG-060 Townlake Apartments
MIDLAND MID-169 Heckler & Koch Building
GCM GCM-050 Lakepointe Aprtments
GCM GCM-101 New Brighton Place Apartments
MIDLAND MID-128 Royal Palm Center
MIDLAND MID-068 South Park Apartments
MIDLAND MID-124 Northpointe Office Building
WMFG WMFG-038 Oak Alley
MIDLAND MID-040 393 Jericho Turnpike
WMFG WMFG-080 Colorado/Mentor Center
MIDLAND MID-039 Baker's Food Store
GCM GCM-051 Frankford Village Shopping Center
MIDLAND MID-063 Windflower Park Apartments
GCM GCM-029 The Treehouse Apartments
GCM GCM-106 Eckerd - Vinings
MIDLAND MID-021 Canyon Gate Mini Storage
MLMI MLMI-079 Alief Square Apartments
GCM GCM-038 Solon Place
WMFG WMFG-033 PetsMart, Inc.
GCM GCM-202 North Town Center
MLMI MLMI-053 55-59 Chrystie Street
WMFG WMFG-010 Howard Johnson's Airport Lodge
MLMI MLMI-086 McCallum Highlands II
MIDLAND MID-015 Yakima Secure Storage
MLMI MLMI-106 Landmark Plaza
GCM GCM-045 Pioneer Square Commercial Shopping Center
MIDLAND MID-077 Main Street Plaza & Food Court
GCM GCM-095 2710 Ingersoll Avenue
MLMI MLMI-163 Eastwood Terrace Apts.
MLMI MLMI-040 Camelot Apartments
MIDLAND MID-142 Marriott Fairfield Inn
MLMI MLMI-123 Southwicke Apartments
MIDLAND MID-107 Georgetown Courts Apartments
GCM GCM-104 Pinole Terrace Office Center
WMFG WMFG-054 Wild Pines of Naples
MLMI MLMI-055 Meadowbriar Apartments
GCM GCM-014 Minikahda Mini-Storage II
GCM GCM-099 Casa Blanca Apartments
GCM GCM-047 1800 Eye Street, N.W.
MIDLAND MID-059 Farr Court Apartments
MLMI MLMI-085 Bassett Furniture
MLMI MLMI-083 Royal Lane Business Park
MIDLAND MID-171 Gypsy Lane Estates Mobile Home Park
MLMI MLMI-112 The Packard
MLMI MLMI-109 Super 8 Bayview Hotel
WMFG WMFG-008 Mariposa
GCM GCM-103 Bear Creek Apartments
WMFG WMFG-012 Ramada Inn Torrance
MLMI MLMI-114 174-176 Second Avenue
MIDLAND MID-062 Corporate Centre Office Building
MLMI MLMI-128 Days Inn Neptune Beach
GCM GCM-030 12900 Firestone Boulevard
MIDLAND MID-144 Meadowlark Hill Mobile Estates
GCM GCM-024 1519 and 1549 Old Bridge Road
GCM GCM-032 Regency Park Apartments
GCM GCM-097 Milpitas Office Building
MIDLAND MID-125 Twin City Estates Mobile Home Park
MLMI MLMI-158 Chandana Corners Shopping Center
GCM GCM-007 7620 - 7640 Hub Parkway
MIDLAND MID-122 Hamilton Road Shopping Center & Brice & Main Shopp
MIDLAND MID-030 Quail Creek Apartments
MLMI MLMI-136 Willow Woods Apartments
GCM GCM-003 Manitou Townhomes
MIDLAND MID-020 Apple Creek Apartments
MLMI MLMI-084 Sheffield Village Apartments
<CAPTION>
Loan
Source Address
========================================================================================================================
<S> <C>
MIDLAND 1105 Taylor Street, 1205 Elizabeth Street, and 204 McKenzie Street
GCM 4720-4760 Oracle Rd
MLMI 1300 W. Walnut Hill Lane
MIDLAND 320 South Polk
GCM 642 Boston Post Road
GCM 41 A Barren Spot Road
MIDLAND 2111 & 2137 Loveridge Road, 1295 E. Leland Road
MLMI 149 Portland Avenue
WMFG 837-857 Traction Avenue
MLMI 10440 Valley Forge
GCM 27685 Halsted Road
MLMI 2551 South Main Street
GCM 24280-24400 Swartz Drive
MLMI 6510 U.S. 31 South
WMFG 25 Woodrow Avenue
MIDLAND 6801 Frankford Avenue
GCM 6539 SE Federal Highway
MIDLAND 1893 Preston White Drive
MIDLAND 4935-4965 North 30th Street
WMFG 217 N. Independence
WMFG 1315 East Hillside Road
MIDLAND 21480 Pacific Boulevard
GCM 120 SE Mast Avenue
GCM 1260 Brighton Avenue
MIDLAND 1520 Royal Palm Square Blvd.
MIDLAND 4701 South Park Drive
MIDLAND 2525 Telegraph Road
WMFG 1645 Carol Sue Avenue
MIDLAND 393 Jericho Turnpike
WMFG 950-962 E. Colorado Boulevard
MIDLAND 888 Saddlecreek Road
GCM 3030 N. Josey Lane
MIDLAND 800 E. 17th Street South
GCM 3203 Walnut Hill Lane
GCM 2498 Cumberland Parkway
MIDLAND 8055 W. Sahara Avenue
MLMI 7500 Cook Road
GCM 1000 Solon Place Way
WMFG 6204 W. Park Blvd.
GCM 4141-4237 North Main St., 4241-4243 North Main St., 11-29 Bennington Dr., 26 West Nottingham Rd.
MLMI 55-59 Chrystie Street
WMFG 124 South 24th Street
MLMI 6585 McCallum Blvd
MIDLAND 3010 Castlevale Road
MLMI 361-381 Forest Avenue
GCM 3345,3375, and 3385 South Decatur Boulevard
MIDLAND 2540 Main Street
GCM 2710 Ingersoll Avenue
MLMI 2921-2933 Clark Road
MLMI 986 5th Avenue
MIDLAND 1405 South Westwood Street
MLMI 15430 40th Ave
MIDLAND 6841 Shade Lane
GCM 2550-2570 Appian Way
WMFG 2745 Wild Pines Drive
MLMI 3025 E. Park Row
GCM 5350 Industrial Boulevard
GCM 38863 Fremont Blvd.
GCM 1800 Eye Street, NW
MIDLAND South 210 Farr Road
MLMI IH 635 & Towne Centre
MLMI Royal Lane & I-35
MIDLAND 535 West Gypsy Lane Road
MLMI 755 Farmington Avenue
MLMI 1835 Columbia Street
WMFG 10965 & 10997 Del Norte Avenue
GCM 935 West Silver Sands Drive
WMFG 2880 Pacific Coast Highway
MLMI 174-176 Second Avenue
MIDLAND 5757 Corporate Blvd.
MLMI 1401 Atlantic Blvd
GCM 12900 Firestone Boulevard
MIDLAND 840 North Spruce
GCM 1519 and 1549 Old Bridge Road
GCM 622 Southwest Bishop Road
GCM 75 South Milpitas Boulevard
MIDLAND 3001 Twin City Drive
MLMI 3510-3540 Calumet Avenue
GCM 7620 - 7640 Hub Parkway
MIDLAND 873-897 S. Hamilton Road & 1286-1314 Brice Road
MIDLAND 2111 Kasold Drive
MLMI 3007-A Ingleside Drive
GCM 1454 Todds Lane
MIDLAND 101 South Apple Creek Drive
MLMI 8300 Calmont Avenue
<CAPTION>
Loan Zip Original Cut-Off
Source City State Code Property Type Balance Date Balance
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
MIDLAND Punta Gorda FL 33950 Industrial 3,100,000 3,077,044
GCM Tucson AZ 85716 Office 3,100,000 3,075,379
MLMI Irving TX 75038 Office 3,080,000 3,063,607
MIDLAND Amarillo TX 79101 Office 3,050,000 3,047,114
GCM Sudbury MA 01776 Health Care 3,000,000 2,997,779
GCM Estate Barren Spot, St. Croix USVI 00851 Self Storage 3,000,000 2,997,012
MIDLAND Pittsburg CA 94588 Retail 3,000,000 2,993,835
MLMI Dover NH 03820 Multifamily 3,000,000 2,993,721
WMFG Los Angeles CA 90013 Multifamily 3,000,000 2,988,226
MLMI Houston TX 77042 Multifamily 3,000,000 2,987,037
GCM Farmington Hills MI 48331 Mixed Use 3,000,000 2,978,231
MLMI Greenwood SC 29646 Retail 2,985,000 2,976,652
GCM Lake Forest CA 92691 Retail 3,000,000 2,974,100
MLMI Indianapolis IN 46227 Health Care 3,000,000 2,959,546
WMFG Indianapolis IN 46222 Industrial 2,950,000 2,948,362
MIDLAND Philadelphia PA 19135 Retail 2,950,000 2,948,287
GCM Stuart FL 34997 Multifamily 2,950,000 2,943,224
MIDLAND Reston VA 22090 Office 2,900,000 2,898,284
MIDLAND Colorado Springs CO 80919 Office 2,900,000 2,897,010
WMFG Lee's Summit MO 64063 Multifamily 2,900,000 2,896,431
WMFG Laredo TX 78041 Multifamily 2,900,000 2,893,131
MIDLAND Sterling VA 20166 Industrial 2,888,000 2,884,605
GCM Lincoln City OR 97301 Multifamily 2,875,000 2,857,599
GCM Albany CA 94706 Multifamily 2,860,000 2,853,064
MIDLAND Fort Myers FL 33919-1036 Office 2,825,000 2,818,139
MIDLAND Baton Rouge LA 70816 Multifamily 2,800,000 2,797,119
MIDLAND Bloomfield MI 48302 Office 2,800,000 2,796,604
WMFG Terrytown LA 70056 Multifamily 2,800,000 2,796,499
MIDLAND Mineola NY 11501 Industrial 2,800,000 2,791,190
WMFG Pasadena CA 91106 Retail 2,775,000 2,772,538
MIDLAND Omaha NE 68106 Retail 2,775,000 2,769,480
GCM Carrollton TX 75007 Retail 2,775,000 2,758,883
MIDLAND Norwalk IA 50211 Multifamily 2,750,000 2,748,260
GCM Irving TX 75038 Multifamily 2,782,500 2,741,563
GCM Cobb County GA 30305 CTL 2,752,000 2,735,914
MIDLAND Las Vegas NV 89117 Self Storage 2,750,000 2,735,469
MLMI Houston TX 77072 Multifamily 2,750,000 2,729,737
GCM Waxahachie TX 75165 Multifamily 2,750,000 2,721,760
WMFG Plano TX 75093 CTL 2,709,573 2,704,694
GCM Dayton OH 45405 Retail 2,700,000 2,697,530
MLMI New York NY 10002 Industrial 2,700,000 2,695,452
WMFG Phoenix AZ 85034 Hospitality 2,700,000 2,690,815
MLMI Dallas TX 75252 Multifamily 2,700,000 2,681,774
MIDLAND Yakima WA 98908 Self Storage 2,700,000 2,677,866
MLMI Laguna Beach CA 92649 Mixed Use 2,682,000 2,653,194
GCM Las Vegas NV 89102 Retail 2,680,000 2,653,128
MIDLAND Irvine CA 92714 Retail 2,650,000 2,646,914
GCM Des Moines IA 50312 Retail 2,650,000 2,630,154
MLMI Ypsilanti MI 48197 Multifamily 2,640,000 2,624,192
MLMI Chula Vista CA 91911 Multifamily 2,630,000 2,614,976
MIDLAND Mesa AZ 85210 Hospitality 2,632,000 2,608,705
MLMI Tukwila WA 98188 Multifamily 2,560,000 2,558,279
MIDLAND Wichita KS 67212-4325 Multifamily 2,560,000 2,554,511
GCM Pinole CA 94564 Mixed Use 2,550,000 2,540,346
WMFG Naples FL 34112 Multifamily 2,500,000 2,498,496
MLMI Arlington TX 76010 Multifamily 2,500,000 2,481,837
GCM Fridley MN 55305 Industrial 2,500,000 2,468,221
GCM Fremont CA 94536 Multifamily 2,470,000 2,464,010
GCM Washington DC 20006 Mixed Use 2,475,000 2,452,404
MIDLAND Spokane WA 99206 Multifamily 2,457,000 2,448,450
MLMI Mesquite TX 75150 Retail 2,450,000 2,444,511
MLMI Dallas TX 75229 Industrial 2,440,000 2,429,551
MIDLAND Bowling Green OH 43402 Mobile Home Park 2,425,000 2,419,788
MLMI West Hartford CT 06119 Multifamily 2,400,000 2,397,409
MLMI San Diego CA 92101 Hospitality 2,400,000 2,395,299
WMFG Ventura CA 93004 Multifamily 2,400,000 2,393,886
GCM San Antonio TX 78216 Multifamily 2,400,000 2,392,077
WMFG Torrance CA 90505 Hospitality 2,400,000 2,391,042
MLMI New York NY 10003 Multifamily 2,400,000 2,390,615
MIDLAND Baton Rouge LA 70808 Office 2,390,000 2,385,349
MLMI Neptune Beach FL 32266 Hospitality 2,400,000 2,380,400
GCM Santa Fe Springs CA 90671 Industrial 2,400,000 2,378,838
MIDLAND Rapid City SD 57701 Mobile Home Park 2,400,000 2,378,325
GCM Woodbridge VA 22192 Office 2,400,000 2,377,918
GCM Lawton OK 73501 Multifamily 2,380,000 2,349,186
GCM Milpitas CA 95035 Office 2,325,000 2,317,963
MIDLAND Mandan ND 52402 Mobile Home Park 2,310,000 2,310,000
MLMI Valparaiso IN 46383 Retail 2,320,000 2,308,669
GCM Valley View OH 44125 Industrial 2,325,000 2,298,233
MIDLAND Whitehall/Reynoldsburgh OH 43213 Retail 2,300,000 2,295,778
MIDLAND Lawrence KS 66047 Multifamily 2,300,000 2,295,642
MLMI High Point NC 27260 Multifamily 2,300,000 2,293,388
GCM Hampton VA 23666 Multifamily 2,310,000 2,290,623
MIDLAND Sand Springs OK 74063 Multifamily 2,300,000 2,289,874
MLMI Fort Worth TX 76116 Multifamily 2,300,000 2,282,998
<CAPTION>
Cumulative % of
Loan % of Initial Initial Pool Affiliated
Source Pool Balance Balance Borrower
===============================================================================================
<S> <C> <C> <C>
MIDLAND 0.11% 82.20%
GCM 0.11% 82.31%
MLMI 0.11% 82.42% MLMI-055, MLMI-056, MLMI-057
MIDLAND 0.11% 82.52%
GCM 0.10% 82.63%
GCM 0.10% 82.73%
MIDLAND 0.10% 82.83%
MLMI 0.10% 82.94%
WMFG 0.10% 83.04% WMFG-003
MLMI 0.10% 83.14%
GCM 0.10% 83.25%
MLMI 0.10% 83.35%
GCM 0.10% 83.45%
MLMI 0.10% 83.55%
WMFG 0.10% 83.66%
MIDLAND 0.10% 83.76%
GCM 0.10% 83.86%
MIDLAND 0.10% 83.96% GCM-012, GCM-013, GCM-042, GCM-043
MIDLAND 0.10% 84.06%
WMFG 0.10% 84.16%
WMFG 0.10% 84.26%
MIDLAND 0.10% 84.36%
GCM 0.10% 84.46%
GCM 0.10% 84.56% GCM-099, GCM-100
MIDLAND 0.10% 84.65%
MIDLAND 0.10% 84.75% MID-069, MID-070, MID-100, MID-113
MIDLAND 0.10% 84.85%
WMFG 0.10% 84.95%
MIDLAND 0.10% 85.04%
WMFG 0.10% 85.14% WMFG-119
MIDLAND 0.10% 85.23%
GCM 0.10% 85.33%
MIDLAND 0.10% 85.42%
GCM 0.09% 85.52% GCM-058, GCM-059
GCM 0.09% 85.61% GCM-105
MIDLAND 0.09% 85.71%
MLMI 0.09% 85.80%
GCM 0.09% 85.90%
WMFG 0.09% 85.99%
GCM 0.09% 86.08%
MLMI 0.09% 86.18%
WMFG 0.09% 86.27%
MLMI 0.09% 86.36% MLMI-081
MIDLAND 0.09% 86.45% GCM-048, GCM-062, GCM-063, GCM-064, GCM-065
MLMI 0.09% 86.55%
GCM 0.09% 86.64%
MIDLAND 0.09% 86.73%
GCM 0.09% 86.82%
MLMI 0.09% 86.91%
MLMI 0.09% 87.00%
MIDLAND 0.09% 87.09%
MLMI 0.09% 87.18%
MIDLAND 0.09% 87.27% MID-011, MID-025, MID-104, MID-106
GCM 0.09% 87.36%
WMFG 0.09% 87.44%
MLMI 0.09% 87.53% MLMI-056, MLMI-057, MLMI-058
GCM 0.09% 87.61% GCM-015
GCM 0.09% 87.70% GCM-100, GCM-101
GCM 0.08% 87.78%
MIDLAND 0.08% 87.87%
MLMI 0.08% 87.95%
MLMI 0.08% 88.04%
MIDLAND 0.08% 88.12%
MLMI 0.08% 88.20% MLMI-111, MLMI-113
MLMI 0.08% 88.29%
WMFG 0.08% 88.37%
GCM 0.08% 88.45%
WMFG 0.08% 88.54%
MLMI 0.08% 88.62% MLMI-115
MIDLAND 0.08% 88.70%
MLMI 0.08% 88.78%
GCM 0.08% 88.87%
MIDLAND 0.08% 88.95%
GCM 0.08% 89.03%
GCM 0.08% 89.11%
GCM 0.08% 89.19%
MIDLAND 0.08% 89.27%
MLMI 0.08% 89.35% MLMI-153
GCM 0.08% 89.43%
MIDLAND 0.08% 89.51%
MIDLAND 0.08% 89.59%
MLMI 0.08% 89.67%
GCM 0.08% 89.75% GCM-027
MIDLAND 0.08% 89.83% MID-034, MID-037, MID-076, MID-078, MID-090
MLMI 0.08% 89.91%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Rem
Orig Rem Amort Amort
Interest Accrual Mortgage Administrative Term Term Term Term Origination Repayment
Crossed Method Rate Cost Rate (Mos.) (Mos.) (Mos.) (Mos.) Date Date
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Actual/360 7.740 0.18175 120 113 300 293 01/08/98 02/01/2008
Actual/360 8.000 0.20175 120 112 300 292 12/30/97 01/01/2008
Actual/360 7.700 0.12675 120 115 300 295 03/12/98 04/01/2008
Actual/360 7.430 0.08175 180 179 300 299 07/22/98 08/01/2013
Actual/360 8.460 0.09675 240 239 300 299 07/30/98 08/01/2018
Actual/360 7.200 0.09675 119 118 300 299 07/29/98 07/01/2008
Actual/360 7.070 0.08175 120 118 300 298 06/25/98 07/01/2008
Actual/360 7.410 0.09675 120 117 360 357 05/14/98 06/01/2008
30/360 7.280 0.09675 120 115 360 355 03/31/98 04/01/2008
Actual/360 7.430 0.12675 240 236 300 296 04/16/98 05/01/2018
30/360 7.540 0.09675 121 117 240 236 04/28/98 06/01/2008
Actual/360 7.310 0.09675 240 236 360 356 04/13/98 05/01/2018
Actual/360 7.540 0.10175 120 112 300 292 12/08/97 01/01/2008
30/360 8.340 0.09675 120 107 300 287 07/15/97 08/01/2007
Actual/360 7.380 0.09675 180 179 360 359 07/20/98 08/01/2013
Actual/360 7.240 0.08175 120 119 360 359 07/29/98 08/01/2008
30/360 7.375 0.09675 120 117 360 357 06/03/98 06/01/2008
Actual/360 7.180 0.18175 120 119 360 359 07/30/98 08/01/2008
Actual/360 7.040 0.18175 120 119 300 299 07/22/98 08/01/2008
Actual/360 7.063 0.09675 120 118 360 358 06/26/98 07/01/2008
Actual/360 7.000 0.09675 204 203 204 203 07/30/98 08/01/2015
Actual/360 7.210 0.18175 120 118 360 358 06/24/98 07/01/2008
Actual/360 7.040 0.20175 120 112 360 352 12/18/97 01/01/2008
30/360 7.100 0.09675 120 117 360 357 05/22/98 06/01/2008
Actual/360 7.410 0.08175 120 116 360 356 05/14/98 05/01/2008
Actual/360 7.050 0.18175 120 119 300 299 07/06/98 08/01/2008
Actual/360 7.110 0.18175 120 118 360 358 06/25/98 07/01/2008
Actual/360 7.010 0.09675 120 118 360 358 06/04/98 07/01/2008
Actual/360 7.300 0.08175 120 117 300 297 05/21/98 06/01/2008
Actual/360 7.250 0.09675 240 239 312 311 07/21/98 08/01/2018
Actual/360 7.220 0.08175 144 142 300 298 06/08/98 07/01/2010
Actual/360 7.220 0.20175 120 112 360 352 12/11/97 01/01/2008
Actual/360 6.960 0.08175 120 119 360 359 07/01/98 08/01/2008
30/360 8.280 0.20175 120 106 300 286 06/30/97 07/01/2007
30/360 7.320 0.09675 234 231 234 231 05/04/98 12/01/2017
Actual/360 7.360 0.18175 120 115 300 295 03/10/98 04/01/2008
Actual/360 7.125 0.09675 120 113 324 317 01/12/98 02/01/2008
Actual/360 7.820 0.20175 120 110 300 290 10/28/97 11/01/2007
30/360 8.580 0.09675 120 117 360 357 05/29/98 06/01/2008
Actual/360 7.580 0.09675 120 119 300 299 07/31/98 08/01/2008
Actual/360 8.375 0.12675 120 118 300 298 06/02/98 07/01/2008
Actual/360 8.230 0.09675 120 116 300 296 04/27/98 05/01/2008
Actual/360 6.930 0.09675 120 112 360 352 12/31/97 01/01/2008
Actual/360 7.770 0.18175 240 235 240 235 03/27/98 04/01/2018
Actual/360 7.340 0.12675 192 188 192 188 04/30/98 05/01/2014
Actual/360 7.950 0.20175 120 110 300 290 10/21/97 11/01/2007
Actual/360 7.240 0.18175 120 118 360 358 06/01/98 07/01/2008
30/360 7.280 0.09675 240 236 240 236 04/07/98 05/01/2018
Actual/360 7.510 0.09675 120 111 360 351 11/25/97 12/01/2007
Actual/360 7.250 0.12675 120 114 324 318 02/19/98 03/01/2008
Actual/360 8.450 0.08175 84 78 240 234 02/17/98 03/01/2005
Actual/360 7.125 0.12675 120 119 360 359 07/23/98 08/01/2008
Actual/360 6.890 0.08175 120 117 360 357 05/27/98 06/01/2008
30/360 7.140 0.09675 240 238 240 238 06/03/98 07/01/2018
Actual/360 7.125 0.09675 180 179 360 359 07/07/98 08/01/2013
Actual/360 7.210 0.12675 120 113 324 317 01/30/98 02/01/2008
30/360 8.710 0.20175 144 131 300 287 07/03/97 08/01/2009
30/360 7.100 0.09675 120 117 360 357 05/22/98 06/01/2008
Actual/360 7.225 0.20175 120 112 300 292 12/24/97 01/01/2008
Actual/360 7.090 0.18175 120 115 360 355 03/27/98 04/01/2008
Actual/360 6.950 0.09675 120 118 300 298 06/26/98 07/01/2008
Actual/360 7.480 0.09675 120 116 300 296 04/06/98 05/01/2008
Actual/360 6.860 0.08175 120 118 300 298 06/22/98 07/01/2008
Actual/360 7.125 0.12675 120 119 300 299 07/16/98 08/01/2008
Actual/360 7.890 0.12675 216 215 216 215 07/31/98 08/01/2016
Actual/360 7.240 0.09675 120 116 360 356 04/14/98 05/01/2008
30/360 7.010 0.09675 120 116 360 356 04/27/98 05/01/2008
Actual/360 7.800 0.09675 120 116 300 296 04/30/98 05/01/2008
Actual/360 7.000 0.12675 120 115 360 355 03/20/98 04/01/2008
Actual/360 7.320 0.08175 120 118 300 298 06/29/98 07/01/2008
Actual/360 8.130 0.09675 240 235 240 235 03/13/98 04/01/2018
Actual/360 8.000 0.20175 120 111 300 291 11/21/97 12/01/2007
30/360 7.700 0.08175 180 172 300 292 12/30/97 01/01/2013
Actual/360 8.410 0.20175 120 110 300 290 10/30/97 11/01/2007
30/360 8.070 0.20175 120 108 300 288 08/28/97 09/01/2007
30/360 7.450 0.09675 120 116 360 356 04/20/98 05/01/2008
Actual/360 7.120 0.08175 180 180 360 360 08/03/98 09/01/2013
Actual/360 7.950 0.09675 120 112 360 352 12/31/97 01/01/2008
30/360 8.240 0.20175 120 109 300 289 09/09/97 10/01/2007
Actual/360 7.580 0.08175 120 118 300 298 06/03/98 07/01/2008
Actual/360 7.440 0.08175 60 58 300 298 06/01/98 07/01/2003
Actual/360 7.190 0.12675 120 116 360 356 04/28/98 05/01/2008
Actual/360 7.700 0.20175 60 52 300 292 12/12/97 01/01/2003
Actual/360 6.820 0.13175 120 114 360 354 02/10/98 03/01/2008
Actual/360 7.110 0.09675 84 77 324 317 01/13/98 02/01/2005
<CAPTION>
Annual
Balloon/Repayment Debt
Balance Maturity Term Prepayment Restrictions Service
====================================================================================================================================
<S> <C> <C> <C>
2,540,871 Hyperam L(48),> YM or 1%(66),O(6) 280,738
2,560,413 Balloon L(60),> of YM or 1% (42),O(18) 287,116
2,482,726 Balloon L(60), >YM or 1% ( 56), O(4) 280,710
1,983,552 Balloon L(60),> YM or 1%(117),O(3) 268,806
1,356,497 Balloon L(120),5%(12),4%(12),3%(12),2%(12),1%(65),O(7) 288,912
2,428,691 Hyperam L(60),Def(52),O(7) 259,052
2,412,955 Balloon L(60),> YM or 1%(54),O(6) 256,050
2,609,500 Balloon L(60), 5% (12), 4% (12), 3% (12), 2% (12), 1% (8), O(4) 252,180
2,595,854 Balloon L(48),Def(68),O(4) 246,316
1,124,407 Balloon L(28), Def(208),O(4) 266,985
2,038,609 Balloon L(60),> of YM or 1% (54),O(7) 290,895
1,760,380 Hyperam L(120), > of YM or 1% (116),O(4) 248,462
2,445,078 Balloon L(36),> of YM or 1% (72),O(12) 266,974
2,450,377 Balloon L(60), >YM or 1% (53), O(7) 286,011
2,301,995 Balloon L(25),Def(151),O(4) 244,620
2,593,343 Hyperam L(48),> YM or 1%(66),O(6) 241,250
2,558,007 Balloon L(60),> of YM or 1% (53),O(7) 244,499
2,545,466 Balloon L(60),> YM or 1%(54),O(6) 235,747
2,329,528 Balloon L(60),>YM or 5%(57),O(3) 246,848
2,538,591 Balloon L(48),Def(68),O(4) 232,988
NAP Fully Amort L(72),Def(128),O(4) 292,202
2,537,775 Balloon L(60),> YM or 1%(54),O(6) 235,476
2,513,184 Balloon L(36),> of YM or 0% (78),O(6) 230,457
2,464,615 Balloon L(48),> of YM or 0% (65),O(7) 230,641
2,495,170 Hyperam L(48),> YM or 1%(66),O(6) 234,948
2,249,892 Balloon L(60),> YM or 1%(54),O(6) 238,551
2,454,090 Hyperam L(48),> YM or 1%(66),O(6) 226,029
2,447,682 Balloon L(26),Def(90),O(4) 223,767
2,267,162 Balloon L(48),> YM or 1%(66),O(6) 243,947
1,276,669 Hyperam L(25),Def(215) 237,443
2,079,308 Balloon L(72),> YM or 1%(66),O(6) 240,051
2,437,051 Balloon L(60),> of YM or 1% (54),O(6) 226,488
2,400,010 Balloon L(60),> YM or 1%(54),O(6) 218,664
2,269,402 Balloon > of YM or 1% (108),O(12) 263,933
NAP Fully Amort L(120), > of YM or 1% (60),O(54) 265,401
2,230,781 Balloon L(60),> YM or 1%(54),O(6) 240,870
2,271,202 Balloon L(60), > of YM or 1% ( 56), O(4) 231,861
2,259,788 Balloon L(48),> of YM or 5% (48),5%(12),O(12) 250,777
2,408,214 Balloon L(27),Def(93) 251,857
2,204,437 Balloon L(60),Def(53),O(7) 241,122
2,214,590 Balloon L(60), > of YM or 1% ( 56), O(4) 260,852
2,247,101 Balloon L(24),Def(92),O(4) 255,025
2,322,543 Balloon L(60), >YM or 1% ( 56), O(4) 216,199
NAP Fully Amort L(120),>YM or 3%(114),O(6) 266,387
NAP Fully Amort L(28), Def (160), O(4) 287,383
2,210,487 Balloon L(48),> of YM or 1% (66),O(6) 247,152
2,330,433 Balloon L(60),> YM or 1%(54),O(6) 216,716
NAP Fully Amort L(48),> of YM or 1% (132),O(60) 251,918
2,336,330 Balloon L(60), >YM or 1% (53), O(7) 221,728
2,180,329 Balloon L(60), > of YM or 1% ( 56), O(4) 224,491
2,188,151 Balloon L(36),1%(42),O(6) 273,095
2,212,543 Balloon L(25), Def(91), O(4) 209,135
2,230,121 Balloon L(60),> YM or 1%(54),O(6) 202,116
NAP Fully Amort > of YM or 1% (180),5%(12),4%(12),3%(12),2%(12),1%(5),O(7) 239,820
1,928,907 Balloon L(48),Def(128),O(4) 202,116
2,069,209 Balloon L(60), >YM or 1% ( 56), O(4) 212,487
1,915,598 Balloon > of YM or 5% (60),5%(12),4%(12),3%(12),2%(12),1%(12),O(24) 245,828
2,128,531 Balloon L(48),> of YM or 0% (65),O(7) 199,190
1,998,323 Balloon L(48),> of YM or 1% (66),O(6) 214,196
2,151,735 Balloon L(60),> YM or 1%(54),O(6) 197,943
1,935,652 Hyperam L(60), > of YM or 1% ( 56), O(4) 208,789
1,955,892 Balloon L(60), >YM or 1% ( 53), O(7) 218,117
1,937,805 Hyperam L(48),> YM or 1%(66),O(6) 203,081
1,905,033 Balloon L(60), > of YM or 1% ( 56), O(4) 207,786
NAP Fully Amort L(25), Def(187), O(4) 252,090
2,110,645 Balloon L(49), > YM or 1%, (67),O(4) 196,272
2,063,908 Balloon > of YM or 1% (84),3%(12),2%(12),1%(5),O(7) 191,801
1,973,039 Balloon L(28),Def(88),O(4) 218,481
2,068,268 Balloon L(60), > of YM or 1% (53), O(7) 193,603
1,937,017 Balloon L(60),> YM or 1%(54),O(6) 208,596
NAP Fully Amort L(29), Def(207) O,(4) 245,395
1,983,120 Balloon L(60),> of YM or 1% (54),O(6) 222,283
1,515,612 Balloon L(60),> YM or 1%(84),O(36) 216,589
2,005,196 Balloon L(48),> of YM or 3% (48),3%(12),O(12) 230,161
1,931,071 Balloon L(36),> of YM or 5% (60),5%(12),O(12) 221,757
2,019,395 Balloon > of YM or 1% (113),O(7) 194,127
1,781,354 Hyperam L(48),> YM or 1%(126),O(6) 186,661
2,074,321 Balloon L(60), > of YM or 1% ( 56), O(4) 203,310
1,894,408 Balloon > of YM or 5% (96),5%(12),O(12) 219,791
1,878,604 Hyperam L(48),> YM or 1%(66),O(6) 205,400
2,126,673 Balloon L(12),> YM or 1%(42),O(6) 202,886
1,991,177 Balloon L(60), >YM or 1% (53), O(7) 189,155
2,142,186 Balloon > of YM or 3% (48),1%(6),O(6) 208,468
2,000,967 Balloon L(60),> YM or 1%(54),O(6) 180,299
2,051,432 Balloon L(48), >YM or 1% (32), O(4) 193,666
<CAPTION>
Underwriting Underwriting
Total Total Underwriting Underwriting Appraised
Revenue Expenses NCF DSCR Value
=================================================================================
<S> <C> <C> <C> <C>
546,682 158,619 357,808 1.27 4,000,000
1,279,314 766,737 383,874 1.34 6,186,000
837,015 379,586 364,777 1.30 4,400,000
1,068,832 560,062 404,905 1.51 5,500,000
4,953,483 4,465,009 488,474 1.69 4,800,000
890,474 394,010 479,960 1.85 4,600,000
545,943 153,809 366,301 1.43 4,000,000
875,479 428,382 447,097 1.77 4,000,000
524,571 186,186 338,385 1.37 4,000,000
1,027,618 660,517 367,102 1.37 4,700,000
399,485 17,601 381,884 1.31 4,000,000
354,091 31,922 322,169 1.30 4,000,000
724,460 188,107 487,544 1.83 6,500,000
1,496,583 1,102,425 394,159 1.38 4,200,000
409,063 19,522 371,963 1.52 4,100,000
522,626 131,707 347,509 1.44 4,000,000
556,605 240,150 316,455 1.29 3,700,000
532,887 205,748 293,734 1.25 4,000,000
586,109 195,773 338,727 1.37 4,500,000
782,306 456,026 326,280 1.40 3,680,000
661,944 305,638 356,306 1.22 3,750,000
353,055 21,650 303,244 1.29 3,610,000
558,140 182,382 375,758 1.63 4,400,000
586,435 235,306 351,129 1.52 4,400,000
588,764 245,278 298,936 1.27 3,800,000
750,472 385,750 364,722 1.53 3,535,000
603,496 267,083 291,359 1.29 3,700,000
756,690 465,852 290,839 1.30 3,500,000
656,533 288,316 318,120 1.30 3,800,000
428,422 115,769 297,283 1.25 3,750,000
506,571 167,744 323,703 1.35 4,800,000
585,163 203,832 337,825 1.49 3,740,000
634,402 346,337 288,065 1.32 3,950,000
1,106,169 558,364 547,805 2.08 3,850,000
266,233 -- 266,233 1.00 3,100,000
619,600 237,686 381,914 1.59 4,775,000
1,097,956 772,462 325,493 1.40 3,700,000
749,525 334,794 414,731 1.65 4,000,000
254,401 2,544 251,857 1.00 2,740,000
684,841 294,407 301,666 1.25 3,400,000
486,921 122,753 339,329 1.30 3,850,000
1,231,410 832,900 398,510 1.56 3,750,000
526,653 237,767 288,886 1.34 3,400,000
556,203 196,335 359,868 1.35 3,875,000
585,812 134,969 419,377 1.46 5,100,000
512,818 167,330 303,893 1.23 4,865,000
572,723 192,582 356,071 1.64 4,000,000
499,385 172,296 320,931 1.27 3,350,000
545,831 224,953 320,878 1.45 3,330,000
510,086 230,922 279,164 1.24 3,300,000
1,146,929 771,296 375,633 1.38 3,760,000
496,798 200,717 296,081 1.42 3,200,000
437,018 178,980 258,039 1.28 3,200,000
572,755 145,402 395,946 1.65 4,500,000
585,987 319,361 266,626 1.32 3,330,000
1,123,246 731,234 392,012 1.84 3,700,000
697,023 349,148 347,875 1.42 3,580,000
513,733 212,242 301,492 1.51 3,800,000
572,433 248,690 285,802 1.33 3,430,000
433,295 185,861 247,434 1.25 3,150,000
332,015 20,040 311,976 1.49 3,400,000
560,572 270,154 274,249 1.26 3,260,000
599,246 241,046 358,200 1.76 4,250,000
598,711 292,436 306,275 1.47 3,300,000
1,245,541 881,537 364,004 1.44 3,500,000
402,497 157,742 244,755 1.25 3,000,000
711,181 379,846 331,335 1.73 4,190,000
963,609 621,579 342,030 1.57 4,000,000
418,117 121,968 294,231 1.52 3,350,000
618,597 269,393 291,126 1.40 4,000,000
1,212,521 880,429 332,091 1.35 4,000,000
434,843 125,107 300,343 1.35 3,200,000
629,275 303,543 325,732 1.50 4,553,000
507,520 137,075 320,682 1.39 3,300,000
762,410 475,914 286,496 1.29 3,250,000
410,251 136,224 253,905 1.31 3,100,000
628,088 387,688 240,400 1.29 3,350,000
391,041 123,897 257,036 1.26 2,900,000
493,540 151,280 319,361 1.45 3,100,000
487,375 161,539 325,836 1.59 3,075,000
640,866 371,920 268,946 1.33 3,860,000
599,903 311,999 287,904 1.52 2,920,000
563,200 265,716 297,484 1.43 3,100,000
557,627 295,065 262,562 1.46 2,900,000
732,337 463,091 269,246 1.39 3,050,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Loan per
Sq Ft, Units, Sq Ft, Unit, Initial
Appraisal Current Repayment Year Beds, Pads, Bed, Pad, Occupancy Reserves Underwriting
Year LTV LTV Built or Room or Room Percentage At Closing Reserves
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 76.93 63.52 1985 71,804 Sq. Ft. 43 per sq. ft. 92% 16,250 0.15
1997 49.72 41.39 1982 87,684 Sq. Ft. 35 per sq. ft. 92% 1,000 0.24
1997 69.63 56.43 1979 70,214 Sq. Ft. 44 per sq. ft. 100% 19,375 0.15
1998 55.40 36.06 1960 136,917 Sq. Ft. 22 per sq. ft. 99% -- 0.21
1998 62.45 28.26 1964 82 Beds 36,558 per bed 85% -- 350
1998 65.15 52.80 1986 968 Units 3,096 per unit 88% -- 16.48
1998 74.85 60.32 1992 27,379 Sq. Ft. 109 per sq. ft. 85% -- 0.15
1997 74.84 65.24 1972 125 Units 23,950 per unit 98% 12,313 270
1998 74.71 64.90 1925 36 Units 83,006 per unit 95% 11,031 350
1998 63.55 23.92 1974 211 Units 14,157 per unit 90% 26,875 250
1998 74.46 50.97 1998 37,440 Sq. Ft. 80 per sq. ft. 100% -- 0.15
1998 74.42 44.01 1998 48,466 Sq. Ft. 61 per sq. ft. 100% -- 0.20
1997 45.76 37.62 1979 61,098 Sq. Ft. 49 per sq. ft. 97% -- 0.25
1997 70.47 58.34 1995 84 Units 35,233 per unit 100% 1,130 350
1998 71.91 56.15 1998 72,720 Sq. Ft. 41 per sq. ft. 100% -- 0.10
1998 73.71 64.83 1951 50,750 Sq. Ft. 58 per sq. ft. 100% 33,444 0.19
1998 79.55 69.14 1989 80 Units 36,790 per unit 100% -- 200
1998 72.46 63.64 1986 29,807 Sq. Ft. 97 per sq. ft. 100% 18,125 0.30
1998 64.38 51.77 1983 49,093 Sq. Ft. 59 per sq. ft. 100% -- 0.20
1998 78.71 68.98 1972 150 Units 19,310 per unit 99% 134,928 281
1998 77.15 0.00 1992 108 Units 26,788 per unit 99% 27,465 230
1998 79.91 70.30 1987 43,722 Sq. Ft. 66 per sq. ft. 100% 82,250 0.15
1997 64.95 57.12 1994 96 Units 29,767 per unit 85% -- 200
1998 64.84 56.01 1970 60 Units 47,551 per unit 100% -- 200
1998 74.16 65.66 1991 36,139 Sq. Ft. 78 per sq. ft. 84% -- 0.17
1998 79.13 63.65 1968 126 Units 22,199 per unit 96% -- 250
1998 75.58 66.33 1986 29,808 Sq. Ft. 94 per sq. ft. 98% 26,250 0.21
1998 79.90 69.93 1974 148 Units 18,895 per unit 97% 43,800 325
1998 73.45 59.66 1925 58,160 Sq. Ft. 48 per sq. ft. 98% -- 0.15
1998 73.93 34.04 1990 16,617 Sq. Ft. 167 per sq. ft. 93% 4,625 0.10
1998 57.70 43.32 1989 63,342 Sq. Ft. 44 per sq. ft. 100% -- 0.15
1997 73.77 65.16 1982 67,927 Sq. Ft. 41 per sq. ft. 95% -- 0.30
1998 69.58 60.76 1988 108 Units 25,447 per unit 97% -- 139
1997 71.21 58.95 1974 160 Units 17,135 per unit 99% 376,000 250
1998 88.26 0.00 1997 10,908 Sq. Ft. 251 per sq. ft. 100% -- 0.00
1998 57.29 46.72 1996 975 Units 2,806 per unit 86% 15,600 16
1997 73.78 61.38 1977 240 Units 11,374 per unit 99% 139,656 261
1997 68.04 56.49 1984 120 Units 22,681 per unit 93% -- 250
1998 98.71 87.89 1998 26,040 Sq. Ft. 104 per sq. ft. 100% -- 0.00
1998 79.34 64.84 1955 150,965 Sq. Ft. 18 per sq. ft. 100% -- 0.15
1998 70.01 57.52 1900 41,500 Sq. Ft. 65 per sq. ft. 100% 11,250 0.16
1998 71.76 59.92 1973 101 Rooms 26,642 per room NAP 77,375 488
1997 78.88 68.31 1984 84 Units 31,926 per unit 98% -- 250
1998 69.11 0.00 1981 914 Units 2,930 per unit 82% -- 21
1998 52.02 0.00 1990 18,493 Sq. Ft. 143 per sq. ft. 72% -- 0.15
1997 54.54 45.44 1997 37,737 Sq. Ft. 70 per sq. ft. 81% -- 0.15
1998 66.17 58.26 1987 27,780 Sq. Ft. 95 per sq. ft. 79% -- 0.12
1998 78.51 0.00 1977 32,600 Sq. Ft. 81 per sq. ft. 100% 272 0.10
1997 78.80 70.16 1987 84 Units 31,240 per unit 98% 5,968 200
1998 79.24 66.07 1969 75 Units 34,866 per unit 96% 16,355 250
1998 69.38 58.20 1995 66 Rooms 39,526 per room NAP -- 869
1998 79.95 69.14 1986 72 Units 35,532 per unit 94% 73,305 416
1997 79.83 69.69 1983 92 Units 27,766 per unit 85% 1,000 250
1997 56.45 0.00 1987 40,500 Sq. Ft. 63 per sq. ft. 97% 16,687 0.24
1998 75.03 57.93 1968 96 Units 26,026 per unit 95% 15,288 279
1997 67.08 55.92 1969 200 Units 12,409 per unit 100% 19,688 267
1997 68.94 53.51 1986 775 Units 3,185 per unit 97% -- 25
1998 64.84 56.01 1969 54 Units 45,630 per unit 100% -- 247
1997 71.50 58.26 1912 22,557 Sq. Ft. 109 per sq. ft. 90% 1,000 0.25
1998 77.73 68.31 1995 72 Units 34,006 per unit 94% -- 200
1997 71.90 56.93 1998 22,925 Sq. Ft. 107 per sq. ft. 100% -- 0.15
1997 74.53 60.00 1980 154,201 Sq. Ft. 16 per sq. ft. 100% -- 0.17
1998 56.94 45.60 1958 290 Lots 8,344 per lots 93% 1,063 50
1998 72.65 57.73 1928 74 Units 32,397 per unit 99% 2,281 295
1998 68.44 0.00 1986 102 Rooms 23,483 per room NAP -- 4%
1998 79.80 70.35 1972 52 Units 46,036 per unit 100% 33,268 225
1998 57.09 49.26 1980 148 Units 16,163 per unit 97% -- 248
1998 59.78 49.33 1967 88 Rooms 27,171 per room NAP 14,969 548
1998 71.36 61.74 1890 24 Units 99,609 per unit 92% 19,125 239
1998 59.63 48.43 1984 46,903 Sq. Ft. 51 per sq. ft. 100% -- 0.20
1998 59.51 0.00 1973 132 Rooms 18,033 per room NAP 35,000 4%
1997 74.34 61.97 1997 58,916 Sq. Ft. 40 per sq. ft. 100% -- 0.15
1997 52.24 33.29 1973 312 Lots 7,623 per lots 100% -- 50
1997 72.06 60.76 1986 40,000 Sq. Ft. 59 per sq. ft. 83% -- 0.20
1997 72.28 59.42 1970 200 Units 11,746 per unit 100% 20,625 275
1998 74.77 65.14 1986 19,311 Sq. Ft. 120 per sq. ft. 100% 2,750 0.24
1998 68.96 53.17 1975 277 Lots 8,339 per lots 100% 16,125 50
1997 79.61 71.53 1991 29,190 Sq. Ft. 79 per sq. ft. 100% 8,696 0.15
1997 74.14 61.11 1975 136,651 Sq. Ft. 17 per sq. ft. 92% 500 0.14
1998 74.66 61.09 1966 54,905 Sq. Ft. 42 per sq. ft. 90% 2,625 0.20
1998 59.47 55.10 1969 95 Units 24,165 per unit 95% 24,375 300
1998 78.54 68.19 1974 112 Units 20,477 per unit 96% 13,431 250
1997 73.89 69.10 1970 77 Units 29,748 per unit 97% 55,000 250
1998 78.96 69.00 1984 124 Units 18,467 per unit 97% 8,285 250
1997 74.85 67.26 1978 195 Units 11,708 per unit 92% 13,150 207
<CAPTION>
Largest Tenant
----------------------------------------------------------------------------
Appraisal Reserves Area Leased Lease Control
Year Collected Name (Sq. Ft.) Exp Date No.
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
1997 0.08 per sq. ft. HRS 17,503 07/31/1998 MID-003
1997 none per sq. ft. Dental-Net 7,546 06/30/2000 GCM-074
1997 none per sq. ft. Capstone Pharmacy 4,989 10/31/1998 MLMI-058
1998 none per sq. ft. Downtown Athletic Club 34,645 08/31/2007 MID-101
1998 351 per bed GCM-156
1998 none per unit Jihad Idheileh d/b/a Carlo's Warehouse 4,753 01/01/2003 GCM-164
1998 0.15 per sq. ft. Diablo Renal Services 5,488 05/31/2001 MID-064
1997 268 per unit MLMI-096
1998 350 per unit WMFG-002
1998 250 per unit MLMI-122
1998 none per sq. ft. A&W Restaurants, Inc. 37,440 03/31/2013 GCM-107
1998 none per sq. ft. WinnDixie 48,466 02/11/2018 MLMI-140
1997 none per sq. ft. Aaron Brothers 12,000 11/30/2004 GCM-037
1997 161 per bed MLMI-152
1998 0.10 per sq. ft. American Residential Services 72,720 06/20/2008 WMFG-075
1998 0.19 per sq. ft. World Wide Aquarium 28,600 12/31/2016 MID-155
1998 200 per unit GCM-111
1998 0.20 per sq. ft. Artel, Inc. 14,032 07/31/2002 MID-139
1998 0.20 per sq. ft. DMW Group 16,600 10/31/2002 MID-174
1998 281 per unit WMFG-061
1998 none per unit WMFG-060
1998 none per sq. ft. Heckler & Koch, Inc. 43,722 11/30/2004 MID-169
1997 125 per unit GCM-050
1998 200 per unit GCM-101
1998 none per sq. ft. Paine Webber 8,338 01/31/2003 MID-128
1998 250 per unit MID-068
1998 none per sq. ft. T&C Federal C.U. 7,681 03/30/2002 MID-124
1998 325 per unit WMFG-038
1998 0.15 per sq. ft. Gilman & Ciocia 13,600 09/30/2000 MID-040
1998 0.10 per sq. ft. Delhi Palace Cuisine of India 2,137 04/20/2003 WMFG-080
1998 0.15 per sq. ft. Baker Supermarkets, Inc. 63,342 08/31/2009 MID-039
1997 none per sq. ft. Carrollton Public Library 24,792 12/31/2003 GCM-051
1998 250 per unit MID-063
1997 none per unit GCM-029
1998 none per sq. ft. Eckerd Corporation 10,908 11/28/2017 GCM-106
1998 none per unit MID-021
1997 261 per unit MLMI-079
1997 none per unit GCM-038
1998 none per sq. ft. PetsMart, Inc. 26,040 05/31/2018 WMFG-033
1998 0.15 per sq. ft. Family Dollar 13,800 01/01/2000 GCM-202
1998 none per sq. ft. MLMI-053
1998 488 per room WMFG-010
1997 250 per unit MLMI-086
1998 none per unit MID-015
1998 none per sq. ft. Wells Fargo 5,097 10/31/2004 MLMI-106
1997 none per sq. ft. Alfonso Bernal 6,105 07/01/2002 GCM-045
1998 0.24 per sq. ft. Sir Speedy 3,000 12/31/1999 MID-077
1998 0.10 per sq. ft. Office Max 23,800 01/31/2013 GCM-095
1997 210 per unit MLMI-163
1998 250 per unit MLMI-040
1998 761 per room MID-142
1998 416 per unit MLMI-123
1997 250 per unit MID-107
1997 0.15 per sq. ft. Chung's Chinese Restaurant 5,099 06/01/2002 GCM-104
1998 279 per unit WMFG-054
1997 267 per unit MLMI-055
1997 none per unit GCM-014
1998 247 per unit GCM-099
1997 none per sq. ft. R and V. Manocha 2,350 04/30/2002 GCM-047
1998 none per unit MID-059
1997 none per sq. ft. Bassett Furniture 22,925 12/31/2012 MLMI-085
1997 none per sq. ft. Redman Industries 79,201 12/30/2002 MLMI-083
1998 none per lots MID-171
1998 295 per unit MLMI-112
1998 4% of revenue MLMI-109
1998 225 per unit WMFG-008
1998 214 per unit GCM-103
1998 548 per room WMFG-012
1998 250 / $0.15 per unit / sq.ft. MLMI-114
1998 0.21 per sq. ft. Health Management Services 15,382 06/30/1999 MID-062
1998 4% of revenue MLMI-128
1997 none per sq. ft. Envicor 58,916 01/31/2007 GCM-030
1997 none per lots MID-144
1997 none per sq. ft. PHP 28,550 12/31/2001 GCM-024
1997 none per unit GCM-032
1998 0.46 per sq. ft. Read Rite 7,467 05/31/2001 GCM-097
1998 12 per lots MID-125
1997 0.12 per sq. ft. Southlake Nautilis 10,575 11/30/2001 MLMI-158
1997 none per sq. ft. Copperfield Chimney Supply 81,039 05/31/2007 GCM-007
1998 none per sq. ft. Hancock Fabrics 9,075 07/31/2007 MID-122
1998 150 per unit MID-030
1998 250 per unit MLMI-136
1997 250 per unit GCM-003
1998 none per unit MID-020
1997 207 per unit MLMI-084
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Loan Control
Source No. Property Name Address
====================================================================================================================================
<S> <C> <C> <C>
MIDLAND MID-002 Hampton Courtyard Apartments 2900 Sandy Hollow Road
GCM GCM-054 Jack Johnson Office Lodge 1777 Sun Peak Drive
GCM GCM-091 Grandview Apartments 840 Grand Highway
MIDLAND MID-108 Fall View Apartments 25, 33 & 41 DeForest Street
MIDLAND MID-033 Imperial Square Shopping Center 1444-1448 Belcher Road
GCM GCM-046 Staples 2000 Santiam Highway
MLMI MLMI-097 Richmond Oaks Apartments 2815 Richmond Road
WMFG WMFG-056 57 Off Memorial 160 Birdsall
MLMI MLMI-127 Jacksonville Super 8 5929 Ramona Boulevard
MLMI MLMI-072 Holiday Inn - Express 5301 North I-85 Service Road
GCM GCM-011 Palm Harbor Shopping Center 35125 - 35271 U.S. Hwy 19
GCM GCM-089 Houser Glen Apartments 1225 Houser Lane
GCM GCM-100 Alameda Park Apartments 547-549 Buena Vista Avenue
GCM GCM-053 40th Avenue Square 1300 N. 40th Avenue
WMFG WMFG-087 Centrepointe Shopping Center 8120 Research Boulevard
MIDLAND MID-091 Rayco Roof Services Property 6870 Wellington Road
MIDLAND MID-078 Royal Arms Apartments 5116 S. Norfolk
MIDLAND MID-145 Patrician Village Apartments 5045 North 58th Avenue
GCM GCM-062 Self Stor Mini-Storage Facility 1070 Bertlesen Road
WMFG WMFG-079 240 Andover Street 240 Andover Street
MLMI MLMI-037 Comp-USA 3665 North Rock Road
GCM GCM-070 Michaels Store 25310 Marguerite Parkway
WMFG WMFG-048 Econo Lodge Motel - Gaithersburg 18715 North Frederick Avenue
GCM GCM-055 Plaza de Majorca 12220 Pigeon Pass Road
MIDLAND MID-130 Windsong Mobile Village 3200 S. 7th Street
MLMI MLMI-143 Birch Hollow Mobile Home Park 704 Liberty Hall Road
MLMI MLMI-141 Riverwood Apartments 1053 Rifle Range Road
GCM GCM-094 Bayview Apartments 851 N. Amphlett Blvd.
MLMI MLMI-169 Lawnfair Apartments 207 Winchester Road
WMFG WMFG-015 1239 20th Street 1239 20th Street
MLMI MLMI-087 Hampton Inn-Lewisville 885 S. Stemmons Fwy.
MLMI MLMI-134 Rinconada Square 6220 San Mateo NE
GCM GCM-027 The Ridge Apartments 2755 Brandon Avenue
GCM GCM-105 Eckerd Drug Store - Warner Robins 2900 Watson Boulevard
WMFG WMFG-039 CVS 3700 Two Notch Rd.
GCM GCM-059 Cochran Apartments 657& 665 South Cochran Avenue
GCM GCM-036 Creekside Apartments 52520 SW Fourth Street
MLMI MLMI-101 2770-2780 Kingsbridge Terrace 2770-2780 Kingsbridge Terrace
WMFG WMFG-025 OfficeMax Store 749 4920 N. 3rd Avenue
MIDLAND MID-167 Timbercrest Apartments 1322-28 Bluff St. & 401-405 E. 16th Ave.
MLMI MLMI-146 Comfort Suites Nashville 2615 Elm Hill Pike
MIDLAND MID-065 Washington Plaza 8196 SW Hall Blvd
MIDLAND MID-079 Valle Verde Center 691 - 693 North Valle Verde Drive
GCM GCM-096 Walnut Lane Apartments 232-242 W. Walnut Lane
MLMI MLMI-057 Oak Park Apartments 2800 West Pioneer Dr.
MIDLAND MID-092 Pinnacle Woods Apartments 7370 Pinnacle Pines Drive
WMFG WMFG-009 Rock Creek 2181 West 1575 North
GCM GCM-200 Troop Plaza 3208 E. Los Angeles Ave
MLMI MLMI-142 Comfort Inn - Santee 265 Britain Street
WMFG WMFG-014 Rite Aid 1024 Orange Avenue
WMFG WMFG-124 Applewood Crest Apartments 1975 Oak Street
WMFG WMFG-016 1223 20th Street 1223 20th Street
MIDLAND MID-018 180 Mountain Avenue 180 Mountain Avenue
WMFG WMFG-013 Rite Aid 1531 Piney Forest Rd.
WMFG WMFG-044 Rite Aid 5795 Princess Anne Rd.
MLMI MLMI-059 Walnut Villas Apartments 3925 West Walnut Street
MIDLAND MID-042 Park Center Industrial Park 1175-1185 Park Center Drive
MIDLAND MID-044 Cohen Office Complex 1741 and 1745 Sidewinder Drive
MLMI MLMI-103 Tyler Town Center East Southeast Loop 323
MLMI MLMI-088 Forest Creek Apartments 6050 Oakland Hills
MLMI MLMI-073 Village at Aspen Creek Shopping Center 601 Aspen Street
MLMI MLMI-038 Bally - Fullerton 246 E. Orangethorpe
GCM GCM-020 Columbia Heights Business Center 3989 Central Avenue NE
GCM GCM-057 Willow Creek Office Building 10200 Willow Creek Road
MIDLAND MID-146 Woodland Hills Duplexes 6500 South Memorial Drive
MIDLAND MID-017 Itron Office - Warehouse Headquarters Facility 20855 Kensington Blvd.
MLMI MLMI-144 Creekside Mobile Home Park Bacon's Bridge Road
WMFG WMFG-003 Spring Street 756 South Spring Street
MLMI MLMI-066 Union Place Apartments 74 Union Place
MIDLAND MID-083 Cambridge Oaks Duplexes 8414 Cambridge Road
GCM GCM-093 Hampshire Village Center 3055-3095 Thousand Oaks Boulevard
GCM GCM-134 Lemcar Industrial Park 1000 Bucks Hollow Road
MIDLAND MID-048 The Vandevort Building 26 - 38 South Raymond Avenue
MIDLAND MID-061 Reservoir Manor Apartments 10-20 Reservoir Manor Drive
MIDLAND MID-086 RAM Building 12176-12220 Livingston Road
GCM GCM-066 Berry Hill Apartments 13971 S. Beavercreek Rd.
MIDLAND MID-035 Phase I of Bullhead Medical Plaza 2755 Silver Creek Road
MIDLAND MID-132 The Woods Apartments 3504-3514 28th Avenue SW
MLMI MLMI-032 11825-11835 Wilshire Boulevard 11825-11835 Wilshire Boulevard
MIDLAND MID-116 Burns Hill Apartments 11 Burns Hill Road
MLMI MLMI-175 109-333 Kirby Street 109 Kirby Street
MIDLAND MID-036 Countryside Apartments 266 Main Street
MLMI MLMI-159 Lamplighter Apartments 1-86 Amherst Avenue
GCM GCM-028 Men's Wearhouse 260 Andover Street
MIDLAND MID-166 Ramona Shopping Center 1413-1453 Main Street
<CAPTION>
Loan Zip Original Cut-Off
Source City State Code Property Type Balance Date Balance
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
MIDLAND Rockford IL 61109 Multifamily 2,300,000 2,282,240
GCM Park City UT 84098 Office 2,300,000 2,280,072
GCM Clermont FL 32771 Multifamily 2,280,000 2,270,928
MIDLAND Seymour CT 06483 Multifamily 2,275,000 2,267,353
MIDLAND Clearwater FL 33764 Retail 2,250,000 2,243,345
GCM Albany OR 97321 Retail 2,270,000 2,235,495
MLMI Texarkana TX 75503 Multifamily 2,250,000 2,225,697
WMFG Houston TX 77007 Multifamily 2,225,000 2,220,481
MLMI Jacksonville FL 32205 Hospitality 2,200,000 2,187,123
MLMI Charlotte NC 28213 Hospitality 2,175,000 2,161,033
GCM Palm Harbor FL 34684 Retail 2,175,000 2,148,911
GCM Modesto CA 95351 Multifamily 2,150,000 2,141,292
GCM Alameda CA 94501 Multifamily 2,145,000 2,139,798
GCM Yakima WA 98908 Retail 2,150,000 2,130,698
WMFG Austin TX 78758 Retail 2,100,000 2,097,874
MIDLAND Manassas VA 20109 Industrial 2,100,000 2,096,469
MIDLAND Tulsa OK 74105 Multifamily 2,100,000 2,094,085
MIDLAND Glendale AZ 85301 Multifamily 2,100,000 2,082,631
GCM Eugene OR 97402 Industrial 2,110,000 2,081,086
WMFG Peabody MA 02116 Retail 2,075,000 2,073,792
MLMI Wichita KS 67226 Retail 2,080,000 2,071,043
GCM Mission Viejo CA 92692 Retail 2,050,000 2,032,079
WMFG Gaithersburg MD 20879 Hospitality 2,025,000 2,023,177
GCM Moreno Valley CA 92553 Retail 2,025,000 2,005,372
MIDLAND Fort Pierce FL 34982 Mobile Home Park 2,000,000 1,997,574
MLMI Goose Creek SC 29445 Mobile Home Park 2,000,000 1,995,666
MLMI Mt. Pleasant SC 29464 Multifamily 2,000,000 1,994,459
GCM San Mateo CA 94402 Multifamily 2,000,000 1,993,201
MLMI Fairlawn OH 44333 Multifamily 2,000,000 1,992,458
WMFG Santa Monica CA 90404 Multifamily 1,995,000 1,990,910
MLMI Lewisville TX 75067 Hospitality 2,000,000 1,986,186
MLMI Albuquerque NM 87109 Retail 2,000,000 1,982,462
GCM Roanoke VA 24015 Multifamily 2,000,000 1,978,843
GCM Centerville GA 31028 CTL 1,987,000 1,975,385
WMFG Forest Acres SC 29204 CTL 1,980,000 1,972,775
GCM Los Angeles CA 90036 Multifamily 1,950,000 1,935,462
GCM Scappoose OR 97056 Multifamily 1,950,000 1,927,421
MLMI Bronx NY 10463 Multifamily 1,920,000 1,911,814
WMFG Kearney NE 68847 Retail 1,910,000 1,906,274
MIDLAND Bellevue NE 68005 Multifamily 1,904,000 1,900,002
MLMI Nashville TN 37214 Hospitality 1,900,000 1,897,079
MIDLAND Beaverton OR 97008 Office 1,900,000 1,894,323
MIDLAND Henderson NV 89104 Retail 1,900,000 1,894,232
GCM Philadelphia PA 19144 Multifamily 1,900,000 1,886,644
MLMI Irving TX 75060 Multifamily 1,880,200 1,869,253
MIDLAND Fort Myers FL 33919 Multifamily 1,850,000 1,846,274
WMFG St. George UT 84770 Multifamily 1,850,000 1,845,462
GCM Simi Valley CA 93065 Retail 1,848,000 1,844,592
MLMI Santee SC 29142 Hospitality 1,850,000 1,841,178
WMFG Roanoke VA 24016 CTL 1,850,000 1,839,278
WMFG Lakewood CO 80215 Multifamily 1,824,000 1,822,860
WMFG Santa Monica CA 90404 Multifamily 1,800,000 1,796,310
MIDLAND Malden MA 02148 Multifamily 1,805,000 1,795,259
WMFG Danville VA 24540 CTL 1,800,000 1,789,568
WMFG Virginia Beach VA 23462 CTL 1,770,000 1,767,784
MLMI Garland TX 75402 Multifamily 1,760,000 1,750,373
MIDLAND Vista CA 92083 Industrial 1,750,000 1,747,825
MIDLAND Park City UT 84060 Office 1,750,000 1,746,704
MLMI Tyler TX 75702 Retail 1,750,000 1,744,291
MLMI Ft Worth TX 76112 Multifamily 1,750,000 1,740,183
MLMI Broken Arrow OK 74012 Retail 1,744,000 1,734,493
MLMI Fullerton CA 92632 Retail 1,750,000 1,730,501
GCM Columbia Heights MN 55421 Office 1,750,000 1,725,986
GCM San Diego CA 92131 Office 1,750,000 1,723,219
MIDLAND Tulsa OK 74133 Multifamily 1,700,000 1,698,950
MIDLAND Lakeville MN 55044 Industrial 1,700,000 1,696,648
MLMI Summerville SC 29985 Mobile Home Park 1,700,000 1,696,316
WMFG Los Angeles CA 90014 Multifamily 1,700,000 1,693,713
MLMI Hartford CT 06103 Multifamily 1,700,000 1,690,133
MIDLAND Tyler TX 75703 Multifamily 1,680,000 1,677,886
GCM Thousand Oaks CA 91362 Mixed Use 1,675,000 1,669,600
GCM Mahopac NY 10541 Industrial 1,660,000 1,654,562
MIDLAND Pasadena CA 91105 Office 1,650,000 1,647,067
MIDLAND Seymour CT 06483 Multifamily 1,650,000 1,642,721
MIDLAND Manassas VA 22110 Industrial 1,645,000 1,641,911
GCM Oregon City OR 97045 Multifamily 1,625,000 1,610,333
MIDLAND Bullhead City AZ 86439 Office 1,600,000 1,598,332
MIDLAND Fargo ND 58103 Multifamily 1,600,000 1,597,388
MLMI Los Angeles CA 90025 Retail 1,600,000 1,595,771
MIDLAND Hudson NH 03051 Multifamily 1,600,000 1,594,735
MLMI Garland TX 75042 Industrial 1,600,000 1,593,172
MIDLAND Windsor Locks CT 06096 Multifamily 1,600,000 1,588,850
MLMI Agawam MA 01001 Multifamily 1,579,000 1,568,576
GCM Peabody MA 01960 Retail 1,575,000 1,556,078
MIDLAND Ramona CA 92065 Retail 1,550,000 1,548,473
<CAPTION>
Cumulative % of
Loan % of Initial Initial Pool Affiliated
Source Pool Balance Balance Borrower
=================================================================================================
<S> <C> <C> <C>
MIDLAND 0.08% 89.99% MID-001
GCM 0.08% 90.06%
GCM 0.08% 90.14%
MIDLAND 0.08% 90.22% MID-061
MIDLAND 0.08% 90.30%
GCM 0.08% 90.38%
MLMI 0.08% 90.45%
WMFG 0.08% 90.53%
MLMI 0.08% 90.61%
MLMI 0.07% 90.68%
GCM 0.07% 90.75%
GCM 0.07% 90.83%
GCM 0.07% 90.90% GCM-099, GCM-101
GCM 0.07% 90.98%
WMFG 0.07% 91.05%
MIDLAND 0.07% 91.12%
MIDLAND 0.07% 91.19% MID-020, MID-034, MID-037, MID-076, MID-090
MIDLAND 0.07% 91.27%
GCM 0.07% 91.34% MID-015, GCM-048, GCM-063, GCM-064, GCM-065
WMFG 0.07% 91.41%
MLMI 0.07% 91.48%
GCM 0.07% 91.55%
WMFG 0.07% 91.62%
GCM 0.07% 91.69%
MIDLAND 0.07% 91.76%
MLMI 0.07% 91.83% MLMI-144, MLMI-145
MLMI 0.07% 91.90%
GCM 0.07% 91.97%
MLMI 0.07% 92.04%
WMFG 0.07% 92.10%
MLMI 0.07% 92.17%
MLMI 0.07% 92.24%
GCM 0.07% 92.31% GCM-003
GCM 0.07% 92.38% GCM-106
WMFG 0.07% 92.45% WMFG-040
GCM 0.07% 92.51% GCM-029, GCM-058
GCM 0.07% 92.58%
MLMI 0.07% 92.65% MLMI-100, MLMI-102
WMFG 0.07% 92.71%
MIDLAND 0.07% 92.78%
MLMI 0.07% 92.84%
MIDLAND 0.07% 92.91% GCM-076
MIDLAND 0.07% 92.97%
GCM 0.07% 93.04%
MLMI 0.06% 93.10% MLMI-055, MLMI-056, MLMI-058
MIDLAND 0.06% 93.17%
WMFG 0.06% 93.23% WMFG-070
GCM 0.06% 93.30%
MLMI 0.06% 93.36%
WMFG 0.06% 93.42% WMFG-013
WMFG 0.06% 93.49% WMFG-058
WMFG 0.06% 93.55%
MIDLAND 0.06% 93.61%
WMFG 0.06% 93.67% WMFG-014
WMFG 0.06% 93.73%
MLMI 0.06% 93.79%
MIDLAND 0.06% 93.85%
MIDLAND 0.06% 93.92%
MLMI 0.06% 93.98%
MLMI 0.06% 94.04%
MLMI 0.06% 94.10%
MLMI 0.06% 94.16%
GCM 0.06% 94.22%
GCM 0.06% 94.27%
MIDLAND 0.06% 94.33%
MIDLAND 0.06% 94.39%
MLMI 0.06% 94.45% MLMI-143, MLMI-145
WMFG 0.06% 94.51% WMFG-002
MLMI 0.06% 94.57%
MIDLAND 0.06% 94.63% MID-084, MID-085
GCM 0.06% 94.68%
GCM 0.06% 94.74% GCM-132
MIDLAND 0.06% 94.80%
MIDLAND 0.06% 94.85% MID-108
MIDLAND 0.06% 94.91%
GCM 0.06% 94.97%
MIDLAND 0.06% 95.02%
MIDLAND 0.06% 95.08%
MLMI 0.06% 95.13%
MIDLAND 0.06% 95.19%
MLMI 0.06% 95.24%
MIDLAND 0.05% 95.30%
MLMI 0.05% 95.35% MLMI-160, MLMI-161, MLMI-162
GCM 0.05% 95.41%
MIDLAND 0.05% 95.46%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Rem
Orig Rem Amort Amort
Interest Accrual Mortgage Administrative Term Term Term Term Origination
Crossed Method Rate Cost Rate (Mos.) (Mos.) (Mos.) (Mos.) Date
===============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MID-001 Actual/360 7.300 0.08175 120 109 360 349 09/30/97
Actual/360 7.520 0.20175 120 112 300 292 12/15/97
30/360 7.210 0.09675 120 115 360 355 03/27/98
MID-061 Actual/360 6.960 0.08175 120 117 300 297 05/20/98
Actual/360 7.610 0.08175 120 117 300 297 05/18/98
Actual/360 7.800 0.20175 240 231 240 231 11/12/97
Actual/360 8.010 0.09675 180 169 300 289 09/24/97
Actual/360 7.125 0.09675 120 118 300 298 06/29/98
Actual/360 8.750 0.12675 240 236 240 236 04/06/98
Actual/360 8.375 0.09675 264 259 264 259 03/06/98
30/360 8.550 0.20175 120 108 300 288 08/18/97
30/360 7.120 0.09675 120 115 360 355 03/06/98
30/360 7.100 0.09675 120 117 360 357 05/22/98
Actual/360 7.320 0.20175 120 112 300 292 12/18/97
Actual/360 7.125 0.09675 120 119 300 299 07/16/98
Actual/360 7.170 0.08175 240 239 240 239 07/13/98
Actual/360 6.870 0.08175 120 116 360 356 04/28/98
Actual/360 7.100 0.08175 120 113 300 293 01/23/98
Actual/360 7.740 0.20175 240 232 240 232 12/29/97
Actual/360 7.230 0.11675 120 119 360 359 07/30/98
Actual/360 7.330 0.09675 180 174 360 354 02/17/98
Actual/360 7.470 0.20175 120 112 300 292 12/24/97
Actual/360 7.650 0.09675 120 119 300 299 07/17/98
Actual/360 7.490 0.30175 120 111 300 291 11/25/97
Actual/360 7.110 0.08175 180 178 360 358 06/11/98
MLMI-145 Actual/360 7.125 0.12675 156 154 300 298 06/30/98
Actual/360 7.350 0.12675 180 176 360 356 04/28/98
30/360 6.860 0.09675 120 116 360 356 04/14/98
Actual/360 7.410 0.09675 120 114 360 354 02/06/98
Actual/360 7.063 0.09675 120 117 360 357 05/15/98
Actual/360 7.875 0.09675 264 259 264 259 03/20/98
Actual/360 7.580 0.09675 240 235 240 235 03/25/98
Actual/360 8.120 0.22175 60 49 300 289 09/15/97
30/360 7.320 0.09675 234 231 234 231 05/04/98
30/360 6.930 0.09675 238 236 238 236 06/24/98
30/360 7.620 0.20175 120 110 360 350 10/01/97
30/360 7.580 0.20175 144 134 300 290 10/03/97
Actual/360 7.375 0.12675 120 114 360 354 02/10/98
Actual/360 7.250 0.09675 176 173 360 357 05/29/98
Actual/360 6.970 0.08175 120 118 300 298 06/26/98
Actual/360 8.050 0.12675 240 239 240 239 07/10/98
Actual/360 7.560 0.08175 120 117 300 297 05/01/98
Actual/360 7.480 0.08175 120 117 300 297 05/21/98
30/360 7.800 0.09675 240 236 240 236 04/20/98
Actual/360 7.150 0.12675 120 114 324 318 02/10/98
Actual/360 7.130 0.08175 120 117 360 357 05/28/98
Actual/360 7.375 0.09675 180 176 360 356 04/22/98
30/360 7.330 0.09675 240 239 240 239 07/23/98
Actual/360 8.210 0.09675 240 237 240 237 05/27/98
30/360 7.125 0.09675 238 235 238 235 05/06/98
Actual/360 7.000 0.09675 120 119 360 359 07/23/98
Actual/360 7.063 0.09675 120 117 360 357 05/15/98
Actual/360 7.250 0.08175 120 115 300 295 03/11/98
30/360 7.125 0.09675 238 235 238 235 05/06/98
30/360 7.000 0.09675 240 239 298 297 07/16/98
Actual/360 7.540 0.12675 120 115 300 295 03/12/98
Actual/360 7.030 0.08175 120 118 360 358 06/17/98
Actual/360 7.380 0.08175 120 117 360 357 05/08/98
Actual/360 7.670 0.09675 240 238 240 238 06/10/98
Actual/360 7.300 0.09675 120 113 360 353 01/23/98
Actual/360 7.560 0.12675 84 79 300 295 03/11/98
Actual/360 7.250 0.12675 120 118 120 118 06/30/98
30/360 8.230 0.20175 120 107 300 287 07/23/97
Actual/360 7.750 0.20175 240 231 240 231 11/03/97
Actual/360 7.040 0.08175 120 119 360 359 07/15/98
Actual/360 7.260 0.18175 120 118 300 298 06/29/98
Actual/360 7.125 0.12675 156 154 300 298 06/30/98
30/360 7.580 0.09675 120 115 360 355 03/31/98
Actual/360 7.190 0.09675 120 115 300 295 03/31/98
Actual/360 6.990 0.08175 120 118 360 358 06/09/98
30/360 7.130 0.09675 120 116 360 356 04/02/98
Actual/360 8.400 0.09675 180 176 300 296 04/17/98
Actual/360 7.720 0.08175 120 118 300 298 06/30/98
MID-108 Actual/360 6.980 0.08175 120 116 300 296 04/23/98
Actual/360 7.480 0.08175 120 118 300 298 06/09/98
Actual/360 7.290 0.20175 120 112 300 292 12/19/97
Actual/360 6.990 0.08175 120 119 300 299 07/09/98
Actual/360 7.360 0.08175 240 239 240 239 07/13/98
30/360 8.125 0.28675 120 116 360 356 04/20/98
Actual/360 7.070 0.08175 120 117 300 297 05/05/98
Actual/360 7.500 0.09675 180 176 300 296 04/14/98
Actual/360 7.190 0.08175 120 116 240 236 04/21/98
MLMI-160, MLMI-161, MLMI-162 Actual/360 7.100 0.09675 240 234 300 294 02/27/98
30/360 8.540 0.20175 144 132 300 288 08/18/97
Actual/360 7.250 0.18175 120 119 300 299 07/28/98
<CAPTION>
Repayment Balloon/Repayment
Date Balance Maturity Term Prepayment Restrictions
====================================================================================================================================
<S> <C> <C> <C>
10/01/2007 2,024,814 Hyperam L(48),> YM or 1%(66),O(6)
01/01/2008 1,873,455 Balloon L(36),> of YM or 1% (78),O(6)
04/01/2008 1,969,737 Balloon > of YM or 1% (84),3%(12),2%(12),1%(5),O(7)
06/01/2008 1,823,028 Balloon L(60),> YM or 1%(54),O(6)
06/01/2008 1,838,726 Balloon L(60),> YM or 1%(54),O(6)
12/01/2017 NAP Fully Amort L(48),> of YM or 1% (186),O(6)
10/01/2012 1,507,243 Balloon L(48), >YM or 3% (48), > YM or 2% (48), > YM or 1% (29), O(7)
07/01/2008 1,792,631 Balloon L(48),Def(68),O(4)
05/01/2018 NAP Fully Amort L(120), >YM or 1% (116),O(4)
04/01/2020 NAP Fully Amort L(132), >YM or 1%(128), O(4)
09/01/2007 1,785,520 Balloon > of YM or 1% (84),2%(12),1%(12),O(12)
04/01/2008 1,853,621 Balloon > of YM or 1% (113),O(7)
06/01/2008 1,848,461 Balloon L(48),> of YM or 0% (65),O(7)
01/01/2008 1,740,887 Balloon L(48),> of YM or 1% (66),O(6)
08/01/2008 1,691,304 Balloon L(25),Def(91),O(4)
08/01/2018 NAP Fully Amort L(120),> YM or 1%(114),O(6)
05/01/2008 1,829,021 Balloon L(60),> YM or 1%(54),O(6)
02/01/2008 1,688,830 Balloon L(60),> YM or 1%(54),O(6)
01/01/2018 NAP Fully Amort L(120), > of YM or 3% (114),O(6)
08/01/2008 1,823,665 Balloon L(25),Def(91),O(4)
03/01/2013 1,570,821 Balloon L(96), > of YM or 1%(80), O(4)
01/01/2008 1,667,352 Balloon L(60),> of YM or 1% (54),O(6)
08/01/2008 1,656,735 Balloon L(25),Def(91),O(4)
12/01/2007 1,648,649 Balloon L(60),> of YM or 1% (54),O(6)
07/01/2013 1,542,864 Hyperam L(48),> YM or 1%(126),O(6)
07/01/2011 1,392,656 Balloon L(26), Def(126), O(4)
05/01/2013 1,510,914 Balloon L(28), Def(148), O(4)
05/01/2008 1,713,874 Balloon L(60),> of YM or 1% (53),O(7)
03/01/2008 1,766,909 Balloon L(60), >YM or 1% ( 56), O(4)
06/01/2008 1,745,834 Balloon L(27),Def(89),O(4)
04/01/2020 NAP Fully Amort L(132), >YM or 1%(128), O(4)
04/01/2018 NAP Fully Amort L(120), >YM or 1% (116),O(4)
10/01/2002 1,864,946 Balloon > of YM or 3% (48),1%(6),O(6)
12/01/2017 NAP Fully Amort L(120), > of YM or 1% (60),O(54)
05/01/2018 NAP Fully Amort L(36),Def(202)
11/01/2007 1,699,947 Balloon L(36),> of YM or 1% (78),O(6)
11/01/2009 1,442,546 Balloon L(48),> of YM or 1% (84),O(12)
03/01/2008 1,669,465 Balloon L(60), > of YM or 1% ( 56), O(4)
02/01/2013 1,498,076 Balloon L(27),Def(145),O(4)
07/01/2008 1,526,698 Balloon L(60),>YM or 5%(54),O(6)
08/01/2018 NAP Fully Amort L(25), Def(211), O(4)
06/01/2008 1,550,415 Balloon L(60),> YM or 1%(54),O(6)
06/01/2008 1,546,745 Balloon L(60),> YM or 1%(54),O(6)
05/01/2018 NAP Fully Amort L(180),5%(12),4%(12),3%(12),2%(12),1%(5),O(7)
03/01/2008 1,554,761 Balloon L(60), >YM or 1% ( 56), O(4)
06/01/2008 1,621,785 Balloon L(60),> YM or 1%(54),O(6)
05/01/2013 1,444,177 Balloon L(36),Def(140),O(4)
08/01/2018 NAP Fully Amort L(84),> of YM or 1% (96),O(60)
06/01/2018 NAP Fully Amort L(27), Def(209), O(4)
04/01/2018 NAP Fully Amort L(37),Def(201)
08/01/2008 1,593,536 Balloon L(25),Def(91),O(4)
06/01/2008 1,575,190 Balloon L(27),Def(89),O(4)
04/01/2008 1,459,356 Balloon L(60),> YM or 1%(54),O(6)
04/01/2018 NAP Fully Amort L(37),Def(201)
08/01/2018 624,499 Balloon L(36),Def(204)
04/01/2008 1,412,760 Balloon L(29), Def(87), O(4)
07/01/2008 1,530,605 Balloon L(60),> YM or 1%(54),O(6)
06/01/2008 1,543,952 Balloon L(36),> YM or 1%(78),O(6)
07/01/2018 NAP Fully Amort L(120), >YM or 1% (116),O(4)
02/01/2008 1,518,177 Balloon L(63), >YM or 1% (50), O(7)
04/01/2005 1,532,982 Balloon L(24), >YM or 1% (56), O(4)
07/01/2008 NAP Fully Amort L(60), > of YM or 1% (50), O(10)
08/01/2007 1,425,548 Balloon > of YM or 5% (96),5%(12),O(12)
12/01/2017 NAP Fully Amort L(120), > of YM or 1% (114),O(6)
08/01/2008 1,486,760 Balloon L(60),>YM or 5%(54),O(6)
07/01/2008 1,375,298 Balloon L(60),> YM or 1%(54),O(6)
07/01/2011 1,183,758 Balloon L(26), Def(126), O(4)
04/01/2008 1,480,730 Balloon L(48),Def(68),O(4)
04/01/2008 1,351,805 Balloon L(60), >YM or 1% ( 56), O(4)
07/01/2008 1,467,837 Balloon L(36),YM(72),O(12)
05/01/2008 1,444,431 Balloon > of YM or 1% (84),3%(12),2%(12),1%(5),O(7)
05/01/2013 1,135,067 Balloon > of YM or 1% (120),5%(12),4%(12),3%(12),2%(12),1%(5),O(7)
07/01/2008 1,353,251 Balloon L(60),> YM or 1%(54),O(6)
05/01/2008 1,323,486 Balloon L(60),> YM or 1%(54),O(6)
07/01/2008 1,339,630 Balloon L(36),> YM or 1%(78),O(6)
01/01/2008 1,314,603 Balloon L(60),> of YM or 1% (42),O(18)
08/01/2008 1,283,277 Balloon L(60),> YM or 1%(54),O(6)
08/01/2018 NAP Fully Amort L(144),> YM or 1%(90),O(6)
05/01/2008 1,409,521 Balloon L(59), 5% (12), 4% (12), 3% (12), 2% (12), 1% (6), O(7)
06/01/2008 1,286,486 Hyperam L(48),> YM or 1%(66),O(6)
05/01/2013 1,006,589 Balloon L(96),7%(12),6%(12),5%(12),4%(12),3%(12),2%(12),1%(8),O(4)
05/01/2008 1,103,086 Balloon L(60),> YM or 1%(54),O(6)
03/01/2018 636,216 Balloon L(60), >YM or 1% (176), O(4)
09/01/2009 1,200,745 Balloon L(36),> of YM or 5% (84),O(24)
08/01/2008 1,253,097 Balloon L(60),> YM or 1%(54),O(6)
<CAPTION>
Annual Underwriting Underwriting
Debt Total Total Underwriting Underwriting Appraised
Service Revenue Expenses NCF DSCR Value
================================================================================================
<S> <C> <C> <C> <C> <C>
189,218 370,956 131,038 239,918 1.27 2,950,000
204,321 384,953 71,572 298,262 1.46 3,100,000
185,902 698,958 431,630 267,328 1.44 2,850,000
192,255 488,417 206,843 281,575 1.46 3,125,000
201,463 430,443 128,616 272,573 1.35 3,100,000
224,467 288,029 12,829 269,561 1.20 3,050,000
208,569 670,061 284,967 385,094 1.85 3,429,500
190,845 668,542 363,043 305,499 1.60 3,000,000
235,505 1,297,763 917,277 380,486 1.62 3,450,000
218,827 1,176,492 838,447 338,045 1.54 3,200,000
211,044 459,159 153,126 281,349 1.33 3,100,000
173,732 379,338 178,267 201,071 1.16 2,700,000
172,981 510,214 240,505 269,709 1.56 3,300,000
187,649 347,288 66,670 269,896 1.44 2,945,000
180,123 396,749 124,334 227,470 1.26 3,500,000
197,955 334,629 67,028 252,390 1.27 2,800,000
165,462 486,630 274,914 211,716 1.28 2,750,000
179,719 557,632 341,340 216,292 1.20 2,920,000
207,708 437,003 171,117 265,886 1.28 2,950,000
169,524 330,983 74,579 250,786 1.48 3,100,000
173,482 237,917 15,850 222,067 1.28 2,600,000
181,312 280,320 12,790 254,692 1.40 2,950,000
181,952 1,090,579 766,731 323,848 1.78 2,700,000
179,417 471,401 176,497 263,924 1.47 2,900,000
161,450 406,813 188,123 218,690 1.35 2,500,000
173,174 575,031 314,915 260,116 1.50 2,600,000
167,139 513,291 272,188 241,103 1.44 2,500,000
157,422 609,682 312,510 297,172 1.89 4,800,000
166,335 432,804 215,567 217,237 1.31 2,750,000
160,280 287,450 90,917 196,533 1.23 2,950,000
193,346 897,132 600,165 296,967 1.54 3,100,000
196,167 366,352 82,097 271,190 1.38 3,200,000
187,148 537,489 287,852 249,637 1.33 3,250,000
191,625 192,216 -- 192,216 1.00 2,200,000
180,439 185,491 3,677 181,814 1.01 2,050,000
165,543 445,804 215,925 229,879 1.39 2,510,000
174,143 363,301 131,919 231,382 1.33 2,575,000
160,857 454,350 234,812 219,538 1.36 2,400,000
156,355 216,553 8,847 207,706 1.33 2,600,000
161,048 429,750 219,755 209,996 1.30 2,380,000
193,100 953,056 681,480 271,576 1.41 2,850,000
169,381 452,843 167,625 229,752 1.36 3,200,000
168,193 316,903 80,993 224,034 1.33 2,685,000
187,880 734,399 467,416 266,983 1.42 2,600,000
158,979 533,677 300,264 233,414 1.47 2,600,000
149,640 350,218 156,250 193,969 1.30 2,375,000
153,330 312,403 122,670 189,733 1.24 2,200,000
176,350 595,415 259,759 303,982 1.72 3,260,000
190,286 912,760 623,948 288,810 1.52 2,590,000
174,448 192,686 3,585 189,101 1.08 2,040,000
145,621 293,172 108,866 184,306 1.27 2,300,000
144,613 262,605 79,864 182,741 1.26 2,675,000
156,560 375,752 159,673 216,079 1.38 2,300,000
169,733 188,284 3,541 184,742 1.09 2,000,000
150,493 199,482 3,432 196,050 1.30 2,230,000
158,156 673,603 408,031 265,572 1.68 2,200,000
140,137 305,226 89,924 188,660 1.35 2,410,000
145,113 299,944 81,365 199,850 1.38 2,400,000
172,841 390,016 139,721 238,117 1.38 2,600,000
145,451 577,123 332,667 244,456 1.68 2,350,000
156,996 315,796 85,117 202,379 1.29 2,400,000
247,734 591,375 237,155 354,220 1.43 2,650,000
165,294 793,131 460,727 242,981 1.47 2,700,000
172,399 344,427 93,990 219,431 1.27 2,450,000
136,270 333,848 117,305 216,542 1.59 2,300,000
147,584 344,560 128,809 198,030 1.34 2,440,000
147,198 448,116 218,240 229,876 1.56 2,320,000
143,759 363,020 168,824 194,196 1.35 2,300,000
148,056 605,591 398,814 199,997 1.35 2,430,000
133,990 328,879 130,889 197,990 1.48 2,235,000
135,485 693,355 344,665 303,301 2.24 3,875,000
159,061 314,260 88,687 218,177 1.37 2,250,000
149,165 287,312 77,034 194,829 1.31 2,450,000
139,690 344,903 148,241 196,662 1.41 2,145,000
145,620 282,595 72,659 189,483 1.30 2,150,000
141,450 307,985 123,083 184,902 1.31 2,300,000
135,579 326,063 109,229 187,882 1.39 2,310,000
153,034 305,862 109,044 196,818 1.29 2,025,000
142,559 240,663 52,555 188,108 1.32 2,625,000
136,560 357,916 165,714 192,202 1.41 2,100,000
143,282 340,536 113,088 220,200 1.54 2,180,000
151,055 492,371 263,362 229,009 1.52 2,400,000
135,132 488,692 314,869 173,823 1.29 2,050,000
152,698 270,232 55,223 207,641 1.36 2,100,000
134,442 291,531 97,575 176,101 1.31 2,275,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Loan per
Sq Ft, Units, Sq Ft, Unit, Initial
Appraisal Current Repayment Year Beds, Pads, Bed, Pad, Occupancy Reserves Underwriting
Year LTV LTV Built or Room or Room Percentage At Closing Reserves
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 77.36 68.64 1997 44 Units 51,869 per unit 98% -- 200
1997 73.55 60.43 1996 16,909 Sq. Ft. 135 per sq. ft. 100% -- 0.21
1997 79.68 69.11 1975 142 Units 15,992 per unit 95% 94,874 249
1998 72.56 58.34 1910 72 Units 31,491 per unit 100% -- 250
1998 72.37 59.31 1966 61,875 Sq. Ft. 36 per sq. ft. 94% -- 0.15
1997 73.29 0.00 1997 24,500 Sq. Ft. 91 per sq. ft. 100% 1,250 0.13
1997 64.90 43.95 1984 120 Units 18,547 per unit 98% -- 290
1998 74.02 59.75 1964 92 Units 24,136 per unit 97% 77,875 250
1998 63.39 0.00 1974 171 Rooms 12,790 per room NAP 76,956 4%
1997 67.53 0.00 1970 100 Rooms 21,610 per room NAP 338,406 4%
1997 69.32 57.60 1985 42,850 Sq. Ft. 50 per sq. ft. 96% -- 0.10
1998 79.31 68.65 1991 76 Units 28,175 per unit 97% -- 264
1998 64.84 56.01 1970 65 Units 32,920 per unit 100% -- 264
1997 72.35 59.11 1997 23,003 Sq. Ft. 93 per sq. ft. 86% -- 0.15
1998 59.94 48.32 1985 40,648 Sq. Ft. 52 per sq. ft. 100% 8,250 0.20
1998 74.87 0.00 1987 53,800 Sq. Ft. 39 per sq. ft. 100% -- 0.10
1998 76.15 66.51 1964 100 Units 20,941 per unit 98% 1,000 250
1997 71.32 57.84 1973 128 Units 16,271 per unit 89% 100,763 250
1997 70.55 0.00 1975 565 Units 3,683 per unit 90% -- 18
1998 66.90 58.83 1995 14,715 Sq. Ft. 141 per sq. ft. 100% 1,344 0.10
1997 79.66 60.42 1997 26,362 Sq. Ft. 79 per sq. ft. 100% -- 0.15
1997 68.88 56.52 1977 29,200 Sq. Ft. 70 per sq. ft. 100% 1,000 0.15
1998 74.93 61.36 1985 98 Rooms 20,645 per room NAP 30,794 445
1997 69.15 56.85 1987 38,572 Sq. Ft. 52 per sq. ft. 94% -- 0.15
1998 79.90 61.71 1974 152 Lots 13,142 per lots 98% 17,250 75
1998 76.76 53.56 1984 339 Pads 5,887 per pad 78% -- 50
1998 79.78 60.44 1978 88 Units 22,664 units 89% 14,438 250
1998 41.53 35.71 1972 76 Units 26,226 per unit 97% -- 251
1997 72.45 64.25 1962 72 Units 27,673 per unit 94% 2,375 250
1998 67.49 59.18 1988 23 Units 86,561 per unit 100% 2,750 250
1997 64.07 0.00 1996 54 Rooms 36,781 per room NAP -- 4%
1998 61.95 0.00 1985 16,413 Sq. Ft. 121 per sq. ft. 91% -- 0.25
1997 60.89 57.38 1964 120 Units 16,490 per unit 90% 2,000 225
1998 89.79 0.00 1997 11,200 Sq. Ft. 176 per sq. ft. 100% -- 0.00
1998 96.23 0.00 1998 10,125 Sq. Ft. 195 per sq. ft. 100% -- 0.18
1997 77.11 67.73 1928 63 Units 30,722 per unit 95% 69,950 250
1997 74.85 56.02 1997 45 Units 42,832 per unit 100% -- 200
1997 79.66 69.56 1927 73 Units 26,189 per unit 100% -- 249
1998 73.32 57.62 1998 23,500 Sq. Ft. 81 per sq. ft. 100% -- 0.10
1998 79.83 64.15 1968 88 Units 21,591 per unit 100% 1,722 250
1998 66.56 0.00 1984 50 Rooms 37,942 per room NAP -- 4%
1997 59.20 48.45 1979 37,973 Sq. Ft. 50 per sq. ft. 100% 38,500 0.29
1998 70.55 57.61 1988 15,750 Sq. Ft. 120 per sq. ft. 92% -- 0.15
1998 72.56 0.00 1924 156 Units 12,094 per unit 96% 57,031 250
1997 71.89 59.80 1970 104 Units 17,974 per unit 98% 37,500 225
1998 77.74 68.29 1989 60 Units 30,771 per unit 98% -- 250
1998 83.88 65.64 1996 59 Units 31,279 per unit 86% -- 150
1998 56.58 0.00 1986 42,777 Sq. Ft. 43 per sq. ft. 91% -- 0.27
1998 71.09 0.00 1994 62 Rooms 29,696 per room NAP 17,713 4%
1998 90.16 0.00 1998 11,057 Sq. Ft. 166 per sq. ft. 100% -- 0.15
1998 79.25 69.28 1973 42 Units 43,401 per unit 100% 2,500 271
1998 67.15 58.89 1988 18 Units 99,795 per unit 100% 13,360 251
1997 78.05 63.45 1971 45 Units 39,895 per unit 98% 19,450 250
1998 89.48 0.00 1998 11,057 Sq. Ft. 162 per sq. ft. 100% -- 0.15
1998 79.27 28.00 1998 11,057 Sq. Ft. 160 per sq. ft. 100% 1,250 0.13
1997 79.56 64.22 1964 114 Units 15,354 per unit 96% 138,938 225
1998 72.52 63.51 1989 41,618 Sq. Ft. 42 per sq. ft. 100% -- 0.15
1998 72.78 64.33 1994 13,064 Sq. Ft. 134 per sq. ft. 99% -- 0.25
1998 67.09 0.00 1984 45,313 Sq. Ft. 38 per sq. ft. 97% 42,250 0.15
1998 74.05 64.60 1984 150 Units 11,601 per unit 77% 34,750 253
1997 72.27 63.87 1985 37,027 Sq. Ft. 47 per sq. ft. 100% -- 0.29
1998 65.30 0.00 1982 37,500 Sq. Ft. 46 per sq. ft. 100% 56,250 0.16
1997 63.93 52.80 1981 85,818 Sq. Ft. 20 per sq. ft. 93% 46,250 0.35
1997 70.34 0.00 1979 23,834 Sq. Ft. 72 per sq. ft. 97% -- 0.24
1998 73.87 64.64 1978 34 Units 49,969 per unit 100% -- 286
1998 69.53 56.36 1996 31,200 Sq. Ft. 54 per sq. ft. 100% -- 0.15
1998 73.12 51.02 1976 325 Pads 5,219 per pad 83% -- 50
1998 73.64 64.38 1923 24 Units 70,571 per unit 96% 625 370
1997 69.55 55.63 1900 73 Units 23,153 per unit 96% 112,625 268
1998 75.07 65.68 1981 48 Units 34,956 per unit 96% 1,000 250
1998 43.09 37.28 1991 34,045 Sq. Ft. 49 per sq. ft. 100% -- 0.29
1998 73.54 50.45 1989 41,000 Sq. Ft. 40 per sq. ft. 100% -- 0.15
1998 67.23 55.23 1894 13,726 Sq. Ft. 120 per sq. ft. 100% -- 0.20
1998 76.58 61.70 1978 53 Units 30,995 per unit 100% 893 250
1997 76.37 62.31 1988 36,500 Sq. Ft. 45 per sq. ft. 100% -- 0.27
1997 70.01 57.16 1972 43 Units 37,450 per unit 95% 3,500 250
1998 69.19 55.55 1995 16,544 Sq. Ft. 97 per sq. ft. 93% -- 0.20
1998 78.88 0.00 1997 45 Units 35,498 per unit 100% 17,000 250
1998 60.79 53.70 1946 14,495 Sq. Ft. 110 per sq. ft. 100% -- 0.34
1998 75.94 61.26 1984 56 Units 28,477 per unit 100% -- 263
1998 73.08 46.17 1976 96,000 Sq. Ft. 17 per sq. ft. 100% 13,381 0.15
1998 66.20 45.96 1966 75 Units 21,185 per unit 97% 29,826 250
1997 76.52 31.03 1966 86 Units 18,239 per unit 95% 7,500 266
1997 74.10 57.18 1996 9,177 Sq. Ft. 170 per sq. ft. 100% -- 0.10
1998 68.06 55.08 1981 21,625 Sq. Ft. 72 per sq. ft. 91% -- 0.15
<CAPTION>
Largest Tenant
---------------------------------------------------------------------------
Appraisal Reserves Area Leased Lease Control
Year Collected Name (Sq. Ft.) Exp Date No.
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
1997 178 per unit MID-002
1997 none per sq. ft. Jack Johnson Company 6,027 12/31/2003 GCM-054
1997 249 per unit GCM-091
1998 250 per unit MID-108
1998 0.15 per sq. ft. Big Lots 22,000 01/31/1999 MID-033
1997 none per sq. ft. Staples, Inc. 24,500 08/31/2012 GCM-046
1997 none per unit MLMI-097
1998 250 per unit WMFG-056
1998 4% of revenue MLMI-127
1997 4% of revenue MLMI-072
1997 none per sq. ft. Bulevin Properties 8,463 07/14/1999 GCM-011
1998 264 per unit GCM-089
1998 264 per unit GCM-100
1997 none per sq. ft. PACCAR Automotive, Inc. 6,600 07/16/2007 GCM-053
1998 0.20 per sq. ft. Capital City Comedy Club 9,000 10/31/1999 WMFG-087
1998 0.10 per sq. ft. Rayco Roof Services 28,600 06/30/2018 MID-091
1998 none per unit MID-078
1997 none per unit MID-145
1997 none per unit GCM-062
1998 0.10 per sq. ft. Blockbuster Video 7,668 01/01/2005 WMFG-079
1997 none per sq. ft. CompUSA 26,362 10/31/2012 MLMI-037
1997 none per sq. ft. Michaels 29,200 02/28/2004 GCM-070
1998 445 per room WMFG-048
1997 none per sq. ft. Cheers Restaurant 5,725 11/08/2002 GCM-055
1998 none per lots MID-130
1998 50 per pad MLMI-143
1998 250 units MLMI-141
1998 251 per unit GCM-094
1997 237 per unit MLMI-169
1998 250 per unit WMFG-015
1997 4% of revenue MLMI-087
1998 none per sq. ft. Kinko's 7,378 09/01/2006 MLMI-134
1997 none per unit GCM-027
1998 none per sq. ft. Eckerd Corporation 11,200 11/14/2017 GCM-105
1998 0.18 per sq. ft. CVS 10,125 05/31/2018 WMFG-039
1997 none per unit GCM-059
1997 none per unit GCM-036
1997 253 per unit MLMI-101
1998 none per sq. ft. Office Max 23,500 02/28/2013 WMFG-025
1998 136 per unit MID-167
1998 4% of revenue MLMI-146
1997 0.29 per sq. ft. AES Inc. 6,174 06/30/2001 MID-065
1998 0.15 per sq. ft. Silver State Bank 4,957 04/30/2006 MID-079
1998 250 per unit GCM-096
1997 225 per unit MLMI-057
1998 250 per unit MID-092
1998 150 per unit WMFG-009
1998 none per sq. ft. Troop Real Estate 15,156 08/31/2010 GCM-200
1998 4% of revenue MLMI-142
1998 0.15 per sq. ft. Rite Aid 11,057 04/30/2018 WMFG-014
1998 271 per unit WMFG-124
1998 251 per unit WMFG-016
1997 250 per unit MID-018
1998 0.15 per sq. ft. Rite Aid 11,057 04/30/2018 WMFG-013
1998 0.13 per sq. ft. Rite Aid 11,057 06/30/2018 WMFG-044
1997 225 per unit MLMI-059
1998 0.15 per sq. ft. Hydro Components 4,727 04/30/1998 MID-042
1998 0.25 per sq. ft. First American Title 5,000 03/31/2003 MID-044
1998 none per sq. ft. Tuesday Morning 10,235 01/15/2008 MLMI-103
1998 253 per unit MLMI-088
1997 none per sq. ft. Theatre Arts 5,880 08/30/2001 MLMI-073
1998 none per sq. ft. Bally Total Fitness 37,500 05/31/2008 MLMI-038
1997 none per sq. ft. U of M Clinical Services 16,215 11/30/1998 GCM-020
1997 none per sq. ft. Paragon Steakhouse Restaurants, Inc. 23,205 05/31/2001 GCM-057
1998 none per unit MID-146
1998 none per sq. ft. Itron, Inc 31,200 10/31/2006 MID-017
1998 50 per pad MLMI-144
1998 370 per unit WMFG-003
1997 255 / $0.19 per unit / sq.ft. MLMI-066
1998 none per unit MID-083
1998 none per sq. ft. Val Surf 4,650 10/31/2000 GCM-093
1998 none per sq. ft. Pure Granite 7,000 01/01/2005 GCM-134
1998 0.20 per sq. ft. White Rose Bridal Salon 3,139 12/31/2002 MID-048
1998 225 per unit MID-061
1997 none per sq. ft. RAM Leather and Fur 17,000 04/30/2000 MID-086
1997 250 per unit GCM-066
1998 0.25 per sq. ft. Hospital 12,015 10/06/2000 MID-035
1998 226 per unit MID-132
1998 0.03 per sq. ft. Q's Billiards 6,000 07/31/2000 MLMI-032
1998 263 per unit MID-116
1998 none per sq. ft. CDR Machine 6,000 04/30/2000 MLMI-175
1998 250 per unit MID-036
1997 76 per unit MLMI-159
1997 none per sq. ft. Men's Wearhouse 6,700 02/28/2007 GCM-028
1998 0.15 per sq. ft. Elam's Hallmark 3,620 01/31/2000 MID-166
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Loan Control
Source No. Property Name
====================================================================================
<S> <C> <C>
MIDLAND MID-069 Magnolia Garden Apartments
MIDLAND MID-074 Parkway Plaza
MIDLAND MID-113 El Torito Restaurant and Black Angus Restaurant
MIDLAND MID-022 Fitch Office Building
GCM GCM-004 Creekside at Columbine
MIDLAND MID-109 Harbour Lights Apartments
GCM GCM-058 Carseka Apartments
MIDLAND MID-129 Cardinal Self Storage
GCM GCM-135 Shamrock Nursing & Rehabilitation
WMFG WMFG-036 Salem Shopping Center
MLMI MLMI-014 University Village
GCM GCM-130 Casitas de Las Cruces Apartments
GCM GCM-039 Amber Park Apartments
MIDLAND MID-019 Lakeside Business Center
MIDLAND MID-119 Chesapeake Estates of New Oxford
GCM GCM-151 Twinbrook Corner
MLMI MLMI-164 Little Creek Apartments
MLMI MLMI-045 West Village Shopping Center
MIDLAND MID-027 A Super 8 Motel
WMFG WMFG-040 CVS
WMFG WMFG-084 Highway 6 Retail
GCM GCM-166 Post Road Office Building
GCM GCM-016 Miller Plaza
MIDLAND MID-008 Victory Supermarket Plaza
MIDLAND MID-024 Sun Colony Apartments
MLMI MLMI-102 2785 Sedgwick Avenue
MLMI MLMI-048 MK-141 Avenue A
MLMI MLMI-033 Sycamore Place
GCM GCM-136 Federal Terrace Apartments
GCM GCM-065 Bend Sentry Storage
MLMI MLMI-031 17 Cleveland Place
MIDLAND MID-150 Morena Plaza
MIDLAND MID-070 Greenwell Plaza Apts
MLMI MLMI-043 Motel 6 - New Haven
MIDLAND MID-012 1230-48 Latta Road
MIDLAND MID-135 Factoria Plaza
MIDLAND MID-023 Stone Henge Apartments
GCM GCM-132 Drewville Professional Buildings
MLMI MLMI-153 Greentree Plaza
GCM GCM-192 Mobile Manor Mobile Home Park
MLMI MLMI-176 234 Park Avenue
MIDLAND MID-095 North 16th Street Commercial Center
MLMI MLMI-148 Woodstock Apartments
MIDLAND MID-126 Coventry Square North
MIDLAND MID-031 Gateway Mini-Storage
GCM GCM-052 Sungate Apartments
GCM GCM-049 Colorado's Liquor Outlet
MLMI MLMI-047 Beaconsfield Apartments
GCM GCM-025 Lone Oak Apartments
GCM GCM-143 Galer Gardens Commercial Condominiums
GCM GCM-203 Tyler Court Mini Storage
GCM GCM-031 Madera Rehabilitation and Convalescent Center
MLMI MLMI-100 686 Rosewood Street & 3251-3265 White Plains Rd.
MIDLAND MID-131 US Trust Co. Building
MIDLAND MID-016 Pinewood Manor Townhomes
WMFG WMFG-094 Montgomery Self Storage
MLMI MLMI-060 Central Drive Lot 14
WMFG WMFG-095 Rohrerstown Diagnostic Imaging Center
MLMI MLMI-049 MK-Lido Beach Apartments
GCM GCM-063 Self Stor Mini-Storage Complex
GCM GCM-152 Bird Trucking
GCM GCM-145 States Plaza
WMFG WMFG-058 Garden Center Apartments
MLMI MLMI-111 Emerson Court
GCM GCM-148 Tall Pines Apartments
WMFG WMFG-097 Marine Gardens
GCM GCM-191 Compass Pointe Apartments
MIDLAND MID-026 The Office Building Located at 265 Parkside Drive
MLMI MLMI-078 Days Inn - Killeen
GCM GCM-144 Greenbrook Plaza
GCM GCM-167 Reno Office Building
MIDLAND MID-120 Darlington Estates Mobile Estates
MLMI MLMI-145 Ryefield Mobile Home Park
GCM GCM-178 Tramore Castle Apartments
MIDLAND MID-127 The Barrymore
MLMI MLMI-147 Econo Lodge
GCM GCM-077 Cambridge in the Groves Apartments
MIDLAND MID-025 Westborough Arms Apartments
MLMI MLMI-021 Karen West Apartments
GCM GCM-044 7946 East McClain Drive
GCM GCM-201 Galveston Apartments
GCM GCM-067 The Sunset Ridge Retail Center
WMFG WMFG-111 Red Oak Office Building
GCM GCM-017 Bartow Shopping Center
GCM GCM-048 Albany Self Storage #1
<CAPTION>
Loan Zip
Source Address City State Code
===============================================================================================================================
<S> <C> <C> <C> <C>
MIDLAND 8820 Greenwell Springs Road Baton Rouge LA 70814
MIDLAND 945 West Valley Parkway Escondido CA 92025
MIDLAND 6200 & 6300 N. Scottsdale Road Scottsdale AZ 85253
MIDLAND 17922 Fitch Avenue Irvine CA 92614
GCM 5901 - 5961 S. Middlefield Road Littleton CO 80123
MIDLAND 1032 Radcliffe Street Bristol PA 19007
GCM 9618 Exposition Boulevard Los Angeles CA 90232
MIDLAND 3010 Alternate U.S. Highway 19 Palm Harbor FL 34683
GCM 1634 Telfair Street Dublin GA 31021
WMFG 524-528 South Broadway (Route 28) Salem NH 03079
MLMI 300-310 N. Indian Hill & 353-383 W. Bonita Avenue Claremont CA 91711
GCM 1155 N. Miranda Las Cruces NM 88005
GCM 295 Colt Lane NE Salem OR 97301
MIDLAND 7941-8051 East Lakeside Parkway Tucson AZ 85730
MIDLAND 575 Kohler School Road Mount Pleasant PA 17350
GCM 12303 Twinbrook Parkway Rockville MD 20850
MLMI 3670 John Hix Rd Wayne MI 48184
MLMI 1013-1053 West Main Street Fremont MI 49412
MIDLAND 605 Peterson Road Colorado Springs CO 80915
WMFG 1950 Cedar Lane Rd. Greenville SC 29611
WMFG NEC Highway 6 North and West Road Houston TX 77077
GCM 272 Post Road East Westport CT 06880
GCM 12606 SE 38th Place Bellevue WA 98006
MIDLAND 21 Timpany Boulevard Gardner MA 01440
MIDLAND 1900 Coffee Port Road Brownsville TX 78521
MLMI 2785 Sedgwick Avenue Bronx NY 10468
MLMI 141 Avenue A New York NY 10122
MLMI 1500 Sycamore Avenue Hercules CA 94547
GCM 3030, 3060, 3080 South Federal Boulevard Denver CO 80236
GCM 1291 SE Wilson Avenue Bend OR 97702
MLMI 17 Cleveland Place Gloucester MA 01930
MIDLAND 1022 West Morena Boulevard San Diego CA 92111
MIDLAND 8235 Greenwell Springs Road Baton Rouge LA 70814
MLMI 270 Foxon Boulevard New Haven CT 06513
MIDLAND 1230-48 Latta Road Greece NY 14612
MIDLAND 3900 128th Ave SE Bellevue WA 98006
MIDLAND 4250 Country Day Lane Fort Worth TX 76109
GCM Drewville Road Carmel NY 10509
MLMI 1501-1523 West 81st Avenue Merrillville IN 46410
GCM 1107 30th Street Road Greeley CO 80631
MLMI 234 Park Avenue Hoboken NJ 07030
MIDLAND 6102- 6120 N. 16th Street Phoenix AZ 85016
MLMI 5950 Boca Raton Fort Worth TX 76112
MIDLAND 12000 N. Dale Mabry Hwy Tampa FL 33618
MIDLAND 3501 Gandy Boulevard Pinellas Park FL 33781
GCM 6829 North Broadway Gladstone MO 64118
GCM 1615 Briargate Boulevard Colorado Springs CO 80920
MLMI 535-539 Chestnut St., 88-106 110-118 Pearl St., 500 & 502 Pine St. Manchester NH 03101
GCM 102 & 104 14th Street NE Buffalo MN 55313
GCM 1417 Queen Anne Avenue North Seattle WA 98119
GCM 521 Tyler Road Ypsilanti MI 48198
GCM 517 South A Street Madera CA 93638
MLMI 686 Rosewood Street Bronx NY 10467
MIDLAND 1581 Franklin Avenue Garden City NY 11530
MIDLAND 913 E. Raines Road Memphis TN 38116
WMFG 28575 Highway 105 West Montgomery TX 77356
MLMI 565 & 567 Central Drive Virginia Beach VA 23454
WMFG 924 Red Rose Ct. East Hempfield PA 17603
MLMI 820-830 East Broadway Long Beach NY 11561
GCM 435 N. E. Circle Blvd Corvallis OR 97330
GCM 2340 South 3270 West West Valley UT 84119
GCM 1639 Fifth Avenue Bayshore NY 11706
WMFG 64 Garden Center Broomfield CO 80020
MLMI 1-22, 14-22 Emerson St. & 89-97 Belcher Rd. Wethersfield CT 06109
GCM 646-670 Country Road 207 Durango CO 81301
WMFG 220 Ocean Blvd Long Branch NJ 07740
GCM 29 North Lakewood Tulsa OK 74115
MIDLAND 265 Parkside Drive Colorado Springs CO 80910
MLMI 810 Central Expressway Killeen TX 76541
GCM 1389 Fifth Avenue Bayshore NY 11706
GCM 100 & 140 Washington St. Reno NV 89503
MIDLAND Conowingo Road(U.S. Route 1) and Center Road Darlington MD 21034
MLMI 234 Miami Road Ladson SC 29456
GCM 4515-4525 Lindell Blvd. St. Louis MO 63108
MIDLAND 238 & 248 Camac Street Philadelphia PA 19107
MLMI 117 U.S. Highway 59 Loop South Livingston TX 77351
GCM 5501 West Washington Groves TX 77619
MIDLAND 9301 W. Central Avenue Wichita KS 67212
MLMI 3061Karen Avenue Las Vegas NV 89103
GCM 7946 East McClain Drive Scottsdale AZ 85260
GCM 625 North Alma School Road Chandler AZ 85224
GCM 2895 N. Green Valley Parkway Henderson NV 89014
WMFG 8316 Red Oak Street Rancho Cucamonga CA 91730
GCM 1206-1264 North Broadway Avenue Bartow FL 33830
GCM 263 S. W. Queen Avenue Albany OR 97321
<CAPTION>
Cumulative % of
Loan Original Cut-Off % of Initial Initial Pool
Source Property Type Balance Date Balance Pool Balance Balance
================================================================================================================
<S> <C> <C> <C> <C> <C>
MIDLAND Multifamily 1,550,000 1,548,405 0.05% 95.51%
MIDLAND Retail 1,540,000 1,537,147 0.05% 95.57%
MIDLAND Retail 1,540,000 1,536,963 0.05% 95.62%
MIDLAND Office 1,550,000 1,536,762 0.05% 95.67%
GCM Office 1,550,000 1,532,964 0.05% 95.73%
MIDLAND Multifamily 1,525,000 1,521,859 0.05% 95.78%
GCM Multifamily 1,525,000 1,512,404 0.05% 95.83%
MIDLAND Self Storage 1,500,000 1,497,145 0.05% 95.88%
GCM Health Care 1,500,000 1,494,186 0.05% 95.93%
WMFG Retail 1,450,000 1,446,962 0.05% 95.98%
MLMI Retail 1,450,000 1,445,070 0.05% 96.03%
GCM Multifamily 1,450,000 1,444,969 0.05% 96.08%
GCM Multifamily 1,450,000 1,439,731 0.05% 96.13%
MIDLAND Office 1,440,000 1,432,508 0.05% 96.18%
MIDLAND Mobile Home Park 1,400,000 1,400,000 0.05% 96.23%
GCM Retail 1,400,000 1,397,354 0.05% 96.28%
MLMI Multifamily 1,400,000 1,393,392 0.05% 96.33%
MLMI Retail 1,400,000 1,391,437 0.05% 96.38%
MIDLAND Hospitality 1,400,000 1,386,485 0.05% 96.42%
WMFG CTL 1,380,000 1,377,438 0.05% 96.47%
WMFG Retail 1,375,000 1,374,229 0.05% 96.52%
GCM Office 1,350,000 1,348,731 0.05% 96.57%
GCM Retail 1,360,000 1,347,079 0.05% 96.61%
MIDLAND Retail 1,350,000 1,342,548 0.05% 96.66%
MIDLAND Multifamily 1,300,000 1,295,804 0.04% 96.70%
MLMI Multifamily 1,280,000 1,274,543 0.04% 96.75%
MLMI Multifamily 1,275,000 1,272,458 0.04% 96.79%
MLMI Retail 1,275,000 1,271,714 0.04% 96.84%
GCM Multifamily 1,275,000 1,269,955 0.04% 96.88%
GCM Industrial 1,280,000 1,262,460 0.04% 96.92%
MLMI Multifamily 1,260,000 1,256,497 0.04% 96.97%
MIDLAND Retail 1,250,000 1,248,817 0.04% 97.01%
MIDLAND Multifamily 1,250,000 1,248,714 0.04% 97.05%
MLMI Hospitality 1,250,000 1,241,463 0.04% 97.10%
MIDLAND Multifamily 1,250,000 1,239,749 0.04% 97.14%
MIDLAND Retail 1,240,000 1,238,732 0.04% 97.18%
MIDLAND Multifamily 1,245,000 1,236,969 0.04% 97.23%
GCM Office 1,225,000 1,221,032 0.04% 97.27%
MLMI Retail 1,220,000 1,214,821 0.04% 97.31%
GCM Mobile Home Park 1,200,000 1,199,057 0.04% 97.35%
MLMI Multifamily 1,200,000 1,198,696 0.04% 97.39%
MIDLAND Retail 1,200,000 1,197,752 0.04% 97.43%
MLMI Multifamily 1,200,000 1,196,744 0.04% 97.48%
MIDLAND Office 1,200,000 1,196,298 0.04% 97.52%
MIDLAND Self Storage 1,200,000 1,193,720 0.04% 97.56%
GCM Multifamily 1,200,000 1,192,548 0.04% 97.60%
GCM Retail 1,200,000 1,190,061 0.04% 97.64%
MLMI Multifamily 1,200,000 1,187,705 0.04% 97.68%
GCM Multifamily 1,200,000 1,184,756 0.04% 97.72%
GCM Retail 1,175,000 1,172,952 0.04% 97.76%
GCM Self Storage 1,171,000 1,170,082 0.04% 97.80%
GCM Health Care 1,200,000 1,161,676 0.04% 97.84%
MLMI Multifamily 1,160,000 1,155,054 0.04% 97.88%
MIDLAND Office 1,150,000 1,149,366 0.04% 97.92%
MIDLAND Multifamily 1,150,000 1,145,317 0.04% 97.96%
WMFG Self Storage 1,140,000 1,137,929 0.04% 98.00%
MLMI Industrial 1,130,000 1,124,037 0.04% 98.04%
WMFG Office 1,100,000 1,098,936 0.04% 98.08%
MLMI Multifamily 1,100,000 1,097,807 0.04% 98.12%
GCM Industrial 1,110,000 1,094,789 0.04% 98.15%
GCM Industrial 1,087,500 1,085,801 0.04% 98.19%
GCM Retail 1,065,000 1,062,576 0.04% 98.23%
WMFG Multifamily 1,050,000 1,049,344 0.04% 98.27%
MLMI Multifamily 1,050,000 1,048,867 0.04% 98.30%
GCM Multifamily 1,050,000 1,048,257 0.04% 98.34%
WMFG Multifamily 1,040,000 1,039,231 0.04% 98.37%
GCM Multifamily 1,035,000 1,034,113 0.04% 98.41%
MIDLAND Office 1,025,000 1,021,742 0.04% 98.45%
MLMI Hospitality 1,025,000 1,018,107 0.04% 98.48%
GCM Retail 1,010,000 1,007,701 0.03% 98.52%
GCM Office 1,000,000 998,536 0.03% 98.55%
MIDLAND Mobile Home Park 1,000,000 997,975 0.03% 98.58%
MLMI Mobile Home Park 1,000,000 997,833 0.03% 98.62%
GCM Multifamily 1,000,000 997,157 0.03% 98.65%
MIDLAND Multifamily 1,000,000 996,850 0.03% 98.69%
MLMI Hospitality 1,000,000 993,651 0.03% 98.72%
GCM Multifamily 1,000,000 990,391 0.03% 98.76%
MIDLAND Multifamily 1,000,000 982,732 0.03% 98.79%
MLMI Multifamily 975,000 971,848 0.03% 98.82%
GCM Mixed Use 950,000 941,173 0.03% 98.86%
GCM Multifamily 925,000 919,784 0.03% 98.89%
GCM Retail 925,000 916,148 0.03% 98.92%
WMFG Office 900,000 899,559 0.03% 98.95%
GCM Retail 900,000 891,719 0.03% 98.98%
GCM Industrial 900,000 887,667 0.03% 99.01%
<CAPTION>
Loan Affiliated
Source Borrower
===============================================================
<S> <C>
MIDLAND MID-068, MID-070, MID-100, MID-113
MIDLAND
MIDLAND MID-068, MID-069, MID-070, MID-100
MIDLAND
GCM
MIDLAND
GCM GCM-029, GCM-059
MIDLAND
GCM
WMFG WMFG-035
MLMI
GCM
GCM
MIDLAND
MIDLAND MID-120
GCM
MLMI
MLMI
MIDLAND
WMFG WMFG-039
WMFG
GCM
GCM
MIDLAND
MIDLAND
MLMI MLMI-100, MLMI-101
MLMI MLMI-049, MLMI-50, MLMI-051, MLMI-052
MLMI
GCM
GCM MID-015, GCM-048, GCM-062, GCM-063, GCM-064
MLMI
MIDLAND
MIDLAND MID-068, MID-069, MID-100, MID-113
MLMI
MIDLAND
MIDLAND
MIDLAND
GCM GCM-134
MLMI MLMI-158
GCM
MLMI
MIDLAND
MLMI
MIDLAND
MIDLAND
GCM
GCM
MLMI
GCM
GCM
GCM
GCM GCM-067
MLMI MLMI-101, MLMI-102
MIDLAND
MIDLAND
WMFG
MLMI
WMFG WMFG-106, WMFG-108
MLMI MLMI-048, MLMI-50, MLMI-051, MLMI-052
GCM MID-015, GCM-048, GCM-062, GCM-064, GCM-065
GCM
GCM GCM-144
WMFG WMFG-124
MLMI MLMI-112, MLMI-113
GCM
WMFG WMFG-090
GCM
MIDLAND
MLMI
GCM GCM-145
GCM
MIDLAND MID-119
MLMI MLMI-143, MLMI-144
GCM
MIDLAND
MLMI
GCM
MIDLAND MID-011, MID-104, MID-106, MID-107
MLMI
GCM
GCM
GCM GCM-031
WMFG
GCM
GCM MID-015, GCM-062, GCM-063, GCM-064, GCM-065
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Rem
Orig Rem Amort Amort
Interest Accrual Mortgage Administrative Term Term Term Term Origination Repayment
Crossed Method Rate Cost Rate (Mos.) (Mos.) (Mos.) (Mos.) Date Date
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Actual/360 7.050 0.18175 120 119 300 299 07/06/98 08/01/2008
Actual/360 7.540 0.18175 120 118 300 298 06/03/98 07/01/2008
MID-100 Actual/360 7.260 0.08175 120 118 300 298 06/03/98 07/01/2008
Actual/360 7.600 0.08175 120 112 300 292 12/29/97 01/01/2008
30/360 8.530 0.20175 84 73 300 289 09/10/97 10/01/2004
Actual/360 7.060 0.08175 120 118 300 298 06/18/98 07/01/2008
30/360 7.600 0.20175 120 109 360 349 09/29/97 10/01/2007
Actual/360 7.420 0.18175 120 118 300 298 06/03/98 07/01/2008
Actual/360 7.620 0.09675 120 116 300 296 04/24/98 05/01/2008
WMFG-035 Actual/360 6.980 0.09675 120 118 300 298 06/03/98 07/01/2008
30/360 8.000 0.28675 120 115 360 355 03/03/98 04/01/2008
Actual/360 8.140 0.09675 180 176 300 296 04/08/98 05/01/2013
30/360 7.880 0.20175 120 110 360 350 10/22/97 11/01/2007
Actual/360 7.440 0.08175 120 115 300 295 03/17/98 04/01/2008
Actual/360 6.890 0.08175 120 120 360 360 08/07/98 09/01/2008
Actual/360 7.450 0.09675 240 238 300 298 06/09/98 07/01/2018
Actual/360 7.650 0.09675 120 113 360 353 01/02/98 02/01/2008
Actual/360 7.890 0.12675 120 114 300 294 02/04/98 03/01/2008
Actual/360 7.860 0.08175 120 114 240 234 02/09/98 03/01/2008
Actual/360 6.900 0.09675 237 236 237 236 07/23/98 05/01/2018
Actual/360 7.350 0.09675 120 119 360 359 07/24/98 08/01/2008
Actual/360 7.460 0.09675 120 119 300 299 07/16/98 08/01/2008
Actual/360 8.240 0.20175 120 110 300 290 10/30/97 11/01/2007
Actual/360 7.710 0.08175 120 118 180 178 06/17/98 07/01/2008
Actual/360 7.170 0.08175 120 117 300 297 05/06/98 06/01/2008
Actual/360 7.375 0.12675 120 114 360 354 02/10/98 03/01/2008
Actual/360 7.625 0.12675 120 117 360 357 05/06/98 06/01/2008
30/360 8.250 0.28675 120 116 360 356 04/21/98 05/01/2008
Actual/360 7.520 0.09675 120 116 300 296 04/14/98 05/01/2008
Actual/360 7.740 0.20175 240 232 240 232 12/29/97 01/01/2018
30/360 7.875 0.28675 60 56 360 356 04/15/98 05/01/2003
Actual/360 7.430 0.08175 120 119 300 299 07/28/98 08/01/2008
Actual/360 7.050 0.18175 120 119 300 299 07/06/98 08/01/2008
30/360 8.250 0.12675 264 259 264 259 03/27/98 04/01/2020
Actual/360 7.150 0.08175 120 113 300 293 01/23/98 02/01/2008
Actual/360 7.080 0.18175 120 119 300 299 07/09/98 08/01/2008
Actual/360 7.220 0.08175 120 114 300 294 02/05/98 03/01/2008
Actual/360 8.450 0.09675 180 176 300 296 04/17/98 05/01/2013
Actual/360 8.510 0.09675 120 112 360 352 12/31/97 01/01/2008
Actual/360 8.220 0.09675 120 119 300 299 07/13/98 08/01/2008
Actual/360 7.090 0.12675 180 179 300 299 07/30/98 08/01/2013
Actual/360 7.490 0.08175 120 118 300 298 06/15/98 07/01/2008
Actual/360 7.440 0.09675 120 116 360 356 04/20/98 05/01/2008
Actual/360 7.400 0.18175 120 117 300 297 05/22/98 06/01/2008
Actual/360 7.410 0.08175 120 115 300 295 03/31/98 04/01/2008
Actual/360 7.360 0.20175 240 231 360 351 11/20/97 12/01/2017
Actual/360 7.770 0.20175 120 112 300 292 12/17/97 01/01/2008
Actual/360 7.750 0.12675 240 234 240 234 02/25/98 03/01/2018
30/360 8.190 0.20175 120 108 300 288 08/22/97 09/01/2007
Actual/360 7.660 0.09675 120 117 360 357 05/05/98 06/01/2008
Actual/360 8.230 0.09675 120 119 300 299 07/29/98 08/01/2008
30/360 8.340 0.35175 180 169 180 169 09/22/97 10/01/2012
Actual/360 7.375 0.12675 120 114 360 354 02/10/98 03/01/2008
Actual/360 7.400 0.08175 120 119 360 359 07/17/98 08/01/2008
Actual/360 7.380 0.08175 180 176 300 296 04/29/98 05/01/2013
Actual/360 7.625 0.09675 120 118 300 298 06/30/98 07/01/2008
Actual/360 7.750 0.12675 120 115 300 295 03/06/98 04/01/2008
Actual/360 7.330 0.08675 120 119 300 299 07/07/98 08/01/2008
Actual/360 7.625 0.12675 120 117 360 357 05/06/98 06/01/2008
Actual/360 7.740 0.20175 240 232 240 232 12/29/97 01/01/2018
Actual/360 8.260 0.09675 180 178 300 298 06/05/98 07/01/2013
Actual/360 8.840 0.09675 180 177 300 297 05/14/98 06/01/2013
Actual/360 7.000 0.09675 120 119 360 359 07/23/98 08/01/2008
Actual/360 7.125 0.12675 120 119 300 299 07/16/98 08/01/2008
Actual/360 8.010 0.09675 180 178 300 298 06/05/98 07/01/2013
Actual/360 6.750 0.09675 360 359 360 359 07/07/98 08/01/2028
Actual/360 7.860 0.09675 120 119 300 299 07/22/98 08/01/2008
Actual/360 7.440 0.08175 120 115 360 355 03/20/98 04/01/2008
30/360 8.160 0.09675 240 236 240 236 04/23/98 05/01/2018
Actual/360 8.840 0.09675 180 177 300 297 05/13/98 06/01/2013
Actual/360 8.520 0.09675 240 238 300 298 06/25/98 07/01/2018
Actual/360 7.110 0.08175 120 117 360 357 05/26/98 06/01/2008
MLMI-143 Actual/360 7.125 0.12675 156 154 300 298 06/30/98 07/01/2011
Actual/360 8.250 0.09675 240 238 240 238 06/23/98 07/01/2018
Actual/360 7.290 0.08175 120 117 300 297 05/27/98 06/01/2008
Actual/360 8.160 0.09675 240 236 240 236 04/20/98 05/01/2018
30/360 8.750 0.09675 120 110 300 290 10/23/97 11/01/2007
Actual/360 6.780 0.08175 120 117 120 117 05/08/98 06/01/2008
30/360 8.250 0.28675 120 115 360 355 03/11/98 04/01/2008
30/360 7.520 0.20175 120 112 300 292 12/03/97 01/01/2008
30/360 7.870 0.09675 84 76 360 352 12/17/97 01/01/2005
Actual/360 7.560 0.20175 120 111 300 291 11/21/97 12/01/2007
Actual/360 7.750 0.09675 120 119 360 359 07/30/98 08/01/2008
Actual/360 8.410 0.20175 120 110 300 290 10/22/97 11/01/2007
Actual/360 7.740 0.20175 240 232 240 232 12/29/97 01/01/2018
<CAPTION>
Annual
Balloon/Repayment Debt
Balance Maturity Term Prepayment Restrictions Service
====================================================================================================================================
<S> <C> <C> <C>
1,245,475 Balloon L(60),> YM or 1%(54),O(6) 132,055
1,256,360 Balloon L(60),> YM or 1%(54),O(6) 137,047
1,245,858 Balloon L(60),> YM or 1%(54),O(6) 133,694
1,265,520 Balloon L(36),> YM or 1%(78),O(6) 138,664
1,381,764 Balloon > of YM or 1% (72),1%(6),O(6) 150,148
1,226,208 Hyperam L(48),> YM or 1%(66),O(6) 130,042
1,328,875 Balloon L(36),> of YM or 1% (78),O(6) 129,212
1,219,360 Hyperam L(48),> YM or 1%(66),O(6) 132,083
1,226,671 Balloon L(36),4%(12),3%(12),2%(12),1%(12),O(36) 134,427
1,163,026 Balloon L(26),Def(90),O(4) 122,758
1,274,153 Balloon L(59), 5% (12), 4% (12), 3% (12), 2% (12), 1% (6), O(7) 127,675
978,655 Balloon > of YM or 1% (120),5%(12),4%(12),3%(12),2%(12),1%(5),O(7) 135,914
1,271,014 Balloon L(48),> of YM or 5% (48),5%(12),O(12) 126,222
1,170,917 Balloon L(60),> YM or 1%(54),O(6) 127,024
1,219,394 Hyperam L(48),> YM or 1%(66),O(6) 110,532
581,078 Balloon L(60),Def(173),O(7) 123,605
1,242,550 Balloon L(60), >YM or 1% ( 56), O(4) 119,198
1,134,543 Balloon L(60), >YM or 1% ( 56), O(4) 129,750
988,499 Balloon L(36),> YM or 1%(78),O(6) 139,062
NAP Fully Amort L(36),Def(201) 129,136
1,212,148 Balloon L(48),Def(68),O(4) 113,680
1,098,308 Balloon L(60),Def(53),O(7) 119,295
1,130,945 Balloon L(48),> of YM or 1% (66),O(6) 128,566
656,772 Balloon L(48),>YM or 5%(66),O(6) 152,116
1,048,472 Balloon L(60),> YM or 1%(54),O(6) 111,955
1,112,978 Balloon L(60), > of YM or 1% ( 56), O(4) 107,238
1,114,236 Balloon L(60), >YM or 1% ( 56), O(4) 109,473
1,126,005 Balloon L(59), 5% (12), 4% (12), 3% (12), 2% (12), 1% (6), O(7) 114,944
1,039,590 Hyperam L(60),> of YM or 1% (53),O(7) 113,265
NAP Fully Amort L(120), > of YM or 3% (114),O(6) 126,003
1,197,769 Balloon L(53), O(7) 109,630
1,016,043 Balloon L(60),> YM or 1%(54),O(6) 110,167
1,004,416 Balloon L(60),> YM or 1%(54),O(6) 106,496
NAP Fully Amort L(120), >YM or 1% (140), O(4) 123,333
1,006,786 Balloon L(48),> YM or 5% (66),O(6) 107,457
997,298 Balloon L(60),> YM or 1%(54),O(6) 105,929
1,006,251 Balloon L(60),> YM or 1%(54),O(6) 107,699
839,705 Balloon > of YM or 1% (120),5%(12),4%(12),3%(12),2%(12),1%(5),O(7) 117,874
1,104,900 Balloon L(60), >YM or 1% ( 56), O(4) 112,673
997,939 Balloon > of YM or 1% (113),O(7) 113,248
741,069 Balloon L(25), Def(151), O(4) 103,564
977,528 Balloon L(60),> YM or 1%(54),O(6) 106,321
1,044,704 Balloon L(60), > of YM or 1% (53), O(7) 101,184
974,563 Hyperam L(48),> YM or 1%(66),O(6) 105,480
974,891 Balloon L(60),> YM or 1%(54),O(6) 105,573
757,468 Balloon L(120), > of YM or 1% (114),O(6) 99,310
984,618 Balloon L(60),> of YM or 1% (54),O(6) 108,956
NAP Fully Amort L(120), > of YM or 1% (116),O(4) 119,249
976,556 Balloon > of YM or 5% (96),5%(12),O(12) 112,960
1,043,890 Hyperam L(60),Def(53),O(7) 100,139
974,094 Balloon > of YM or 1% (113),O(7) 110,605
NAP Fully Amort > of YM or 5% (96),5%(24),4%(12),3%(12),2%(12),1%(12),O(12) 140,455
1,008,634 Balloon L(60), > of YM or 1% ( 56), O(4) 97,185
1,015,076 Balloon L(48),> YM or 1%(66),O(6) 95,548
746,484 Balloon L(90),> YM or 1%(84),O(6) 100,906
932,371 Balloon L(48),Def(68),O(4) 102,209
912,052 Balloon L(60), > of YM or 1% ( 56), O(4) 103,441
891,444 Balloon L(60),Def(60) 96,092
961,301 Balloon L(60), >YM or 1% ( 56), O(4) 94,447
NAP Fully Amort L(120), > of YM or 3% (114),O(6) 109,268
738,347 Balloon > of YM or 1% (120),5%(12),4%(12),3%(12),2%(12),1%(5),O(7) 102,980
743,540 Balloon > of YM or 1% (120),5%(12),4%(12),3%(12),2%(12),1%(5),O(7) 105,853
917,332 Balloon L(25),Def(91),O(4) 83,828
833,451 Balloon L(60), >of YM or 1% ( 56), O(4) 90,907
703,969 Balloon > of YM or 1% (120),5%(12),4%(12),3%(12),2%(12),1%(5),O(7) 97,332
NAP Fully Amort L(25),Def(24), Def or > of YM or 1%(72),1%(235),O(4) 81,767
851,960 Balloon > of YM or 1% (120) 94,711
905,710 Balloon L(60),> YM or 1%(54),O(6) 85,499
NAP Fully Amort L(120), >YM or 1% (116),O(4) 104,110
705,141 Balloon > of YM or 1% (120),5%(12),4%(12),3%(12),2%(12),1%(5),O(7) 100,386
455,278 Balloon > of YM or 1% (120),5%(12),4%(12),3%(12),2%(12),1%(12),O(60) 96,789
876,186 Hyperam L(48),> YM or 1%(66),O(6) 80,725
696,329 Balloon L(26), Def(126), O(4) 86,587
NAP Fully Amort > of YM or 1% (120),5%(12),4%(12),3%(12),2%(12),1%(12),O(60) 102,248
809,631 Hyperam L(48),> YM or 1%(66),O(6) 87,034
NAP Fully Amort L(120), >YM or 1% (116),O(4) 102,487
824,804 Balloon > of YM or 0% (84),3%(12),2%(12),1%(5),O(7) 98,657
NAP Fully Amort L(36),> YM or 1%(78),O(6) 137,973
861,063 Balloon L(59), 5% (12), 4% (12), 3% (12), 2% (12), 1% (6), O(7) 87,898
759,991 Balloon L(36),> of YM or 1% (78),O(6) 84,393
855,003 Balloon > of YM or 1% (60),2%(12),1%(5),O(7) 80,444
754,647 Balloon L(60),> of YM or 1% (42),O(18) 82,462
801,303 Balloon L(48),Def(68),O(4) 77,373
751,948 Balloon L(48),> of YM or 1% (66),O(6) 86,310
NAP Fully Amort L(120), > of YM or 3% (114),O(6) 88,596
<CAPTION>
Underwriting Underwriting
Total Total Underwriting Underwriting Appraised
Revenue Expenses NCF DSCR Value
====================================================================================
<S> <C> <C> <C> <C>
501,820 289,862 211,958 1.61 2,385,000
261,142 45,853 200,852 1.47 2,350,000
231,292 38,302 183,571 1.37 2,650,000
338,839 142,078 180,418 1.30 2,325,000
496,625 228,198 218,851 1.46 3,300,000
404,698 223,681 181,017 1.39 1,900,000
351,726 180,903 170,824 1.32 2,350,000
319,975 128,002 191,973 1.45 2,500,000
3,038,577 2,800,537 238,040 1.77 2,400,000
330,431 121,493 207,557 1.69 2,400,000
214,042 40,106 173,020 1.36 2,000,000
339,867 155,230 184,637 1.36 1,910,000
263,511 99,228 164,283 1.30 2,050,000
347,842 152,890 179,988 1.42 1,863,000
469,080 288,783 180,297 1.63 3,300,000
238,301 59,202 169,683 1.37 1,870,000
245,584 97,765 147,819 1.24 1,850,000
341,247 129,133 189,761 1.46 2,150,000
531,439 288,030 243,409 1.75 2,046,500
156,541 3,692 152,849 1.18 1,732,000
212,192 60,947 146,873 1.29 1,900,000
204,345 56,117 148,228 1.24 1,700,000
261,331 82,754 168,914 1.31 2,100,000
291,128 52,087 222,491 1.46 2,400,000
704,202 492,610 211,592 1.89 2,860,000
302,456 156,148 146,307 1.36 1,600,000
323,658 114,265 209,393 1.91 1,900,000
219,824 72,893 139,312 1.21 1,860,000
347,328 177,093 170,235 1.50 1,600,000
303,120 118,862 184,258 1.46 2,025,000
219,621 76,593 143,028 1.30 1,680,000
207,212 36,966 154,582 1.40 1,975,000
444,497 271,323 173,174 1.63 2,035,000
712,551 535,381 177,170 1.44 2,200,000
297,436 158,046 139,390 1.30 1,580,000
248,994 61,564 173,860 1.64 2,086,000
358,407 217,694 140,713 1.31 1,660,000
284,419 99,973 171,786 1.46 1,840,000
245,121 101,806 135,368 1.20 1,525,000
265,816 111,881 153,935 1.36 1,860,000
222,547 74,776 147,771 1.43 1,800,000
266,197 92,369 153,832 1.45 1,600,000
551,270 393,997 157,272 1.55 1,520,000
222,014 72,138 135,416 1.28 1,600,000
351,442 167,368 184,074 1.74 2,200,000
384,373 218,786 165,587 1.67 1,500,000
285,057 81,410 193,193 1.77 1,881,000
387,454 223,574 163,881 1.37 1,800,000
345,751 178,026 167,725 1.48 1,750,000
159,828 9,712 145,616 1.45 1,500,000
307,595 144,966 162,629 1.47 1,700,000
515,982 40,349 460,789 3.28 4,660,000
256,194 106,993 149,200 1.54 1,450,000
259,297 131,546 118,882 1.24 2,000,000
306,149 167,655 138,493 1.37 1,650,000
269,142 108,513 160,630 1.57 1,550,000
184,848 35,713 143,729 1.39 1,600,000
152,318 9,025 129,518 1.35 1,650,000
272,459 150,313 122,146 1.29 1,450,000
272,595 117,783 154,812 1.42 1,800,000
174,693 30,158 144,535 1.40 1,760,000
209,848 68,348 139,666 1.32 1,510,000
234,609 96,690 137,919 1.65 1,400,000
264,355 139,005 125,349 1.38 1,350,000
181,944 52,538 129,406 1.33 1,420,000
197,334 98,547 98,787 1.21 1,300,000
328,036 203,537 124,499 1.31 1,400,000
181,461 55,557 113,491 1.33 1,375,000
502,819 339,988 162,831 1.56 1,620,000
216,093 80,028 134,852 1.34 1,350,000
297,444 142,328 138,986 1.44 1,800,000
208,262 79,407 128,855 1.60 1,605,000
215,278 82,323 132,955 1.54 1,300,000
340,651 163,404 177,247 1.73 1,950,000
185,516 65,613 119,903 1.38 1,350,000
441,520 306,723 134,797 1.32 1,475,000
430,625 298,320 132,305 1.34 1,400,000
576,214 286,560 289,655 2.10 2,960,000
200,572 91,947 108,624 1.24 1,300,000
157,905 33,102 118,283 1.40 1,390,000
236,765 120,049 116,716 1.45 1,150,000
213,870 43,885 158,085 1.92 1,900,000
160,841 48,725 97,041 1.25 1,275,000
201,843 78,124 114,339 1.32 1,300,000
225,071 104,211 120,860 1.36 1,880,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Loan per
Sq Ft, Units, Sq Ft, Unit, Initial
Appraisal Current Repayment Year Beds, Pads, Bed, Pad, Occupancy Reserves
Year LTV LTV Built or Room or Room Percentage At Closing
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
1998 64.92 52.22 1973 119 Units 13,012 per unit 93% --
1998 65.41 53.46 1980 15,940 Sq. Ft. 96 per sq. ft. 100% 20,000
1998 58.00 47.01 1979 19,800 Sq. Ft. 78 per sq. ft. 100% --
1997 66.10 54.43 1980 22,792 Sq. Ft. 67 per sq. ft. 100% --
1997 46.45 41.87 1983 47,959 Sq. Ft. 32 per sq. ft. 92% --
1997 80.10 64.54 1965 60 Units 25,364 per unit 95% 4,625
1997 64.36 56.55 1971 54 Units 28,007 per unit 96% 1,000
1998 59.89 48.77 1991 439 Units 3,410 per unit 90% 7,540
1997 62.26 51.11 1966 105 Beds 14,230 per bed 97% --
1998 60.29 48.46 1997 26,124 Sq. Ft. 55 per sq. ft. 100% --
1997 72.25 63.71 1997 8,063 Sq. Ft. 179 per sq. ft. 91% --
1997 75.65 51.24 1974 76 Units 19,013 per unit 94% --
1997 70.23 62.00 1997 40 Units 35,993 per unit 100% --
1998 76.89 62.85 1984 66,510 Sq. Ft. 22 per sq. ft. 100% 12,000
1998 42.42 36.95 1973 176 Lots 7,955 per lots 100% 9,125
1998 74.72 31.07 1968 12,920 Sq. Ft. 108 per sq. ft. 100% --
1997 75.32 67.16 1996 30 Units 46,446 per unit 100% --
1997 64.72 52.77 1965 40,783 Sq. Ft. 34 per sq. ft. 94% 9,750
1997 67.75 48.30 1983 41 Rooms 33,817 per room NAP --
1998 79.53 0.00 1998 10,125 Sq. Ft. 136 per sq. ft. 100% --
1998 72.33 63.80 1997 10,120 Sq. Ft. 136 per sq. ft. 100% --
1998 79.34 64.61 1942 7,500 Sq. Ft. 180 per sq. ft. 100% 250
1997 64.15 53.85 1987 9,984 Sq. Ft. 135 per sq. ft. 87% --
1997 55.94 27.37 1963 41,601 Sq. Ft. 32 per sq. ft. 91% 10,000
1997 45.31 36.66 1974 152 Units 8,525 per unit 96% --
1997 79.66 69.56 1928 49 Units 26,011 per unit 100% --
1998 66.97 58.64 1880 24 units 53,019 per unit 100% 7,475
1998 68.37 60.54 1984 11,823 Sq. Ft. 108 per sq. ft. 90% --
1997 79.37 64.97 1972 69 Units 18,405 per unit 100% 54,306
1997 62.34 0.00 1992 389 Units 3,245 per unit 87% --
1998 74.79 71.30 1985 32 Units 39,266 per unit 100% --
1998 63.23 51.45 1968 25,250 Sq. Ft. 49 per sq. ft. 100% --
1998 61.36 49.36 1974 104 Units 12,007 per unit 96% --
1997 56.43 0.00 1986 58 Rooms 21,405 per room NAP --
1997 78.47 63.72 1972 50 Units 24,795 per unit 96% 1,000
1998 59.38 47.81 1978 13,447 Sq. Ft. 92 per sq. ft. 100% --
1997 74.52 60.62 1969 74 Units 16,716 per unit 100% 34,375
1998 66.36 45.64 1989 14,000 Sq. Ft. 87 per sq. ft. 100% --
1997 79.66 72.45 1988 18,707 Sq. Ft. 65 per sq. ft. 90% 9,484
1998 64.47 53.65 1964 90 Pads 13,323 per Pad 99% 12,500
1998 66.59 41.17 1900 20 Units 59,935 per unit 100% --
1998 74.86 61.10 1979 20,172 Sq. Ft. 59 per sq. ft. 100% --
1997 78.73 68.73 1978 140 Units 8,548 per unit 92% 96,000
1998 74.77 60.91 1988 16,707 Sq. Ft. 72 per sq. ft. 100% 3,844
1998 54.26 44.31 1996 330 Units 3,617 per unit 100% --
1997 79.50 50.50 1970 72 Units 16,563 per unit 94% --
1997 63.27 52.35 1997 20,595 Sq. Ft. 58 per sq. ft. 100% --
1997 65.98 0.00 1910 75 Units 15,836 per unit 100% 179,030
1997 67.70 55.80 1987 54 Units 21,940 per unit 98% --
1998 78.20 69.59 1996 6,149 Sq. Ft. 191 per sq. ft. 100% --
1998 68.83 57.30 1978 385 Units 3,039 per unit 84% 340,050
1997 24.93 0.00 1964 176 Beds 6,600 per bed 89% --
1997 79.66 69.56 1928 29 units, 4,220 sf retailUnits/Sq. Ft. 32,085 per unit 100% --
1998 57.47 50.75 1925 13,200 Sq. Ft. 87 per sq. ft. 100% --
1998 69.41 45.24 1973 58 Units 19,747 per unit 93% --
1998 73.41 60.15 1995 36,075 Sq. Ft. 32 per sq. ft. 96% 2,375
1997 70.25 57.00 1997 28,860 Sq. Ft. 39 per sq. ft. 100% --
1998 66.60 54.03 1986 12,630 Sq. Ft. 87 per sq. ft. 100% --
1998 75.71 66.30 1951 26 Units 42,223 per unit 100% 12,000
1997 60.82 0.00 1977 495 Units 2,212 per unit 83% --
1998 61.69 41.95 1968 39,320 Sq. Ft. 28 per sq. ft. 100% 19,063
1997 70.37 49.24 1990 12,047 Sq. Ft. 88 per sq. ft. 100% --
1998 74.95 65.52 1972 38 Units 27,614 per unit 97% 2,375
1998 77.69 61.74 1954 33 Units 31,784 per unit 100% --
1998 73.82 49.58 1979 27 Units 38,824 per unit 100% 7,938
1998 79.94 0.00 1950 24 Units 43,301 per unit 96% 58,438
1998 73.87 60.85 1968 86 Units 12,025 per unit 97% 14,688
1998 74.31 65.87 1997 11,094 Sq. Ft. 92 per sq. ft. 96% --
1997 62.85 0.00 1990 40 Rooms 25,453 per room NAP --
1997 74.64 52.23 1993 13,135 Sq. Ft. 77 per sq. ft. 100% --
1998 55.47 25.29 1963 31,352 Sq. Ft. 32 per sq. ft. 98% --
1998 62.18 54.59 1960 64 Lots 15,593 per lots 94% 4,375
1998 76.76 53.56 1986 128 Pads 7,796 per pad 98% --
1998 51.14 0.00 1928 48 Units 20,774 per unit 100% --
1998 73.84 59.97 1920 28 Units 35,602 per unit 93% 9,375
1998 67.37 0.00 1983 55 Rooms 18,066 per room NAP --
1997 70.74 58.91 1966 101 Units 9,806 per unit 90% 49,200
1998 33.20 0.00 1965 96 Units 10,237 per unit 91% 125,000
1997 74.76 66.24 1971 43 Units 22,601 per unit 98% --
1997 67.71 54.68 1997 15,649 Sq. Ft. 60 per sq. ft. 100% --
1997 79.98 74.35 1974 42 Units 21,900 per unit 98% 24,310
1997 48.22 39.72 1996 10,808 Sq. Ft. 85 per sq. ft. 100% --
1998 70.55 62.85 1992 16,894 Sq. Ft. 53 per sq. ft. 100% --
1997 68.59 57.84 1984 21,050 Sq. Ft. 42 per sq. ft. 100% --
1997 47.22 0.00 1974 315 Units 2,818 per unit 92% --
<CAPTION>
Largest Tenant
--------------------------------------------------------------
Appraisal Underwriting Reserves Area Leased Lease Control
Year Reserves Collected Name (Sq. Ft.) Exp Date No.
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
1998 250 250 per unit MID-069
1998 0.15 0.40 per sq. ft. North County Camera 2,780 10/01/1999 MID-074
1998 0.15 none per sq. ft. Black Angus 10,300 04/11/2003 MID-113
1997 0.25 none per sq. ft. HMO California 22,792 10/01/2013 MID-022
1997 0.25 none per sq. ft. System Innovations 9,167 08/31/1997 GCM-004
1997 250 none per unit MID-109
1997 250 none per unit GCM-058
1998 0.00 none per unit MID-129
1997 250 none per bed GCM-135
1998 0.12 0.12 per sq. ft. Pep Boys 18,560 09/30/2017 WMFG-036
1997 0.15 0.02 per sq. ft. Koo Koo Roo 2,548 12/16/2007 MLMI-014
1997 150 none per unit GCM-130
1997 150 none per unit GCM-039
1998 0.10 none per sq. ft. Perfection Powder Coat 9,800 07/31/1998 MID-019
1998 50 none per lots MID-119
1998 0.10 0.10 per sq. ft. Oren Music 6,325 03/31/2002 GCM-151
1997 200 238 per unit MLMI-164
1997 0.19 none per sq. ft. State of Michigan 5,500 02/28/1999 MLMI-045
1997 648 none per room MID-027
1998 0.21 0.21 per sq. ft. CVS 10,125 05/31/2018 WMFG-040
1998 0.10 0.10 per sq. ft. Blockbuster Videos, Inc. 7,020 05/31/2008 WMFG-084
1998 0.20 0.20 per sq. ft. Prudential Connecticut Realty 7,500 08/31/2002 GCM-166
1997 0.20 none per sq. ft. Jenny Craig 2,700 01/31/2002 GCM-016
1997 0.34 none per sq. ft. Victory Supermarket 37,993 12/31/2001 MID-008
1997 250 none per unit MID-024
1997 253 253 per unit MLMI-102
1998 261 261 per unit MLMI-048
1998 0.16 none per sq. ft. Pinole Medical Group 2,675 06/30/2003 MLMI-033
1997 250 250 per unit GCM-136
1997 20 none per unit GCM-065
1998 250 667 per unit MLMI-031
1998 0.15 none per sq. ft. Shutter Mart of California 13,000 03/31/2004 MID-150
1998 250 250 per unit MID-070
1997 4% 4% of revenue MLMI-043
1997 250 none per unit MID-012
1998 0.15 0.15 per sq. ft. Abbey Carpet of Factoria 2,546 08/31/2002 MID-135
1997 261 none per unit MID-023
1998 0.15 none per sq. ft. St. Agnes 11,000 09/30/2006 GCM-132
1997 0.15 0.30 per sq. ft. Apparel 3,657 09/30/2002 MLMI-153
1998 52 none per Pad GCM-192
1998 250 250 per unit MLMI-176
1998 0.15 0.42 per sq. ft. Valley Financial 4,172 07/14/2013 MID-095
1997 231 231 per unit MLMI-148
1998 0.20 none per sq. ft. W-H-E-T Realty, Inc. 6,972 07/31/1999 MID-126
1998 19 25 per unit MID-031
1997 250 none per unit GCM-052
1997 0.20 none per sq. ft. W.H. Liquors, Inc. 20,595 11/30/2006 GCM-049
1997 261 261 per unit MLMI-047
1997 225 none per unit GCM-025
1998 0.10 none per sq. ft. Washington Mutual 4,372 05/01/2007 GCM-143
1998 18 none per unit GCM-203
1997 65 none per bed GCM-031
1997 260 260 per unit MLMI-100
1998 0.20 none per sq. ft. US Trust Company of New York 9,954 09/30/2011 MID-131
1998 281 none per unit MID-016
1998 0.20 0.20 per sq. ft. WMFG-094
1997 0.15 none per sq. ft. Air Products 9,600 04/30/2002 MLMI-060
1998 0.11 0.11 per sq. ft. St. Joseph Hospital, Inc. 12,630 01/01/2008 WMFG-095
1998 250 250 per unit MLMI-049
1997 11 none per unit GCM-063
1998 0.15 none per SF Bird Trucking 39,320 04/01/2018 GCM-152
1997 0.15 none per sq. ft. GCM-145
1998 256 256 per unit WMFG-058
1998 296 296 per unit MLMI-111
1998 250 none per unit GCM-148
1998 300 300 per unit WMFG-097
1998 250 none per unit GCM-191
1998 0.24 none per sq. ft. GSA F.B.I 5,600 04/11/2007 MID-026
1997 4% 4% or revenue MLMI-078
1997 0.15 none per sq. ft. F.A. Plaza Laundromat 8,535 10/31/2018 GCM-144
1998 0.16 none per sq. ft. Morrison College 18,000 05/01/2001 GCM-167
1998 50 none per lots MID-120
1998 50 50 per pad MLMI-145
1998 250 none per unit GCM-178
1998 250 none per unit MID-127
1998 4% 4% of revenue MLMI-147
1997 200 200 per unit GCM-077
1998 250 none per unit MID-025
1997 250 896 per unit MLMI-021
1997 0.10 none per sq. ft. Orco Construction Supply 15,649 09/30/2004 GCM-044
1997 200 200 per unit GCM-201
1997 0.16 none per sq. ft. Piazza D'Angelo Restaurant 3,176 06/30/2002 GCM-067
1998 0.15 0.15 per sq. ft. Vincent Garcia 2,033 03/31/2002 WMFG-111
1997 0.10 none per sq. ft. Rehab Management Systems 3,300 06/30/2000 GCM-017
1997 17 none per unit GCM-048
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Loan Control
Source No. Property Name
========================================================================================
<S> <C> <C>
MLMI MLMI-015 Greenville Southwestern Center
MIDLAND MID-087 711 South Tejon Street
GCM GCM-138 Huntington Apartments
MLMI MLMI-150 Ninth Fairway - Buildings B&C
GCM GCM-142 Cliveden Apartments
GCM GCM-169 Best Western Heritage Motor Inn
MLMI MLMI-028 Caglifly Apartments
MLMI MLMI-010 David Gutierrez
WMFG WMFG-090 Riverside Industrial Park
GCM GCM-171 Evergreen Trailer Park
GCM GCM-139 Garden City MHP 1 (Pool #2)
GCM GCM-064 Self Stor Mini-Storage Complex
MLMI MLMI-052 MK-413 East 9th Street
MLMI MLMI-051 MK-153 Avenue A
GCM GCM-141 Garden City MHP 3 (Pool #3)
MIDLAND MID-153 Camelot Center
GCM GCM-133 Woodcrest Apartments
GCM GCM-140 Garden City MHP 2 (Pool #1)
MLMI MLMI-026 3614 Martin Luther King
GCM GCM-174 280 Collins Street
MLMI MLMI-030 Chief Auto Parts Store
MLMI MLMI-005 Eckerd Drugstore
GCM GCM-170 The Fairmont Building
GCM GCM-189 Mountain Vista MHP
MLMI MLMI-050 MK-153 First Avenue
GCM GCM-155 248 State Street
GCM GCM-182 Jefferson Street Aprtments
GCM GCM-153 Radio Plaza Apartments
GCM GCM-184 Patrick Street Apartments
GCM GCM-131 10 Research Drive
MLMI MLMI-017 Williams, Charles
GCM GCM-195 334 South Water Street
GCM GCM-183 Church Street Apartments
GCM GCM-175 Kingsley Crossing Shopping Center
GCM GCM-154 Webster Place
MLMI MLMI-008 Star Crest Center
GCM GCM-172 1111 First Avenue
GCM GCM-146 Westwood Apartments
MLMI MLMI-025 1776 Bonanza
MLMI MLMI-022 7239 Bradburn Blvd
MLMI MLMI-009 1429 and 1431 W. 260th Street
MLMI MLMI-027 2223 Blanco Rd
MIDLAND MID-047 1918 El Parque
GCM GCM-177 Mockingbird Apartments
MLMI MLMI-011 11982 E. Walnut Street
MLMI MLMI-016 798 West Highland Avenue
GCM GCM-150 732 St. Marks Avenue
GCM GCM-147 Davidson Building
MLMI MLMI-020 983 Charles Avenue
MLMI MLMI-018 565-573 Catalina
GCM GCM-149 846-848 Prospect Place
MLMI MLMI-029 2905 Stanford
MLMI MLMI-024 1705 7th Street
<CAPTION>
Loan
Source Address City
====================================================================================================================================
<S> <C> <C>
MLMI 6110-6130 Greenville Avenue Dallas
MIDLAND 711 South Tejon St. Colorado Springs
GCM 112 East Glenmore Drive Gretna
MLMI 16 Inverness Place East Englewood
GCM 49 Cliveden Street Philadelphia
GCM 935 Central Street Millinocket
MLMI 906-906 1/2 3rd Avenue NE Buffalo
MLMI 209 Avenida Del Mar San Clemente
WMFG 100 American Legion Drive Riverside
GCM 2135 North Oxnard Blvd. Oxnard
GCM (1) 308 E. 48th St. (2) 412 E. 48th St. Garden City
GCM 2600 Lafayette Avenue McMinnville
MLMI 413 East 9th Street New York
MLMI 153 Avenue A New York
GCM (1) 406 E. 44th St. (2) 408 E. 51st St. (3) 3948 Adams St. Garden City
MIDLAND 8040 Midcrown Dr. San Antonio
GCM 102-120 East 550 North Bountiful
GCM (1) 505 E. 44th St. (2) 116 E. 45th St. (3) 203 E. 41th St. (4) 106 E. 37th St. (5) 312 E. 47th St. Garden City
MLMI 3614-3628 Martin Luther King Jr. Lynwood
GCM 280 Collins Street Hartford
MLMI 8005 Vineland Avenue Sun Valley
MLMI 653 Terry Parkway Gretna
GCM 2708 Fairmont Street Dallas
GCM 1100 S. Warner Rd. Apache Junction
MLMI 153 First Avenue New York
GCM 248 State Street Albany
GCM 906 Jefferson St. & 807 Alfred Street Alexandria
GCM 2241-2251 Woodward Heights Ferndale
GCM 918 Jefferson Street/806 S. Patrick Alexandria
GCM 10 Research Drive Stratford
MLMI 302-306 Main Street Newport Beach
GCM 334 South Water Street Providence
GCM 919-921 Church Street Alexandria
GCM 9644-9670 Plano Road Dallas
GCM 28 Daniel Plummer Goffstown
MLMI 8902 North 59th Avenue Glendale
GCM 1111 First Avenue New York
GCM 575 Farmington Avenue Hartford
MLMI 1766 and 1770 Bonanza Street; 1508 and 1512 Shuey Avenue Walnut Creek
MLMI 7239 Bradburn Blvd Westminster
MLMI 1429 and 1431 W. 260th Street Harbor City
MLMI 2223 Blanco Rd San Antonio
MIDLAND 1918 El Parque Colorado Springs
GCM 3500 Mockingbird Lane Amarillo
MLMI 11982 E. Walnut Street Norwalk
MLMI 798 West Highland Avenue San Bernardino
GCM 732 St. Marks Avenue Brooklyn
GCM 400 North Pearl Street Ellensberg
MLMI 983 Charles Avenue Atlanta
MLMI 565-573 Catalina Laguna Beach
GCM 846-848 Prospect Place Brooklyn
MLMI 2905 Stanford Ave Los Angeles
MLMI 1705 7th Street Riverside
<CAPTION>
Cumulative % of
Loan Zip Original Cut-Off % of Initial Initial Pool
Source State Code Property Type Balance Date Balance Pool Balance Balance
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
MLMI TX 75244 Retail 885,000 882,211 0.03% 99.04%
MIDLAND CO 80903 Office 875,000 873,401 0.03% 99.07%
GCM NE 68028 Multifamily 875,000 873,132 0.03% 99.10%
MLMI CO 80012 Office 875,000 869,433 0.03% 99.13%
GCM PA 19119 Multifamily 865,000 862,716 0.03% 99.16%
GCM ME 04462 Hospitality 850,000 848,908 0.03% 99.19%
MLMI MN 55313 Multifamily 825,000 822,819 0.03% 99.22%
MLMI CA 92672 Office 815,500 812,228 0.03% 99.25%
WMFG NJ 08075 Industrial 800,000 799,104 0.03% 99.28%
GCM CA 93030 Mobile Home Park 800,000 797,908 0.03% 99.30%
GCM ID 83714 Mobile Home Park 800,000 795,553 0.03% 99.33%
GCM OR 97128 Industrial 800,000 789,037 0.03% 99.36%
MLMI NY 10009 Multifamily 680,000 678,644 0.02% 99.38%
MLMI NY 10009 Multifamily 675,000 673,654 0.02% 99.41%
GCM ID 83714 Mobile Home Park 670,000 666,276 0.02% 99.43%
MIDLAND TX 78218 Retail 650,000 649,434 0.02% 99.45%
GCM UT 84010 Multifamily 650,000 647,625 0.02% 99.47%
GCM ID 83714 Mobile Home Park 650,000 646,387 0.02% 99.50%
MLMI CA 90262 Retail 615,000 613,415 0.02% 99.52%
GCM CT 06105 Multifamily 600,000 599,198 0.02% 99.54%
MLMI CA 91352 Retail 600,000 598,414 0.02% 99.56%
MLMI LA 70056 Retail 600,000 597,196 0.02% 99.58%
GCM TX 75201 Office 590,000 589,013 0.02% 99.60%
GCM AZ 85220 Mobile Home Park 580,000 579,514 0.02% 99.62%
MLMI NY 10122 Multifamily 560,000 558,884 0.02% 99.64%
GCM NY 12210 Multifamily 530,000 528,639 0.02% 99.66%
GCM VA 22314 Multifamily 515,000 514,130 0.02% 99.68%
GCM MI 48022 Multifamily 510,000 509,108 0.02% 99.69%
GCM VA 22314 Multifamily 490,000 489,170 0.02% 99.71%
GCM CT 06497 Industrial 485,000 482,325 0.02% 99.73%
MLMI CA 92661 Multifamily 480,000 476,982 0.02% 99.74%
GCM RI 02903 Mixed Use 475,000 474,254 0.02% 99.76%
GCM VA 22314 Multifamily 465,000 464,214 0.02% 99.78%
GCM TX 75238 Retail 450,000 449,669 0.02% 99.79%
GCM NH 03045 Industrial 425,000 423,959 0.01% 99.81%
MLMI AZ 85302 Retail 425,000 422,173 0.01% 99.82%
GCM NY 10021 Multifamily 400,000 398,896 0.01% 99.83%
GCM CT 06105 Multifamily 375,000 373,409 0.01% 99.85%
MLMI CA 94596 Retail 365,000 364,106 0.01% 99.86%
MLMI CO 80030 Industrial 360,000 358,836 0.01% 99.87%
MLMI CA 90710 Industrial 358,000 355,851 0.01% 99.88%
MLMI TX 78212 Retail 357,500 355,122 0.01% 99.90%
MIDLAND CO 80907 Multifamily 350,000 348,821 0.01% 99.91%
GCM TX 79109 Multifamily 348,750 348,277 0.01% 99.92%
MLMI CA 90650 Multifamily 330,000 328,716 0.01% 99.93%
MLMI CA 92405 Retail 285,000 283,862 0.01% 99.94%
GCM NY 11216 Multifamily 280,000 279,223 0.01% 99.95%
GCM WA 98926 Mixed Use 275,000 273,857 0.01% 99.96%
MLMI GA 30306 Multifamily 270,000 269,082 0.01% 99.97%
MLMI CA 92651 Multifamily 250,000 249,150 0.01% 99.98%
GCM NY 11216 Multifamily 245,000 244,321 0.01% 99.99%
MLMI CA 90292 Retail 190,000 189,510 0.01% 99.99%
MLMI CA 92507 Multifamily 169,000 168,507 0.01% 100.00%
<CAPTION>
Loan Affiliated
Source Borrower
===============================================================
<S> <C>
MLMI
MIDLAND
GCM
MLMI
GCM
GCM
MLMI
MLMI
WMFG WMFG-097
GCM
GCM GCM-140, GCM-141
GCM MID-015, GCM-048, GCM-062, GCM-063, GCM-065
MLMI MLMI-048, MLMI-049, MLMI-50, MLMI-051
MLMI MLMI-048, MLMI-049, MLMI-50, MLMI-052
GCM GCM-139, GCM-140
MIDLAND
GCM
GCM GCM-139, GCM-141
MLMI
GCM
MLMI
MLMI
GCM
GCM
MLMI MLMI-048, MLMI-049, MLMI-051, MLMI-052
GCM
GCM GCM-183
GCM
GCM
GCM
MLMI
GCM
GCM GCM-182
GCM
GCM
MLMI
GCM
GCM
MLMI
MLMI
MLMI
MLMI
MIDLAND MID-038
GCM
MLMI
MLMI
GCM GCM-149
GCM
MLMI
MLMI
GCM GCM-150
MLMI
MLMI
</TABLE>
(1) Numbers only reflect the Senior Meidinger Tower Interest. The Senior
Meidinger Tower Interest and the Subordinate Meidinger Tower Interest have
a combined LTV of 95.88% and a combined DSCR of 1.01x.
(2) The DSCR reflects interest only payments for the first 24 months of the
term of the Senior Meidinger Tower Interest. During its amortization
period, the Senior Meidinger Tower Interest will have a DSCR of 1.45x.
(3) The appraised value of the related Mortgaged Properties was based on the
NOI provided by market studies performed by a third party appraiser and
applying an 8.5% capitalization rate.
<PAGE>
<TABLE>
<CAPTION>
Rem
Orig Rem Amort Amort
Interest Accrual Mortgage Administrative Term Term Term Term Origination Repayment
Crossed Method Rate Cost Rate (Mos.) (Mos.) (Mos.) (Mos.) Date Date
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
30/360 8.375 0.28675 120 115 360 355 03/02/98 04/01/2008
Actual/360 7.490 0.08175 120 117 360 357 05/18/98 06/01/2008
Actual/360 7.850 0.09675 120 116 360 356 04/30/98 05/01/2008
Actual/360 7.290 0.09675 120 114 300 294 02/12/98 03/01/2008
Actual/360 8.160 0.09675 120 117 300 297 05/06/98 06/01/2008
Actual/360 8.830 0.09675 240 239 240 239 07/21/98 08/01/2018
30/360 8.125 0.28675 120 116 360 356 04/03/98 05/01/2008
30/360 8.875 0.28675 121 114 360 353 12/17/97 02/01/2008
Actual/360 6.930 0.09675 240 239 293 292 07/23/98 08/01/2018
Actual/360 8.750 0.09675 240 238 240 238 06/24/98 07/01/2018
Actual/360 8.700 0.09675 240 236 240 236 04/30/98 05/01/2018
Actual/360 7.740 0.20175 240 232 240 232 12/29/97 01/01/2018
Actual/360 7.625 0.12675 120 117 360 357 05/06/98 06/01/2008
Actual/360 7.625 0.12675 120 117 360 357 05/06/98 06/01/2008
Actual/360 8.700 0.09675 240 236 240 236 04/30/98 05/01/2018
Actual/360 7.790 0.08175 120 119 300 299 07/16/98 08/01/2008
Actual/360 7.900 0.09675 180 176 300 296 04/15/98 05/01/2013
Actual/360 8.700 0.09675 240 236 240 236 04/30/98 05/01/2018
30/360 8.250 0.28675 120 116 360 356 04/10/98 05/01/2008
Actual/360 8.600 0.09675 240 239 240 239 07/31/98 08/01/2018
30/360 8.125 0.28675 120 116 360 356 04/24/98 05/01/2008
30/360 8.125 0.28675 120 113 360 353 01/05/98 02/01/2008
Actual/360 7.980 0.09675 120 118 300 298 07/01/98 07/01/2008
Actual/360 7.960 0.09675 120 119 300 299 07/10/98 08/01/2008
Actual/360 7.625 0.12675 120 117 360 357 05/06/98 06/01/2008
Actual/360 8.290 0.09675 120 117 300 297 05/27/98 06/01/2008
30/360 8.040 0.09675 240 239 240 239 07/27/98 08/01/2018
Actual/360 7.790 0.09675 120 118 300 298 06/16/98 07/01/2008
30/360 8.020 0.09675 240 239 240 239 07/22/98 08/01/2018
Actual/360 8.750 0.09675 240 236 240 236 04/13/98 05/01/2018
30/360 8.125 0.28675 120 114 300 294 02/20/98 03/01/2008
Actual/360 8.240 0.09675 120 118 300 298 06/25/98 07/01/2008
30/360 8.040 0.09675 240 239 240 239 07/27/98 08/01/2018
Actual/360 8.480 0.09675 120 119 300 299 07/20/98 08/01/2008
Actual/360 8.510 0.09675 180 177 300 297 05/27/98 06/01/2013
30/360 8.750 0.28675 120 113 300 293 01/21/98 02/01/2008
Actual/360 7.680 0.09675 180 179 180 179 07/30/98 08/01/2013
Actual/360 8.660 0.09675 84 81 240 237 05/14/98 06/01/2005
30/360 8.500 0.28675 120 116 360 356 04/20/98 05/01/2008
30/360 8.250 0.28675 60 55 360 355 03/18/98 04/01/2003
30/360 9.375 0.28675 120 113 300 293 01/14/98 02/01/2008
30/360 8.250 0.28675 120 116 240 236 03/31/98 05/01/2008
Actual/360 6.950 0.08175 120 117 300 297 05/26/98 06/01/2008
Actual/360 8.510 0.09675 240 239 240 239 07/06/98 08/01/2018
30/360 8.250 0.28675 180 174 360 354 01/30/98 03/01/2013
30/360 8.125 0.28675 180 174 360 354 02/11/98 03/01/2013
GCM-149 Actual/360 8.400 0.09675 240 238 240 238 06/05/98 07/01/2018
Actual/360 8.790 0.09675 240 237 240 237 05/12/98 06/01/2018
30/360 8.000 0.28675 120 115 360 355 02/27/98 04/01/2008
30/360 8.000 0.28675 180 175 360 355 03/10/98 04/01/2013
GCM-150 Actual/360 8.400 0.09675 240 238 240 238 06/05/98 07/01/2018
30/360 8.250 0.28675 120 116 360 356 04/24/98 05/01/2008
30/360 8.750 0.28675 180 175 360 355 03/25/98 04/01/2013
<CAPTION>
Annual
Balloon/Repayment Debt
Balance Maturity Term Prepayment Restrictions Service
====================================================================================================================================
<S> <C> <C> <C>
783,491 Balloon L(59), 5% (12), 4% (12), 3% (12), 2% (12), 1% (6), O(7) 80,720
774,107 Balloon L(60),> YM or 1%(54),O(6) 73,346
781,261 Balloon > of YM or 1% (113),O(7) 75,950
708,710 Balloon L(60), >YM or 1% ( 56), O(4) 76,166
718,168 Balloon > of YM or 1% (113),O(7) 81,218
NAP Fully Amort > of YM or 1% (120),5%(12),4%(12),3%(12),2%(12),1%(12),O(60) 90,660
726,784 Balloon L(59), 5% (12), 4% (12), 3% (12), 2% (12), 1% (6), O(7) 73,507
728,751 Balloon L(60), 5% (12), 4% (12), 3% (12), 2% (12), 1% (6), O(7) 77,862
290,079 Balloon L(25), Def (24), Def or >YM or 1% (72),1% (115), O(4) 68,044
NAP Fully Amort > of YM or 1% (120),5%(12),4%(12),3%(12),2%(12),1%(12),O(60) 84,836
NAP Fully Amort > of YM or 1% (120),5%(12),4%(12),3%(12),2%(12),1%(12),O(60) 84,530
NAP Fully Amort L(120), > of YM or 3% (114),O(6) 78,752
594,259 Balloon L(60), >YM or 1% ( 56), O(4) 58,386
589,889 Balloon L(60), >YM or 1% ( 56), O(4) 57,956
NAP Fully Amort > of YM or 1% (120),5%(12),4%(12),3%(12),2%(12),1%(12),O(60) 70,794
533,966 Balloon L(60),> YM or 1%(54),O(6) 59,121
433,406 Balloon > of YM or 1% (120),5%(12),4%(12),3%(12),2%(12),1%(5),O(7) 59,686
NAP Fully Amort > of YM or 1% (120),5%(12),4%(12),3%(12),2%(12),1%(12),O(60) 68,681
543,132 Balloon L(59), 5% (12), 4% (12), 3% (12), 2% (12), 1% (6), O(7) 55,443
NAP Fully Amort > of YM or 1% (120),5%(12),4%(12),3%(12),2%(12),1%(12),O(60) 62,940
528,571 Balloon L(59), 5% (12), 4% (12), 3% (12), 2% (12), 1% (6), O(7) 53,460
528,571 Balloon L(59), 5% (12), 4% (12), 3% (12), 2% (12), 1% (6), O(7) 53,460
487,543 Balloon > of YM or 1% (113),O(7) 54,551
478,800 Balloon > of YM or 1% (113),O(7) 53,534
489,390 Balloon L(60), >YM or 1% ( 56), O(4) 48,082
441,639 Balloon > of YM or 1% (113),O(7) 50,316
NAP Fully Amort > of YM or 1% (120),5%(12),4%(12),3%(12),2%(12),1%(12),O(60) 51,846
419,132 Balloon > of YM or 1% (113),O(7) 46,387
NAP Fully Amort > of YM or 1% (120),5%(12),4%(12),3%(12),2%(12),1%(12),O(60) 49,256
NAP Fully Amort > of YM or 1% (60),4%(12),3%(12),2%(12),1%(12),O(132) 51,432
389,994 Balloon L(59), 5% (12), 4% (12), 3% (12), 2% (12), 1% (6), O(7) 44,935
395,415 Balloon > of YM or 1% (113),O(7) 44,904
NAP Fully Amort > of YM or 1% (120),5%(12),4%(12),3%(12),2%(12),1%(12),O(60) 46,812
376,935 Balloon > of YM or 1% (113),O(7) 43,410
291,963 Balloon > of YM or 1% (120),5%(12),4%(12),3%(12),2%(12),1%(5),O(7) 41,101
350,542 Balloon L(59), 5% (12), 4% (12), 3% (12), 2% (12), 1% (6), O(7) 41,929
NAP Fully Amort > of YM or 1% (120),5%(12),4%(12),3%(12),2%(12),1%(5),O(7) 44,989
312,872 Balloon > of YM or 1% (77),O(7) 39,509
323,912 Balloon L(59), 5% (12), 4% (12), 3% (12), 2% (12), 1% (6), O(7) 33,678
343,366 Balloon L(53), O(7) 32,455
299,475 Balloon L(59), 5% (12), 4% (12), 3% (12), 2% (12), 1% (6), O(7) 37,161
249,685 Balloon L(59), 5% (12), 4% (12), 3% (12), 2% (12), 1% (6), O(7) 36,554
280,380 Balloon L(48),YM(66),O(6) 29,551
NAP Fully Amort > of YM or 1% (120),5%(12),4%(12),3%(12),2%(12),1%(12),O(60) 36,345
256,266 Balloon L(119), 5% (12), 4% (12), 3% (12), 2% (12), 1% (6), O(7) 29,750
220,392 Balloon L(119), 5% (12), 4% (12), 3% (12), 2% (12), 1% (6), O(7) 25,393
NAP Fully Amort > of YM or 1% (120),5%(12),4%(12),3%(12),2%(12),1%(12),O(60) 28,947
NAP Fully Amort > of YM or 1% (120),5%(12),4%(12),3%(12),2%(12),1%(12),O(60) 29,247
237,257 Balloon L(59), 5% (12), 4% (12), 3% (12), 2% (12), 1% (6), O(7) 23,774
192,505 Balloon L(119), 5% (12), 4% (12), 3% (12), 2% (12), 1% (6), O(7) 22,013
NAP Fully Amort > of YM or 1% (120),5%(12),4%(12),3%(12),2%(12),1%(12),O(60) 25,328
167,796 Balloon L(59), 5% (12), 4% (12), 3% (12), 2% (12), 1% (6), O(7) 17,129
133,384 Balloon L(119), 5% (12), 4% (12), 3% (12), 2% (12), 1% (6), O(7) 15,954
<CAPTION>
Underwriting Underwriting
Total Total Underwriting Underwriting Appraised
Revenue Expenses NCF DSCR Value
===================================================================================
<S> <C> <C> <C> <C>
183,189 68,137 107,487 1.33 1,325,000
163,123 54,501 94,111 1.28 1,170,000
155,268 58,194 97,074 1.28 1,180,000
196,318 85,451 97,407 1.28 1,150,000
214,954 97,275 117,679 1.45 1,200,000
490,900 340,951 149,949 1.65 1,400,000
202,152 105,003 97,149 1.32 1,135,000
136,808 32,219 96,159 1.23 1,200,000
141,591 59,723 81,868 1.20 1,130,000
347,636 215,017 132,619 1.56 1,550,000
181,454 72,656 108,798 1.29 1,060,000
215,092 99,944 115,148 1.46 1,360,000
137,783 61,853 75,929 1.30 850,000
152,911 65,836 87,074 1.50 875,000
157,531 65,440 92,091 1.30 895,000
166,604 61,434 80,450 1.36 1,050,000
104,880 30,969 73,911 1.24 900,000
152,794 63,550 89,244 1.30 885,000
130,148 35,078 84,036 1.52 820,000
318,532 207,015 111,517 1.77 970,000
99,750 6,098 88,569 1.66 1,035,000
87,744 8,558 73,505 1.37 911,150
128,435 53,789 72,184 1.32 830,000
125,386 51,547 73,839 1.38 775,000
119,999 49,344 70,655 1.47 700,000
174,443 102,965 70,840 1.41 750,000
92,112 26,648 65,464 1.26 750,000
116,811 54,282 62,529 1.35 640,000
86,811 24,367 62,444 1.27 710,000
96,525 29,705 66,820 1.30 660,000
86,998 18,651 65,968 1.47 800,000
105,429 37,434 65,647 1.46 700,000
86,982 28,344 58,638 1.25 645,000
102,885 41,696 57,795 1.33 700,000
122,202 61,864 54,277 1.32 600,000
147,826 53,282 87,993 2.10 985,000
212,883 101,094 109,392 2.43 1,220,000
165,834 100,127 65,707 1.66 520,000
60,021 12,118 45,313 1.35 560,000
60,450 4,772 49,547 1.53 590,000
68,351 20,894 46,382 1.25 555,000
70,395 7,832 58,885 1.61 725,000
72,746 29,497 43,249 1.46 578,000
119,394 63,897 55,497 1.53 470,000
79,321 33,616 45,705 1.54 440,000
84,953 10,058 72,285 2.85 915,000
122,462 72,968 49,494 1.71 530,000
85,158 31,401 47,171 1.61 635,000
60,249 24,039 36,210 1.52 370,000
43,968 19,366 24,602 1.12 460,000
113,550 69,919 43,631 1.72 460,000
43,740 10,390 30,850 1.80 330,000
45,360 21,710 23,650 1.48 230,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Loan per
Sq Ft, Units, Sq Ft, Unit, Initial
Appraisal Current Repayment Year Beds, Pads, Bed, Pad, Occupancy Reserves Underwriting
Year LTV LTV Built or Room or Room Percentage At Closing Reserves
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998 66.58 59.13 1978 10,800 Sq. Ft. 82 per sq. ft. 100% -- 0.15
1998 74.65 66.16 1983 13,600 Sq. Ft. 64 per sq. ft. 96% -- 0.19
1998 73.99 66.21 1995 24 Units 36,381 per unit 100% -- 200
1997 75.60 61.63 1982 12,174 Sq. Ft. 71 per sq. ft. 100% 5,551 0.31
1998 71.89 59.85 1927 40 Units 21,568 per unit 90% 45,250 250
1998 60.64 0.00 1972 49 Rooms 17,325 per room NAP -- 0.05
1998 72.50 64.03 1986 36 Units 22,856 per unit 100% -- 250
1997 67.69 60.73 1980 7,800 Sq. Ft. 104 per sq. ft. 100% -- 0.15
1998 70.72 25.67 1953 69,655 Sq. Ft. 11 per sq. ft. 100% 26,981 0.15
1998 51.48 0.00 1960 81 Pads 9,851 per pad 96% 146,000 100
1998 75.05 0.00 1970 64 Pads 12,431 per pad 100% 20,581 61
1997 58.02 0.00 1977 293 Units 2,693 per unit 81% -- 18
1998 79.84 69.91 1900 19 Units 35,718 per unit 90% 5,388 250
1998 76.99 67.42 1900 20 Units 33,683 per unit 100% 5,713 250
1998 74.44 0.00 1970 68 Pads 9,798 per pad 99% 5,963 50
1998 61.85 50.85 1980 21,810 Sq. Ft. 30 per sq. ft. 100% -- 0.15
1998 71.96 48.16 1971 16 Units 40,477 per unit 100% 4,000 250
1998 73.04 0.00 1970 64 Pads/Units 10,100 per pad/unit 100% 6,688 50
1998 74.81 66.24 1990 9,729 Sq. Ft. 63 per sq. ft. 100% -- 0.31
1998 61.77 0.00 1960 54 Units 11,096 per unit 98% -- 250
1998 57.82 51.07 1962 7,625 Sq. Ft. 78 per sq. ft. 100% -- 0.15
1997 65.54 58.01 1979 8,640 Sq. Ft. 69 per sq. ft. 100% -- 0.16
1998 70.97 58.74 1985 5,927 Sq. Ft. 99 per sq. ft. 100% -- 0.15
1998 74.78 61.78 1975 45 Pads 12,878 per pad 100% -- 50
1998 79.84 69.91 1900 8 Units 69,860 per unit 100% 6,600 275
1998 70.49 58.89 1934 34 Units 15,548 per unit 97% -- 228
1998 68.55 0.00 1943 9 Units 57,126 per unit 100% -- 250
1998 79.55 65.49 1966 20 Units 25,455 per unit 100% 19,053 250
1998 68.90 0.00 1940 8 Units 61,146 per unit 100% -- 250
1998 73.08 0.00 1960 12,960 Sq. Ft. 37 per sq. ft. 100% -- 0.15
1998 59.62 48.75 1910 5,507 Sq. Ft. 87 per sq. ft. 100% -- 0.17
1997 67.75 56.49 1848 11,100 Sq. Ft. 43 per sq. ft. 100% -- 0.16
1998 71.97 0.00 1943 10 Units 46,421 per unit 90% -- 250
1998 64.24 53.85 1981 12,000 Sq. Ft. 37 per sq. ft. 100% 26,250 0.15
1998 70.66 48.66 1988 25,751 Sq. Ft. 16 per sq. ft. 100% -- 0.15
1997 42.86 35.59 1974 15,660 Sq. Ft. 27 per sq. ft. 100% -- 0.15
1998 32.70 0.00 1900 14 Units 28,493 per sq. ft. 93% -- 274
1998 71.81 60.17 1970 32 Units 11,669 per unit 94% -- 250
1998 65.02 57.84 1960 3,433 Sq. Ft. 106 per sq. ft. 100% -- 0.15
1998 60.82 58.20 1983 11,662 Sq. Ft. 31 per sq. ft. 100% -- 0.15
1997 64.12 53.96 1948 15,768 Sq. Ft. 23 per sq. ft. 100% -- 0.15
1998 48.98 34.44 1997 5,418 Sq. Ft. 66 per sq. ft. 100% -- 0.15
1998 60.35 48.51 1918 8 Units 43,603 per unit 100% -- 350
1998 74.10 0.00 1976 32 Units 10,884 per unit 91% 7,188 250
1998 74.71 58.24 1960 14 Units 23,480 per unit 100% -- 339
1998 31.02 24.09 1997 5,400 Sq. Ft. 53 per sq. ft. 100% -- 0.15
1998 52.68 0.00 1920 21 Units 13,296 per unit 100% -- 250
1998 43.13 0.00 1889 17,265 Sq. Ft. 16 per sq. ft. 100% -- 0.15
1997 72.72 64.12 1961 9 Units 29,898 per unit 100% -- 250
1998 54.16 41.85 1947 6 Units 41,525 per unit 100% -- 320
1998 53.11 0.00 1920 20 Units 12,216 per unit 95% -- 250
1998 57.43 50.85 1953 3,536 Sq. Ft. 54 per sq. ft. 100% -- 0.41
1998 73.26 57.99 1986 12 Units 14,042 per unit 100% -- 250
<CAPTION>
Largest Tenant
---------------------------------------------------------------------------
Appraisal Reserves Area Leased Lease Control
Year Collected Name (Sq. Ft.) Exp Date No.
===============================================================================================================================
<S> <C> <C> <C> <C> <C>
1998 none per sq. ft. Car Stereo Store 3,450 04/30/1999 MLMI-015
1998 0.19 per sq. ft. M,P,E & H, LLP 8,400 12/31/2006 MID-087
1998 none per unit GCM-138
1997 none per sq. ft. Management Technology Int 10,272 01/31/2003 MLMI-150
1998 none per unit GCM-142
1998 none per room GCM-169
1998 none per unit MLMI-028
1997 0.02 per sq. ft. Cottage Development 2,098 01/31/2001 MLMI-010
1998 0.15 per sq. ft. Sea Gull Lighting Corp. 69,600 11/16/2002 WMFG-090
1998 none per pad GCM-171
1998 none per pad GCM-139
1997 none per unit GCM-064
1998 250 per unit MLMI-052
1998 250 per unit MLMI-051
1998 none per pad GCM-141
1998 none per sq. ft. A&S Hld. 6,560 12/30/1998 MID-153
1998 none per unit GCM-133
1998 none per pad/unit GCM-140
1998 none per sq. ft. JWCH 4,965 08/31/2000 MLMI-026
1998 none per unit GCM-174
1998 none per sq. ft. Chief Auto Parts, Inc. 7,625 06/30/2006 MLMI-030
1997 none per sq. ft. Blockbuster Video 8,640 06/30/2007 MLMI-005
1998 none per sq. ft. The Sporting Scene-Art Gallery 2,392 03/01/2001 GCM-170
1998 none per pad GCM-189
1998 275.00 per unit MLMI-050
1998 none per unit GCM-155
1998 none per unit GCM-182
1998 none per unit GCM-153
1998 none per unit GCM-184
1998 none per sq. ft. Sonic Systems, Inc. 12,960 04/30/2018 GCM-131
1998 none per sq. ft. Blue Sails 1,320 12/31/1998 MLMI-017
1997 none per sq. ft. Barnsider's Mile & 1/4, Inc. 10,225 05/31/2003 GCM-195
1998 none per unit GCM-183
1998 none per sq. ft. King Food Mart No.2 3,000 09/01/2005 GCM-175
1998 none per sq. ft. LWG Inc. 2,400 07/01/1999 GCM-154
1997 none per sq. ft. Playmates 4,500 04/30/2015 MLMI-008
1998 none per sq. ft. East River Cafe 3,840 03/31/2004 GCM-172
1998 none per unit GCM-146
1998 none per sq. ft. Christiansen Financial Plan 1,352 12/31/2001 MLMI-025
1998 none per sq. ft. Mesa Oil 11,662 12/31/1998 MLMI-022
1997 0.02 per sq. ft. La-Z-Boy 4,270 08/31/1999 MLMI-009
1998 none per sq. ft. Chief Auto 5,418 08/31/2007 MLMI-027
1998 none per unit MID-047
1998 none per unit GCM-177
1998 396 per unit MLMI-011
1998 none per sq. ft. Chief Auto Parts 5,400 12/01/2007 MLMI-016
1998 none per unit GCM-150
1998 none per sq. ft. Mountain High Sports 3,634 11/30/1998 GCM-147
1997 188 per unit MLMI-020
1998 320 per unit MLMI-018
1998 none per unit GCM-149
1998 0.08 per sq. ft. Computer Store 968 MTM MLMI-029
1998 none per unit MLMI-024
</TABLE>
<PAGE>
COMMERCIAL MORTGAGE ACCEPTANCE CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-C2
[LOGO] NORWEST BANKS(R) For Additional Information, please contact
NORWEST BANK MINNESOTA, N.A. Leslie Gaskill
CORPORATE TRUST SERVICES (212) 515-5254
3 NEW YORK PLAZA, 15TH FLOOR Reports Available on the World Wide Web
NEW YORK, NY 10004 @ www.securitieslink.net/cmbs
PAYMENT DATE: 10/15/98
RECORD DATE: 9/30/98
================================================================================
DISTRIBUTION DATE STATEMENT
Table of Contents
================================================================================
STATEMENT SECTIONS PAGE(s)
- ------------------ -------
Certificate Distribution Detail 2
Certificate Factor Detail 3
Reconciliation Detail 4
Other Required Information 5
Ratings Detail 6
Current Mortgage Loan and Property Stratification Tables 7-15
Mortgage Loan Detail 16
Principal Prepayment Detail 17
Historical Detail 18
Delinquency Loan Detail 19
Specially Serviced Loan Detail 20-21
Modified Loan Detail 22
Liquidated Loan Detail 23
================================================================================
Underwriter
================================================================================
Merrill Lynch, Pierce, Fenner & Smith Inc.
World Financial Center, North Tower
250 Vesey Street
New York, NY 10281
Contact: John E. Gluszak
Phone Number: (212) 449-1000
================================================================================
Master Servicer
================================================================================
Midland Loan Services, Inc.
210 West 10th Street
Kansas City, MO 64105
Contact: Brad Hauger
Phone Number: (816) 435-5175
================================================================================
Special Servicer
================================================================================
Midland Loan Services, Inc.
210 West 10th Street
Kansas City, MO 64105
Contact: Brad Hauger
Phone Number: (816) 435-5175
================================================================================
This report has been compiled from information provided to Norwest by various
third parties, which may include the Servicer, Master Servicer, Special Servicer
and others. Norwest has not independently confirmed the accuracy of information
received from these third parties and assumes no duty to do so. Norwest
expressly disclaims any responsibility for the accuracy or completeness of
information furnished by third parties.
================================================================================
Copyright 1997, Norwest Bank Minnesota, N. A. Page 1 of 23
B-1
<PAGE>
COMMERCIAL MORTGAGE ACCEPTANCE CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-C2
[LOGO] NORWEST BANKS(R) For Additional Information, please contact
NORWEST BANK MINNESOTA, N.A. Leslie Gaskill
CORPORATE TRUST SERVICES (212) 515-5254
3 NEW YORK PLAZA, 15TH FLOOR Reports Available on the World Wide Web
NEW YORK, NY 10004 @ www.securitieslink.net/cmbs
PAYMENT DATE: 10/15/98
RECORD DATE: 9/29/98
================================================================================
CERTIFICATE DISTRIBUTION DETAIL
<TABLE>
<CAPTION>
===================================================================================================================================
Realized Loss/
Pass-Through Original Beginning Principal Interest Prepayment Additional Trust Total Ending
Class CUSIP Rate Balance Balance Distribution Distribution Penalties Fund Expenses Distribution Balance
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
A-1 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
A-2 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
A-MF 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
B 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
C 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
D 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
E 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
F 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
G 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
H 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
J 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
K 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
R-I 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
R-II 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
R-III 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
===================================================================================================================================
Totals 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
===================================================================================================================================
<CAPTION>
======================
Current
Subordination
Class Level(1)
======================
<S> <C>
A-1 0.00%
A-2 0.00%
A-MF 0.00%
B 0.00%
C 0.00%
D 0.00%
E 0.00%
F 0.00%
G 0.00%
H 0.00%
J 0.00%
K 0.00%
R-I 0.00%
R-II 0.00%
R-III 0.00%
======================
Totals
======================
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================
Original Beginning Ending
Pass-Through Notional Notional Interest Prepayment Total Notional
Class CUSIP Rate Amount Amount Distribution Premium Distribution Amount
====================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
X 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00
====================================================================================================
</TABLE>
(1) Calculated by taking (A) the sum of the ending certificate balance of all
classes less (B) the sum of (i) the ending certificate balance of the designated
class and (ii) the ending certificate balance of all classes which are not
subordinate to the designated class and dividing the result by (A).
================================================================================
Copyright 1997, Norwest Bank Minnesota, N. A. Page 2 of 23
B-2
<PAGE>
COMMERCIAL MORTGAGE ACCEPTANCE CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-C2
[LOGO] NORWEST BANKS(R) For Additional Information, please contact
NORWEST BANK MINNESOTA, N.A. Leslie Gaskill
CORPORATE TRUST SERVICES (212) 515-5254
3 NEW YORK PLAZA, 15TH FLOOR Reports Available on the World Wide Web
NEW YORK, NY 10004 @ www.securitieslink.net/cmbs
PAYMENT DATE: 10/15/98
RECORD DATE: 9/29/98
================================================================================
CERTIFICATE FACTOR DETAIL
<TABLE>
<CAPTION>
===================================================================================================
Realized Loss/
Beginning Principal Interest Prepayment Additional/Trust Ending
Class CUSIP Balance Distribution Distribution Penalties Fund Expenses Balance
====================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
A-1 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
A-2 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
A-MF 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
B 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
C 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
D 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
E 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
F 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
G 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
H 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
J 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
K 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
R-I 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
R-II 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
R-III 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
====================================================================================================
</TABLE>
=================================================================
Beginning Ending
Notional Interest Prepayment Notional
Class CUSIP Amount Distribution Penalties Amount
=================================================================
X 0.00000000 0.00000000 0.00000000 0.00000000
================================================================================
Copyright 1997, Norwest Bank Minnesota, N. A. Page 3 of 23
B-3
<PAGE>
COMMERCIAL MORTGAGE ACCEPTANCE CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-C2
[LOGO] NORWEST BANKS(R) For Additional Information, please contact
NORWEST BANK MINNESOTA, N.A. Leslie Gaskill
CORPORATE TRUST SERVICES (212) 515-5254
3 NEW YORK PLAZA, 15TH FLOOR Reports Available on the World Wide Web
NEW YORK, NY 10004 @ www.securitieslink.net/cmbs
PAYMENT DATE: 10/15/98
RECORD DATE: 9/29/98
================================================================================
RECONCILIATION DETAIL
ADVANCE SUMMARY
P & I Advances Outstanding 0.00
Servicing Advances Outstanding 0.00
Reimbursement for Interest on Advances 0.00
paid from general collections
Reimbursement for Interest on Advances 0.00
paid from general collections
SERVICING FEE BREAKDOWNS
Current Period Accrued Servicing Fees 0.00
Less Delinquent Master Servicing Fees 0.00
Less Reductions to Master Servicing Fees 0.00
Plus Master Servicing Fees for Delinquent Payments Received 0.00
Plus Adjustments for Prior Master Servicing Calculation 0.00
Total Master Servicing Fees Collected 0.00
CERTIFICATE INTEREST RECONCILIATION
<TABLE>
<CAPTION>
=============================================================================================================================
Accrued Net Aggregate Distributable Distributable Additional Remaining Unpaid
Certificate Prepayment Certificate Certificate Interest Trust Fund Interest Distributable
Class Interest Interest Shortfall Interest Adjustment Expenses Distribution Certificate Interest
=============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
A-1 0.00 0.00 0.00 0.00 0.00 0.00 0.00
A-2 0.00 0.00 0.00 0.00 0.00 0.00 0.00
A-MF 0.00 0.00 0.00 0.00 0.00 0.00 0.00
X 0.00 0.00 0.00 0.00 0.00 0.00 0.00
B 0.00 0.00 0.00 0.00 0.00 0.00 0.00
C 0.00 0.00 0.00 0.00 0.00 0.00 0.00
D 0.00 0.00 0.00 0.00 0.00 0.00 0.00
E 0.00 0.00 0.00 0.00 0.00 0.00 0.00
F 0.00 0.00 0.00 0.00 0.00 0.00 0.00
G 0.00 0.00 0.00 0.00 0.00 0.00 0.00
H 0.00 0.00 0.00 0.00 0.00 0.00 0.00
J 0.00 0.00 0.00 0.00 0.00 0.00 0.00
K 0.00 0.00 0.00 0.00 0.00 0.00 0.00
=============================================================================================================================
Total 0.00 0.00 0.00 0.00 0.00 0.00 0.00 23
=============================================================================================================================
</TABLE>
================================================================================
Copyright 1997, Norwest Bank Minnesota, N. A. Page 4 of 23
B-4
<PAGE>
COMMERCIAL MORTGAGE ACCEPTANCE CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-C2
[LOGO] NORWEST BANKS(R) For Additional Information, please contact
NORWEST BANK MINNESOTA, N.A. Leslie Gaskill
CORPORATE TRUST SERVICES (212) 515-5254
3 NEW YORK PLAZA, 15TH FLOOR Reports Available on the World Wide Web
NEW YORK, NY 10004 @ www.securitieslink.net/cmbs
PAYMENT DATE: 10/15/98
RECORD DATE: 9/30/98
================================================================================
OTHER REQUIRED INFORMATION
- --------------------------------------------------------------------------------
Sec 4.02(a)(iii)
Available Distribution Amount 0.00
Sec. 4.02(a)(xiii)
Principal Distribution Amount 0.00
(a) Principal portion of Monthly Payments 0.00
and any Assumed Monthly Payments
(b) Voluntary Principal Prepayments 0.00
(c) Collection of Principal on a Balloon 0.00
Loan after its Stated Maturity Date
(d) Liquidation Proceeds and Insurance 0.00
Proceeds received on a Mortgage Loan
(e) Plus the excess of the prior Principal 0.00
Distribution Amount over the principal
paid to the Certificates minus the A-MF
Principal Distribution Amount
Sec 4.02(a)(v) and (vi)
Aggregate Number of Outstanding Loans 0
Aggregate Stated Principal Balance of the Mortgage Pool 0.00
before distribution
Aggregate Stated Principal Balance of the Mortgage Pool 0.00
after distribution
Sec 4.02(a)(xiii)
Total Servicing and Special Servicing Fee paid 0.00
Servicing Fee paid 0.00
Special Servicing Fee paid 0.00
Trustee Fee paid 0.00
Sec 4.02(a)(xiv)
Additional Trust Fund Expenses 0.00
(i) Fees paid to Special Servicer 0.00
(ii) Interest on Advances 0.00
(iv) Unanticipated expenses of the Trust 0.00
- --------------------------------------------------------------------------------
Appraisal Reduction Amount
=================================================
Appraisal Date Appraisal
Loan Reduction Reduction
Number Amount Effected
=================================================
=================================================
TOTAL
=================================================
================================================================================
Copyright 1997, Norwest Bank Minnesota, N. A. Page 5 of 23
B-5
<PAGE>
COMMERCIAL MORTGAGE ACCEPTANCE CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-C2
[LOGO] NORWEST BANKS(R) For Additional Information, please contact
NORWEST BANK MINNESOTA, N.A. Leslie Gaskill
CORPORATE TRUST SERVICES (212) 515-5254
3 NEW YORK PLAZA, 15TH FLOOR Reports Available on the World Wide Web
NEW YORK, NY 10004 @ www.securitieslink.net/cmbs
PAYMENT DATE: 10/15/98
RECORD DATE: 9/29/98
================================================================================
RATINGS DETAIL
================================================================================
Original Ratings Current Ratings (1)
------------------------------------------------------------
Class CUSIP DCR Fitch Moody's S & P DCR Fitch Moody's S & P
================================================================================
A- 1
A- 2
A-M3
X
B
C
D
E
F
G
H
J
K
L
M
================================================================================
NR - Designates that the class was not rated by the above agency at the time
of original issuance.
X - Designates that the above rating agency did not rate any classes in this
transaction at the time of original issuance.
N/A - Data not available this period.
1) For any class not rated at the time of original issuance by any particular
rating agency, no request has been made subsequent to issuance to obtain rating
information, if any, from such rating agency. The current ratings were obtained
directly from the applicable rating agency within 30 days of the payment date
listed above. The ratings may have changed since they were obtained. Because the
ratings may have changed, you may want to obtain current ratings directly from
the rating agencies.
Duff & Phelps Credit Rating Co.
55 East Monroe Street
Chicago, Illinois 60603
(312) 368-3100
Fitch IBCA, Inc.
One State Street Plaza
New York, New York 10004
(212) 908-0500
Moody's Investors Service
99 Church Street
New York, New York 10007
(212) 553-0300
Standard & Poor's Rating Services
26 Broadway
New York, New York 10004
(212) 208-8000
================================================================================
Copyright 1997, Norwest Bank Minnesota, N. A. Page 6 of 23
B-6
<PAGE>
COMMERCIAL MORTGAGE ACCEPTANCE CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-C2
[LOGO] NORWEST BANKS(R) For Additional Information, please contact
NORWEST BANK MINNESOTA, N.A. Leslie Gaskill
CORPORATE TRUST SERVICES (212) 515-5254
3 NEW YORK PLAZA, 15TH FLOOR Reports Available on the World Wide Web
NEW YORK, NY 10004 @ www.securitieslink.net/cmbs
PAYMENT DATE: 10/15/98
RECORD DATE: 9/30/98
================================================================================
CURRENT MORTGAGE LOAN AND PROPERTY STRATIFICATION TABLES
SCHEDULED BALANCE
================================================================================
% of
Scheduled # of Scheduled Agg. WAM Weighted
Balance Loans Balance Bal. (2) WAC Avg DSCR (1)
================================================================================
================================================================================
Totals
================================================================================
STATE (3)
================================================================================
% of
# of Scheduled Agg. WAM Weighted
State Props. Balance Bal. (2) WAC Avg DSCR (1)
================================================================================
================================================================================
Totals
================================================================================
See footnotes on last page of this section.
================================================================================
Copyright 1997, Norwest Bank Minnesota, N. A. Page 7 of 23
B-7
<PAGE>
COMMERCIAL MORTGAGE ACCEPTANCE CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-C2
[LOGO] NORWEST BANKS(R) For Additional Information, please contact
NORWEST BANK MINNESOTA, N.A. Leslie Gaskill
CORPORATE TRUST SERVICES (212) 515-5254
3 NEW YORK PLAZA, 15TH FLOOR Reports Available on the World Wide Web
NEW YORK, NY 10004 @ www.securitieslink.net/cmbs
PAYMENT DATE: 10/15/98
RECORD DATE: 9/30/98
================================================================================
CURRENT MORTGAGE LOAN AND PROPERTY STRATIFICATION TABLES
AGGREGATE POOL
DEBT SERVICE COVERAGE RATIO
================================================================================
Debt Service # of Scheduled % of WAM Weighted
Coverage Ratio Loans Balance Agg (2) WAC Avg DSCR (1)
Bal.
================================================================================
================================================================================
Totals
================================================================================
NOTE RATE
================================================================================
Note # of Scheduled % of WAM Weighted
Rate Loans Balance Agg (2) WAC Avg DSCR (1)
Bal.
================================================================================
================================================================================
Totals
================================================================================
PROPERTY TYPE (3)
================================================================================
Property # of Scheduled % of WAM Weighted
Type Props. Balance Agg (2) WAC Avg DSCR (1)
Bal.
================================================================================
================================================================================
Totals
================================================================================
SEASONING
================================================================================
# of Scheduled % of WAM Weighted
Seasoning Loans Balance Agg (2) WAC Avg DSCR (1)
Bal.
================================================================================
================================================================================
Totals
================================================================================
See footnotes on last page of this section.
================================================================================
Copyright 1997, Norwest Bank Minnesota, N.A. Page 8 of 23
B-8
<PAGE>
COMMERCIAL MORTGAGE ACCEPTANCE CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-C2
[LOGO] NORWEST BANKS(R) For Additional Information, please contact
NORWEST BANK MINNESOTA, N.A. Leslie Gaskill
CORPORATE TRUST SERVICES (212) 515-5254
3 NEW YORK PLAZA, 15TH FLOOR Reports Available on the World Wide Web
NEW YORK, NY 10004 @ www.securitieslink.net/cmbs
PAYMENT DATE: 10/15/98
RECORD DATE: 9/30/98
================================================================================
CURRENT MORTGAGE LOAN AND PROPERTY STRATIFICATION TABLES
AGGREGATE POOL
ANTICIPATED REMAINING TERM (ARD AND BALLOON LOANS)
================================================================================
Anticipated # of Scheduled % of WAM Weighted
Remaining Loans Balance Agg. (2) WAC Avg DSCR (1)
Term(2) Bal.
================================================================================
================================================================================
Totals
================================================================================
REMAINING AMORTIZATION TERM (ARD AND BALLOON LOANS)
================================================================================
Remaining # of Scheduled % of WAM Weighted
Amortization Loans Balance Agg. (2) WAC Avg DSCR (1)
Term Bal.
================================================================================
================================================================================
Totals
================================================================================
REMAINING STATED TERM (FULLY AMORTIZING LOANS)
================================================================================
Remaining # of Scheduled % of WAM Weighted
Stated Loans Balance Agg. (2) WAC Avg DSCR (1)
Term Bal.
================================================================================
================================================================================
Totals
================================================================================
AGE OF MOST RECENT NOI
================================================================================
Age of Most # of Scheduled % of WAM Weighted
Recent NOI Loans Balance Agg. (2) WAC Avg DSCR (1)
Bal.
================================================================================
================================================================================
Totals
================================================================================
(1) Debt Service Coverage Ratios are calculated as described in the prospectus,
values are updated periodically as new NOI figures become available from
borrowers on an asset level. The Trustee makes no representations as to the
accuracy of the data provided by the borrower for this calculation. "NAP" means
not applicable and relates to the omission of credit lease loans in the
calculation of DSCR.
(2) Anticipated Remaining Term and WAM are each calculated based upon the term
from the current month to the earlier of the Anticipated Repayment Date, if
applicable, and the maturity date.
(3) Data in this table was calculated by allocating pro-rata the current loan
information to the properties based upon the Cut-off Date balance of each
property as disclosed in the offering document.
================================================================================
Copyright 1997, Norwest Bank Minnesota, N.A. Page 9 of 23
B-9
<PAGE>
COMMERCIAL MORTGAGE ACCEPTANCE CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-C2
[LOGO] NORWEST BANKS(R) For Additional Information, please contact
NORWEST BANK MINNESOTA, N.A. Leslie Gaskill
CORPORATE TRUST SERVICES (212) 515-5254
3 NEW YORK PLAZA, 15TH FLOOR Reports Available on the World Wide Web
NEW YORK, NY 10004 @ www.securitieslink.net/cmbs
PAYMENT DATE: 10/15/98
RECORD DATE: 9/30/98
================================================================================
CURRENT MORTGAGE LOAN AND PROPERTY STRATIFICATION TABLES
GROUP 1
SCHEDULED BALANCE
================================================================================
% of
Scheduled # of Scheduled Agg. WAM Weighted
Balance Loans Balance Bal. (2) WAC Avg DSCR (1)
================================================================================
================================================================================
Totals
================================================================================
STATE (3)
================================================================================
% of
# of Scheduled Agg. WAM Weighted
State Props. Balance Bal. (2) WAC Avg DSCR (1)
================================================================================
================================================================================
Totals
================================================================================
See footnotes on last page of this section.
================================================================================
Copyright 1997, Norwest Bank Minnesota, N. A. Page 10 of 23
B-10
<PAGE>
COMMERCIAL MORTGAGE ACCEPTANCE CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-C2
[LOGO] NORWEST BANKS(R) For Additional Information, please contact
NORWEST BANK MINNESOTA, N.A. Leslie Gaskill
CORPORATE TRUST SERVICES (212) 515-5254
3 NEW YORK PLAZA, 15TH FLOOR Reports Available on the World Wide Web
NEW YORK, NY 10004 @ www.securitieslink.net/cmbs
PAYMENT DATE: 10/15/98
RECORD DATE: 9/30/98
================================================================================
CURRENT MORTGAGE LOAN AND PROPERTY STRATIFICATION TABLES
GROUP 1
DEBT SERVICE COVERAGE RATIO
================================================================================
Debt Service # of Scheduled % of WAM Weighted
Coverage Ratio Loans Balance Agg (2) WAC Avg DSCR (1)
Bal.
================================================================================
================================================================================
Totals
================================================================================
NOTE RATE
================================================================================
Note # of Scheduled % of WAM Weighted
Rate Loans Balance Agg (2) WAC Avg DSCR (1)
Bal.
================================================================================
================================================================================
Totals
================================================================================
PROPERTY TYPE (3)
================================================================================
Property # of Scheduled % of WAM Weighted
Type Props. Balance Agg (2) WAC Avg DSCR (1)
Bal.
================================================================================
================================================================================
Totals
================================================================================
SEASONING
================================================================================
# of Scheduled % of WAM Weighted
Seasoning Loans Balance Agg (2) WAC Avg DSCR (1)
Bal.
================================================================================
================================================================================
Totals
================================================================================
See footnotes on last page of this section.
================================================================================
Copyright 1997, Norwest Bank Minnesota, N.A. Page 11 of 23
B-11
<PAGE>
COMMERCIAL MORTGAGE ACCEPTANCE CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-C2
[LOGO] NORWEST BANKS(R) For Additional Information, please contact
NORWEST BANK MINNESOTA, N.A. Leslie Gaskill
CORPORATE TRUST SERVICES (212) 515-5254
3 NEW YORK PLAZA, 15TH FLOOR Reports Available on the World Wide Web
NEW YORK, NY 10004 @ www.securitieslink.net/cmbs
PAYMENT DATE: 10/15/98
RECORD DATE: 9/30/98
================================================================================
CURRENT MORTGAGE LOAN AND PROPERTY STRATIFICATION TABLES
GROUP 1
ANTICIPATED REMAINING TERM (ARD AND BALLOON LOANS)
================================================================================
Anticipated # of Scheduled % of WAM Weighted
Remaining Loans Balance Agg. (2) WAC Avg DSCR (1)
Term(2) Bal.
================================================================================
================================================================================
Totals
================================================================================
REMAINING AMORTIZATION TERM (ARD AND BALLOON LOANS)
================================================================================
Remaining # of Scheduled % of WAM Weighted
Amortization Loans Balance Agg. (2) WAC Avg DSCR (1)
Term Bal.
================================================================================
================================================================================
Totals
================================================================================
REMAINING STATED TERM (FULLY AMORTIZING LOANS)
================================================================================
Remaining # of Scheduled % of WAM Weighted
Stated Loans Balance Agg. (2) WAC Avg DSCR (1)
Term Bal.
================================================================================
================================================================================
Totals
================================================================================
AGE OF MOST RECENT NOI
================================================================================
Age of Most # of Scheduled % of WAM Weighted
Recent NOI Loans Balance Agg. (2) WAC Avg DSCR (1)
Bal.
================================================================================
================================================================================
Totals
================================================================================
(1) Debt Service Coverage Ratios are calculated as described in the prospectus,
values are updated periodically as new NOI figures become available from
borrowers on an asset level. The Trustee makes no representations as to the
accuracy of the data provided by the borrower for this calculation. "NAP"
means not applicable and relates to the omission of credit lease loans in
the calculation of DSCR.
(2) Anticipated Remaining Term and WAM are each calculated based upon the term
from the current month to the earlier of the Anticipated Repayment Date, if
applicable, and the maturity date.
(3) Data in this table was calculated by allocating pro-rata the current loan
information to the properties based upon the Cut-off Date balance of each
property as disclosed in the offering document.
================================================================================
Copyright 1997, Norwest Bank Minnesota, N.A. Page 12 of 23
B-12
<PAGE>
COMMERCIAL MORTGAGE ACCEPTANCE CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-C2
[LOGO] NORWEST BANKS(R) For Additional Information, please contact
NORWEST BANK MINNESOTA, N.A. Leslie Gaskill
CORPORATE TRUST SERVICES (212) 515-5254
3 NEW YORK PLAZA, 15TH FLOOR Reports Available on the World Wide Web
NEW YORK, NY 10004 @ www.securitieslink.net/cmbs
PAYMENT DATE: 10/15/98
RECORD DATE: 9/30/98
================================================================================
CURRENT MORTGAGE LOAN AND PROPERTY STRATIFICATION TABLES
GROUP 2
SCHEDULED BALANCE
================================================================================
% of
Scheduled # of Scheduled Agg. WAM Weighted
Balance Loans Balance Bal. (2) WAC Avg DSCR (1)
================================================================================
================================================================================
Totals
================================================================================
STATE (3)
================================================================================
% of
# of Scheduled Agg. WAM Weighted
State Props. Balance Bal. (2) WAC Avg DSCR (1)
================================================================================
================================================================================
Totals
================================================================================
See footnotes on last page of this section.
================================================================================
Copyright 1997, Norwest Bank Minnesota, N. A. Page 13 of 23
B-13
<PAGE>
COMMERCIAL MORTGAGE ACCEPTANCE CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-C2
[LOGO] NORWEST BANKS(R) For Additional Information, please contact
NORWEST BANK MINNESOTA, N.A. Leslie Gaskill
CORPORATE TRUST SERVICES (212) 515-5254
3 NEW YORK PLAZA, 15TH FLOOR Reports Available on the World Wide Web
NEW YORK, NY 10004 @ www.securitieslink.net/cmbs
PAYMENT DATE: 10/15/98
RECORD DATE: 9/30/98
================================================================================
CURRENT MORTGAGE LOAN AND PROPERTY STRATIFICATION TABLES
GROUP 2
DEBT SERVICE COVERAGE RATIO
================================================================================
Debt Service # of Scheduled % of WAM Weighted
Coverage Ratio Loans Balance Agg (2) WAC Avg DSCR (1)
Bal.
================================================================================
================================================================================
Totals
================================================================================
NOTE RATE
================================================================================
Note # of Scheduled % of WAM Weighted
Rate Loans Balance Agg (2) WAC Avg DSCR (1)
Bal.
================================================================================
================================================================================
Totals
================================================================================
PROPERTY TYPE (3)
================================================================================
Property # of Scheduled % of WAM Weighted
Type Props. Balance Agg (2) WAC Avg DSCR (1)
Bal.
================================================================================
================================================================================
Totals
================================================================================
SEASONING
================================================================================
# of Scheduled % of WAM Weighted
Seasoning Loans Balance Agg (2) WAC Avg DSCR (1)
Bal.
================================================================================
================================================================================
Totals
================================================================================
See footnotes on last page of this section.
================================================================================
Copyright 1997, Norwest Bank Minnesota, N.A. Page 14 of 23
B-14
<PAGE>
COMMERCIAL MORTGAGE ACCEPTANCE CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-C2
[LOGO] NORWEST BANKS(R) For Additional Information, please contact
NORWEST BANK MINNESOTA, N.A. Leslie Gaskill
CORPORATE TRUST SERVICES (212) 515-5254
3 NEW YORK PLAZA, 15TH FLOOR Reports Available on the World Wide Web
NEW YORK, NY 10004 @ www.securitieslink.net/cmbs
PAYMENT DATE: 10/15/98
RECORD DATE: 9/30/98
================================================================================
CURRENT MORTGAGE LOAN AND PROPERTY STRATIFICATION TABLES
GROUP 2
ANTICIPATED REMAINING TERM (ARD AND BALLOON LOANS)
================================================================================
Anticipated # of Scheduled % of WAM Weighted
Remaining Loans Balance Agg. (2) WAC Avg DSCR (1)
Term(2) Bal.
================================================================================
================================================================================
Totals
================================================================================
REMAINING AMORTIZATION TERM (ARD AND BALLOON LOANS)
================================================================================
Remaining # of Scheduled % of WAM Weighted
Amortization Loans Balance Agg. (2) WAC Avg DSCR (1)
Term Bal.
================================================================================
================================================================================
Totals
================================================================================
REMAINING STATED TERM (FULLY AMORTIZING LOANS)
================================================================================
Remaining # of Scheduled % of WAM Weighted
Stated Loans Balance Agg. (2) WAC Avg DSCR (1)
Term Bal.
================================================================================
================================================================================
Totals
================================================================================
AGE OF MOST RECENT NOI
================================================================================
Age of Most # of Scheduled % of WAM Weighted
Recent NOI Loans Balance Agg. (2) WAC Avg DSCR (1)
Bal.
================================================================================
================================================================================
Totals
================================================================================
(1) Debt Service Coverage Ratios are calculated as described in the prospectus,
values are updated periodically as new NOI figures become available from
borrowers on an asset level. The Trustee makes no representations as to the
accuracy of the data provided by the borrower for this calculation. "NAP"
means not applicable and relates to the omission of credit lease loans in
the calculation of DSCR.
(2) Anticipated Remaining Term and WAM are each calculated based upon the term
from the current month to the earlier of the Anticipated Repayment Date, if
applicable, and the maturity date.
(3) Data in this table was calculated by allocating pro-rata the current loan
information to the properties based upon the Cut-off Date balance of each
property as disclosed in the offering document.
================================================================================
Copyright 1997, Norwest Bank Minnesota, N.A. Page 15 of 23
B-15
<PAGE>
COMMERCIAL MORTGAGE ACCEPTANCE CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-C2
[LOGO] NORWEST BANKS(R) For Additional Information, please contact
NORWEST BANK MINNESOTA, N.A. Leslie Gaskill
CORPORATE TRUST SERVICES (212) 515-5254
3 NEW YORK PLAZA, 15TH FLOOR Reports Available on the World Wide Web
NEW YORK, NY 10004 @ www.securitieslink.net/cmbs
PAYMENT DATE: 10/15/98
RECORD DATE: 9/30/98
================================================================================
MORTGAGE LOAN DETAIL
<TABLE>
<CAPTION>
====================================================================================================================================
Anticipated Neg. Beginning Ending Paid Appraisal
Loan ODCR Property City State Interest Principal Gross Repayment Maturity Amort Scheduled Scheduled Thru Reduction
Number Type (1) Payment Payment Coupon Date Date (Y/N) Balance Balance Date Date
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
====================================================================================================================================
Totals
====================================================================================================================================
</TABLE>
===============================
Appraisal Res. Mod.
Loan Reduction Strat. Code
Number Amount (2) (3)
===============================
===============================
Totals
===============================
(1) Property Type Code (2) Resolution Strategy Code (3) Modification Code
MF - Multi- Family 1 - Modification 1 - Maturity Date Extension
RT - Retail 2 - Foreclosure 2 - Amortization Change
HC - Health Care 3 - Bankruptcy 3 - Principal Write-Off
IN - Industrial 4 - Extension 4 - Combination
WH - Warehouse 5 - Note Sale
MH - Mobile Home Park 6 - DPO
OF - Office 7 - REO
MU - Mixed Use 8 - Resolved
LO - Lodging 9 - Pending Return
SS - Self Storage to Master Servicer
OT - Other 10 - Deed In Lieu Of
Foreclosure
================================================================================
Copyright 1997, Norwest Bank Minnesota, N.A. Page 16 of 23
B-16
<PAGE>
COMMERCIAL MORTGAGE ACCEPTANCE CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-C2
[LOGO] NORWEST BANKS(R) For Additional Information, please contact
NORWEST BANK MINNESOTA, N.A. Leslie Gaskill
CORPORATE TRUST SERVICES (212) 515-5254
3 NEW YORK PLAZA, 15TH FLOOR Reports Available on the World Wide Web
NEW YORK, NY 10004 @ www.securitieslink.net/cmbs
PAYMENT DATE: 10/15/98
RECORD DATE: 9/30/98
================================================================================
PRINCIPAL PREPAYMENT DETAIL
<TABLE>
<CAPTION>
================================================================================================================
Principal Prepayment Amount Prepayment Penalties
Offering Document --------------------------------- ---------------------------------------------
Loan Number Cross-Reference Payoff Amount Curtailment Amount Precentage Premium Yield Maintenance Premium
================================================================================================================
<S> <C> <C> <C> <C> <C>
================================================================================================================
Totals
================================================================================================================
</TABLE>
================================================================================
Copyright 1997, Norwest Bank Minnesota, N.A. Page 17 of 23
B-17
<PAGE>
COMMERCIAL MORTGAGE ACCEPTANCE CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-C2
[LOGO] NORWEST BANKS(R) For Additional Information, please contact
NORWEST BANK MINNESOTA, N.A. Leslie Gaskill
CORPORATE TRUST SERVICES (212) 515-5254
3 NEW YORK PLAZA, 15TH FLOOR Reports Available on the World Wide Web
NEW YORK, NY 10004 @ www.securitieslink.net/cmbs
PAYMENT DATE: 10/15/98
RECORD DATE: 9/30/98
================================================================================
HISTORICAL DETAIL
<TABLE>
<CAPTION>
====================================================================================================================================
Delinquencies Prepayments Rate and Maturities
- ------------------------------------------------------------------------------------------------------------------------------------
Distribution 30-59 Days 60-89 Days 90 Days or More Foreclosure REO Modifications Curtailments Payoff Next Weighted Avg.
Date # Balance # Balance # Balance # Balance # Balance # Balance # Amount # Amount Coupon Remit WAM
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
====================================================================================================================================
</TABLE>
Note: Foreclosure and REO Totals are excluded from the delinquencies aging
categories.
================================================================================
Copyright 1997, Norwest Bank Minnesota, N.A. Page 18 of 23
B-18
<PAGE>
COMMERCIAL MORTGAGE ACCEPTANCE CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-C2
[LOGO] NORWEST BANKS(R) For Additional Information, please contact
NORWEST BANK MINNESOTA, N.A. Leslie Gaskill
CORPORATE TRUST SERVICES (212) 515-5254
3 NEW YORK PLAZA, 15TH FLOOR Reports Available on the World Wide Web
NEW YORK, NY 10004 @ www.securitieslink.net/cmbs
PAYMENT DATE: 10/15/98
RECORD DATE: 9/30/98
================================================================================
DELINQUENCY LOAN DETAIL
<TABLE>
<CAPTION>
=============================================================================================================================
Offering # of Current Outstanding Status of Resolution
Document Months Paid Through P & I P & I Mortgage Strategy Servicing Foreclosure
Loan Number Cross-Reference Delinq. Date Advances Advances ** Loan (1) Code (2) Transfer Date Date
=============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
=============================================================================================================================
Totals
=============================================================================================================================
</TABLE>
Delinquency Loan Detail
==========================================================
Current Outstanding
Servicing Servicing REO
Loan Number Advances Advances Bankruptcy Date Date
==========================================================
==========================================================
Totals
==========================================================
(1) Status of Mortgage Loan (2) Resolution Strategy Code
--------------------------- ----------------------------
A - Payment Not Received 1 - Modification
But Still in Grace Period 2 - Foreclosure
B - Late Payment But Less 3 - Bankruptcy
Than 1 Month Delinquent 4 - Extension
0 - Current 5 - Note Sale
1 - One Month Delinquent 6 - DPO
2 - Two Months Delinquent 7 - REO
3 - Three Or More Months Delinquent 8 - Resolved
4 - Assumed Scheduled Payment 9 - Pending Return
(Performing Matured Balloon) to Master Servicer
7 - Foreclosure 10- Deed In Lieu Of
9 - REO Foreclosure
** Outstanding P & I Advances include the current period advance
===============================================================================
Copyright 1997, Norwest Bank Minnesota, N.A. Page 19 of 23
B-19
<PAGE>
COMMERCIAL MORTGAGE ACCEPTANCE CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-C2
[LOGO] NORWEST BANKS(R) For Additional Information, please contact
NORWEST BANK MINNESOTA, N.A. Leslie Gaskill
CORPORATE TRUST SERVICES (212) 515-5254
3 NEW YORK PLAZA, 15TH FLOOR Reports Available on the World Wide Web
NEW YORK, NY 10004 @ www.securitieslink.net/cmbs
PAYMENT DATE: 10/15/98
RECORD DATE: 9/30/98
================================================================================
SPECIALLY SERVICED LOAN DETAIL - PART 1
<TABLE>
<CAPTION>
====================================================================================================================================
Offering Servicing Resolution Net
Distribution Loan Document Transfer Strategy Scheduled Property State Interest Actual Operating NOI
Date Number Cross-Reference Date Code (1) Balance Type (2) Rate Balance Income Date
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
====================================================================================================================================
</TABLE>
=================================
Remaining
Note Maturity Amortization
DSCR Date Date Term
=================================
=================================
(1) Resolution Strategy Code (2) Property Type Code
---------------------------- ----------------------
1 - Modification MF - Multi-Family
2 - Foreclosure RT - Retail
3 - Bankruptcy HC - Health Care
4 - Extension IN - Industrial
5 - Note Sale WH - Warehouse
6 - DPO MH - Mobile Home Park
7 - REO OF - Office
8 - Resolved MU - Mixed Use
9 - Pending Return LO - Lodging
to Master Servicer SS - Self Storage
10 - Deed In Lieu Of OT - Other
Foreclosure
================================================================================
Copyright 1997, Norwest Bank Minnesota, N.A. Page 20 of 23
B-20
<PAGE>
COMMERCIAL MORTGAGE ACCEPTANCE CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-C2
[LOGO] NORWEST BANKS(R) For Additional Information, please contact
NORWEST BANK MINNESOTA, N.A. Leslie Gaskill
CORPORATE TRUST SERVICES (212) 515-5254
3 NEW YORK PLAZA, 15TH FLOOR Reports Available on the World Wide Web
NEW YORK, NY 10004 @ www.securitieslink.net/cmbs
PAYMENT DATE: 10/15/98
RECORD DATE: 9/30/98
================================================================================
SPECIALLY SERVICED LOAN DETAIL - PART 2
<TABLE>
<CAPTION>
===================================================================================================================================
Offering Resolution Site
Distribution Loan Document Strategy Inspection Appraisal Appraisal Other REO
Date Number Cross-Reference Code (1) Date Phase 1 Date Date Value Property Revenue Comment
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
===================================================================================================================================
</TABLE>
(1) Resolution Strategy Code
----------------------------
1 - Modification
2 - Foreclosure
3 - Bankruptcy
4 - Extension
5 - Note Sale
6 - DPO
7 - REO
8 - Resolved
9 - Pending Return
to Master Servicer
10 - Deed In Lieu Of
Foreclosure
================================================================================
Copyright 1997, Norwest Bank Minnesota, N.A. Page 21 of 23
B-21
<PAGE>
COMMERCIAL MORTGAGE ACCEPTANCE CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-C2
[LOGO] NORWEST BANKS(R) For Additional Information, please contact
NORWEST BANK MINNESOTA, N.A. Leslie Gaskill
CORPORATE TRUST SERVICES (212) 515-5254
3 NEW YORK PLAZA, 15TH FLOOR Reports Available on the World Wide Web
NEW YORK, NY 10004 @ www.securitieslink.net/cmbs
PAYMENT DATE: 10/15/98
RECORD DATE: 9/30/98
================================================================================
MODIFIED LOAN DETAIL
================================================================================
Offering
Loan Document Pre-Modification Modification
Number Cross-Reference Balance Modification Date Description
================================================================================
================================================================================
Total
================================================================================
================================================================================
Copyright 1997, Norwest Bank Minnesota, N.A. Page 22 of 23
B-22
<PAGE>
COMMERCIAL MORTGAGE ACCEPTANCE CORP.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-C2
[LOGO] NORWEST BANKS(R) For Additional Information, please contact
NORWEST BANK MINNESOTA, N.A. Leslie Gaskill
CORPORATE TRUST SERVICES (212) 515-5254
3 NEW YORK PLAZA, 15TH FLOOR Reports Available on the World Wide Web
NEW YORK, NY 10004 @ www.securitieslink.net/cmbs
PAYMENT DATE: 10/15/98
RECORD DATE: 9/30/98
================================================================================
LIQUIDATED LOAN DETAIL
<TABLE>
<CAPTION>
===========================================================================================================
Final Recovery Offering Gross Proceeds
Loan Determination Document Appraisal Appraisal Actual Gross as a % of
Number Date Cross-Reference Date Value Balance Proceeds Actual Balance
===========================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
===========================================================================================================
Current Total
===========================================================================================================
Cumulative Total
===========================================================================================================
<CAPTION>
===========================================================================
Aggregate Net Net Proceeds Repurchased
Liquidation Liquidation as a % of Realized by Seller
Number Proceeds Actual Balance Loss (Y/N)
===========================================================================
<S> <C> <C> <C> <C>
=======================================================
Current Total
=======================================================
Cumulative Total
=======================================================
</TABLE>
* Aggregate liquidation expenses also include outstanding P & I advances and
unpaid fees (servicing, trustee, etc.).
================================================================================
Copyright 1997, Norwest Bank Minnesota, N.A. Page 23 of 23
B-23
<PAGE>
ANNEX C
DELINQUENT LOAN STATUS REPORT
AS OF ____________________
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
S4 S55 S61 S57 S58 S62 OR S63 P8 P7 P37 P39
- ------------------------------------------------------------------------------------------------------------------------------------
(A) (B) (C)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHORT NAME PAID SCHEDULED TOTAL P&I TOTAL
PROSPECTUS (WHEN PROPERTY SQ FT OR THRU LOAN ADVANCES EXPENSES
ID APPROPRIATE) TYPE CITY STATE UNITS DATE BALANCE TO DATE TO DATE
- ------------------------------------------------------------------------------------------------------------------------------------
90 + DAYS DELINQUENT
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
60 DAYS DELINQUENT
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
30 DAYS DELINQUENT
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Current & at Special Servicer
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
FCL - Foreclosure
- ------------------------------------------------------------------------------------------------------------------------------------
LTM - Latest 12 Months either Last Annual or Trailing 12 months
- ------------------------------------------------------------------------------------------------------------------------------------
* Workout Strategy should match the CSSA Loan file using abreviated words in
place of a code number such as (FCL - In Foreclosure, MOD - Modification,
DPO - Discount Payoff, NS - Note Sale, BK - Bankrupcy, PP - Payment Plan,
TBD - To Be Determined etc...)
- ------------------------------------------------------------------------------------------------------------------------------------
It is possible to combine the status codes if the loan is going in more
than one direction. (i.e. FCL/Mod, BK/Mod, BK/FCL/DPO)
- ------------------------------------------------------------------------------------------------------------------------------------
** App - Appraisal, BPO - Broker opinion, Int. - Internal Value
- ------------------------------------------------------------------------------------------------------------------------------------
*** How to determine the cap rate is agreed upon by Underwriter and special
services - to be provided by a third party
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
S4 P38 P25 P10 P11 P58 P54 P55 P81 P74
- ------------------------------------------------------------------------------------------------------------------------------------
(d) (e)=a+b+c+d (f)=P38/P81
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Other Value
Advances Current Current using NOI
Prospectus (Taxes & Total Monthly Interest Maturity LTM NOI Cap Rate & Cap Valuation
ID Escrow) Exposure P&I Rate Date Date LTM NOI LTM DSCR Assigned Rate Date
- ------------------------------------------------------------------------------------------------------------------------------------
90 + DAYS DELINQUENT
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
60 DAYS DELINQUENT
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
30 DAYS DELINQUENT
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Current & at Special Servicer
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
S4 P75 P35 P77 P79 P42 P82 P76
- -----------------------------------------------------------------------------------------------------------------------------
(g)=(.92*f)-e (h)=(g/e)
- -----------------------------------------------------------------------------------------------------------------------------
APPRAISAL TOTAL
BPO OR LOSS USING ESTIMATED APPRAISAL FCL EXPECTED
PROSPECTUS INTERNAL 92% APPR. RECOVERY REDUCTION TRANSFER RESOLUTION START FCL SALE WORKOUT
ID VALUE** OR BPO (F) % REALIZED DATE DATE DATE DATE STRATEGY COMMENTS
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
90 + DAYS DELINQUENT
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
60 DAYS DELINQUENT
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
30 DAYS DELINQUENT
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Current & at Special Servicer
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
FCL - Foreclosure
- ----------------------------------------------------------------------------------------------------------------------------
LTM - Latest 12 Months either Last Annual or Trailing 12 m
- ----------------------------------------------------------------------------------------------------------------------------
* Workout Strategy should match the CSSA Loan file using abr etc...
- ----------------------------------------------------------------------------------------------------------------------------
It is possible to combine the status codes if the loan is goi
- ----------------------------------------------------------------------------------------------------------------------------
** App - Appraisal, BPO - Broker opinion, Int. - Internal Va
- ----------------------------------------------------------------------------------------------------------------------------
*** How to deterime the cap rate is agreed upon by Underwriter and special
services - to be provided by a third party
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
C-1
<PAGE>
HISTORICAL LOAN MODIFICATION REPORT
AS OF _________________
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
S4 S57 S58 P49 P48 P7* P7* P50* P50* P25*
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE BALANCE AT
WHEN THE
MOD / SENT TO EFFECTIVE # MTHS
PROSPECTUS EXTENTION EFFECT SPECIAL DATE OF OLD FOR RATE NEW OLD
ID CITY STATE FLAG DATE SERVICER REHABILITATION RATE CHANGE RATE P&I
===========================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
THIS REPORT IS HISTORICAL
- ---------------------------------------------------------------------------------------------------------------------------
Information is as of modification. Each line it should not change in the future. Only new modifications should be added.
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
===========================================================================================================================
TOTAL FOR ALL LOANS:
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL FOR LOANS IN CURRENT MONTH:
- ---------------------------------------------------------------------------------------------------------------------------
# OF LOANS $ BALANCE
- ---------------------------------------------------------------------------------------------------------------------------
MODIFICATIONS:
- ---------------------------------------------------------------------------------------------------------------------------
MATURITY DATE EXTENTIONS:
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL:
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
* The information in these columns is from a particular point in time and should not change on this report once assigned.
- ---------------------------------------------------------------------------------------------------------------------------
(1) Actual principal loss taken by bonds
- ---------------------------------------------------------------------------------------------------------------------------
(2) Expected future loss due to a rate reduction. This is just an estimate calculated at the time of the modification.
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
S4 P25* P11* P11* P47
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
(2) EST.
FUTURE
TOTAL # INTEREST
MTHS (1) LOSS TO
FOR REALIZED TRUST $
PROSPECTUS NEW OLD NEW CHANGE LOSS TO (RATE
ID P&I MATURITY MATURITY OF MOD TRUST $ REDUCTION) COMMENT
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
==========================================================================================================
TOTAL FOR ALL LOANS:
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
TOTAL FOR LOANS IN CURRENT MONTH:
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
MODIFICATIONS:
- ----------------------------------------------------------------------------------------------------------
MATURITY DATE EXTENTIONS:
- ----------------------------------------------------------------------------------------------------------
TOTAL:
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
C-2
<PAGE>
HISTORICAL LOSS ESTIMATE REPORT (REO-SOLD or DISCOUNTED PAYOFF)
as of ______________________
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
S4 S55 S61 S57 S58 P45/P7 P75 P45 P7 P37 P39+P38
- -----------------------------------------------------------------------------------------------------------------------------------
(c)=b/a (a) (b) (d) (e) (f) (g)
- -----------------------------------------------------------------------------------------------------------------------------------
LATEST
APPRAISAL
SHORT NAME % OR EFFECT NET AMT
PROSPECTUS (WHEN PROPERTY RECEIVED BROKERS DATE OF SALES RECEIVED SCHEDULED TOTAL P&I TOTAL
ID APPROPRIATE) TYPE CITY STATE FROM SALE OPINION SALE PRICE FROM SALE BALANCE ADVANCED EXPENSE
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
THIS REPORT IS HISTORICAL
- -----------------------------------------------------------------------------------------------------------------------------------
All information is from the liquidation date and does not need to be updated.
- -----------------------------------------------------------------------------------------------------------------------------------
===================================================================================================================================
TOTAL ALL LOANS:
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
CURRENT MONTH ONLY:
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
S4
- ---------------------------------------------------------------------------------------------------------
(h) (i)=d-(f+g+h) (k)=i-e (m) (n)=k+m (o)=n/e
- ---------------------------------------------------------------------------------------------------------
DATE MINOR
LOSS ADJ TOTAL LOSS LOSS % OF
PROSPECTUS SERVICING ACTUAL LOSSES PASSED MINOR ADJ PASSED WITH SCHEDULED
ID FEES EXPENSE NET PROCEEDS PASSED THRU THRU TO TRUST THRU ADJUSTMENT BALANCE
=========================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
THIS REPORT IS HISTORICAL
- ---------------------------------------------------------------------------------------------------------
All information is from the liquidation date and does not need to be updated.
- ---------------------------------------------------------------------------------------------------------
=========================================================================================================
Total all Loans:
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Current Month Only:
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
C-3
<PAGE>
REO STATUS REPORT
as of ____________________
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
S4 S55 S61 S57 S58 S62 or P8 P7 P37 P39 P38
- -------------------------------------------------------------------------------------------------------------------------
S63 (a) (b) (c) (d)
- -------------------------------------------------------------------------------------------------------------------------
PROSPECTUS SHORT NAME PROPE CITY STATE SQ FT PAID SCHEDULED TOTAL TOTAL OTHER
ID (WHEN RTY OR THRU LOAN P&I EXPENSES ADVANCES
APPROPRIATE) TYPE UNITS DATE BALANCE ADVANCES TO DATE (TAXES &
TO DATE ESCROW)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
S4 P25 P11 P58 P54 P81 P74 P75
- ---------------------------------------------------------------------------------------------------------------------
(e)=a+b+c+d (k) (j) (f)=(k/j) (g)
- ---------------------------------------------------------------------------------------------------------------------
PROSPECTUS TOTAL CURRENT MATURITY LTM LTM CAP VALUATION VALUE APPRAISAL
ID EXPOSURE MONTHLY DATE NOI NOI / RATE DATE USING BPO OR
P&I DATE DSC ASSIGN NOI & INTERNAL
CAP RATE VALUE**
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------
S4 P35 P77 P82 P79
- -----------------------------------------------------------------------------------------------------
(h)=(.92*g) (i)=(g/e)
- -----------------------------------------------------------------------------------------------------
PROSPECTUS LOSS ESTIMATED TOTAL TRANSFER REO PENDING
ID USING RECOVERY APPRAISAL DATE AQUISITION RESOLUTION COMMENTS
92% % REDUCTION DATE DATE
APPR. OR REALIZED
BPO (f)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) Use the following codes; App. - Appraisal, BPO - Brokers Opinion, Int -
Internal Value
C-4
<PAGE>
SERVICER WATCH LIST
as of ____________________
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
S4 S55 S61 S57 S58 P7 P8 P11 P54
- ------------------------------------------------------------------------------------------------------------------------------------
PROSPECTUS SHORT NAME PROPERTY CITY STATE SCHEDULED PAID MATURITY LTM COMMENT / REASON ON WATCH LIST
ID (WHEN TYPE LOAN THRU DATE DSCR
APPROPRIATE) BALANCE DATE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
List all loans on watch list and reason sorted in decending balance order.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Total: $
- ------------------------------------------------------------------------------------------------------------------------------------
*LTM - Last 12 months either trailing or last annual
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
C-5
<PAGE>
Form of OPERATING STATEMENT ANALYSIS REPORT
as of ____________________
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
PROPERTY OVERVIEW
--------------
LB Control Number
--------------
-------------------------
Current Balance/Paid to Date
-----------------------------------------------------------------------------------------------
Property Name
-----------------------------------------------------------------------------------------------
Property Type
-----------------------------------------------------------------------------------------------
Property Address, City, State
-----------------------------------------------------------------------------------------------
Net Rentable Square Feet
-------------------------
Year Built/Year Renovated
-----------------------------------------------------------------
Year of Operations UNDERWRITING 1994 1995 1996 TRAILING
-----------------------------------------------------------------
Occupancy Rate *
-----------------------------------------------------------------
Average Rental Rate
-----------------------------------------------------------------
* OCCUPANCY RATES ARE YEAR END OR THE ENDING DATE OF THE FINANCIAL STATEMENT FOR THE PERIOD.
INCOME: NO. OF MOS.
--------------
Number of Mos. PRIOR YEAR CURRENT YR.
------------------------------------------------------------------------------------------
Period Ended UNDERWRITING 1994 1995 1996 97 TRAILING** 1996-BASE 1996-1995
--------------
Statement Classification BASE LINE NORMALIZED NORMALIZED NORMALIZED AS OF / /97 VARIANCE VARIANCE
------------------------------------------------------------------------------------------
Rental Income (Category 1)
------------------------------------------------------------------------------------------
Rental Income (Category 2)
------------------------------------------------------------------------------------------
Rental Income (Category 3)
------------------------------------------------------------------------------------------
Pass Through/Escalations
------------------------------------------------------------------------------------------
Other Income
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
EFFECTIVE GROSS INCOME $0.00 $0.00 $0.00 $0.00 $0.00 % %
------------------------------------------------------------------------------------------
Normalized - Full year Financial statements that have been reviewed by the underwriter or
Servicer
** Servicer will not be expected to "Normalize" these YTD numbers.
OPERATING EXPENSES:
------------------------------------------------------------------------------------------
Real Estate Taxes
------------------------------------------------------------------------------------------
Property Insurance
------------------------------------------------------------------------------------------
Utilities
------------------------------------------------------------------------------------------
General & Administration
------------------------------------------------------------------------------------------
Repairs and Maintenance
------------------------------------------------------------------------------------------
Management Fees
------------------------------------------------------------------------------------------
Payroll & Benefits Expense
------------------------------------------------------------------------------------------
Advertising & Marketing
------------------------------------------------------------------------------------------
Professional Fees
------------------------------------------------------------------------------------------
Other Expenses
------------------------------------------------------------------------------------------
Ground Rent
------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES $0.00 $0.00 $0.00 $0.00 $0.00 % %
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
OPERATING EXPENSE RATIO
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
NET OPERATING INCOME $0.00 $0.00 $0.00 $0.00 $0.00
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
Leasing Commissions
------------------------------------------------------------------------------------------
Tenant Improvements
------------------------------------------------------------------------------------------
Replacement Reserve
------------------------------------------------------------------------------------------
TOTAL CAPITAL ITEMS $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
N.O.I. AFTER CAPITAL ITEMS $0.00 $0.00 $0.00 $0.00 $0.00
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
DEBT SERVICE (PER SERVICER) $0.00 $0.00 $0.00 $0.00 $0.00
------------------------------------------------------------------------------------------
CASH FLOW AFTER DEBT SERVICE $0.00 $0.00 $0.00 $0.00 $0.00
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
(1) DSCR: (NOI/DEBT SERVICE)
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
DSCR: (AFTER RESERVES\CAP EXP.)
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
SOURCE OF FINANCIAL DATA:
------------------------------------------------------------------------------------------
(ie. operating statements, financial statements, tax return, other)
Notes and Assumptions:
===========================================================================================================================
</TABLE>
The years shown above will roll always showing a three year history. 1996 is the
current year financials; 1995 is the prior year financials.
This report may vary depending on the property type and because of the way
information may vary in each borrowers statement.
Rental Income need to be broken down, differently whenever possible for each
property type as follows: Retail: 1) Base Rent 2) Percentage rents on cashflow
Hotel: 1) Room Revenue 2) Food/Beverage Nursing Home: 1) Private 2) Medicaid
3) Medicare
INCOME: COMMENT
EXPENSE: COMMENT
CAPITAL ITEMS: COMMENT
(1) Used in the Comparative Financial Status Report
C-6
<PAGE>
Form of NOI ADJUSTMENT WORKSHEET for "year"
as of ____________________
<TABLE>
<S> <C> <C> <C> <C> <C>
PROPERTY OVERVIEW
-------------
LB Control Number
-------------------------
Current Balance/Paid to Date
--------------------------------------------------------------------------------------------
Property Name
--------------------------------------------------------------------------------------------
Property Type
--------------------------------------------------------------------------------------------
Property Address, City, State
--------------------------------------------------------------------------------------------
Net Rentable Square Feet
-------------------------
Year Built/Year Renovated
--------------------------------------------
Year of Operations BORROWER ADJUSTMENT NORMALIZED
--------------------------------------------
Occupancy Rate *
--------------------------------------------
Average Rental Rate
--------------------------------------------
* OCCUPANCY RATES ARE YEAR END OR THE ENDING
DATE OF THE FINANCIAL STATEMENT FOR THE
PERIOD.
INCOME:
Number of Mos.Annualized "Year"
-------------------------------------------------------------------
Period Ended Borrower Adjustment Normalized
Statement Classification Actual
-------------------------------------------------------------------
Rental Income (Category 1)
-------------------------------------------------------------------
Rental Income (Category 2)
-------------------------------------------------------------------
Rental Income (Category 3)
-------------------------------------------------------------------
Pass Throughs/Escalations
-------------------------------------------------------------------
Other Income
-------------------------------------------------------------------
-------------------------------------------------------------------
EFFECTIVE GROSS INCOME $0.00 $0.00 $0.00
-------------------------------------------------------------------
Normalized - Full year financial statements that have been reviewed
by the underwriter or Servicer
OPERATING EXPENSES:
-------------------------------------------------------------------
Real Estate Taxes
-------------------------------------------------------------------
Property Insurance
-------------------------------------------------------------------
Utilities
-------------------------------------------------------------------
General & Administration
-------------------------------------------------------------------
Repairs and Maintenance
-------------------------------------------------------------------
Management Fees
-------------------------------------------------------------------
Payroll & Benefits Expense
-------------------------------------------------------------------
Advertising & Marketing
-------------------------------------------------------------------
Professional Fees
-------------------------------------------------------------------
Other Expenses
-------------------------------------------------------------------
Ground Rent
-------------------------------------------------------------------
TOTAL OPERATING EXPENSES $0.00 $0.00 $0.00
-------------------------------------------------------------------
-------------------------------------------------------------------
OPERATING EXPENSE RATIO
-------------------------------------------------------------------
-------------------------------------------------------------------
NET OPERATING INCOME $0.00 $0.00 $0.00
-------------------------------------------------------------------
-------------------------------------------------------------------
Leasing Commissions
-------------------------------------------------------------------
Tenant Improvements
-------------------------------------------------------------------
Replacement Reserve
-------------------------------------------------------------------
TOTAL CAPITAL ITEMS $0.00 $0.00 $0.00
-------------------------------------------------------------------
-------------------------------------------------------------------
N.O.I. AFTER CAPITAL ITEMS $0.00 $0.00 $0.00
-------------------------------------------------------------------
-------------------------------------------------------------------
DEBT SERVICE (PER SERVICER) $0.00 $0.00 $0.00
-------------------------------------------------------------------
CASH FLOW AFTER DEBT SERVICE $0.00 $0.00 $0.00
-------------------------------------------------------------------
-------------------------------------------------------------------
(1)DSCR: (NOI/DEBT SERVICE)
-------------------------------------------------------------------
-------------------------------------------------------------------
DSCR: (AFTER RESERVES\CAP EXP.)
-------------------------------------------------------------------
-------------------------------------------------------------------
SOURCE OF FINANCIAL DATA:
-------------------------------------------------------------------
(ie. operating statements, financial statements, tax return, other)
</TABLE>
NOTES AND ASSUMPTIONS:
================================================================================
This report should be completed by the Servicer for any "Normalization" of the
Borrowers numbers.
The "Normalized" column is used in the Operating Statement Analysis Report.
This report may vary depending on the property type and because of the way
information may vary in each borrowers statement.
INCOME: COMMENTS
EXPENSE: COMMENTS
CAPITAL ITEMS: COMMENTS
(1) Used in the Comparative Financial Status Report
C-7
<PAGE>
COMPARATIVE FINANCIAL STATUS REPORT
as of ____________________
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
S4 S57 S58 P7 P8 S72 S69 S70 S65 S66
- ---------------------------------------------------------------------------------------------------------------
ORIGINAL UNDERWRITING
- ---------------------------------------------------------------------------------------------------------------
INFORMATION
- ---------------------------------------------------------------------------------------------------------------
BASIS YEAR
- ---------------------------------------------------------------------------------------------------------------
Last
Property Scheduled Paid Annual Financial
Prospectus Inspect Loan Thru Debt Info as of % Total $ (1)
ID City State Date Balance Date Service Date Occ Revenue NOI DSCR
- ---------------------------------------------------------------------------------------------------------------
yy/mm yy/mm
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
List all loans currently in deal with or without information largest to smallest loan
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Total $ $ WA $ $ WA
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
===============================================================================================================
RECEIVED
- ---------------------------------------------------------------------------------------------------------------
FINANCIAL INFORMATION: LOANS BALANCE
- ---------------------------------------------------------------------------------------------------------------
# % $ %
- ---------------------------------------------------------------------------------------------------------------
CURRENT FULL YEAR:
- ---------------------------------------------------------------------------------------------------------------
CURRENT FULL YR. RECEIVED WITH DSC <1:
- ---------------------------------------------------------------------------------------------------------------
PRIOR FULL YEAR:
- ---------------------------------------------------------------------------------------------------------------
PRIOR FULL YR. RECEIVED WITH DSC <1:
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------
S4 P65 P64 P59 P61 P63 P58 P57 P52 P54 P56
- ------------------------------------------------------------------------------------------------
2ND PRECEDING ANNUAL OPERATING PRECEDING ANNUAL OPERATING
- ------------------------------------------------------------------------------------------------
INFORMATION INFORMATION
- ------------------------------------------------------------------------------------------------
AS OF ___________ NORMALIZED AS OF ___________ NORMALIZED
- ------------------------------------------------------------------------------------------------
Financial Financial
Prospectus Info as of % Total $ (1) Info as of % Total $ (1)
ID Date Occ Revenue NOI DSCR Date Occ Revenue NOI DSCR
- ---------------------------------------------------------------------------------------------------------------
yy/mm yy/mm
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Total WA $ $ WA WA $ $ WA
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
=========================================================================================================================
REQUIRED
- -------------------------------------------------------------------------------------------------------------------------
FINANCIAL INFORMATION: LOANS BALANCE
- -------------------------------------------------------------------------------------------------------------------------
# % $ %
- -------------------------------------------------------------------------------------------------------------------------
CURRENT FULL YEAR:
- -------------------------------------------------------------------------------------------------------------------------
CURRENT FULL YR. RECEIVED WITH DSC <1:
- -------------------------------------------------------------------------------------------------------------------------
PRIOR FULL YEAR:
- -------------------------------------------------------------------------------------------------------------------------
PRIOR FULL YR. RECEIVED WITH DSC <1:
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
S4 P72 P73 P66 P68 P70 (2)
- -------------------------------------------------------------------------------
TRAILING FINANCIAL NET CHANGE
- -------------------------------------------------------------------------------
INFORMATION
- -------------------------------------------------------------------------------
MONTH REPORTED ACTUAL PRECEDING & BASIS
- -------------------------------------------------------------------------------
%
Prospectus FS Start FS End Total $ (%) % Total (1)
ID Date Date Revenue NOI DSC Occ Revenue DSC
- --------------------------------------------------------------------------------
yy/mm yy/mm
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Total WA $ $ WA WA $ WA
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
===============================================================================
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
================================================================================
- -------------------------------------------------------------------------------
(1) DSCR should match to Operating Statement and is normally calculated using
NOI/Debt Service
- -------------------------------------------------------------------------------
(2) Net change should compare the latest year to the underwriting year
- -------------------------------------------------------------------------------
================================================================================
C-8
<PAGE>
Annex D
One Liberty Plaza, New York City
================================================================================
Loan Information
Principal Balance: Original Cut-Off Date
-------- ------------
$275,000,000 $273,132,900
Origination Date: December 19, 1997
Anticipated Repayment
Date ("ARD"): December 19, 2007
Maturity Date: January 1, 2028
Initial Interest Rate: 6.90%
Amortization: 30 years
Hyperamortization: Subsequent to December 19, 2007, the interest rate
will increase to the greater of (i) the Initial
Interest Rate plus two percent (2%) or (ii) 200
basispoints plus the interpolated 10-year UST
rate. Additionally, all excess cash flow will be
captured under the terms of the Cash Collateral
Agreement and applied to the outstanding principal
balance of the OLP Note. Interest due under the
OLP Revised Interest Rate above that which is due
under the OLP Initial Interest Rate will be
payable subsequent to the payment of principal.
Any interest due under the OLP Note but not paid
will be accrued.
Prepayment Terms/
Defeasance/
Release Provisions: Prepayment is locked out through
September 19, 2007. Thereafter, the OLP Note is
prepayable without penalty.
The OLP Loan may be defeased with United States
Treasury obligations after two years from the
Closing Date. No separate portion of the OLP
Property may be released from the lien of the OLP
Mortgage.
The Borrower: The borrowing entity, WFP One Liberty Plaza Co.
L.P., as well as its general partner, is organized
as a special-purpose, bankruptcy-remote entity.
TI and Leasing Reserve: $416,667/month ($2.35 per rentable square foot per
annum, based on 2,126,516 rentable square feet).
Material Lease Reserve: Commencing with the 12-month period prior to the
expiration of a material lease (in excess of
80,000 rentable square feet), a monthly reserve
equal to 1/12 of the product of (i) $45 per square
foot, times (ii) the rentable square footage of
the applicable material lease. This amount is
adjustable upwards based on increases in the
Consumer Price Index since the Origination Date of
the OLP Loan.
Gruntal Lease Reserve: $12,400,000 was reserved at origination (and an
additional $1,600,000 was reserved through June
30, 1998) to reimburse tenant improvement and
leasing commission expenses with respect to the
recently signed lease with Gruntal & Co.,
Incorporated. Funds may be disbursed to the OLP
Borrower monthly to reimburse tenant improvement
or leasing expenses. The reserve is releasable to
the OLP Borrower upon receipt of an officer's
certificate stating that (i) the tenant is in
physical occupancy and possession of the space
demised under the OLP Gruntal Lease (as defined in
the OLP Mortgage), and (ii) all tenant improvement
costs and leasing commissions payable with respect
to the OLP Gruntal Lease have been paid in full.
Capital Expenditure
Reserve: $88,604.83/month ($0.50 per rentable square foot
per annum, based on 2,126,516 rentable square
feet).
================================================================================
Property Information
Property Type: Office/Retail
Location: One Liberty Plaza
149-171 Broadway
NY, NY 10006
Occupancy: 99.8% (as of 8/26/98)
Square Feet: 2,112,265 sq. ft.
Year Built: 1971
Year Renovated: 1988-1991
The Collateral: One Liberty Plaza
Property
Management: World Financial Properties, Inc.
1997 Net
Operating Income: $54,180,690
Underwritten Net
Cash Flow: $39,973,622
Appraised Value: $430,000,000
Appraisal Date: November 18, 1997
Cut-Off Date LTV: 63.52%
Underwritten DSC: 1.82x
Loan/Sq. Ft.
as of Cut-Off Date: $129 sq. ft.
D-1
<PAGE>
One Liberty Plaza Loan: The Borrower; The Property
The Loan. The loan (the "OLP Loan") was originated in the amount of
$275,000,000 on December 19, 1997 and acquired simultaneously therewith by
Merrill Lynch Mortgage Capital Inc. ("MLMC"). The OLP Loan has a Cut-off Date
Balance of approximately $273,132,900. The OLP Loan is evidenced by a
Consolidated, Amended and Restated Mortgage Note in the original principal
amount of $275,000,000 (the "OLP Note") and by a Consolidated, Amended and
Restated Mortgage, Security Agreement, Financing Statement, Fixture Filing and
Assignment of Leases, Rents and Security Deposits (the "OLP Mortgage")
encumbering the OLP Borrower's (as hereinafter defined) fee simple interest in
the office tower known as One Liberty Plaza located in New York, New York (the
"OLP Property").
The Borrower. WFP One Liberty Plaza Co. L.P., (the "OLP Borrower") is a
special-purpose Delaware limited partnership whose purpose and business is
limited to holding ownership and leasehold interests in the OLP Property,
leasing, managing, operating and mortgaging the same, and carrying on all
incidental or related activities. The OLP Borrower owns no material asset other
than the OLP Property. The sole general partner of the OLP Borrower is WFP One
Liberty Plaza Co. G.P. Corp., a Delaware special-purpose corporation (the "OLP
General Partner"). The certificate of incorporation of the OLP General Partner
provides that it is organized for the sole purpose of acting as general partner
of the OLP Borrower and to engage in activities related thereto. Each of the OLP
Borrower and OLP General Partner are direct wholly-owned subsidiaries of World
Financial Properties, L.P.
The Property. One Liberty Plaza is a 54-story, Class A office/retail
property located at 149-171 Broadway in New York, NY. Originally constructed in
1971, the building underwent renovation between 1988 and 1991. Since the opening
of the building in 1972, the security, computer and telecommunication systems
have been periodically upgraded.
The land area of the OLP Property is approximately 101,307 square feet,
comprised of the building site (approximately 68,501 square feet) and a park
located across Liberty Street (approximately 32,806 square feet). One Liberty
Plaza contains approximately 2,112,265 net rentable square feet, including a
ground-floor retail area and 53 floors of office space offering nearly one acre
of space on each column free floor. As of August, 1998, the contractual
occupancy was approximately 99.8% with a weighted-average remaining lease term
of approximately 10.5 years.
Approximately 70% of the building is occupied by tenants occupying 150,000+
square feet (each a "Major Tenant"), and 42.2% leased to tenants having a long
term debt rating from either Moody's of Baa3 or Standard & Poor's of BBB- or
higher (each an "OLP Credit Tenant"), including Bank of Nova Scotia, NYLCare
Health Plans, Royal Bank of Canada, and Zurich Insurance. Most of these rated
tenants have long term leases currently in place. Cleary, Gottlieb, Steen &
Hamilton, a law firm of long standing, occupies 14.2% of the building under a
longterm lease.
Market Overview.
Manhattan contains over 350 million square feet of office space and is the
largest office market in the United States. The Downtown Manhattan Market, which
is the third largest in the nation (behind the Midtown Manhattan and Chicago
Loop Markets) is linked to financial services, Wall Street firms, and the New
York City government. The Downtown Manhattan office market which contains 109
million square feet of office space (including 55.6 million square feet of Class
A office space) remained strong in 1997, posting (through the third quarter)
leasing activity of 6.9 million square feet and net absorption of 3.4 million
square feet. Vacancy in the Downtown Manhattan Market was at approximately 9.9%
in the third quarter of 1997, down from approximately 12.2% in the previous
quarter, driven by the strength of the local economy and of the financial
markets. One Liberty Plaza is located in the World Trade Center sub-market. The
sub-market has very little contiguous Class "A" office space currently
available. Vacancies in first quarter 1998 ranged between approximately .04% and
2.8%.
Location/Access.
One Liberty Plaza is located at 149-171 Broadway in New York City, New
York. The OLP Property is bounded by Broadway, Church, Liberty, and Cortland
Streets, in the heart of Downtown Manhattan, and is situated midway between Wall
Street and the World Financial Center. The OLP Property is accessible from the
street and has public transportation served by the New York City subway system,
the New Jersey Path Trains and many commuter and city bus lines.
D-2
<PAGE>
Environmental Reports.
A Phase I Environmental Assessment dated November 24, 1997, was performed
on One Liberty Plaza. No Phase II Assessment was recommended. The Phase I
assessment did not reveal any environmental liability that the originator
believed would have a material adverse effect on the OLP Borrower's business,
assets or results of operations taken as a whole. Nevertheless, there can be no
assurance that all environmental conditions and risks were identified in such
environmental assessment.
Engineering Report.
A Property Condition Report was completed on One Liberty Plaza on November
26, 1997 by a third-party due diligence firm. The Property Condition Report
concluded that One Liberty Plaza was generally in good condition and determined
$65,000 in required repairs, $140,000 in ADA Compliance Costs, and $489,000 in
significant required repairs. At the origination of the OLP Loan, the OLP
Borrower established a capital expenditures account which requires a monthly
reserve of $88,604.83, to address the above.
Property Management.
The OLP Property is managed by World Financial Properties L.P., which is an
affiliate of the OLP Borrower. Presently, there are no third party management
agreements in effect relating to the OLP Property. The manager has agreed: (i)
not to terminate or modify the management agreement without the prior consent of
the lender, (ii) to subordinate the management agreement to the lien of the OLP
Mortgage, and (iii) to grant the lender the right to terminate in the event of a
default under the mortgage, the manager's uncured defaults, a change in 50% or
more of the control of the ownership of the manager or for cause (including, but
not limited to, the manager's gross negligence, wilfull misconduct or fraud).
Operating History. The following table shows certain information regarding
the operating history of theOLP Property:
OLP PROPERTY OPERATING STATEMENT ANALYSIS
1995 Actual 1996 Actual 1997 Actual Underwritten
----------- ----------- ----------- ------------
INCOME:
Base Rental Income: ... $62,652,000 $64,144,000 $64,424,230 $72,132,778
Expense Recoveries: ... 5,381,000 4,758,000 5,523,012 5,604,377
Other Income: ......... 9,388,000 2,409,000 17,368,885 2,191,361
----------- ----------- ----------- -----------
Effective Gross Income: 77,421,000 71,311,000 87,316,127 79,928,516
=========== =========== =========== ===========
EXPENSES:
Operating Expenses:
Administration: ...... $ 231,000 $ 131,000 $ 385,818 $ 397,393
CAM: ................. 5,622,000 5,614,000 6,955,906 7,164,583
Utilities: ........... 7,649,000 7,929,000 7,301,136 7,520,170
Water: ............... 231,000 24,000 324,390 334,122
Management: .......... 1,173,000 1,477,000 1,639,004 1,998,213
Payroll: ............. 3,193,000 3,326,000 3,685,536 3,796,102
----------- ----------- ----------- -----------
Fixed Expenses:
Insurance: ........... $ 426,000 $ 409,000 $ 426,785 $ 439,589
Taxes: ............... 13,684,000 12,895,000 12,299,194 12,969,854
Other: ............... 120,000 109,000 117,668 121,198
----------- ----------- ----------- -----------
Total Expenses: ........ $32,329,000 $31,914,000 $33,135,437 $34,741,223
=========== =========== =========== ===========
NET OPERATING INCOME: .. $45,092,000 $39,397,000 $54,180,690 $45,187,294
----------- ----------- ----------- -----------
RESERVES:
Tenant Improvements: .. -- -- -- 2,789,403
Leasing Commissions: .. -- -- -- 1,983,651
Capital Expenditures: . -- -- -- 440,618
----------- ----------- ----------- -----------
NET CASH FLOWS: ........ $45,092,000 $39,397,000 $54,180,690 $39,973,622
=========== =========== =========== ===========
D-3
<PAGE>
Major Tenants/OLP Credit Tenants--The following table shows certain
information regarding the Major Tenants of theOLP Property:
<TABLE>
<CAPTION>
Major Tenants/OLP Credit Tenants
Square % of Lease Parent Ratings
Tenant Feet Building Expires(1) Company Moodys/S&P
------ ------ -------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
Cleary, Gottlieb 300,756 14.2% 12/31/10 -- NR NR
Bank of Nova Scotia 246,484 11.7 5/31/14 The Bank of Nova Scotia Aa3/AA-
Gruntal & Co., Incorporated 246,007 11.6 5/31/13 -- NR/NR
NYLCARE Health Plans, Inc 200,341 9.5 2/28/06 New York Life Insurance Company Aa1/AA+
Royal Bank of Canada 173,712 8.2 9/30/12 Royal Bank of Canada Aa2/AA-
Long Term Credit Bank of Japan 160,415 7.6 8/31/04 The LongTerm Credit Bank of Japan, Limited Ba1 BB+
Zurich Insurance Company 154,496 7.3 5/31/06 Zurich Insurance Company Aa1 AA+
--------- -----
SUBTOTAL--MAJOR TENANTS 1,482,211 70.2%
Other Tenants 630,054 29.8%
--------- ------
TOTAL 2,112,265 100.0%
========= =====
- ----------------
(1) Does not include renewal options, if any.
(2) Zurich Insurance Company has 24,296 square feet which expire April 30, 2004
</TABLE>
D-4
<PAGE>
Lease Expiration Schedule. The following table shows certain information
regarding future lease expirations of the OLP Property:
<TABLE>
<CAPTION>
OLP Loan
Lease Expiration by Tenant, Sq. Foot and Year
(1995-2005)
- ------------------------------------------------------------------------------------------------------------------------------------
Month to Year 1 Year 2 Year 3 Year 4 Year 5
For the Years Ending Month Dec-98 Dec-99 Dec-00 Dec-01 Dec-02
- ------------------------------------------------------------------------------------------------------------------------------------
TENANT
<S> <C> <C> <C> <C> <C> <C>
Local Area Telecommunications -- -- -- -- -- --
Sydney Reinsurance Corporation(1) -- 41,480 -- -- -- --
Metropolitan Fiber System -- -- $ 9,591 -- -- --
Teleport Communication -- -- -- -- -- --
Cosmo Securities America -- -- 3,550 -- -- --
Generali Insurance Co.(2) -- -- 27,697 -- -- --
Mabon Securities Corp. -- -- 11,342 -- -- --
National Reinsurance Corp.(2) -- -- 13,600 -- -- --
American Capital Access -- -- -- 7,234 -- --
Eastern Lobby Shops -- -- -- 600 -- --
M. Arthur Gensler Jr. -- -- -- 5,827 -- --
MCI -- -- -- -- -- --
Ogaki Kyoritsu Bank -- -- -- 10,611 -- --
SAP America, Inc. -- -- -- 5,918 -- --
Tudor Investment Corp. -- -- -- 8,120 -- --
Greig Fester -- -- -- -- 7,623 --
A-T Financial Information -- -- -- -- -- 7,537
Centre Reinsurance Co. -- -- -- -- -- 19,090
James Martin & Co., Inc. -- -- -- -- -- 2,030
Pasqua, Inc. -- -- -- -- -- 920
Tokio Re Corporation -- -- -- -- -- 13,918
Teligent, Inc. -- -- -- -- -- --
Credit Suisse -- -- -- -- -- --
Fleming, Zulack & Willia -- -- -- -- -- --
Long Term Credit Bank of Japan -- -- -- -- -- --
Mutual of America -- -- -- -- -- --
Odyssey Reinsurance Corp. -- -- -- -- -- --
The Bank of Fukuoka, Ltd. -- -- -- -- -- --
Tudor Investment Corp. -- -- -- -- -- --
Zurich Insurance Company -- -- -- -- -- --
Fireman's Fund Insurance -- -- -- -- -- --
Bank Indonesia -- -- -- -- -- --
Maria Fiorini Ramirez -- -- -- -- -- --
NYLCARE Health Plans, Inc. -- -- -- -- -- --
Reserve Bank of Australia -- -- -- -- -- --
World Financial Properties -- -- -- -- -- --
Zurich Insurance Company -- -- -- -- -- --
Folksamerica Reinsurance -- -- -- -- -- --
vHyperion Capital Management -- -- -- -- -- --
ILX Systems -- -- -- -- -- --
Swiss Reamerica Holdings -- -- -- -- -- --
Cleary, Gottlieb -- -- -- -- -- --
Prudential Securities -- -- -- -- -- --
Brooks Brothers -- -- -- -- -- --
Royal Bank of Canada -- -- -- -- -- --
Gruntal & Co., Incorporated -- -- -- -- -- --
Bank of Nova Scotia -- -- -- -- -- --
TOTAL SQUARE FEET EXPIRING 0 41,480 56,189 38,310 7,623 43,495
% of Total 0.0% 2.0% 2.7% 1.8% 0.4% 2.1%
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RENT EXPIRING (3) $18,878 $1,597,777 $2,453,733 $1,682,935 $272,898 $1,666,902
% of Total Rent Expiring 0.0% 2.2% 3.4% 2.4% 0.4% 2.3%
- ------------------------------------------------------------------------------------------------------------------------------------
Average Rent per Square Foot N/A $38.52 $43.67 $43.93 $35.80 $38.32
<CAPTION>
- ----------------------------------------------------------------------------------------
Year 6 Year 7 Year 8
For the Years Ending Dec-03 Dec-04 Dec-05
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
TENANT
Local Area Telecommunications -- -- --
Sydney Reinsurance Corporation(1) -- -- --
Metropolitan Fiber System -- -- --
Teleport Communication -- -- --
Cosmo Securities America -- -- --
Generali Insurance Co.(2) -- -- --
Mabon Securities Corp. -- -- --
National Reinsurance Corp.(2) -- -- --
American Capital Access -- -- --
Eastern Lobby Shops -- -- --
M. Arthur Gensler Jr. -- -- --
MCI -- -- --
Ogaki Kyoritsu Bank -- -- --
SAP America, Inc. -- -- --
Tudor Investment Corp. -- -- --
Greig Fester -- -- --
A-T Financial Information -- -- --
Centre Reinsurance Co. -- -- --
James Martin & Co., Inc. -- -- --
Pasqua, Inc. -- -- --
Tokio Re Corporation -- -- --
Teligent, Inc. -- -- --
Credit Suisse -- -- --
Fleming, Zulack & Willia -- 40,818 --
Long Term Credit Bank of Japan -- 160,415 --
Mutual of America -- 2,921 --
Odyssey Reinsurance Corp. -- 84,483 --
The Bank of Fukuoka, Ltd. -- 6,633 --
Tudor Investment Corp. -- 29,912 --
Zurich Insurance Company -- 24,296 --
Fireman's Fund Insurance -- -- 81,154
Bank Indonesia -- -- --
Maria Fiorini Ramirez -- -- --
NYLCARE Health Plans, Inc. -- -- --
Reserve Bank of Australia -- -- --
World Financial Properties -- -- --
Zurich Insurance Company -- -- --
Folksamerica Reinsurance -- -- --
vHyperion Capital Management -- -- --
ILX Systems -- -- --
Swiss Reamerica Holdings -- -- --
Cleary, Gottlieb -- -- --
Prudential Securities -- -- --
Brooks Brothers -- -- --
Royal Bank of Canada -- -- --
Gruntal & Co., Incorporated -- -- --
Bank of Nova Scotia -- -- --
TOTAL SQUARE FEET EXPIRING 0 349,478 81,154
% of Total 0.0% 16.5% 3.8%
- ------------------------------------------------------------------------------------------
TOTAL RENT EXPIRING (3) $31,200 $15,168,123 $3,215,417
% of Total Rent Expiring 0.0% 21.2% 4.5%
- ------------------------------------------------------------------------------------------
Average Rent per Square Foot N/A $43.40 $39.62
</TABLE>
- ----------------
(1) Space has been released to Generali Insurance Co. through 2009.
(2) Cleary, Gottlieb is required to take this space per its existing lease
terms.
(3) Rent Expiring reflects current Base Rent, Abatements, and Escalations as of
August 26, 1998.
Rent Expiring does not include contractual step-ups in Base Rent over
the terms of the relevant leases.
(Continued on following page)
D-5
<PAGE>
OLP Loan
Lease Expiration by Tenant, Sq. Foot and Year (Continued)
(2006-2014)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15
For the Years Ending Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
TENANT
Local Area Telecommunications -- -- -- -- -- -- --
Sydney Reinsurance Corporation -- -- -- -- -- -- --
Metropolitan Fiber System -- -- -- -- -- -- --
Teleport Communication -- -- -- -- -- -- --
Cosmo Securities America -- -- -- -- -- -- --
Generali Insurance Co. -- -- -- -- -- -- --
Mabon Securities Corp. -- -- -- -- -- -- --
National Reinsurance Corp. -- -- -- -- -- -- --
American Capital Access -- -- -- -- -- -- --
Eastern Lobby Shops -- -- -- -- -- -- --
M. Arthur Gensler Jr. -- -- -- -- -- -- --
MCI -- -- -- -- -- -- --
Ogaki Kyoritsu Bank -- -- -- -- -- -- --
SAP America, Inc. -- -- -- -- -- -- --
Tudor Investment Corp. -- -- -- -- -- -- --
Greig Fester -- -- -- -- -- -- --
A-T Financial Information -- -- -- -- -- -- --
Centre Reinsurance Co. -- -- -- -- -- -- --
James Martin & Co., Inc. -- -- -- -- -- -- --
Pasqua, Inc. -- -- -- -- -- -- --
Tokio Re Corporation -- -- -- -- -- -- --
Teligent, Inc. -- -- -- -- -- -- --
Credit Suisse -- -- -- -- -- -- --
Fleming, Zulack & Willia -- -- -- -- -- -- --
Long Term Credit Bank of Japan -- -- -- -- -- -- --
Mutual of America -- -- -- -- -- -- --
Odyssey Reinsurance Corp. -- -- -- -- -- -- --
The Bank of Fukuoka, Ltd. -- -- -- -- -- -- --
Tudor Investment Corp. -- -- -- -- -- -- --
Zurich Insurance Company -- -- -- -- -- -- --
Fireman's Fund Insurance -- -- -- -- -- -- --
Bank Indonesia 6,471 -- -- -- -- -- --
Maria Fiorini Ramirez 5,301 -- -- -- -- -- --
NYLCARE Health Plans, Inc. 200,341 -- -- -- -- -- --
Reserve Bank of Australia 4,647 -- -- -- -- -- --
World Financial Properties 22,814 -- -- -- -- -- --
Zurich Insurance Company 130,200 -- -- -- -- -- --
Folksamerica Reinsurance -- -- 40,621 -- -- -- --
Hyperion Capital Management -- -- 16,886 -- -- -- --
ILX Systems -- -- 27,139 -- -- -- --
Swiss Reamerica Holdings -- -- 24,722 -- -- -- --
Cleary, Gottlieb -- -- -- -- 300,756 -- --
Prudential Securities -- -- -- -- 32,667 -- --
Brooks Brothers -- -- -- -- -- -- 15,768
Royal Bank of Canada -- -- -- -- -- -- 173,712
Gruntal & Co., Incorporated -- -- -- -- -- -- --
Bank of Nova Scotia -- -- -- -- -- -- --
TOTAL SQUARE FEET EXPIRING 369,774 0 109,368 0 333,423 0 189,480
% of Total 17.5% 0.0% 5.2% 0.0% 15.8% 0.0% 9.0%
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL RENT EXPIRING (1) $10,070,722 $0 $2,026,882 $0 $15,986,814 $0 $543,820
% of Total 14.1% 0.0% 2.8% 0.0% 22.4% 0.0% 0.8%
- ----------------------------------------------------------------------------------------------------------------------------
Average Rent per Square Foot $27.23 N/A $18.53 N/A $47.95 N/A $2.87
<CAPTION>
- -------------------------------------------------------------------------
Total
Year 16 Year 17 Sq. Ft.
For the Years Ending Dec-13 Dec-14 Expiring
- -------------------------------------------------------------------------
<S> <C> <C> <C>
TENANT
Local Area Telecommunications -- -- 0
Sydney Reinsurance Corporation -- -- 41,480
Metropolitan Fiber System -- -- 0
Teleport Communication -- -- 0
Cosmo Securities America -- -- 3,550
Generali Insurance Co. -- -- 27,697
Mabon Securities Corp. -- -- 11,342
National Reinsurance Corp. -- -- 13,600
American Capital Access -- -- 7,234
Eastern Lobby Shops -- -- 600
M. Arthur Gensler Jr. -- -- 5,827
MCI -- -- 0
Ogaki Kyoritsu Bank -- -- 10,611
SAP America, Inc. -- -- 5,918
Tudor Investment Corp. -- -- 8,120
Greig Fester -- -- 7,623
A-T Financial Information -- -- 7,537
Centre Reinsurance Co. -- -- 19,090
James Martin & Co., Inc. -- -- 2,030
Pasqua, Inc. -- -- 920
Tokio Re Corporation -- -- 13,918
Teligent, Inc. -- -- 0
Credit Suisse -- -- 0
Fleming, Zulack & Willia -- -- 40,818
Long Term Credit Bank of Japan -- -- 160,415
Mutual of America -- -- 2,921
Odyssey Reinsurance Corp. -- -- 84,483
The Bank of Fukuoka, Ltd. -- -- 6,633
Tudor Investment Corp. -- -- 29,912
Zurich Insurance Company -- -- 24,296
Fireman's Fund Insurance -- -- 81,154
Bank Indonesia -- -- 6,471
Maria Fiorini Ramirez -- -- 5,301
NYLCARE Health Plans, Inc. -- -- 200,341
Reserve Bank of Australia -- -- 4,647
World Financial Properties -- -- 22,814
Zurich Insurance Company -- -- 130,200
Folksamerica Reinsurance -- -- 40,621
Hyperion Capital Management -- -- 16,886
ILX Systems -- -- 27,139
Swiss Reamerica Holdings -- -- 24,722
Cleary, Gottlieb -- -- 300,756
Prudential Securities -- -- 32,667
Brooks Brothers -- -- 15,768
Royal Bank of Canada -- -- 173,712
Gruntal & Co., Incorporated 246,007 -- 246,007
Bank of Nova Scotia -- 246,484 246,484
TOTAL SQUARE FEET EXPIRING 246,007 246,484 2,112,265
% of Total 11.6% 11.7% 100.0%
- ------------------------------------------------------------------------
TOTAL RENT EXPIRING (1) $6,457,990 $10,229,892 $71,423,983
% of Total 9.0% 14.3% 100.0%
- -------------------------------------------------------------------------
Average Rent per Square Foot $26.25 $41.50 $33.81
</TABLE>
- ----------------
(1) Rent Expiring reflects current Base Rent, Abatements, and Escalations as of
August 26, 1998. Rent Expiring does not include contractual step-ups in
Base Rent over the terms of the relevant leases.
D-6
<PAGE>
OLP Loan
Lease Expiration by Year
<TABLE>
<CAPTION>
SQUARE FEET
EXPIRING Month to Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
For the Years Ending Month Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Square Feet Expiring 0 41,480 56,189 38,310 7,623 43,495 0
Cumulative SF 0 41,480 97,669 135,979 143,602 187,097 187,097
- ---------------------------------------------------------------------------------------------------------------------------
% 0.0% 2.0% 2.7% 1.8% 0.4% 2.1% 0.0%
Cumulative % 0.0% 2.0% 4.6% 6.4% 6.8% 8.9% 8.9%
- ---------------------------------------------------------------------------------------------------------------------------
RENT EXPIRING (1)
Escalated Rent Expiring $18,878 $1,597,777 $2,453,733 $1,682,935 $272,898 $1,666,902 $31,200
Cumulative Rent 18,878 1,616,655 4,070,388 5,753,323 6,026,222 7,693,124 7,724,324
- ---------------------------------------------------------------------------------------------------------------------------
% 0.0% 2.2% 3.4% 2.4% 0.4% 2.3% 0.0%
Cumulative % 0.0% 2.3% 5.7% 8.1% 8.4% 10.8% 10.8%
- ---------------------------------------------------------------------------------------------------------------------------
Average Rent per Square Foot N/A $38.52 $43.67 $43.93 $35.80 $38.32 N/A
SQUARE FEET
EXPIRING Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14
For the Years Ending Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11
- ---------------------------------------------------------------------------------------------------------------------------
Square Feet Expiring 81,154 369,774 0 109,368 0 333,423 0
Cumulative SF 617,729 987,503 987,503 1,096,871 1,096,871 1,430,294 1,430,294
- ---------------------------------------------------------------------------------------------------------------------------
% 3.8% 17.5% 0.0% 5.2% 0.0% 15.8% 0.0%
Cumulative % 29.2% 46.8% 46.8% 51.9% 51.9% 67.7% 67.7%
- ---------------------------------------------------------------------------------------------------------------------------
RENT EXPIRING (1)
Escalated Rent Expiring $3,215,417 $10,070,722 $0 $2,026,882 $0 $15,986,814 $0
Cumulative Rent 26,107,864 36,178,586 36,178,586 38,205,468 38,205,468 54,192,282 54,192,282
% 4.5% 14.1% 0.0% 2.8% 0.0% 22.4% 0.0%
Cumulative % 36.6% 50.7% 50.7% 53.5% 53.5% 75.9% 75.9%
Average Rent per Square Foot $39.62 $27.23 N/A $18.53 N/A $47.95 N/A
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SQUARE FEET
EXPIRING Year 7
For the Years Ending Dec-04
- --------------------------------------------
<S> <C> <C> <C> <C>
Square Feet Expiring 349,478
Cumulative SF 536,575
- --------------------------------------------
% 16.5%
Cumulative % 25.4%
- --------------------------------------------
RENT EXPIRING (1)
Escalated Rent Expiring $15,168,123
Cumulative Rent 22,892,447
- --------------------------------------------
% 21.2%
Cumulative % 32.1%
- --------------------------------------------
Average Rent per Square Foot $43.40
- --------------------------------------------
SQUARE FEET
EXPIRING Year 15 Year 16 Year 17
For the Years Ending Dec-12 Dec-13 Dec-14 Total
- -----------------------------------------------------------------------------------------
Square Feet Expiring 189,480 246,007 246,484 2,112,265
Cumulative SF 1,619,774 1,865,781 2,112,265 2,112,265
- -----------------------------------------------------------------------------------------
% 9.0% 11.6% 11.7% 100.0%
Cumulative % 76.7% 88.3% 100.0% 100.0%
RENT EXPIRING (1)
Escalated Rent Expiring $543,820 $6,457,990 $10,229,892 $71,423,983
Cumulative Rent 54,736,102 61,194,092 71,423,983 71,423,983
- -----------------------------------------------------------------------------------------
% 0.8% 9.0% 14.3% 100.0%
Cumulative % 76.6% 85.7% 100.0% 100.0%
- -----------------------------------------------------------------------------------------
Average Rent per Square Foot $2.87 $26.25 $41.50 $33.81
- -----------------------------------------------------------------------------------------
</TABLE>
- ----------------
(1) Rent Expiring reflects current Base Rent, Abatements, and Escalations as of
August 26, 1998. Rent Expiring does not include contractual step-ups in
Base Rent over the terms of the relevant leases.
D-7
<PAGE>
One Liberty Plaza: The Loan
Security. The OLP Loan is a nonrecourse loan, secured only by the OLP
Borrower's fee interest in the OLP Property and certain other collateral
relating thereto (including an assignment of leases and rents, and a cash
collateral account). The mortgagee is the insured under the title insurance
policies which insure, among other things, that the OLP Mortgage constitutes a
valid and enforceable first lien on the OLP Property, subject to certain
exceptions and exclusions from coverage set forth therein. Such title insurance
policies, together with the OLP Note, the OLP Mortgage and other documents and
agreements evidencing and securing the OLP Loan (collectively, with all other
security documents referenced herein, the "OLP Loan Documents"), will be
assigned to the Trustee.
Payment Terms. The OLP Loan matures on January 1, 2028 (the "OLP Maturity
Date") and bears interest at (a) a fixed rate per annum equal to 6.90% (the "OLP
Initial Interest Rate") through and including December 18, 2007 and (b) from and
after December 19, 2007 (the "OLP Effective Maturity Date"), at a fixed rate per
annum (the "OLP Revised Interest Rate") equal to the greater of (i) the OLP
Initial Interest Rate plus 2% or (ii) the OLP Treasury Rate (as defined below)
plus 2% (the "OLP Applicable Interest Rate"). The "OLP Treasury Rate" means the
yield, calculated by linear interpolation of the yield of noncallable United
States Treasury obligations with terms (one longer and one shorter) most nearly
approximating the period from the OLP Effective Maturity Date to the tenth
anniversary thereafter. Any interest accrued at the excess of the OLP Revised
Interest Rate over the OLP Initial Interest Rate is deferred and added to the
outstanding indebtedness under the OLP Loan and earns interest at the OLP
Revised Interest Rate (such deferred interest and interest thereon, the "OLP
Accrued Interest"). Interest on the OLP Loan is calculated on the basis of a
360-day year and the actual number of days elapsed in the applicable period.
The payment date for the OLP Loan is the first business day of each month
(each, an "OLP Payment Date"), with no grace period for a default in the payment
of scheduled principal or interest. Commencing on February 1, 1998 and
continuing through the OLP Maturity Date, 360 equal monthly installments of
principal and interest (the "OLP Debt Service Payments") in the amount of
$1,829,400.41 (based on a 360-month amortization schedule and the OLP Initial
Interest Rate) shall be due and payable. In the event of a default in payments,
interest will accumulate thereon at the applicable interest rate plus three
percent (3.0%) per annum (the "OLP Default Rate").
Commencing with the first OLP Payment Date after the OLP Effective Maturity
Date and continuing on each OLP Payment Date thereafter through and including
the OLP Maturity Date, the OLP Borrower is required to apply 100% of rents and
other revenues from the OLP Property to the following items in the following
order of priority: (a) to payment of interest accruing at the OLP Default Rate
and any late payment charges, if applicable; (b) to payment of required monthly
amounts of taxes and insurance premiums (the "OLP Mortgage Escrow Amounts"); (c)
to payment of the OLP Monthly Debt Service Payments; (d) to payment of monthly
cash expenses pursuant to the annual budget approved by the mortgagee (the "Cash
Expenses"); (e) to payment of extraordinary expenses approved by the mortgagee,
if any (the "Extraordinary Expenses"); (f) to payments to be applied against the
outstanding principal of the OLP Loan until such principal amount is paid in
full, (g) to payments of the OLP Accrued Interest; and (h) to payments of any
other amounts due under the OLP Loan Documents. Any excess amounts shall be paid
to the OLP Borrower. The scheduled principal balance of the OLP Loan as of the
OLP Effective Maturity Date is approximately $236,388,184.
Events of Default. The occurrence of any of the following constitutes an
"Event of Default" under the OLP Mortgage: (a) failure to make any payment of
interest or principal when due, or failure to pay the principal balance when
due; (b) failure to pay any other amount payable pursuant to the OLP Note or the
OLP Mortgage when due and payable, with such failure continuing for ten (10)
days after the mortgagee delivers written notice thereof to the OLP Borrower;
(c) failure to keep in full force and effect the insurance required under the
OLP Mortgage to be maintained or failure to comply with any other covenant
relating to insurance requirements, which failure continues for five (5)
business days after the mortgagee delivers written notice thereof to the OLP
Borrower; (d) failure to comply with certain OLP Mortgage covenants which (1)
require the OLP Borrower to keep the OLP Property free from liens and
encumbrances (with such default continuing for five (5) business days after the
mortgagee delivers written notice thereof to the OLP Borrower), and (2) prohibit
the sale of the OLP Property and transfers of direct and indirect beneficial
interests in the OLP Borrower; (e) any attempt by the OLP Borrower to assign its
rights under the OLP Mortgage; (f) any other default in the performance or
payment, or breach, of any material covenant, warranty, representation or
agreement set forth in the documents which evidence and secure the OLP Loan,
with such default continuing for thirty (30) business days after mortgagee
delivers written notice thereof to the OLP Borrower; (g) the occurrence of
certain bankruptcy events; (h) the termination, or the failure to continue to be
valid and effective, of the
D-8
<PAGE>
OLP Mortgage (or the ceasing of any lien granted thereunder to be a perfected
first priority lien) or any of the OLP Loan Documents evidencing the OLP Loan;
or (i) the occurrence of any event of default under any other of the OLP Loan
Documents.
If the OLP Borrower defaults on any payment of any OLP Debt Service Payment
on any OLP Payment Date and such default is not cured within 5 days, then the
OLP Borrower shall be obligated to pay to mortgagee a late payment charge in an
amount equal to three percent (3%) of the amount of the installment not paid. If
the OLP Borrower defaults in the payment of any OLP Debt Service Payment on the
related OLP Payment Date, or defaults in any other manner so as to constitute an
Event of Default, then the mortgagee at its option and without further notice to
the OLP Borrower may declare the entire unpaid amount of principal (with
interest at the OLP Default Rate) together with all other sums due, if any,
immediately due and payable.
Prepayment. Voluntary prepayment is not permitted under the OLP Loan prior
to the 90 day period preceding the OLP Effective Maturity Date. Thereafter, and
until the OLP Maturity Date, the OLP Loan may be prepaid without penalty or
premium. Prepayments made following an Event of Default under the OLP Mortgage
or an acceleration by the mortgagee shall be deemed to be voluntary and shall be
subject to a prepayment premium ("OLP Yield Maintenance Premium") equal to the
greater of (a)1.0% of the principal amount being prepaid or (b) the product of
(i) a fraction whose numerator is an amount equal to the portion of the
principal balance being paid and whose denominator is the entire outstanding
principal balance on the date of such prepayment, and (ii) an amount equal to
the remainder obtained by subtracting (x) an amount equal to the entire
outstanding principal as of the date of such prepayment from (y) the present
value as of the date of such prepayment of the remaining scheduled payments of
principal and interest determined by discounting such payments at the OLP
Discount Rate. The "OLP Discount Rate" means the rate which, when compounded
monthly, equals the yield, calculated by linear interpolation of the yields of
noncallable United States Treasury obligations with terms (one longer and one
shorter) most nearly approximating the period from the date of such prepayment
to the OLP Effective Maturity Date.
No OLP Yield Maintenance Premium or other premium or penalty is required to
be paid in connection with any prepayment resulting from the application of
insurance or condemnation proceeds to repayment of the OLP Loan in accordance
with the requirements of the OLP Mortgage.
Defeasance. For the purposes of this section, "Defeasance Collateral" shall
mean obligations or securities not subject to prepayment, call or early
redemption which are direct obligations of, or obligations fully guaranteed as
to timely payment by, the United States of America or any agency or
instrumentality of the United States of America, or the obligations of which are
backed by the full faith and credit of the United States of America, the
ownership of which will not cause the mortgagee to be an investment company
under the Investment Company Act of 1940, as amended. For the purposes of this
section, the term "Total Defeasance Collateral Requirement" shall mean an amount
sufficient to pay all principal indebtedness outstanding as of the date of the
OLP Defeasance (as described below) under the OLP Note as it becomes due and
sufficient to pay scheduled principal and interest payments on the OLP Loan
amount through and including the OLP Effective Maturity Date.
The OLP Borrower shall be entitled on any OLP Payment Date to defease (an
"OLP Defeasance") the OLP Loan from and after the earlier to occur of (x)
December 19, 2000 and (y) the second anniversary of the date on which the OLP
Loan is deposited into a REMIC; provided that: (i) the mortgagee shall have
received from the OLP Borrower at least 30 days' prior written notice of the
date proposed for the release of the lien of the OLP Mortgage over the OLP
Property (the "OLP Release Date"); (ii) no Event of Default shall have occurred
and be continuing as of the date of such notice and the OLP Release Date; (iii)
the OLP Borrower shall deliver on the OLP Release Date, Defeasance Collateral in
such amount as shall satisfy the Total Defeasance Collateral Requirement; (iv)
the OLP Borrower shall have granted mortgagee a valid perfected first priority
security interest in the Defeasance Collateral, all securities entitlements
relating thereto and all proceeds thereof; (v) the OLP Borrower shall have
delivered a certificate of an officer of the OLP Borrower (an "OLP Officer's
Certificate") dated as of the date of such delivery, confirming the matters
referred to in clause (ii) above, certifying that the applicable provisions of
clause (iii) above have been complied with and certifying that all conditions
precedent for such release have been complied with; and (vi) the OLP Borrower
shall have delivered to mortgagee the opinions of counsel required by the OLP
Mortgage upon a defeasance of the lien.
Lockbox and Reserves. The OLP Borrower has established with The Republic
National Bank of New York (the "OLP Securities Intermediary") a cash collateral
account in the name of the OLP Securities Intermediary, as
D-9
<PAGE>
agent for mortgagee, as secured party (the "OLP Lockbox Account"). The OLP
Borrower has instructed tenants to make all checks payable to the OLP Operating
Account (as described below) with respect to rent due under the leases and has
covenanted to deposit all operating revenues received directly into the OLP
Lockbox Account.
The OLP Borrower has established with the OLP Securities Intermediary (a)
an operating account (the "OLP Operating Account") to receive deposits daily of
amounts on deposit in the OLP Lockbox Account, (b) a P&I escrow account (the
"OLP P&I Escrow Account") to be funded each month before the OLP Effective
Maturity Date in an amount equal to the amount of interest and principal due on
the next OLP Payment Date, (c) a real estate taxes and insurance premium escrow
account (the "OLP Mortgage Escrow Account"), (d) a capital expenditure reserve
account (the "OLP Capital Expenditure Reserve Account") as described below, (e)
a tenant improvement and leasing reserve account (the "OLP TI and Leasing
Reserve Account") as described below, (f) a Gruntal Lease Reserve Account (the
"OLP Gruntal Lease Reserve Account") as described below, and (h) a material
lease reserve account (the "OLP Material Lease Reserve Account") as described
below. The sum of $12,400,000 was deposited into the OLP Gruntal Lease Reserve
Account on the closing date. Commencing on January 1, 1998, and on the first
business day of every month through and including June 1, 1998 (or until such
time as $14,000,000 is on deposit in the OLP Gruntal Lease Reserve Account), the
OLP Borrower shall instruct the OLP Securities Intermediary to withdraw $266,667
from the OLP Lockbox Account and deposit such amount into the OLP Gruntal Lease
Reserve Account. Disbursements shall be made from the OLP Gruntal Lease Reserve
Account to pay for costs associated with tenant improvements and leasing
commissions related to the Gruntal Lease (the "Gruntal Lease"). The sum of
$5,999,534.45 was deposited into the OLP Mortgage Escrow Account on the closing
date. An amount equal to $0.50 per square foot per annum, or $88,604.83 monthly,
for the OLP Property shall be funded on a monthly basis into the OLP Capital
Expenditure Reserve Account by the OLP Borrower. The OLP Borrower shall deposit
into the OLP TI and Leasing Reserve Account, on a monthly basis, an amount equal
to $2.35 per square foot per annum, or $416,667 monthly, provided, however, that
in no event shall OLP Borrower be required to have on deposit an amount in
excess of $5,000,000 in the OLP TI and Leasing Reserve Account. The OLP TI and
Leasing Reserve Account amounts shall be disbursed by the OLP Securities
Intermediary upon delivery of an OLP Officer's Certificate that certain costs
have been incurred in connection with tenant improvements, leasing commissions
and other customary leasing costs. The OLP Borrower shall be required to deposit
into the OLP Material Lease Reserve Account reserves with respect to leases
demising space to a single tenant in excess of 80,000 square feet at the OLP
Property (a "Material Lease") which are expiring within one year, which deposits
shall be equal to one twelfth of the product of (x) $45 per square foot of the
OLP Property and (y) the square footage of the expiring Material Lease (subject
to adjustment based upon increases in the Consumer Price Index published by the
United States Department of Labor, Bureau of Labor Statistics (the "OLP Lease
Expiration Reserve Amounts"). The OLP Lease Expiration Reserve Amounts shall be
funded monthly to the extent of available cash in the OLP Operating Account and
shall be disbursed to the OLP Borrower upon delivery of a fully executed lease
complying in all respects with the terms set forth in the OLP Mortgage. In lieu
of certain reserve amounts described above, the OLP Borrower may substitute a
letter of credit in form acceptable to the mortgagee. The OLP Borrower has
substituted a letter of credit from The Chase Manhattan Bank for the $7,300,000
required to be on deposit in the OLP Capital Expenditure Reserve Account, the
OLP TI and Leasing Reserve Account and the OLP Material Lease Reserve Account.
Until the OLP Effective Maturity Date, the OLP Securities Intermediary will
withdraw funds from the OLP Operating Account, on the first business day of each
month, in the following amounts and in the following order of priority: (i)
$1,829,400.41 (the "OLP Monthly Amount") and deposit the same into the OLP P&I
Escrow Account; (ii) the monthly OLP Mortgage Escrow Amounts (which monthly
amount initially shall be $1,000,483.05) and deposit the same into the OLP
Mortgage Escrow Account; (iii) the OLP Reserve Amounts (as hereinafter defined),
if any, and deposit the same into the OLP Mortgage Escrow Account; (iv) the
monthly OLP Capital Expenditure Amounts and deposit the same into the OLP
Capital Expenditure Reserve Account; (v) funds in an amount equal to the OLP
Gruntal Lease Reserve Amounts and deposit the same into the OLP Gruntal Lease
Reserve Account; (vi) the monthly OLP TI and Leasing Reserve Amount and deposit
the same into the OLP TI and Leasing Reserve Account; and (vii) from time to
time, the OLP Lease Expiration Reserve Amounts and deposit the same into the OLP
Material Lease Reserve Account.
Provided that (i) the OLP Securities Intermediary shall not have received
written notice that an Event of Default shall have occurred and be continuing
hereunder or under any of the other Loan OLP Documents, (ii) neither the OLP
Borrower nor the Mortgageee shall have delivered to the OLP Securities
Intermediary a notice stating that an Event of Default has occurred and is then
outstanding hereunder or under any of the other OLP Loan Documents, (iii) the
OLP
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<PAGE>
Securities Intermediary shall not have been notified in writing that there are
any payables of the OLP Borrower outstanding that are more than sixty (60) days
past due, unless the same are being contested by the OLP Borrower in good faith,
and that no other obligations of the OLP Borrower are past due, and (iv) the OLP
Borrower shall have delivered to (or shall deliver simultaneously therewith) or
shall have instructed (or shall instruct simultaneously therewith) the OLP
Securities Intermediary to transfer from the OLP Operating Account to the OLP
Mortgage Escrow Account, an amount equal to one hundred twenty-five percent
(125%) of the amount by which any payables being contested exceed Two
Hundred-Fifty Thousand Dollars ($250,000) in the aggregate (such amounts in
excess of Two Hundred-Fifty Thousand Dollars ($250,000) delivered in connection
with any such contest being hereinafter referred to as the "OLP Reserve
Amounts"), then the OLP Borrower may, at any time, instruct the OLP Securities
Intermediary to transfer all amounts deposited from time to time in the OLP
Operating Account in excess of all other withdrawals to be made by the OLP
Securities Intermediary from the OLP Operating Account, to such accounts as the
OLP Borrower may determine (the "OLP Borrower Accounts"), but in no event more
frequently than once weekly, to pay operating expenses of the OLP Property, to
make distributions to the partners of the OLP Borrower, or otherwise.
After the OLP Effective Maturity Date, the OLP Securities Intermediary
shall withdraw from the OLP Operating Account on the first business day of each
month, the following amounts in the following order of priority, based on the
information set forth in a statement delivered to the OLP Securities
Intermediary pursuant to the OLP Mortgage, upon which the OLP Securities
Intermediary may conclusively rely: (i) funds in an amount equal to the OLP
Monthly Amount due on the OLP Note on the next Payment Date and deposit the same
into the OLP P&I Escrow Account; (ii) funds in an amount equal to the monthly
OLP Mortgage Escrow Amounts and deposit the same into the OLP Mortgage Escrow
Account; (iii) funds in an amount equal to the OLP Reserve Amounts, if any, and
deposit the same into the OLP Mortgage Escrow Account; (iv) funds in an amount
(it being understood that the mortgagee shall notify the OLP Securities
Intermediary of the amounts thereof) equal to the monthly allocation of OLP
Operating Expenses pursuant to an approved annual budget ("OLP Approved
Operating Expenses") and approved Extraordinary Expenses ("OLP Approved
Extraordinary Expenses"), if any, and pay the same to the mortgagee; (v) funds
in an amount equal to the OLP Capital Expenditure Reserve Amounts and deposit
the same into the OLP Capital Expenditure Reserve Account; (vi) funds in an
amount equal to the OLP TI and Leasing Reserve Amounts and deposit the same into
the OLP TI and Leasing Reserve Account; (vii) funds in an amount equal to the
OLP Material Lease Reserve Amounts and deposit the same into the OLP Material
Lease Reserve Account; (viii) funds to be applied against the outstanding
principal due under the OLP Note until such principal amount is paid in full and
pay the same to the mortgagee; (ix) funds in an amount (it being understood that
the mortgagee shall notify the OLP Securities Intermediary of the amounts
thereof) equal to the OLP Accrued Interest, including, if applicable, interest
at the OLP Default Rate applicable from and after the OLP Effective Maturity
Date and pay the same to the mortgagee; (x) funds in an amount (it being
understood that mortgagee shall notify the OLP Securities Intermediary of the
amounts thereof) equal to any other amounts due under the OLP Loan Documents and
pay the same to the mortgagee; and (xi) thereafter, any remaining amounts will
be remitted to the OLP Borrower.
Transfer of Properties and Interest in OLP Borrower; Encumbrance; Other
Debt. The OLP Borrower is generally prohibited from transferring or encumbering
the OLP Property except for a transfer of the OLP Property that has been
released as described under "Defeasance Collateral" in this section. The OLP
Borrower may, without the consent of the mortgagee, (i) make immaterial
transfers of portions of the OLP Property to government authorities for
dedication or public use, or portions of the OLP Property to third parties,
including owners of outparcels, or other properties for the purpose of erecting
and operating additional structures whose use is integrated with the use of the
OLP Property, and (ii) grant easements, restrictions, covenants, reservations
and rights of way in the ordinary course of business for access, water and sewer
lines, telephone and telegraph lines, electric lines or other utilities or for
other similar purposes or amend the operating agreements, provided that no such
transfer, conveyance or encumbrance set forth in clauses (i) and (ii) above
shall materially impair the utility and operation of the OLP Property or
materially adversely affects the value of the OLP Property taken as a whole. In
connection with any transfer or any series of transfers that affect (on a
cumulative basis) more than 10% of the value of the OLP Property (not including
leasing in the ordinary course of business), a tax opinion and a
non-disqualification opinion of counsel shall be furnished to the mortgagee.
The mortgagee's approval is not required for a transfer of any direct or
indirect beneficial interests in the OLP Borrower, provided that (i) no Event of
Default shall have occurred and be continuing, (ii) the OLP Borrower (or the
transferor of such interest) shall deliver notice thereof to the mortgagee at
least 15 business days prior to the effective date of such transfer, (iii) the
OLP Borrower shall remain a single purpose entity, (iv) no transfer of limited
partner,
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<PAGE>
non-managing member or shareholder interests shall result in any one person (or
any group of affiliates) owning, directly or indirectly, more than 49% of the
beneficial ownership interests of the OLP Borrower, and (iv) World Financial
Properties, L.P. shall own not less than 51% of the beneficial interests in the
OLP Borrower, and if the OLP Borrower shall be a partnership, all general
partners shall be wholly-owned subsidiaries of World Financial Properties, L.P.
If 10% or more of direct beneficial interests in the OLP Borrower are
transferred or if any transfer shall result in a person or a group of affiliates
acquiring more than a 49% interest as set forth above, the OLP Borrower shall
deliver or cause to be delivered to the mortgagee (x) an opinion of counsel
addressed to the Rating Agencies and the mortgagee and dated as of the date of
the transfer to the effect that in a properly presented case, a bankruptcy court
in a case involving such transferee, or any affiliate thereof, would not
disregard the corporate or partnership forms of such entity, their affiliates
and/or their partners, as the case may be, so as to consolidate the assets and
liabilities of such entity or entities and/or their affiliates with those of the
OLP Borrower or their OLP General Partner, and (y) an OLP Officer's Certificate
certifying that such transfer is not an Event of Default, provided, however that
the Rating Agencies shall deliver written confirmation that any such transfer
will not result in the withdrawal, qualification or downgrading of the then
current ratings of the Certificates. For the purposes of this section, a sale of
stock in World Financial Properties, L.P. on a publicly traded exchange is not
an indirect transfer of beneficial interest in theOLP Borrower.
The OLP Borrower is not permitted to incur, create or assume any additional
debt or liabilities without the consent of the mortgagee; provided, however,
that if no Event of Default shall have occurred and be continuing, the OLP
Borrower may, without the consent of the mortgagee, incur, create or assume any
or all of the following indebtedness (collectively, "Permitted Debt"): (i) the
OLP Note and the other obligations, indebtedness and liabilities specifically
provided for in the OLP Loan Documents; (ii) unsecured indebtedness for trade
payables incurred in the ordinary course of business (other than liens being
contested in accordance with the provisions of the OLP Mortgage), not to exceed
$2,000,000 and to be paid within 60 days following the date on which each such
amount was actually due and payable unless (a) the OLP Borrower is in good faith
contesting its obligation to pay such indebtedness in a manner satisfactory to
the mortgagee, (b) adequate reserves with respect thereto are maintained on the
books of the OLP Borrower in accordance with GAAP, (c) such contest operates to
suspend collection of such amounts or enforcement of such obligations, and (d)
no Event of Default exists and is continuing; and (iii) unsecured indebtedness
for amounts payable or reimbursable to any tenant on account of work performed
at the OLP Property by such tenant or for costs incurred by such tenant in
connection with its occupancy of space, including for tenant improvements.
Insurance. The OLP Borrower is required to maintain for the OLP Property
(a) insurance against all perils included within the classification "All Risks
of Physical Loss" with extended coverage in amounts at all times sufficient to
prevent the OLP Borrower from becoming a co-insurer, but in any event equal to
the full insurable value of the improvements and equipment, (b) comprehensive
general liability insurance in such amounts as are generally required by
institutional lenders for comparable properties but in no event less than
$5,000,000 per occurrence and with an aggregate limit of not less than
$10,000,000, (c) statutory worker's compensation insurance, (d) business
interruption and/or loss of "rental value" insurance to cover the loss of at
least 24 months income, (e) during any period of repair or restoration,
builder's "all risk" insurance in an amount not less than the full insurable
value of the OLP Property, (f) broad form boiler and machinery insurance and
insurance covering all boilers or other pressure vessels, machinery and
equipment, if any, located in, on or about the OLP Property and insurance
against loss of occupancy or use arising from any such breakdown in such amounts
as are generally available at commercially reasonable premiums and are generally
required by institutional lenders for properties comparable to the OLP Property;
(g) flood insurance, if available, with respect to any of the OLP Property
located within a designated "flood prone" zone or "special flood hazard area" in
an amount equal to the lesser of the OLP Loan and the maximum limit of coverage
available with respect to the OLP Property; and (h) at the mortgagee's
reasonable request, such other insurance, including but not limited to
earthquake insurance, against loss or damage of the kinds from time to time
customarily insured against and in such amounts as are generally required by
institutional lenders on loans of similar amounts and secured by comparable
properties.
The insurance coverage may be effected under a blanket policy or policies
provided that any such blanket policy shall specify, except in the case of
public liability insurance, the portion of the total coverage of such policy
that is allocated to the OLP Property, and any sublimits in such blanket policy
applicable to the OLP Property, which amounts shall not be less than the amounts
required pursuant to this section and which shall in any case comply in all
other respects with the requirements of the OLP Loan. All insurance policies are
required to name the mortgagee as an
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<PAGE>
additional named insured, to provide that all proceeds (except with respect to
proceeds of general liability and workers' compensation insurance) be payable to
the mortgagee as and to the extent described below in "Casualty and
Condemnation", and shall contain: (i) a standard "non-contributory mortgagee"
endorsement or its equivalent relating, inter alia, to recovery by the mortgagee
notwithstanding the negligent or willful acts or omissions of the OLP Borrower;
(ii) a waiver of subrogation endorsement in favor of the mortgagee; (iii) an
endorsement providing that no policy shall be impaired or invalidated by virtue
of any act, failure to act, negligence of, or violation of declarations,
warranties or conditions contained in such policy by the OLP Borrower, the
mortgagee or any other named insured, additional insured or loss payee, except
for the willful misconduct of the mortgagee knowingly in violation of the
conditions of such policy; (iv) an endorsement providing for a deductible per
loss of an amount not more than that which is customarily maintained by prudent
owners of first class properties comparable to and in the general vicinity of
the property, but in no event in excess of $100,000, except in the case of
earthquake coverage, for which such deductible shall not be in excess of that
generally required by institutional lenders on loans of similar amounts secured
by comparable properties; and (v) a provision that such policies shall not
expire or be canceled or terminated or without at least thirty (30) days' prior
written notice to the mortgagee, in each instance. The OLP Loan requires the OLP
Borrower to obtain the insurance coverage described above, from domestic primary
insurers having (x) a claims-paying-ability rating by S&P of not less than "AA"
and its equivalent by any other Rating Agency, and (y) an Alfred M. Best
Company, Inc. rating of "A" or better and a financial size category of not less
than IX. All insurers providing insurance required by the OLP Mortgage shall be
authorized to issue insurance in the state where the OLP Property is located.
Condemnation and Casualty. The OLP Borrower will promptly notify the
mortgagee in writing upon obtaining knowledge of (i) the institution of any
proceedings relating to any taking, or (ii) the occurrence of any casualty,
damage or injury to, the OLP Property or any portion thereof the restoration of
which is estimated by the OLP Borrower in good faith to cost more than the
$6,000,000 (the "OLP Threshold Amount"). In addition, such notice shall set
forth a good faith estimate of the cost of repairing or restoring such casualty,
damage, injury or taking in reasonable detail if the same is then available and,
if not, as soon thereafter as it can reasonably be provided.
Except as described below, in the event of any taking of or casualty or
other damage or injury to the OLP Property, the OLP Borrower's right, title and
interest in and to all compensation, awards, proceeds, damages, claims,
insurance recoveries, causes and rights of action (whether accrued prior to or
after the initial closing of the OLP Loan) and payments which the OLP Borrower
may receive or to which it may become entitled or any part thereof other than
payments received in connection with any liability or loss of rental value or
business interruption insurance (collectively, the "OLP Proceeds"), in
connection with any such taking of, or casualty or other damage or injury to,
any OLP Property or any part thereof are assigned by the OLP Borrower to, and
shall be paid to, the mortgagee.
For purposes of this section, an "OLP Total Loss" shall mean (i) a
casualty, damage or destruction of the OLP Property, the cost of restoration of
which would exceed 25% of the amount of the OLP Loan, and with respect to which
the OLP Borrower is not required, under the applicable leases to apply insurance
and condemnation proceeds to the restoration of such OLP Property or (ii) a
permanent taking of 25% or more of the gross leasable area of the OLP Property
or so much of the OLP Property, in either case, such that it would be
impracticable, in the mortgagee's sole discretion, even after restoration, to
operate such OLP Property as an economically viable whole and with respect to
which the applicable lease does not require such restoration.
Following a casualty or condemnation, the OLP Proceeds shall be applied by
the mortgagee (unless the mortgagee, in its sole discretion, otherwise elects)
to prepay the OLP Note without prepayment premium or penalty, if: (i) the
proceeds shall equal or exceed the OLP Loan, (ii) an Event of Default shall have
occurred and be continuing, (iii) an OLP Total Loss has occurred, (iv) the
restoration or reconstruction of the OLP Property is not capable of being
completed before the earlier to occur of the date which is 180 days prior to the
OLP Maturity Date, and the date on which the business interruption insurance
carried by the OLP Borrower shall expire, or (v) the OLP Property is not capable
of being restored substantially to its condition prior to such taking or
casualty.
Notwithstanding anything to the contrary contained in the OLP Mortgage, and
excluding situations requiring prepayment, to the extent insurance and
condemnation proceeds do not exceed the OLP Threshold Amount, such insurance and
condemnation proceeds are to be paid directly to the OLP Borrower to be applied
to restoration of the OLP Property. Promptly after the occurrence of any damage
or destruction to all or any portion of the OLP Property or a taking of a
portion thereof, in either case which shall not constitute an OLP Total Loss,
the OLP Borrower shall either cause such OLP Property to be released pursuant to
an OLP Defeasance (if permitted), or shall commence and
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<PAGE>
diligently prosecute to completion the repair, restoration and rebuilding of
such OLP Property (in the case of a partial taking, to the extent it is capable
of being restored) so damaged, destroyed or remaining after such taking in full
compliance with all material legal requirements and free and clear of any and
all liens except permitted encumbrances. Except upon the occurrence and during
the continuance of an Event of Default, the OLP Borrower may settle any
insurance claim with respect to proceeds which does not exceed the OLP Threshold
Amount. If an Event of Default shall have occurred and be continuing, or if the
OLP Borrower fails to file and/or prosecute any insurance claim for a period of
fifteen (15) business days following the OLP Borrower's receipt of written
notice from the mortgagee, the mortgagee may file and prosecute such claim
(including settlement thereof) with counsel satisfactory to the mortgagee and
may collect and make receipt for any such payment, all at the OLP Borrower's
expense.
In the event that any insurance or condemnation proceeds (other than
business interruption insurance) are in excess of the OLP Threshold Amount and
are not required to be applied to the payment or prepayment of the OLP Loan then
mortgagee is obligated to make such proceeds available to the OLP Borrower for
payment or reimbursement of the OLP Borrower's or the applicable tenant's costs
and expenses incurred with respect to the restoration of the OLP Property only
if: (A) at the time of loss or damage or at any time thereafter while the OLP
Borrower is holding any portion of such proceeds, there shall be no continuing
Event of Default; (B) if the estimated cost of such restoration shall exceed
such proceeds, the OLP Borrower shall, at its option either deposit with or
deliver to the mortgagee (i) cash and cash equivalents, (ii) a letter or letters
of credit in an amount equal to the estimated cost of such restoration less such
proceeds available, or such other evidence of the OLP Borrower's ability to meet
such excess costs and which is satisfactory to the mortgagee and the Rating
Agencies; and (iii) the mortgagee shall, within a reasonable period of time
prior to request for initial disbursement, be furnished with an estimate of the
cost of such restoration accompanied by an independent architect's certification
as to such costs and appropriate plans and specifications for such restoration.
Upon the occurrence and during the continuance of an Event of Default, or
in the event that any insurance or condemnation proceeds are required to be paid
to the mortgagee, all such proceeds shall be paid over to the mortgagee and
shall be applied first toward reimbursement of the mortgagee's reasonable costs
and expenses actually incurred in connection with recovery of the insurance and
condemnation proceeds and disbursement of such proceeds, including reasonable
administrative costs and inspection fees.
Approval Rights. Under the OLP Loan, for each calendar year commencing on
the first day of January following the OLP Effective Maturity Date and for each
calendar year thereafter, the OLP Borrower is required to submit to the
mortgagee, for the mortgagee's written approval, an annual budget not later than
60 days prior to the commencement of each calendar year. In the event the
mortgagee notifies the OLP Borrower within 15 days of any objections to such
budget, the OLP Borrower is required within 3 days after receipt of such
objections to revise the same and resubmit it to the mortgagee. The mortgagee
shall then advise the OLP Borrower of any objections to such annual budget
within 10 days after such resubmission, and the OLP Borrower is required to
promptly revise same and resubmit it to the mortgagee until an annual budget is
approved; provided, however, that if the mortgagee shall not advise the OLP
Borrower of its objections to any proposed annual budget within the applicable
time period set forth herein, then such proposed annual budget shall be deemed
approved by the mortgagee. In the event the OLP Borrower must incur an
extraordinary operating expense or a capital expense not set forth in the
approved annual budget, it is required to deliver to the mortgagee a reasonably
detailed explanation, for the mortgagee's approval, of such proposed expense.
The OLP Borrower may not, without the consent of the mortgagee, amend,
modify or waive the provisions of any lease or terminate, reduce rents under or
shorten the term of any lease in any manner which would have a material adverse
effect on the OLP Property taken as a whole.
Financial Reporting. As used herein the term "OLP DSCR" means for any
period the ratio of net operating income to debt service on the OLP Note for
such period. The OLP Borrower is required to furnish to the mortgagee: (a)
annually within 90 days after the end of each fiscal year, a copy of the OLP
Borrower's year-end financial statement reviewed by an independent accountant,
and (b) an unaudited balance sheet and statement of net operating income for the
fourth quarter of such year, together with a statement of revenues and expenses
for such quarter. Such annual financial statements shall also be accompanied by
an OLP Officer's Certificate certifying to the best of the signor's knowledge,
(A) that such statements fairly represent the financial condition and results of
operations of the OLP Borrower in accordance with GAAP consistently applied, (B)
that as of the date of such OLP Officer's Certificate, no default exists or, if
so, specifying the nature and status of each such default and the action then
being taken by the OLP
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<PAGE>
Borrower or proposed to be taken to remedy such default, (C) the OLP DSCR for
the preceding calendar quarter and calendar year, and (D) that as of the date of
each OLP Officer's Certificate, no litigation exists involving the OLP Borrower
or the OLP Property in which the amount involved is $500,000 or more, or, if so,
specifying such litigation and the actions being taking in relation thereto; (c)
quarterly within 45 days after each calendar quarter, quarterly unaudited
financial statements, which shall be accompanied by a OLP Officer's Certificate;
(d) quarterly (as to the preceding calendar quarter) within 45 days of each
calendar quarter, a complete rent roll, which shall be accompanied by a OLP
Officer's Certificate; (e) annually within 45 days after the end of each
calendar year (commencing with calendar year 1998), an annual summary of all
capital expenditures made at the OLP Property during the prior 12-month period;
and (f) promptly, such further information regarding the OLP Property as the
mortgagee may reasonably request.
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<PAGE>
Sheraton Chicago Hotel & Towers, Chicago, IL
================================================================================
Loan Information
Principal Balance: Original Cut-Off Date
------------ ------------
$160,000,000 $159,014,062
Origination Date: March 25, 1998
Anticipated Repayment
Date ("ARD"): April 1, 2005
Maturity Date: April 1, 2023
Initial Interest Rate: 6.832%
Amortization: 25 years
Hyperamortization: Subsequent to April 1, 2005, a rate per annum equal to
the greater of (i) the Initial Interest Rate plus 200
basis points or (ii) the interpolated UST plus 200
basis points, with a term approximating the period
from the ARD to the Maturity Date (the "Revised
Interest Rate"). Additionally, all excess cashflow
will be captured under the terms of acash collateral
agreement and applied to the outstanding principal
balance of the Note. Interest due under the Revised
Interest Rate above that which is due under the
Initial Interest Rate will be payable subsequent to
the payment of principal, which deferred interest
shall accrue interest at the Revised Interest Rate, to
the extent permittedby law.
Prepayment Terms/
Defeasance/
Release Provisions: The loan is not prepayable until 30 days prior to the
ARD. Subsequent to this date, prepayment in full is
permitted without penalty. Subsequent to the earliest
to occur of (i) the date of the securitization if the
securitization vehicle permits defeasance, (ii) the
third anniversary of the Origination Date or (iii) the
second anniversary of the securitization of the loan,
defeasance will be permitted upon the delivery of
appropriate defeasance collateral.
The Sheraton Borrower: The borrowing entity, Cityfront Hotel Associates
Limited Partnership, as well as its general partner,is
each organized as a special-purpose, bankruptcy-remote
entity.
Lien Position: First leasehold mortgage lien on the Sheraton Chicago
Hotel & Towers, Chicago, IL.
Cross-Collateralization/
Default: No
Ground Lease: Between Canal Chicago Dock and Canal Trust, as
assigned by The Hote Land Company, L.L.C. as landlord,
and Cityfront HMotel Associates Limited Partnership, a
successor-in-interest to Tishman Realty Corporation of
Cook County, as tenant. Expires September 30, 2038,
with two successive extension options of 25 years and
24 years each.
Ground Rent Escrow
Reserve: Equal to the greater of (a) 105% of the amount of
Ground Rent (as defined in the Sheraton Mortgage)
which was paid duringfrom the corresponding month of
the previous year which was paid pursuant to the
Sheraton Ground Lease and (b) the budgeted amount of
Ground Rent for such month which the Sheraton Borrower
anticipates paying pursuant to the Sheraton Ground
Lease.
FF&E Account Reserve: On a monthly basis, an amount equal to 4% of the
monthly Operating Income (as defined in the Sheraton
Mortgage), exclusive of any interest income with
respect to the funds in the Sheraton FF&E Reserve
Account and any other interest income, for the month
which is two months preceding the month in which such
deposit is made.
================================================================================
Property Information
Property Type: Hotel
Location: 301 East North Water St.
Chicago, IL 60611
March 31, 1998
1997 TTM(1)
---- ------
Occupancy Percentage: 78.54% 81.04%
ADR: $148.24 $151.00
RevPAR: $116.43 $122.36
================================================================================
Number of Rooms: 1,204
Year Built: 1992
Mortgaged Property: The Sheraton Chicago Hotel & Towers, a
full-service hotel in Chicago, IL.
Property
Management: Sheraton Operating Corporation
1997 Net
Operating Income: $26,161,000
TTM as of
March 31, 1998
Net Operating Income: $29,121,700
Underwritten Net
Cash Flow: $24,602,905
Appraised Value: $247,000,000
Appraisal Date: January 1, 1998
Cut-Off Date LTV: 64.38%
Underwritten DSCR: 1.82x
Cut-Off Date
Loan/Room: $132,071
- ----------
(1) "TTM" means trailing twelve month amounts.
D-16
<PAGE>
Sheraton Chicago Hotel & Towers: Property Description
The Mortgaged Property:
The property (the "Sheraton Property"), which is comprised of an
approximately 100,310 square-foot parcel of land, is leased from The Hotel Land
Company, L.L.C. for an original term which extends to 2038, with a 25 and then a
24 year extension option, as well as a purchase option. The Sheraton Property is
improved with a 1,204 room, first-class, convention lodging facility which
opened upon completion of construction in March, 1992. The Sheraton Operating
Corporation is the current manager of the Sheraton Property pursuant to a
management agreement expiring on December 31, 2009, which agreement has two
10-year renewal options. The Sheraton Property contains five food and beverage
outlets, roughly 60,235 square feet of meeting and banquet space, including a
40,000 square foot ballroom; a 35,000 square foot exhibition hall, 36 meeting
rooms, a fitness center, a gift shop, two levels of underground parking, and
other facilities and amenities typical of a first-class, convention-oriented
hotel. The Sheraton Property is located approximately three blocks east of
Michigan Avenue, one of the major thoroughfares serving downtown Chicago.
Michigan Avenue features first-class retail outlets, prime office space, fine
dining establishments, historic sites and entertainment venues.
The first seven levels of the Sheraton Property are public areas, while
levels 8 through 34 primarily house guestrooms. Levels 8 through 30 feature
typical guestrooms, level 31 is the Sheraton Executive Level, and levels 32
through 34 are designated as the "Towers". The Sheraton Property's rounded
exterior walls create distinctively shaped guest rooms with broad expanses of
glass, offering views of the Chicago skyline and/or Lake Michigan.
Location/Access:
The Sheraton Chicago Hotel & Towers's address is 301 East North Water
Street in Chicago, Illinois. It is located on the eastern side of North Columbus
Drive and the northern side of the Chicago River in the Cityfront Center
mixed-use development. The Sheraton Property is served by a mixture of county,
state and interstate highways, including a well developed network of local
roadways.
Two main airports are available in the Chicago area: O'Hare International
and Midway. The city is served by major domestic and international carriers that
offer non-stop service to the business centers of Europe and Asia. O'Hare
International Airport is a significant asset to the regional economy. A
$618,000,000 international terminal was completed at O'Hare International
Airport in 1994, which increased the capacity for international flights. Midway
Airport is served by 16 commercial airlines, and handles more corporate jet
traffic than O'Hare. The city recently invested $100,000,000 for parking,
terminal and airfield improvements at Midway.
Market Overview:
The Sheraton Property is situated in the city of Chicago in Cook County,
Illinois. Cook County is one of the nine counties that comprise Chicago.
Approximately 75% of the metropolitan area's population resides in Cook County.
Chicago is the third most populous city in the United States, behind New York
and Los Angeles. As the headquarters of the nation's two largest food processors
(Beatrice and Kraft), two major commodities and futures exchanges (the Chicago
Board of Trade and the Chicago Mercantile Exchange), and other domestic and
international financial institutions, Chicago is considered the financial and
industrial center of the Midwest. Together, the Chicago exchanges account for
more than 75% of the world's commodities trades. Chicago is the nation's leader
in stock options, currency futures and interest rate futures trading, and ranks
second in precious metals trading.
Convention activity is strong in the Chicago hotel market. Large
conventions held in the city include the International Manufacturing Technology
Show, the National Restaurant Association Show, the National Sporting Goods
Association Convention and the 1996 Democratic National Convention.
Leisure demand is generated by downtown Chicago's many sites, attractions
and events. Numerous museums, historic sites and exclusive retail outlets assist
the city in drawing leisure travelers from around the world. Navy Pier was
recently converted to an exposition and entertainment venue. Located
approximately one-half mile east of the Sheraton Property on Illinois Street,
Navy Pier includes a 1,500-seat performing arts pavilion, several thousand feet
of meeting and exhibition space, an amusement park and a myriad of shops and
restaurants.
D-17
<PAGE>
Competition:
Four properties are considered primarily competitive with the Sheraton
Property. All but one of these are affiliated with nationally recognized brands.
The competing hotels range in size from 1,172 rooms at the Chicago Marriott to
2,019 rooms at the Hyatt Regency Chicago. In 1997, the primary competitors
maintained an overall occupancy rate of 78.0% at an average rate of $141.89 per
room per night, yielding RevPAR of $110.72. The competitors' market segmentation
is estimated to have been 66% meeting and group, 22% commercial and 12% leisure.
See the chart on page D-20 setting forth certain information regarding
competitors of the Sheraton Property. Operating History:
The Sheraton Property performed well through the first quarter of 1998. Its
occupancy rate of 81.04% represented a 6.6% increase from 1997, and its average
rate of $151.00 per room per night was $3.00 higher than the previous year. The
following table shows historical operating statements in summary form:
SHERATON PROPERTY--OPERATING STATEMENT ANALYSIS
<TABLE>
<CAPTION>
Underwritten
TTM TTM
1996 1997 March 31, 1998 as of
Actual Actual Actual March 31, 1998
----------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
INCOME:
Room Revenue ............. $46,085,000 $51,166,000 $53,774,400 $53,774,400
Food & Beverage .......... 22,886,000 25,579,000 27,485,400 27,485,400
Telephone ................ 2,178,000 2,445,000 2,572,800 2,572,800
Other Department ......... 1,567,000 1,783,000 1,833,100 1,833,100
Rental Income ............ 506,000 750,000 684,800 684,800
----------- ----------- ----------- -----------
GROSS INCOME .............. $73,222,000 $81,723,000 $86,350,500 $86,350,500
=========== =========== =========== ===========
OPERATING EXPENSES:
Rooms .................... $ 9,757,000 $10,948,000 $11,399,300 $11,399,300
Food & Beverage .......... 14,281,000 14,957,000 15,725,000 15,725,000
Telephone ................ 787,000 824,000 845,300 845,300
Other Department ......... 717,000 770,000 792,100 792,100
----------- ----------- ----------- -----------
Total Department Expenses 25,542,000 27,499,000 28,761,700 28,761,700
----------- ----------- ----------- -----------
Department Profit ....... $47,680,000 $54,224,000 $57,588,800 $57,588,800
=========== =========== =========== ===========
UNALLOCATED EXPENSES:
Administrative & General . $ 4,897,000 $ 5,280,000 $ 5,186,100 $ 5,186,100
Repairs & Maintenance .... 3,033,000 3,045,000 2,915,100 2,915,100
Utilities ................ 2,592,000 2,481,000 2,442,300 2,442,300
Management Fees .......... 2,186,000 2,776,000 2,915,500 3,397,095
Marketing ................ 4,132,000 4,347,000 $ 4,419,400 4,419,400
Franchise Fees ........... -- -- -- --
Insurance ................ 78,000 75,000 179,100 179,100
Taxes .................... 6,057,000 7,064,000 7,315,300 7,315,300
Asset Management Fee ..... -- -- -- --
Other Department ......... 327,000 378,000 429,600 429,600
Ground Rent .............. 2,164,000 2,617,000 2,664,700 3,247,880
----------- ----------- ----------- -----------
TOTAL EXPENSES ............ $25,466,000 $28,063,000 $28,467,100 $29,531,875
=========== =========== =========== ===========
NET OPERATING INCOME ...... $22,214,000 $26,161,000 $29,121,700 $28,056,925
Replacement Reserve ...... 2,175,000 2,434,000 2,573,500 3,454,020
----------- ----------- ----------- -----------
NET CASH FLOW ............. $20,039,000 $23,727,000 $26,548,200 $24,602,905
=========== =========== =========== ===========
Average Daily Rate ........ $ 140.63 $ 148.24 $ 151.00 $ 151.00
Average Occupancy ......... 74.36% 78.54% 81.04% 81.04%
REVPAR .................... $ 104.58 $ 116.43 $ 122.36 $ 122.36
</TABLE>
D-18
<PAGE>
Environmental Report:
A Phase I site assessment was performed March 6, 1998 on the Sheraton
Property. The Phase I assessment did not reveal any environmental liability that
the originator believes would have a material adverse effect on the Sheraton
Borrower's business, assets or results of operations taken as a whole.
Nevertheless, there can be no assurance that all environmental conditions and
risks were identified in such environmental assessment.
Engineering Report:
A Hotel Condition Report was completed on the Sheraton Property on March 4,
1998 by a third party due diligence firm. The Hotel Condition Report concluded
that the Sheraton Property was in good condition and identified approximately
$40,000 in needed deferred maintenance and $210,000 in ADA compliance costs.
D-19
<PAGE>
Primary Competitors and Aggregate Secondary Competitors (Based on Appraisal)
<TABLE>
<CAPTION>
Square Footage Estimated 1997 Market Segmentation
---------------------- ----------------------------------
Meeting 1997
Year No. of Meeting Space Mtg. & Published
Property/Location Opened Rooms Space per Room Comm. Group Leisure Rates
----------------- ------ ----- ----- -------- ----- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Subject Property
301 East North Water St 1992 1,204 95,235 79 16% 75% 9% $109-$275
Chicago Marriott
540 North Michigan Ave . 1978 1,172 58,800 50 40 50 10 $139-$199
Hyatt Regency Chicago
151 East Wacker Dr. .... 1974 2,019 227,300 113 10 80 10 $149-$195
Chicago Hilton & Towers
720 South Michigan Ave . 1927 1,543 234,000 152 30 55 15 $155-$255
Palmer House
17 East Monroe ......... 1926 1,640 173,000 105 20 65 15 $125-$205
- ------------------------------------------------------------------------------------------------------------------------------------
Sub-Totals and Averages . 7,578 157,667 100 22% 66% 12%
Secondary Competitors ... 2,908 40 48 12
- ------------------------------------------------------------------------------------------------------------------------------------
Totals and Averages ..... 10,486 27% 61% 12%
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Estimated 1996 Estimated 1997
---------------------------- --------------------------------------------------------
Average Average Occupancy Yield
Property/Location Occ. Rate RevPAR Occ. Rate RevPAR Penetration Penetration
----------------- ---- ---- ------ ---- ---- ------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Subject Property
301 East North Water St ...... 74.4% $140.63 $104.63 78.5% $148.25 $116.38 101.7% 103.6%
Chicago Marriott
540 North Michigan Ave ....... 80.0 143.00 114.40 81.0 153.00 123.93 104.9 110.4
Hyatt Regency Chicago
151 East Wacker Dr. .......... 76.0 123.00 93.48 77.0 135.00 103.95 99.7 92.6
Chicago Hilton & Towers
720 South Michigan Ave ....... 74.2 132.50 98.32 77.0 139.00 107.03 99.7 95.3
Palmer House
17 East Monroe ............... 76.8 127.85 98.19 77.8 140.00 108.92 100.8 97.0
- ------------------------------------------------------------------------------------------------------------------------------------
Sub-Totals and Averages ....... 76.0% $131.93 $100.22 78.0% $141.89 $110.72 101.1% 98.6%
Secondary Competitors ......... 74.0 144.02 106.58 75.0 155.22 116.42 97.2 103.7
- ------------------------------------------------------------------------------------------------------------------------------------
Totals and Averages ........... 75.5% $135.23 $102.14 77.2% $145.48 $112.30 100.0% 100.0%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
D-20
<PAGE>
Sheraton Chicago Hotel & Towers: Mortgage Loan
General:
The commercial mortgage loan secured by the Sheraton Property (the
"Sheraton Loan") is evidenced by a Mortgage Note (the "Sheraton Note") in the
outstanding principal amount of $160,000,000 made by Cityfront Hotel Associates
Limited Partnership ("CHA" or "Sheraton Borrower") and is secured principally by
(i) the Indenture of Mortgage, Security Agreement, Financing Statement, Fixture
Filing and Assignment of Leases, Rents and Security Deposits (the "Sheraton
Mortgage") made by CHA and the first mortgage lien, subject to the Permitted
Encumbrances (as defined in the Sheraton Mortgage), created thereby on the
Sheraton Ground Leasehold Estate (as defined herein), (ii) the Assignment of
Leases, Rents and Security Deposits made by CHA (the "Assignment of Leases and
Rents") containing the assignment of CHA's rights under the retail space leases
at the Sheraton Property, including all payments thereunder and all room rents
and other income derived from the Sheraton Property, (iii) the Cash Collateral
Account Security, Pledge, Assignment and Control Agreement among CHA and the
other parties thereto (the "Cash Collateral Agreement") and the security
interest created thereby in a certain operating account into which income from
the Sheraton Property is to be deposited and the other accounts described
therein, and (iv) all proceeds, revenue and income from any of the foregoing
(the collateral securing the Sheraton Note pursuant thereto, collectively, the
"Sheraton Collateral").
Sheraton Ground Lease:
CHA is the owner of a ground leasehold estate in a parcel of land which is
the site of the Sheraton Property, together with the improvements and equipment
located thereon (the "Sheraton Ground Leasehold Estate") pursuant to a Ground
Lease (the "Sheraton Ground Lease") dated October 1, 1988 by and between the
Hotel Land Company, L.L.C., a successor-in-interest to the Chicago Dock and
Canal Trust, as landlord, and Tishman Realty Corporation of Cook County, as
tenant, and as amended by First Amendment to Lease dated as of December 18,
1989, and assigned by tenant to Cityfront Hotel Associates Limited Partnership
on December 18, 1989, and as assigned by landlord to The Hotel Land Company,
L.L.C. by assignment dated April 18, 1997. The Sheraton Ground Lease expires on
September 30, 2038, provided, however, CHA has the right to exercise two
successive extension options of 25 years and 24 years each.
Sheraton Property:
The Sheraton Property consists of all right, title and interest of CHA in
and to the Sheraton Ground Leasehold Estate and all reciprocal easement
agreements, operating agreements and similar agreements affecting the ownership,
use and operation of the Sheraton Property included in the definition of
"Permitted Encumbrances" (as defined in the Sheraton Mortgage).
The Sheraton Borrower has warranted, among other things, that, as of the
date of the Sheraton Mortgage, the Sheraton Property was free of material damage
or injury by fire or other casualty not already restored or in the process of
being restored, that it owned good and insurable title to the Sheraton Ground
Leasehold Estate, and that none of the Permitted Encumbrances other than the
Sheraton Mortgage materially adversely affected the marketability of the
Sheraton Property, the Sheraton Borrower's ability to pay its obligations when
due, the fair market value of the Sheraton Property or the use or operation of
the Sheraton Property.
The Sheraton Borrower:
The Sheraton Borrower is an Illinois limited partnership and the owner of
100% of the Sheraton Ground Leasehold Estate. The sole general partner of the
Sheraton Borrower is Tishman/C-H-A Limited Partnership, an Illinois limited
partnership (the "Tishman General Partner"), having a 23% partnership interest
in the Sheraton Borrower. The 77% limited partner interest in the Sheraton
Borrower is held by THR Asset LP. The general partner of the Tishman General
Partner is THR Illinois Corp., a Delaware corporation, which holds a 1%
partnership interest in the Tishman General Partner. A 99% limited partnership
interest in the Tishman General Partner is held by THR Asset LP. THR Asset LP is
an affiliate of the Tishman General Partner.
The Sheraton Borrower was organized for the purpose of acquiring and owning
the Sheraton Ground Leasehold Estate and is expected to have no significant
assets other than its interests in the Sheraton Property and the other Sheraton
Collateral described herein.
D-21
<PAGE>
The Tishman General Partner has been organized to satisfy the requirements
of the Rating Agencies (as defined in the Sheraton Mortgage) with respect to
"special-purpose, bankruptcy-remote" entities.
The Sheraton Note:
The Sheraton Loan is evidenced by the Sheraton Note. From and after April
1, 1998 and ending prior to April 1, 2005 (the "Reset Date"), interest accrues
on the Sheraton Note at a per annum rate equal to 6.832% (the "Initial Interest
Rate"). From and after the Reset Date, interest on the Sheraton Note shall
accrue at a per annum rate (the "Revised Interest Rate") equal to the greater of
(a) the Initial Interest Rate plus 200 basis points or (b) the Treasury Rate (as
defined in the Sheraton Note), plus 200 basis points. Each of the interest rates
described above with respect to the Sheraton Note is referred herein as a
"Sheraton Note Rate."
Interest and principal is payable under the Sheraton Note in 300 equal
monthly installments of $1,123,976.83 each (the "Sheraton Monthly Amount"). Each
Sheraton Monthly Amount shall be due on the first day of each calendar month or,
if such day is not a Business Day (as defined herein), the next succeeding
Business Day (the "Sheraton Payment Date"). "Business Day" as used herein means
a day other than a Saturday, Sunday or other day on which commercial banks in
New York are authorized or obligated to close.
For any period during which an Event of Default (as defined in the Sheraton
Mortgage) has occurred and is continuing, the Sheraton Note will also bear
interest at a per annum rate (the "Sheraton Default Rate ") equal to 5.00% plus
the applicable Sheraton Note Rate.
In the event that the Sheraton Borrower does not prepay the entire
principal balance of the Sheraton Note on or before the Reset Date, then the
Sheraton Borrower shall thereafter make the following payments from the "Rents"
(as defined in the Sheraton Mortgage) on each Sheraton Payment Date after the
Reset Date: first to payment of interest accruing at the Sheraton Default Rate
and late payment charges, if any; second, to payment of the Escrow Amounts (as
defined in the Sheraton Mortgage); third, to payment of the Ground Rent Escrow
Reserve (as defined in the Sheraton Mortgage); fourth, to payment of the
Sheraton Monthly Amount; fifth, to payment of the FF&E Reserve Amount (as
defined in the Sheraton Mortgage); sixth, to payment of monthly Cash Expenses
(as defined in the Sheraton Note) pursuant to the terms and conditions of the
related approved Annual Budget (as defined in the Sheraton Note); seventh, to
payment of Extraordinary Expenses (as defined in the Sheraton Note) approved by
lender, if any; eighth, to payments to the lender to be applied against the
outstanding principal due under the Sheraton Note until such principal amount is
paid in full; ninth, to payments to the lender for Accrued Interest (as defined
in the Sheraton Note); tenth, to payments to the lender of any other amounts
then due and payable under the Loan Documents (as defined in the Sheraton
Mortgage); and lastly, to payment to the Sheraton Borrower or any amounts
remaining after the above payments have been made.
The Sheraton Mortgage and Other Collateral for the Sheraton Note:
The Sheraton Note is secured by, among other things, the (i) Sheraton
Mortgage and the first mortgage lien created thereby on the Sheraton Property
subject only to the Permitted Encumbrances, (ii) Assignment of Leases and Rents
containing the assignment of the rights of the Sheraton Borrower under retail
space leases and room rentals at the Sheraton Property, including all payments
thereunder, and (iii) Cash Collateral Agreement, including the Sheraton
Operating Account, the Sheraton Amortization Account, the Sheraton Ground Rent
Escrow Reserve, the Sheraton FF&E Reserve Account and the other subaccounts
created thereunder (each as defined herein and collectively, the "Sheraton
Accounts").
At any time after the earliest to occur of (1) the date of the
Securitization (as defined in the Sheraton Mortgage) (and provided not otherwise
prohibited under the terms of the Securitization), (2) the second anniversary of
the date of the Securitization, or (3) the third anniversary of the date of the
Sheraton Loan, the Sheraton Borrower may have the Sheraton Property released
from the lien of the Sheraton Mortgage and substitute therefor certain
collateral (the "Sheraton Defeasance Collateral") more particularly set forth in
the Sheraton Mortgage (a "Sheraton Defeasance"). The Sheraton Defeasance
Collateral will be held in a "Defeasance Collateral Account", as more
particularly described in the Sheraton Mortgage. In no event shall a Sheraton
Defeasance cause the Sheraton Borrower to be released from its obligations to
make payments of principal and interest under the Sheraton Note.
D-22
<PAGE>
Cash Collateral Agreement:
As additional security for the Sheraton Note, the Sheraton Borrower has
established a cash collateral account (the "Sheraton Operating Account") with
LaSalle National Bank (the "Sheraton Securities Intermediary") pursuant to the
Cash Collateral Agreement. All income from the Sheraton Property, including all
credit card receipts from the Sheraton Property, all rents from retail space
leases, profits and income payable to the Sheraton Borrower with respect to the
Sheraton Property are required to be deposited by the Sheraton Borrower through
wire transfers from the bank accounts specified in the Cash Collateral Agreement
into which such payments are deposited (the "Sheraton Property Account") into
the Sheraton Operating Account. The bank holding the Sheraton Property Account
has been instructed by the Sheraton Borrower (which instructions are irrevocable
until the Sheraton Loan is paid in full) to make such wire transfers daily to
the Sheraton Operating Account. Amounts in the Sheraton Operating Account are
applied to establish reserve accounts or subaccounts of the Sheraton Operating
Account for monthly payments of interest and principal, payment of real estate
taxes, insurance premiums, Ground Rent (as defined in the Sheraton Mortgage),
FF&E Expenses (as defined in the Sheraton Mortgage) and casualty restoration (if
applicable). Unless an Event of Default or certain casualty events shall have
occurred and be continuing, any excess amounts in the Sheraton Operating Account
are paid to the Sheraton Borrower. Upon the occurrence of an Event of Default
and acceleration of the Sheraton Note, the funds in the accounts under the Cash
Collateral Agreement described herein may be applied to payment of the Sheraton
Note.
Sheraton Amortization Account:
Pursuant to the Cash Collateral Agreement, the Sheraton Securities
Intermediary withdraws funds from the Sheraton Operating Account on a monthly
basis, in an amount equal to the amount of principal and interest due on the
Sheraton Note on the next Sheraton Payment Date and deposits such funds into a
subaccount of the Sheraton Operating Account (the "Sheraton Amortization
Account"). Amounts in the Sheraton Amortization Account will be used by the
Sheraton Borrower to make payment of the principal of and interest on the
Sheraton Note on each Sheraton Payment Date, or upon acceleration of amounts due
thereunder.
Sheraton Mortgage Escrow Reserve:
Pursuant to the Sheraton Mortgage and the Cash Collateral Agreement, on a
monthly basis the Sheraton Borrower is required to deposit or cause to be
deposited into a subaccount of the Sheraton Operating Account (the "Sheraton
Mortgage Escrow Reserve") an amount equal to one-twelfth of the amount of annual
real estate taxes and insurance premiums next coming due. Provided no Event of
Default shall have occurred and be continuing, the funds in the Sheraton
Mortgage Escrow Reserve will be made available to the Sheraton Borrower to pay
real estate taxes and insurance premiums as and when the same become due and
payable.
Sheraton Ground Rent Escrow Reserve:
Pursuant to the Sheraton Mortgage and the Cash Collateral Agreement, on a
monthly basis the Sheraton Borrower is required to deposit or cause to be
deposited into a subaccount of the Sheraton Operating Account (the "Sheraton
Ground Rent Escrow Reserve") an amount equal to the greater of (a) 105% of the
amount of Ground Rent (as defined in the Sheraton Mortgage) paid in the
corresponding month of the previous year pursuant to the Sheraton Ground Lease
and (b) the budgeted amount of Ground Rent for such month which the Sheraton
Borrower anticipates paying pursuant to the Sheraton Ground Lease. Provided no
Event of Default shall have occurred and be continuing, the funds in the
Sheraton Ground Rent Escrow Reserve will be used by the Sheraton Borrower to pay
Ground Rent as it becomes due and payable.
Sheraton FF&E Reserve Account:
Pursuant to the Sheraton Mortgage and the Cash Collateral Agreement, the
Sheraton Borrower is required to deposit or cause to be deposited into a
segregated interest-bearing trust account (the "Sheraton FF&E Reserve Account")
on a monthly basis an amount equal to 4% of the monthly Operating Income (as
defined in the Sheraton Mortgage), exclusive of any interest income with respect
to the funds in the Sheraton FF&E Reserve Account and any other interest income,
for the month which is two months preceding the month in which such deposit is
made.
D-23
<PAGE>
Provided no Event of Default has occurred and is continuing, portions of the
funds in the Sheraton FF&E Reserve Account will be disbursed to the Sheraton
Borrower for payments in connection with actual expenditures for the financing
of furniture, fixtures and equipment leases or purchases in the ordinary course
of operating the Sheraton Property and other capital improvements.
Other Accounts:
Pursuant to the Sheraton Mortgage and the Cash Collateral Agreement, upon
the occurrence of a major casualty, the Sheraton Borrower will be required to
cause all amounts in the Sheraton Operating Account, following the funding of
all reserves required to be funded under the Sheraton Mortgage and the Cash
Collateral Agreement and the payment of actual operating expenses, to be
deposited into a subaccount of the Sheraton Operating Account (the "Sheraton
Major Casualty Escrow Reserve"). Amounts on deposit in the Sheraton Major
Casualty Escrow Reserve will be disbursed in accordance with the provisions of
the Sheraton Mortgage and the Cash Collateral Agreement.
Assignment of Leases and Rents:
As additional security for the Sheraton Loan, the Sheraton Borrower has
executed an Assignment of Leases and Rents, assigning the rights of the Sheraton
Borrower in and to the retail space leases and room rentals at the Sheraton
Property, including all room charges and other payments thereunder.
Voluntary Prepayment; Prepayment Premiums:
The Sheraton Note will be subject to prepayment in whole, without premium
or penalty, any time after the date which is thirty (30) days prior to the Reset
Date.
Mandatory Prepayment Upon Certain Events of Casualty or Condemnation:
Pursuant to the Sheraton Mortgage, the Sheraton Borrower will be required
to apply proceeds related to certain casualty or condemnation events to
prepayment of the Sheraton Note, unless such proceeds are made available for the
restoration of the Sheraton Property. No prepayment premium or other premium or
penalty will be payable with respect to any such prepayment.
Events of Default with respect to the Sheraton Loan include (i) the failure
of the Sheraton Borrower to make any payment of interest on or principal of the
Sheraton Note when due which default is not cured within one Business Day
without notice, failure to pay the total outstanding principal balance of the
Sheraton Note when due or the failure to make the required deposits into the
Sheraton Accounts in accordance with the Cash Collateral Agreement, (ii) the
breach of certain covenants, representations and warranties of the Sheraton
Borrower contained in the Sheraton Mortgage, and (iii) certain events of
insolvency or reorganization relating to the Sheraton Borrower.
The occurrence and continuation of an Event of Default will permit
acceleration of all or any portion of the principal amount outstanding under the
Sheraton Note and allow the lender to pursue remedies available to it pursuant
to the Sheraton Mortgage, including the commencement of foreclosure proceedings,
the application of amounts in the Sheraton Accounts to protect the lender's
security interest or the enforcement of the lender's rights with respect to the
Sheraton Collateral.
Hotel Management:
The Sheraton Property is managed by Sheraton Operating Corporation, a
Delaware corporation ("Sheraton"), pursuant to a management agreement, dated as
of December 18, 1989, between CHA and Sheraton (the "Management Agreement") .
Sheraton's obligations under the Management Agreement have been guaranteed by
its parent, The Sheraton Corporation.
Permitted Transfers and Indebtedness:
Under the Sheraton Mortgage, the Sheraton Borrower may not, subject to
certain permitted exceptions, (i) sell, assign, convey, transfer, pledge or
otherwise dispose of (in each case, "Transfer") all or any portion of the
Sheraton
D-24
<PAGE>
Property, (ii) incur indebtedness for borrowed money, (iii) mortgage,
hypothecate or otherwise encumber or grant a security interest in all or any
part of the Sheraton Property, (iv) permit any Transfer of any interest in the
Sheraton Borrower or (v) file a declaration of condominium with respect to the
Sheraton Property. Notwithstanding the foregoing, and subject to the terms and
conditions more fully set forth in the Sheraton Mortgage, the following
Transfers, indebtedness and encumbrances are permitted: (a) provided no Event of
Default is then continuing, without the consent of lender, the Sheraton Borrower
may sell the whole of its interest in the Sheraton Property provided that (i)
the Sheraton Borrower delivers a written affirmation from the Rating Agencies
that the credit rating of the securities issued or to be issued in connection
with any securitization immediately prior to such sale will not be qualified,
downgraded or withdrawn as a result of such sale (a "Rating Agency
Confirmation"), (ii) the purchaser is a Single Purpose Entity (as defined in the
Sheraton Mortgage) controlled by (A) any entity as to which a Rating Agency
Confirmation would be issued, (B) any partner (or member) of the Sheraton
Borrower or any of their respective Affiliates (as defined in the Sheraton
Mortgage), (C) any insurance company with direct or indirect interests in hotel
assets of at least $100,000,000 exclusive of the Sheraton Property, (D) any
pension fund or separate account or investment vehicle established by such an
entity, or any publicly traded real estate investment trust or other publicly
traded real estate company, which has direct or indirect interests in hotel
assets of at least $100,000,000 exclusive of the Sheraton Property, (E) any
privately held real estate company as to which a Rating Agency Confirmation
would be issued and which has direct or indirect interests in hotel assets of at
least $250,000,000 exclusive of the Sheraton Property, including a minimum of
five (5) hotel properties exclusive of the Sheraton Property, or (F) Tishman
Hotel & Realty LP, Tishman Realty & Construction Company Co., Inc., or their
affiliates, and which purchaser assumes the Sheraton Loan, and (iii) after such
sale the Sheraton Property is managed by a Qualifying Manager (as defined in the
Sheraton Mortgage); (b) certain limited Transfers of direct or indirect
beneficial interests in the Sheraton Borrower; (c) provided no Event of Default
is then continuing, the Sheraton Borrower may incur indebtedness not secured by
the Sheraton Property (other than liens being properly contested in accordance
with the Sheraton Mortgage) for ordinary course trade obligations owing for not
more than 90 days, and the Sheraton Borrower may incur indebtedness for
furniture, fixtures and equipment leases or purchases not secured by the
Sheraton Property; provided, that the aggregate annual payments related thereto
for the Sheraton Property do not exceed $1,600,000; (d) without the consent of
lender and only to the extent the same will not materially impair the utility of
the Sheraton Property or abate, reduce or offset against rents payable under any
lease benefitting the Sheraton Borrower, transfers or dispositions of equipment
which is being replaced or is no longer necessary in connection with the
operation of the Sheraton Property; and (e) without the consent of the lender
and provided the utility and operation of the Sheraton Property is not
materially impaired, immaterial Transfers to government bodies or agencies for
dedication or public use, or transfers of portions of the Sheraton Property to
third parties for the purpose of erecting and operating additional structures
whose use is integrated with the use of the Sheraton Property, and grants of
easements, restrictions, covenants, reservations and rights of way in the
ordinary course of business for access, utility lines or other purposes and
amendments to certain agreements affecting the Sheraton Property.
D-25
<PAGE>
Manufactured Home Communities
================================================================================
Loan Information
Principal Balance: Original Cut-Off Date
------------ ------------
$265,000,000 $265,000,000
Origination Date: December 12, 1997
Anticipated Repayment
Date ("ARD"): December 31, 2007
Maturity Date: January 2, 2028
Interest Rate: 7.0978%
Amortization: None (Interest-Only until January 1, 2008)
Hyperamortization: Subsequent to December 31, 2007, the interest rate
will increase to the greater of (i) the MHC Initial
Interest Rate plus two percent (2%) or (ii) 200 basis
points plus the 10 year UST rate. Additionally, all
excess cash flow will be captured under the terms of
the MHC Cash Collateral Agreement and applied to the
outstanding principal balance of the MHC Note. Any
interest due under the MHC Note but not paid will be
accrued.
Prepayment Terms/
Defeasance/
Release Provisions: The MHC Borrowers may not prepay the MHC Note, except
in connection with a casualty or condemnation, through
and including September 30, 2007. Subsequent to and
including October 1, 2007, the loan is prepayable
without penalty.
Defeasance: Defeasance with non-callable U.S. Treasuries will be
permitted upon the earlier of (i) the second
anniversary of securitization of the loan, or (ii)
December 12, 2000.
Partial Defeasance: Permitted, upon delivery of defeasance collateral in
an amount sufficient to pay 125% of the Allocated Loan
Amount (as defined in the MHC Mortgage) of the
property being released, and sufficient to pay
scheduled interest and principal payments on the
portion of the released property, assuming repayment
on the ARD Date.
Substitution: Permitted provided that (i) the new property has a
fair market value greater than (a) 1.25x the Allocated
Loan Amount of the property being replaced, (b) the
then fair market value of the property being replaced,
and (c) $4,000,000; (ii)the MHC Mortgagee receives
Rating Agency confirmation that the proposed
substitution will not adversely impact the ratings of
the securities secured by a pledge of the MHC Note,
and (iii) other conditions as specified in the MHC
Mortgage.
The Borrowers: MHC Financing L.P., together with its four corporate
nominees, of which it is the sole shareholder, and an
Illinois land trust of which it is the sole
beneficiary. Both MHC Financing L.P. and its corporate
general partner are organized as special-purpose,
bankruptcy-remote entities.
Capital Replacement
Reserve: A monthly reserve equal to one-twelfth of the product
obtained by multiplying $25.00 by the number of Sites
at the MHC Properties, unless waived by Rating
Agencies.
Cross-Collateralization/
Default: One Mortgage Loan secured by 29 separate manufactured
home communities.
================================================================================
Property Information
Property Type: Manufactured Home Communities
Location: The following states: CO, CA, FL, AZ, PA, NV,
MT, MN and IN
Average
Occupancy as of 7/98: 97.17%
Size: 29 Manufactured Home Communities
10,629 pads
Years Built: 1961-1986
The Collateral: 29 Manufactured Home Communities
1997 Net
Operating Income: $31,568,758
Trailing-Twelve-Month
Net Operating Income: $29,241,134
Underwritten Net
Cash Flow: $28,983,110
Market Value: $353,665,447
Market Study Date: November 24, 1997 to December 5, 1997
Cut-Off Date LTV(1) 74.93%
DSC: 1.54x
Loan /Sq. Ft.
as of Cut-Off Date: $24,932 loan/pad
<TABLE>
<CAPTION>
No. of Year Yr.
Property Name City State Pads Built Renov.
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Holiday Hills Village Federal Heights CO 737 1961
California-Hawaiian San Jose CA 412 1971
Contempo Marin San Rafael CA 396 1972
Green Acres Breinigsville PA 595 1969 1994
Hillcrest Village Aurora CO 604 1970
Concord Cascade Pacheco CA 283 1969
Bonanza Village Las Vegas NV 353 1971 1974
Golden Terrace Village West Golden CO 316 1971
Windmill Village North Fort Myers FL 491 1969
Lamplighter Village Spring Valley CA 270 1969
The Meadows Tempe AZ 391 1971
Windmill Village North Sarasota FL 471 1969
Hacienda De Valencia Mesa AZ 366 1970
Cimarron Broomfield CO 327 1970
Lake Haven Dunedin FL 379 1962
Golden Terrace Village Golden CO 262 1971
Casa Village Billings MT 491 1962 1994
Central Park Village Phoenix AZ 293 1973
Camelot Acres Burnsville MN 319 1971
Casa del Sol #2 Glendale AZ 239 1979
Casa del Sol #1 Peoria AZ 246 1971
East Bay Oaks Largo FL 328 1969
Holiday Village Colorado Colorado Springs CO 240 1970
Oak Tree Village Portage IN 380 1969 1989
Windmill Village South Sarasota FL 306 1979
Rancho Valley Village El Cajon CA 140 1969
Eldorado Village Largo FL 227 1968
Country Place Village New Port Richey FL 515 1986 1997
Pueblo Grande Village Pueblo CO 252 1972
</TABLE>
- ----------
(1) LTV based on an implied market value obtained by capping historical net
operating income at an 8.5% capitalization rate.
D-26
<PAGE>
Manufactured Home Communities Loan: The Borrower; The Properties
The Loan. The loan to the MHC Borrowers (hereinafter defined) (the "MHC
Loan") was originated on December 12, 1997 and acquired simultaneously therewith
by Merrill Lynch Mortgage Capital Inc. ("MLMC"). MLMC and its successors and
assignees are hereinafter referred to as the "MHC Mortgagee." The MHC Loan had a
principal balance at origination of $265,000,000 and has a Cut-Off Date Balance
of approximately $265,000,000. It is evidenced by a mortgage note (the "MHC
Note") and secured by a single mortgage (the "MHC Mortgage") encumbering
twenty-nine (29) manufactured home communities located in Arizona, California,
Colorado, Florida, Indiana, Minnesota, Montana, Nevada and Pennsylvania (the
"MHC Properties").
The MHC Borrowers. The borrowers under the MHC Loan are MHC Financing
Limited Partnership, an Illinois limited partnership (the "MHC Financing
Partnership"), Grapeland Vistas, Inc., and Orangeland Vistas, Inc., Pennland
Vistas, Inc., Sandland Vistas, Inc., each an Illinois corporation (the "MHC
Nominees"), and Samuel Zell as sole surviving Trustee under Trust No. 41586, an
Illinois land trust (the "MHC Trust"; the MHC Financing Partnership, the MHC
Nominees and the MHC Trust are, collectively, the "MHC Borrowers"). The MHC
Financing Partnership is a single-purpose limited partnership which, directly or
indirectly through the MHC Nominees or the MHC Trust, owns the MHC Properties.
The MHC Financing Partnership is the sole shareholder and beneficiary of the MHC
Nominees and the MHC Trust, respectively. The MHC Nominees and the MHC Trust
hold title to certain of the MHC Properties in the states of California,
Florida, Nevada and Pennsylvania as the nominee and on behalf of the MHC
Financing Partnership. The limited partnership agreement of the MHC Financing
Partnership provides that it is organized for the limited purposes of acquiring,
owning, improving, leasing, operating, financing, refinancing, holding,
mortgaging or managing the MHC Properties, either directly or through the MHC
Nominees and/or the MHC Trust, and carrying on all activities incidental or
related thereto. The general partner of the MHC Financing Partnership is
MHC-QRS, Inc., a single-purpose Delaware corporation (the "MHC GP"). The
certificate of incorporation of the MHC GP provides that its sole and exclusive
purpose is to provide for the operation of the MHC Financing Partnership.
The MHC Properties.
The 29 MHC Properties range in size from 140 pads to 737 pads, for a total
of 10,629 pads. As of July 1998 the average occupancy for the MHC Properties was
97.1%. The aggregate value of the MHC Properties, based the NOI provided by the
market studies performed by a third party appraiser and applying an 8.5%
capitalization rate is $353,665,447.
The Market Studies.
In lieu of appraisals the originator obtained a market study from a third
party appraiser between November 24 and December 5, 1997 for each of the MHC
Properties. Each market study included inspection of the related property,
interviews of the on-site manager, market research into asking rental rates for
comparable properties, market investigations, and sales prices of comparable
properties. Additionally, each market study included market research and
evaluation of demographic and economic trends; and, the market position and
rating of the related property.
The Individual Properties. The following table depicts the names, locations
and certain other information pertaining to each of the MHC Properties:
D-27
<PAGE>
MHC Property Summary
<TABLE>
<CAPTION>
Number Year Year Occupancy Underwritten
Property Name City State of Pads Built Acquired 7/98 Net Cash Flow
------------- ---- ----- ------- ----- -------- ---- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Bonanza Village Las Vegas NV 353 1971 1973 95.8% $ 1,109,417
California-Hawaiian San Jose CA 412 1971 1997 100.0 1,862,792
Camelot Acres Burnsville MN 319 1971 1973 97.2 777,814
Casa del Sol #1 Peoria AZ 246 1971 1969 94.7 753,786
Casa del Sol #2 Glendale AZ 239 1979 1996 98.7 768,624
Casa Village Billings MT 491 1962 1996 96.8 892,984
Central Park Village Phoenix AZ 293 1973 1977 94.5 798,024
Cimarron Broomfield CO 327 1970 1972 97.6 898,287
Concord Cascade Pacheco CA 283 1969 1976 98.9 1,153,167
Contempo Marin San Rafael CA 396 1972 1994 99.5 1,793,658
Country Place Village New Port Richey FL 515 1986 1984 74.8 445,109
East Bay Oaks Largo FL 328 1969 1977 99.7 741,352
Eldorado Village Largo FL 227 1968 1971 98.2 508,293
Golden Terrace Village Golden CO 262 1971 1970 98.1 893,151
Golden Terrace Village West Golden CO 316 1971 1986 97.8 1,081,479
Green Acres Breinigsville PA 595 1969 1988 97.8 1,778,800
Hacienda De Valencia Mesa AZ 366 1970 1973 94.0 935,309
Hillcrest Village Aurora CO 604 1970 1971 95.4 1,719,147
Holiday Hills Village Federal Heights CO 737 1961 1969 95.9 2,158,892
Holiday Village Colorado Colorado Springs CO 240 1970 1973 97.1 695,775
Lake Haven Dunedin FL 379 1962 1976 97.4 896,574
Lamplighter Village Spring Valley CA 270 1969 1970 94.1 1,043,381
Oak Tree Village Portage IN 380 1969 1987 98.2 1,028,487
Pueblo Grande Village Pueblo CO 252 1972 1973 97.6 676,647
Rancho Valley Village El Cajon CA 140 1969 1973 95.0 386,065
The Meadows Tempe AZ 391 1971 1994 96.2 516,015
Windmill Village North Fort Myers FL 491 1969 1974 99.0 1,044,781
Windmill Village North Sarasota FL 471 1969 1974 99.6 1,007,338
Windmill Village South Sarasota FL 306 1979 1979 99.7 617,962
------ ---- -----------
Total/Weighted Average 10,629 97.1% $28,983,110
====== ==== ===========
<CAPTION>
LTV @ Original
Market Market Allocated
Property Name City Value Value Loan
------------- ---- ----- ----- ----
<S> <C> <C> <C> <C>
Bonanza Village Las Vegas $ 14,099,235 71.61% $ 10,097,035
California-Hawaiian San Jose 15,583,294 116.61 18,172,398
Camelot Acres Burnsville 8,834,424 80.13 7,079,041
Casa del Sol #1 Peoria 8,971,765 76.47 6,860,369
Casa del Sol #2 Glendale 9,472,835 73.85 6,995,402
Casa Village Billings 10,750,012 75.60 8,127,230
Central Park Village Phoenix 9,079,553 79.99 7,262,981
Cimarron Broomfield 11,044,906 74.02 8,175,494
Concord Cascade Pacheco 14,176,635 74.03 10,495,213
Contempo Marin San Rafael 22,464,847 72.67 16,324,454
Country Place Village New Port Richey 5,246,941 77.21 4,051,025
East Bay Oaks Largo 9,373,082 71.98 6,747,204
Eldorado Village Largo 6,398,729 72.30 4,626,080
Golden Terrace Village Golden 10,926,941 74.39 8,128,750
Golden Terrace Village West Golden 13,242,259 74.33 9,842,768
Green Acres Breinigsville 19,474,000 83.13 16,189,222
Hacienda De Valencia Mesa 11,083,341 76.80 8,512,440
Hillcrest Village Aurora 20,635,482 75.82 15,646,311
Holiday Hills Village Federal Heights 25,847,024 76.02 19,648,519
Holiday Village Colorado Colorado Springs 8,309,647 72.21 6,332,387
Lake Haven Dunedin 11,062,341 73.76 8,159,907
Lamplighter Village Spring Valley 12,397,765 76.59 9,496,024
Oak Tree Village Portage 13,496,706 45.63 6,158,305
Pueblo Grande Village Pueblo 4,939,200 71.14 3,513,657
Rancho Valley Village El Cajon 6,117,176 76.77 4,696,354
The Meadows Tempe 12,484,400 74.98 9,360,469
Windmill Village North Fort Myers 17,398,729 54.65 9,508,774
Windmill Village North Sarasota 12,794,576 71.66 9,167,990
Windmill Village South Sarasota 7,959,600 70.66 5,624,197
------------ ----- ------------
Total/Weighted Average $353,665,447 74.93% $265,000,000
============ ===== ============
</TABLE>
D-28
<PAGE>
The table below represents the aggregate operating performance of the
MHC Properties:
CASH FLOWS
<TABLE>
<CAPTION>
TTM Underwritten
1995 1996 1997 As of (TTM as of
Actual Actual Actual October 1997 October 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES
Gross Rent ....................... $ 35,579,078 $ 38,188,129 $ 43,788,257 $ 42,807,475 $ 44,488,092
Vacancies ........................ (1,420,398) (1,690,048) (1,449,986) (1,385,342) (2,251,997)
Other Income ..................... 1,948,578 2,112,402 2,805,950 2,645,404 2,907,914
------------ ------------ ------------ ------------ ------------
TOTAL REVENUES ...................... $ 36,107,258 $ 38,610,483 $ 45,144,221 $ 44,067,537 $ 45,144,009
============ ============ ============ ============ ============
EXPENSES ............................ 1,576,547 1,660,719 1,713,627 1,702,660 1,739,612
Maintenance & Repairs ............ 2,475,640 2,508,756 2,825,013 2,777,710 2,826,431
Payroll & Benefits ............... 4,328,742 4,640,545 5,294,349 5,140,565 5,140,565
Utilities ........................ 86,340 50,732 67,767 66,431 66,431
Bad Debts ........................ 244,313 173,082 197,352 193,090 196,694
Insurance ........................ 1,729,814 1,592,154 -- 1,592,029 1,754,596
Management Fee ................... 164,461 153,346 154,078 142,781 144,594
Other Expenses ................... 2,169,732 2,297,811 2,472,203 2,412,849 2,665,708
Property Taxes ................... 703,022 669,536 851,070 798,288 824,210
------------ ------------ ------------ ------------ ------------
Administration
TOTAL EXPENSES ...................... $ 13,478,611 $ 13,746,681 $ 13,575,459 $ 14,826,403 $ 15,628,799
============ ============ ============ ============ ============
NET OPERATING INCOME ................ $ 22,628,647 $ 24,863,802 $ 31,568,762 $ 29,241,134 $ 29,515,210
============ ============ ============ ============ ============
Reserve for Replacement .......... -- -- -- -- --
NET CASH FLOW ....................... $ 22,628,647 $ 24,863,802 $ 31,568,762 $ 29,241,134 $ 28,983,110
============ ============ ============ ============ ============
Debt Service Coverage Ratio ......... NA NA 1.68x 1.55x 1.54x
</TABLE>
D-29
<PAGE>
The table below represents the individual operating performance of the MHC
Properties.
Underwritten
TTM as of
1996 1997 October 1997
----------- ----------- ------------
Bonanza Village
Revenues .................... $ 1,678,024 $ 1,766,938 $ 1,699,624
Expenses .................... $ 519,714 $ 491,035 $ 572,557
Net Operating Income ........ $ 1,158,310 $ 1,275,903 $ 1,127,067
Reserves .................... -- -- $ 17,650
Net Cash Flow ............... -- -- $ 1,109,417
Market Value ................ -- -- $14,099,235
California-Hawaiian(1)
Revenues .................... -- $ 2,609,030 $ 3,219,075
Expenses .................... -- $ 999,357 $ 1,335,683
Net Operating Income ........ -- $ 1,609,673 $ 1,883,392
Reserves .................... -- -- $ 20,600
Net Cash Flow ............... -- -- $ 1,862,792
Market Value ................ -- -- $15,583,294
Camelot Acres
Revenues .................... $ 1,296,670 $ 1,456,843 $ 1,460,616
Expenses .................... $ 648,345 $ 631,601 $ 666,852
Net Operating Income ........ $ 648,325 $ 825,242 $ 793,764
Reserves .................... -- -- $ 15,950
Net Cash Flow ............... -- -- $ 777,814
Market Value ................ -- -- $ 8,834,424
Casa del Sol #1(2)
Revenues .................... $ 189,020 $ 1,018,123 $ 1,035,042
Expenses .................... $ 47,570 $ 245,303 $ 268,956
Net Operating Income ........ $ 141,450 $ 772,820 $ 766,086
Reserves .................... -- -- $ 12,300
Net Cash Flow ............... -- -- $ 753,786
Market Value ................ -- -- $ 8,971,765
Casa del Sol #2(2)
Revenues .................... $ 203,670 $ 1,091,190 $ 1,085,620
Expenses .................... $ 52,708 $ 265,171 $ 305,046
Net Operating Income ........ $ 150,962 $ 826,019 $ 780,574
Reserves .................... -- -- $ 11,950
Net Cash Flow ............... -- -- $ 768,624
Market Value ................ -- -- $ 9,472,835
Casa Village
Revenues .................... $ 1,377,322 $ 1,448,173 $ 1,433,764
Expenses .................... $ 534,053 $ 477,169 $ 516,280
Net Operating Income ........ $ 843,269 $ 971,004 $ 917,484
Reserves .................... -- -- $ 24,500
Net Cash Flow ............... -- -- $ 892,984
Market Value ................ -- -- $10,750,012
- ----------
(1) Because the property was acquired during 1997, 1997 Operating Statistics do
not reflect a full year's income.
(2) Because the property was acquired during 1996, 1996 Operating Statistics do
not reflect a full year's income. Underwritten
D-30
<PAGE>
Underwritten
TTM as of
1996 1997 October 1997
----------- ----------- ------------
Central Park Village
Revenues .................... $ 1,073,774 $ 1,119,499 $ 1,155,736
Expenses .................... $ 327,248 $ 310,311 $ 343,062
Net Operating Income ........ $ 746,526 $ 809,188 $ 812,674
Reserves .................... -- -- $ 14,650
Net Cash Flow ............... -- -- $ 798,024
Market Value ................ -- -- $ 9,079,553
Cimarron
Revenues .................... $ 1,338,730 $ 1,397,296 $ 1,374,614
Expenses .................... $ 479,542 $ 405,723 $ 459,977
Net Operating Income ........ $ 859,188 $ 991,573 $ 914,637
Reserves .................... -- -- $ 16,350
Net Cash Flow ............... -- -- $ 898,287
Market Value ................ -- -- $11,044,906
Concord Casacade
Revenues .................... $ 1,928,425 $ 1,985,851 $ 1,940,471
Expenses .................... $ 737,510 $ 715,469 $ 773,104
Net Operating Income ........ $ 1,190,915 $ 1,270,382 $ 1,167,367
Reserves .................... -- -- $ 14,200
Net Cash Flow ............... -- -- $ 1,153,167
Market Value ................ -- -- $14,176,635
Contempo Marin
Revenues .................... $ 2,732,114 $ 2,808,363 $ 2,694,058
Expenses .................... $ 916,955 $ 738,781 $ 880,600
Net Operating Income ........ $ 1,815,159 $ 2,069,582 $ 1,813,458
Reserves .................... -- -- $ 19,800
Net Cash Flow ............... -- -- $ 1,793,658
Market Value ................ -- -- $22,464,847
Country Place Village
Revenues .................... $ 752,708 $ 875,916 $ 867,204
Expenses .................... $ 389,774 $ 365,175 $ 396,445
Net Operating Income ........ $ 362,934 $ 510,741 $ 470,759
Reserves .................... -- -- $ 25,650
Net Cash Flow ............... -- -- $ 445,109
Market Value ................ -- -- $ 5,246,941
East Bay Oaks
Revenues .................... $ 1,183,221 $ 1,247,835 $ 1,205,635
Expenses .................... $ 468,132 $ 414,337 $ 447,833
Net Operating Income ........ $ 715,089 $ 833,498 $ 757,802
Reserves .................... -- -- $ 16,450
Net Cash Flow ............... -- -- $ 741,352
Market Value ................ -- -- $ 9,373,082
D-31
<PAGE>
Underwritten
TTM as of
1996 1997 October 1997
----------- ----------- ------------
Eldorado Village
Revenues .................... $ 819,033 $ 863,165 $ 836,933
Expenses .................... $ 324,685 $ 290,490 $ 317,290
Net Operating Income ........ $ 494,348 $ 572,675 $ 519,643
Reserves .................... -- -- $ 11,350
Net Cash Flow ............... -- -- $ 508,293
Market Value ................ -- -- $ 6,398,729
Golden Terrace Village
Revenues .................... $ 1,174,659 $ 1,262,250 $ 1,234,845
Expenses .................... $ 346,931 $ 289,440 $ 328,444
Net Operating Income ........ $ 827,728 $ 972,810 $ 906,401
Reserves .................... -- -- $ 13,250
Net Cash Flow ............... -- -- $ 893,151
Market Value ................ -- -- $10,926,941
Golden Terrace Village West
Revenues .................... $ 1,381,536 $ 1,486,158 $ 1,451,142
Expenses .................... $ 394,428 $ 258,640 $ 353,813
Net Operating Income ........ $ 987,108 $ 1,227,518 $ 1,097,329
Reserves .................... -- -- $ 15,850
Net Cash Flow ............... -- -- $ 1,081,479
Market Value ................ -- -- $13,242,259
Green Acres
Revenues .................... $ 2,347,867 $ 2,506,477 $ 2,543,272
Expenses .................... $ 763,656 $ 591,230 $ 734,672
Net Operating Income ........ $ 1,584,211 $ 1,915,247 $ 1,808,600
Reserves .................... -- -- $ 29,800
Net Cash Flow ............... -- -- $ 1,778,800
Market Value ................ -- -- $19,474,000
Hacienda De Valencia
Revenues .................... $ 1,320,925 $ 1,368,041 $ 1,363,415
Expenses .................... $ 416,465 $ 360,364 $ 409,806
Net Operating Income ........ $ 904,460 $ 1,007,677 $ 953,609
Reserves .................... -- -- $ 18,300
Net Cash Flow ............... -- -- $ 935,309
Market Value ................ -- -- $11,083,341
Hillcrest Village
Revenues .................... $ 2,368,300 $ 2,500,972 $ 2,498,893
Expenses .................... $ 799,509 $ 633,891 $ 749,646
Net Operating Income ........ $ 1,568,791 $ 1,867,081 $ 1,749,247
Reserves .................... -- -- $ 30,100
Net Cash Flow ............... -- -- $ 1,719,147
Market Value ................ -- -- $20,635,482
D-32
<PAGE>
Underwritten
TTM as of
1996 1997 October 1997
----------- ----------- ------------
Holiday Hills Village
Revenues .................... $ 2,922,376 $ 3,142,882 $ 3,139,781
Expenses .................... $ 909,275 $ 787,062 $ 943,839
Net Operating Income ........ $ 2,013,101 $ 2,355,820 $ 2,195,942
Reserves .................... -- -- $ 37,050
Net Cash Flow ............... -- -- $ 2,158,892
Market Value ................ -- -- $25,847,024
Holiday Village Colorado
Revenues .................... $ 927,602 $ 987,548 $ 972,521
Expenses .................... $ 286,944 $ 237,935 $ 264,746
Net Operating Income ........ $ 640,658 $ 749,613 $ 707,775
Reserves .................... -- -- $ 12,000
Net Cash Flow ............... -- -- $ 695,775
Market Value ................ -- -- $ 8,309,647
Lake Haven
Revenues .................... $ 1,440,393 $ 1,501,648 $ 1,480,893
Expenses .................... $ 569,353 $ 506,680 $ 565,369
Net Operating Income ........ $ 871,040 $ 994,968 $ 915,524
Reserves .................... -- -- $ 18,950
Net Cash Flow ............... -- -- $ 896,574
Market Value ................ -- -- $11,062,341
Lamplighter Village
Revenues .................... $ 1,616,802 $ 1,744,558 $ 1,724,694
Expenses .................... $ 586,605 $ 607,637 $ 667,813
Net Operating Income ........ $ 1,030,197 $ 1,136,921 $ 1,056,881
Reserves .................... -- -- $ 13,500
Net Cash Flow ............... -- -- $ 1,043,381
Market Value ................ -- -- $12,397,765
The Meadows
Revenues .................... $ 1,648,575 $ 1,731,734 $ 1,729,933
Expenses .................... $ 674,719 $ 623,384 $ 681,796
Net Operating Income ........ $ 973,856 $ 1,108,350 $ 1,048,137
Reserves .................... -- -- $ 19,650
Net Cash Flow ............... -- -- $ 1,028,487
Market Value ................ -- -- $12,484,400
Oak Tree Village
Revenues .................... $ 1,095,889 $ 1,187,531 $ 1,145,985
Expenses .................... $ 349,149 $ 404,583 $ 450,088
Net Operating Income ........ $ 746,740 $ 782,948 $ 695,897
Reserves .................... -- -- $ 19,250
Net Cash Flow ............... -- -- $ 676,647
Market Value ................ -- -- $13,496,706
D-33
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Underwritten
TTM as of
1996 1997 October 1997
----------- ----------- ------------
Pueblo Grande Village
Revenues .................... $ 623,147 $ 678,572 $ 662,914
Expenses .................... $ 271,435 $ 230,896 $ 264,249
Net Operating Income ........ $ 351,712 $ 447,676 $ 398,665
Reserves .................... -- -- $ 12,600
Net Cash Flow ............... -- -- $ 386,065
Market Value ................ -- -- $ 4,939,200
Rancho Valley Village
Revenues .................... $ 846,720 $ 881,460 $ 873,520
Expenses .................... $ 368,412 $ 303,065 $ 350,505
Net Operating Income ........ $ 478,308 $ 578,395 $ 523,015
Reserves .................... -- -- $ 7,000
Net Cash Flow ............... -- -- $ 516,015
Market Value ................ -- -- $ 6,117,176
Windmill Village
Revenues .................... $ 1,616,431 $ 1,668,014 $ 1,602,577
Expenses .................... $ 542,353 $ 475,606 $ 533,246
Net Operating Income ........ $ 1,074,078 $ 1,192,408 $ 1,069,331
Reserves .................... -- -- $ 24,550
Net Cash Flow ............... -- -- $ 1,044,781
Market Value ................ -- -- $17,398,729
Windmill Village North
Revenues .................... $ 1,632,649 $ 1,696,694 $ 1,640,339
Expenses .................... $ 583,739 $ 532,943 $ 609,451
Net Operating Income ........ $ 1,048,910 $ 1,163,751 $ 1,030,888
Reserves .................... -- -- $ 23,550
Net Cash Flow ............... -- -- $ 1,007,338
Market Value ................ -- -- $12,794,576
Windmill Village South
Revenues .................... $ 1,073,901 $ 1,111,460 $ 1,070,893
Expenses .................... $ 437,472 $ 382,181 $ 437,631
Net Operating Income ........ $ 636,429 $ 729,279 $ 633,262
Reserves .................... -- -- $ 15,300
Net Cash Flow ............... -- -- $ 617,962
Market Value ................ -- -- $ 7,959,600
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Environmental Report.
Phase I site assessments were performed on the MHC Properties in January
and February 1998. The Phase I assessments did not reveal any environmental
liabilities that the originator believes would have a material adverse effect on
the MHC borrowers' business, assets or results of operations taken as a whole.
Nevertheless, there can be no assurance that all environmental conditions and
risks were identified in such environmental assessments.
Engineering Report.
Property Condition Reports were completed on the MHC Properties between
January to February 1998 by third-party due diligence firms. The Property
Condition Reports concluded that the MHC Properties were in above average
condition and identified approximately $82,327 in deferred maintenance
requirements. At the origination of the MHC Loan, the MHC Borrowers established
a monthly capital expenditures deposit of $25 per pad per annum.
Property Management. The MHC Properties are managed by MHC Management
Limited Partnership, an Illinois limited partnership ("MHC Manager"), pursuant
to the terms of a Property Management and Leasing Agreement (the "MHC Management
Agreement"). The MHC Management Agreement provides for a management fee of 5% of
the gross rents actually collected for each MHC Property. The term of the MHC
Management Agreement expires on December 31, 2007 (subject to renewal for
successive one (1) year periods thereafter), unless sooner terminated by either
party thereto.
Pursuant to the terms of a Manager's Consent and Subordination of
Management Agreement given by the MHC Manager and the MHC Borrowers in favor of
the MHC Mortgagee, the MHC Manager has agreed (i) not to terminate the MHC
Management Agreement without the consent of the MHC Mortgagee, except for
nonpayment of management fees (in which case the MHC Mortgagee has a sixty (60)
day cure period), (ii) that all liens, rights and interests owned, claimed or
held by the MHC Manager in and to the MHC Properties are and will be in all
respects subordinate to the lien and security interest securing the MHC Loan,
including the lien of the MHC Mortgage, (iii) that during the continuance of an
Event of Default (as defined below) under the MHC Loan, the MHC Manager will
continue to perform under the MHC Management Agreement provided that the MHC
Mortgagee performs or causes to be performed the obligations of the MHC
Borrowers thereunder, (iv) that, notwithstanding anything in the MHC Management
Agreement to the contrary, the MHC Mortgagee, or the MHC Borrowers at the MHC
Mortgagee's direction, shall have the right to terminate the MHC Management
Agreement on thirty (30) days' prior written notice (a) upon the occurrence of
an Event of Default (as hereinafter defined) and the MHC Mortgagee's taking
possession of the MHC Properties or a material default by the MHC Manager under
the MHC Management Agreement beyond any applicable notice and/or grace period;
(b) upon a 50% or more change in control of ownership of the MHC Manager, unless
the entity controlling the MHC Manager after such change in control is in turn
controlled by Manufactured Home Communities, Inc. or MHC Operating Limited
Partnership; and (c) at any time for the MHC Manager's gross negligence, willful
misconduct or fraud; (v) not to amend or modify any material economic provisions
of the MHC Management Agreement without the prior written consent of the MHC
Mortgagee, and (vi) within 10 days after a request from the MHC Mortgagee
therefor, the MHC Manager will deliver to MHC Mortgagee the information required
to be delivered to the MHC Mortgagee by the MHC Borrowers and described under
"MHC--The Loan--Financial Reporting" below.
The MHC Loan
Security. The MHC Loan is a non-recourse loan, secured by a mortgage lien
on the fee estates of the MHC Borrowers in the MHC Properties and certain other
collateral relating thereto (including an assignment of leases, rents and
security deposits, an assignment of certain agreements and the funds in certain
accounts pursuant to a cash collateral account agreement) (collectively, with
all other security documents referenced herein, the "MHC Loan Documents"). The
MHC Mortgagee is the insured under title insurance policies which insure, among
other things, that the MHC Mortgage constitutes a valid and enforceable first
lien on the MHC Properties, subject to certain exceptions and exclusions from
coverage set forth therein. Such insurance policies, together with the MHC Note,
the MHC Mortgage and all other agreements and documents evidencing and securing
the MHC Loan shall be assigned to the Trust Fund.
Payment Terms. The MHC Loan matures on January 2, 2028 (the "MHC Maturity
Date") and bears interest at (a) a fixed rate per annum equal to 7.0978% (the
"MHC Initial Interest Rate") through and including December 30,
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<PAGE>
2007 and (b) from and after December 31, 2007 (the "MHC Effective Maturity
Date") through and including the MHC Maturity Date, at an interest rate per
annum equal to the greater of (i) the MHC Initial Interest Rate plus 2% or (H)
the MHC Treasury Rate (as defined below) plus 2% (the "MHC Revised Interest
Rate"). The "MHC Treasury Rate" means the yield, calculated by linear
interpolation (rounded to the nearest one thousandth of one percent), of
noncallable United States Treasury obligations with terms (one longer and one
shorter) most nearly approximating the period from the MHC Effective Maturity
Date to January 1, 2018. Any interest accrued at the MHC Revised Interest Rate
and not paid in accordance with the MHC Note shall be deferred and added to the
principal indebtedness and shall earn interest at the MHC Revised Interest Rate
to the extent permitted by applicable law (such deferred interest and interest
thereon, the "MHC Accrued Interest"). Interest on the MHC Loan is calculated on
the basis of a 360 day year composed of twelve (12) months of thirty (30) days
each.
The payment date for the MHC Loan is the first business day of each month
(each, a "MHC Payment Date"), with no grace period for a default in payment of
principal or interest. Commencing on February 1, 1998, the MHC Loan requires 120
equal monthly installments of interest only of $1,567,430.83 (the "MHC Debt
Service Payment"). Each MHC Debt Service Payment, due and payable on each MHC
Payment Date, shall be applied to interest due on the MHC Loan at the MHC
Initial Interest Rate. In the event of a default in payment, interest will
accumulate thereon at a rate per annum equal to the sum of (a) the MHC Initial
Interest Rate, for the period through the MHC Effective Maturity Date, or the
MHC Revised Interest Rate, for the period from and after the MHC Effective
Maturity Date, and (b) 3% (the "Default Rate"). On the MHC Maturity Date, the
entire remaining unpaid balance of principal of the MHC Note, all interest
accrued thereon and all other sums payable thereunder or under the other MHC
Loan Documents shall be due and payable in full.
Commencing with the first MHC Payment Date after the MHC Effective Maturity
Date and continuing on each MHC Payment Date thereafter through and including
the MHC Maturity Date, the MHC Borrowers are required to apply 100% of the rents
and other revenues from the MHC Properties to the following items in the
following order of priority: (a) to the deposit of required monthly escrow
amounts for real estate taxes and insurance premiums; (b) to payment of interest
calculated on the basis of the MHC Initial Interest Rate; (c) to the deposit of
required monthly capital expenditure reserves; (d) to the deposit of required
reserve amounts for contested trade payables, if any; (e) to payment of monthly
cash expenses pursuant to the annual budget approved (the "Annual Budget") by
the MHC Mortgagee and to payment of extraordinary, unbudgeted operating or
capital expenses ("Extraordinary Expenses") approved by the MHC Mortgagee, if
any; (f) to payments to be applied against the outstanding principal of the MHC
Loan until such principal amount is paid in full; (g) to payments of MHC Accrued
Interest; and (h) to payments of any other amounts due under the MHC Loan
Documents. Any excess amounts shall be paid to MHC Borrowers. The scheduled
principal balance of the MHC Loan as of the MHC Effective Maturity Date is
approximately $265,000,000.
Events of Default. The occurrence of any of the following constitutes an
"Event of Default" under the MHC Mortgage: (a) failure to make any payment of
interest or principal due under the MHC Note when due, or failure to pay the
principal balance when due; (b) failure to pay any other amount payable pursuant
to the MHC Note or the MHC Mortgage when due and payable, with such failure
continuing for ten (10) days after MHC Mortgagee delivers written notice thereof
to the MHC Borrowers; (c) failure to keep in force the insurance required under
the MHC Mortgage to be maintained or failure to comply with any other covenant
relating to insurance requirements, which failure continues for ten (10)
business days after the MHC Mortgagee delivers written notice thereof to the MHC
Borrowers; (d) failure to comply with certain MHC Mortgage covenants which
require the MHC Borrowers to keep the MHC Properties free from liens and
encumbrances (with such default continuing for five (5) business days after MHC
Mortgagee delivers written notice thereof to the MHC Borrowers), and which,
prohibit the sale of the MHC Properties and transfers of direct and indirect
beneficial interests in the MHC Borrowers; (e) any attempt by the MHC Borrowers
to assign their rights under the MHC Mortgage; (f) any other default in the
performance or payment, or breach, of any material covenant, warranty,
representation or agreement set forth in the MHC Loan Documents, with such
default continuing for thirty (30) business days after MHC Mortgagee delivers
written notice thereof to the MHC Borrowers; (g) the occurrence of certain
bankruptcy events; (h) the termination, or the failure to continue to be valid
and effective, of the MHC Mortgage (or the ceasing of any lien granted
thereunder to be a perfected first priority lien) or any of the MHC Loan
Documents evidencing the MHC Loan; and (i) any event of default under any other
of the MHC Loan Documents.
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<PAGE>
If the MHC Borrowers default in the payment of any MHC Debt Service Payment
on the MHC Payment Date when due, then the MHC Borrowers shall pay to the MHC
Mortgagee a late payment charge in an amount equal to three percent (3%) of the
amount of the installment not paid. An additional late charge equal to three
percent (3%) of the monthly payment due will be charged for each successive
month the payment, or any part thereof, remains outstanding. If the MHC
Borrowers default in the payment of any MHC Debt Service Payment on its
applicable MHC Payment Date, or default in any other manner so as to constitute
an Event of Default, then the MHC Mortgagee at its option and without further
notice to the MHC Borrowers may declare the entire unpaid amount of principal
with interest at the Default Rate together with all other sums due, if any, due
and payable immediately.
Prepayment. Voluntary prepayment of the principal of the MHC Note is
prohibited at any time prior to the date which is three (3) months prior to the
MHC Effective Maturity Date except that in the event of a casualty or
condemnation the MHC Loan may be prepaid. Thereafter, the MHC Loan may be
prepaid without a prepayment premium. A tender of payment of the amount
necessary to pay and satisfy the entire unpaid principal balance or any portion
thereof at any time after an Event of Default or an acceleration by the lender
prior to the MHC Effective Maturity Date, whether such payment is tendered
voluntarily, during or after foreclosure of the MHC Mortgage, or pursuant to
realization upon other security, shall require the additional payment of the
positive difference between (i) the amount of the Defeasance Collateral (as
hereinafter defined) that would be required to effect a defeasance of the MHC
Note as of the date of such tender and (ii) the then outstanding principal
amount of the MHC Loan.
Defeasance Collateral. The MHC Borrowers shall be entitled to have one or
more or all of the MHC Properties released from the lien of the MHC Mortgage at
any time from and after the earlier of (i) December 12, 2000 and (ii) the (2nd)
anniversary of this Offering upon the delivery of Defeasance Collateral in
accordance with the MHC Mortgage, provided the following release conditions have
been met: (i) the MHC Mortgagee has received at least thirty (30) days' prior
written notice of the date proposed for such release (the "Release Date"); (ii)
no Event of Default has occurred and is continuing; (iii) in the case of a
release of less than all of the MHC Properties, the MHC Borrowers shall deliver
Defeasance Collateral (as defined below), in accordance with the provisions of
the MHC Mortgage, in an amount sufficient to pay scheduled interest and
principal payments on 125% of the loan amount (the "Allocated Loan Amount")
allocated to the applicable MHC Property or MHC Properties and, in the case of a
release of all of the MHC Properties, the MHC Borrowers shall deliver Defeasance
Collateral, in accordance with the provisions of the MHC Mortgage, in an amount
sufficient as of the Release Date to pay scheduled interest and principal
payments on the MHC Loan; (iv) the MHC Borrowers shall deliver a certificate of
an officer of the MHC GP certifying compliance with requirements (ii) and (iii)
above; (v) in the case of a release of less than all of the MHC Properties, the
MHC Borrowers shall deliver one or more endorsements to the MHC Mortgagee's
title insurance policies insuring the lien of the MHC Mortgage that such
policies shall not be adversely affected by the release; and (vi) in the case of
a release of less than all of the MHC Properties, the fair market value as of
the Release Date of the MHC Properties that will remain subject to the lien of
the MHC Mortgage shall not be less than the fair market value of such MHC
Properties as of the closing date of the MHC Loan. The term "Defeasance
Collateral" shall mean obligations or securities not subject to prepayment, call
or early redemption which are direct obligations of, or obligations fully
guaranteed as to timely payment by, the United States of America or any agency
or instrumentality of the United States of America, or the obligations of which
are backed by the full faith and credit of the United States of America, the
ownership of which will not cause the lender to be an "investment company" under
the Investment Company Act of 1940, as amended.
Substitution. The MHC Borrowers may, from time to time, substitute a new
property or properties (an "MHC Substitute Property") for, and of a similar type
and aggregate fair market value as, an existing specified MHC Property or MHC
Substitute Property (a "Replaced Property") or Defeasance Collateral. From and
after any such substitution, the MHC Substitute Property shall be an MHC
Property under the MHC Mortgage and the MHC Borrowers shall either enter into a
new mortgage encumbering the MHC Substitute Property (the "Substitute Mortgage")
or a counterpart original of the MHC Mortgage, modified as necessary, shall be
entered into by the MHC Borrowers to encumber the Substitute Property and the
remainder of the Trust Estate. To qualify as an MHC Substitute Property, the
property or properties in question must, at the time of substitution: (1) be
owned by the MHC Borrowers free and clear of any lien or other encumbrance
except for matters which do not have a material adverse effect on the value of
such property for its then current use; (2) be free and clear of hazardous
substances except for nominal amounts in compliance with all environmental laws;
(3) be in reasonably good repair and condition; (4) be in compliance, in all
material respects, with applicable laws and requirements of insurers; and (5)
have a fair market value (as reasonably determined by the MHC Mortgage based on
information provided to the MHC Mortgage by the
D-37
<PAGE>
MHC Borrowers) not less than the greater of (A) the fair market value of the
Replaced Property as of the date of the MHC Mortgage, (B) the then fair market
value (as reasonably determined by the MHC Mortgage) of the Replaced Property
immediately prior to the substitution, and (C) $4,000,000 per Substitute
Property (as determined by the MHC Mortgage). In addition to the foregoing,
substitution of any MHC Property shall be subject to the satisfaction of the
following conditions: (1) receipt by the lender of at least thirty (30) days'
prior written notice of the proposed substitution, together with such
information as the MHC Mortgage may reasonably request; (2) the Rating Agencies
shall confirm that the credit ratings of the Certificates will not be qualified,
downgraded or withdrawn as a result of such substitution; (3) delivery to the
MHC Mortgagee of legal opinions as to the enforceability of the Substitute
Mortgage and a nondisqualification opinion and a tax opinion; (4) no Event of
Default shall have occurred and be continuing; (5) delivery to the MHC Mortgagee
of originals of a Substitute Mortgage or an amendment to the MHC Mortgage; a
substitute assignment of leases and rents and cash collateral account agreement
with respect to the Substitute Property or an amendment to the existing
assignment of leases and the MHC Cash Collateral Agreement; a title insurance
policy or endorsement to the existing title insurance polices insuring that the
Substitute Mortgage creates a valid first lien on the Substitute Property; a
certified as-built survey of such Substitute Property; Uniform Commercial Code
financing statements covering all fixtures, building equipment and other
personal property collateral at the Substitute Property and all proceeds
thereof, naming the MHC Borrowers as debtor and the lender as secured party;
insurance certificates evidencing the insurance coverages required under the MHC
Mortgage, and payment of all costs and expenses anticipated to be incurred in
connection with such substitution.
Lockbox and Reserves. Pursuant to a cash collateral account security,
pledge, assignment and control agreement (the "MHC Cash Collateral Agreement"),
the MHC Borrowers have established in the name of the MHC Mortgagee, as secured
party, an interest bearing cash collateral account at Bank of America National
Trust and Savings Association (the "MHC Agent Bank"). All operating revenues,
rental payments and other proceeds from the MHC Properties are deposited into
certain operating accounts (the "MHC Property Accounts") maintained by the MHC
Borrowers at various financial institutions (the "MHC Property Account Banks"),
which MHC Property Accounts are the only accounts permitted to be maintained by
the MHC Borrowers for the collection of rent and other revenues from the MHC
Properties. The MHC Borrowers have delivered irrevocable instructions to the MHC
Property Account Banks to deposit on a daily basis, by wire transfer, all
cleared funds from the MHC Property Accounts to the account established with the
MHC Agent Bank, as agent for the lender, as secured party (the "MHC Lockbox
Account").
The MHC Borrowers have established with the MHC Agent Bank (a) an interest
bearing cash collateral account (the "MHC Escrow Account") for the deposit of
reserves for the payment of (i) real estate taxes and insurance premiums (the
"MHC Tax and Insurance Escrow Amounts") and (ii) contested trade payables of
$150,000 or more which are sixty (60) days or more past due ("MHC Trade Payables
Amounts"), if any; (b) an interest bearing cash collateral account (the "MHC
Debt Service Escrow Amounts") for the monthly deposit of reserves for interest
and principal due on the next MHC Payment Date (the "MHC Debt Service Escrow
Account"), and (c) an interest bearing cash collateral account (the "MHC Capital
Improvement Escrow Account") for the deposit of required monthly reserves (the
"MHC Capital Improvement Escrow Amounts") for capital improvements in an amount
equal to 1/12 of the product of $25 and the number of sites at the MHC
Properties (collectively, the "Accounts"). The collateral held in the Accounts
derives from a blocked account agreement between the MHC Borrowers and the MHC
Agent Bank, which shall be irrevocable until full payment of the MHC Note.
Until the MHC Effective Maturity Date, the MHC Agent Bank will withdraw the
funds on deposit in the MHC Lockbox Account on each MHC Payment Date in the
following amounts and in the following order of priority: (i) the monthly MHC
Tax and Insurance Escrow Amounts and deposit the same into the MHC Escrow
Account; (ii) the MHC Debt Service Escrow Amounts, for deposit into MHC Debt
Service Escrow Account; (iii) the monthly MHC Capital Improvement Escrow
Amounts, for deposit into the MHC Capital Improvement Escrow Account, and (iv)
the MHC Trade Payables Amounts, if any, for deposit into the MHC Escrow Account.
Prior to the MHC Effective Maturity Date, provided that (a) no Event of
Default shall have occurred and be continuing; (b) the MHC Borrowers shall have
paid to the MHC Mortgagee all amounts due to the MHC Mortgagee under the MHC
Loan Documents, including late charges, default interest and reimbursement for
expenses incurred by the MHC Mortgagee; (c) the MHC Borrowers certify that there
are no payables more than sixty (60) days past due, unless the same are being
contested in good faith, and no other obligations of the MHC Borrowers are past
due; and (d)
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<PAGE>
the MHC Borrowers certify that they have delivered instructions to the MHC Agent
Bank to transfer from the MHC Lockbox Account to the MHC Escrow Account an
amount equal to any MHC Trade Payables Amounts due, then the MHC Borrowers may
at any time during the remainder of such month instruct the MHC Agent Bank to
transfer amounts from the MHC Lockbox Account to such account or accounts of the
MHC Borrowers, as instructed, to pay operating expenses of the MHC Properties;
to make distribution to the partners, shareholders and beneficiaries of the MHC
Borrowers, or otherwise.
After the MHC Effective Maturity Date, the MHC Agent Bank will withdraw
from the MHC Lockbox Account on each MHC Payment Date, or as soon thereafter as
there shall be collected funds in the MHC Lockbox Account, funds in the
following amounts and in the following order of priority: (i) the monthly MHC
Tax and Insurance Escrow Amounts, for deposit into the MHC Escrow Account; (ii)
the amount of interest at the MHC Initial Interest Rate for deposit into MHC
Debt Service Escrow Account; (iii) the monthly MHC Capital Improvement Escrow
Amounts, for deposit into the MHC Capital Improvement Escrow Account; (iv) the
MHC Trade Payables Amounts, if any, for deposit into the MHC Escrow Account; (v)
the monthly allocation of operating expenses in the Annual Budget approved by
MHC Mortgagee and approved Extraordinary Expenses, if any; (vi) funds to be
applied against the outstanding principal due under the MHC Note until the
principal amount is paid in full, and (vii) funds to be applied against the MHC
Accrued Interest until paid in full.
Transfer of MHC Properties and Interest in MHC Borrowers, Encumbrance;
Other Debt. Subject to limited exceptions described below, the MHC Borrowers
will not (i) transfer all or any part of the MHC Properties; (ii) incur
indebtedness for borrowed money; (iii) mortgage, hypothecate or otherwise
encumber or grant a security interest in all or any part of the MHC Properties;
(iv) permit any transfer of any interest in the MHC Financing Partnership of the
MHC GP, or (v) file a declaration of condominium with respect to any of the MHC
Properties.
The MHC Borrowers are generally prohibited form transferring or encumbering
any of the MHC Properties except for a transfer of a MHC Property that has been
released as described under the headings "Defeasance Collateral" or
"Substitution". The MHC Borrowers may, without the consent of the MHC Mortgagee,
(i) make immaterial transfers of portions of MHC Property to governmental
authorities for dedication or public use; (ii) grant easements, restrictions,
covenants, reservations and rights of way in the ordinary course of business, or
(iii) transfer or ground lease (A) to a compatible user one or more non-income
producing sites not located immediately adjacent to an improvement upon a MHC
Property or (B) to a retail or other compatible user a site subject to leases,
provided that none of the above transfers materially impairs the utility and
operation of the applicable MHC Property or materially adversely affects the
value of the applicable MHC Property taken as a whole and that, in the case of a
transfer described in clause (iii) above, the MHC Borrowers obtain confirmation
from the Rating Agencies that the transfer does not adversely affect the rating
of the Certificates. In connection with any transfer or series of transfers that
affect (on a cumulative basis) more than 10% of the value of the MHC Properties,
a tax opinion and a nondisqualification opinion shall be furnished to the MHC
Mortgagee.
The MHC Mortgagee's consent shall not be required with respect to transfers
of direct or indirect beneficial interests in MHC Financing Partnership,
provided that (i) no Event of Default shall have occurred and be continuing;
(ii) the MHC Borrowers shall deliver to the MHC Mortgagee and the Rating
Agencies written notice at least fifteen (15) business days' prior to the
effective date of the transfer; (iii) the MHC Financing Partnership and the MHC
GP shall each remain a single purpose entity; (iv) no transfer of limited
partner, non-managing member or shareholder interests shall result in any one
person or any group of affiliates (other than affiliates of Manufactured Home
Communities, Inc.) owning, directly or indirectly, 50% or more of the beneficial
ownership interests of the MHC Financing Partnership or the MHC GP, and (v)
Manufactured Home Communities, Inc. shall at all times directly or indirectly
own not less than 51% of the beneficial interests in MHC Financing Partnership
and all general partner(s) of the MHC Financing Partnership shall be
wholly-owned subsidiaries of Manufactured Home Communities, Inc. In connection
with any transfer of more than 10% of the direct beneficial interests in the MHC
Financing Partnership or the MHC GP to any party other than an affiliate of
Manufactured Home Communities, Inc., or if the transfer results in a person or
entity other than an affiliate of Manufactured Home Communities, Inc. owning
more than a 50% interest in the MHC Financing Partnership or the MHC GP, the MHC
Borrowers shall furnish a nonconsolidation opinion and confirmation from the
Rating Agencies that the rating of the Certificates will not be adversely
affected thereby. Transfers of interests in the MHC Borrowers of not more than
49% and not involving any general partner or managing member interest shall not
require the MHC Mortgagee's consent, nor shall the issuance or trading of shares
or
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<PAGE>
partnership interests in Manufactured Home Communities, Inc. or the MHC
Operating Partnership or any merger or consolidation involving Manufactured Home
Communities, Inc. or the MHC Operating Partnership require such MHC Mortgagee's
consent.
The MHC Borrowers shall not incur, create or assume any indebtedness or
incur any liabilities without the consent of the MHC Mortgagee; provided,
however, that the MHC Borrowers may, without the consent of the MHC Mortgagee,
incur, create or assume any or all of the following indebtedness: (i) the MHC
Note and the other obligations, indebtedness and liabilities provided for in any
MHC Loan Document evidencing or securing the MHC Loan; (ii) amounts, not secured
by liens on the MHC Properties, not to exceed $75,000 for any single MHC
Property and $2,000,000 in the aggregate for all of the MHC Properties; (iii)
amounts, not secured by liens on the MHC Properties, payable or reimbursable to
any tenant on account of work performed at a MHC Property by such tenant or for
cost incurred by such tenant in connection with its occupancy of space in the
MHC Property, and (iv) indebtedness relating solely to the financing or leasing
of building equipment, either unsecured or secured by liens on such building
equipment, (A) in amounts not to exceed $25,000 for any single MHC Property and
$825,000 in the aggregate for all of the MHC Properties, (B) the proceeds of
which are not distributed to any beneficial owner of the MHC Borrowers and, (C)
the terms of which require the repayment thereof prior to any distribution of
net operating income from the MHC Properties to any beneficial owner of the MHC
Borrowers.
Insurance. The MHC Borrowers are required to maintain for the MHC
Properties (a) insurance with respect to the improvements and the building
equipment against any peril included within the classification of "All Risks of
Physical Loss" with extended coverage in amount at all times sufficient to
prevent the MHC Borrowers from becoming a co-insurer, but in any event equal to
the full insurable value of improvements and the building equipment; (b)
comprehensive general liability insurance, including bodily injury, contractual
injury, death and property damage liability, and excess and/or umbrella
liability insurance with a per occurrence limit of not less than $1,000,000 and
with an aggregate limit of not less than $5,000,000 per MHC Property; (c)
statutory worker's compensation insurance with respect to any work by or for the
MHC Borrowers performed on or about the MHC Properties; (d) loss of rental value
or business interruption insurance in an amount sufficient to avoid any
co-insurance penalty and to provide proceeds which will cover the loss of rents
sustained during the period of eighteen (18) months following the date of
casualty; (e) during the period of performance of any restoration or repair
work, builder's all risk insurance in an amount equal to not less than the full
insurable value of the applicable MHC Property; (f) if any improvement or any
MHC Property is located within an area designated as "flood prone" or a "special
flood hazard area", flood insurance, if available, in an amount equal to the
lesser of the Allocated Loan Amount for the applicable MHC Property and the
maximum limit of coverage available with respect to the applicable MHC Property;
(g) with respect to the MHC Properties located in the State of California,
earthquake coverage with such limits and deductibles as are customarily required
by institutional lenders holding mortgages upon properties similar to such MHC
Properties, and in any event in an amount equal to the lesser of the Allocated
Loan Amount for the applicable MHC Property and the maximum limit of coverage
available with respect to the applicable MHC Property, and (h) with respect to
the MHC Properties located in the State of Florida, windstorm coverage with such
limits and deductibles as are customarily required by institutional lenders
holding mortgages upon properties similar to such MHC Properties, and in any
event in an amount equal to the lesser of the Allocated Loan Amount for the
applicable MHC Property and the maximum limit of coverage available with respect
to the applicable MHC Property. At the MHC Mortgagee's request, the MHC
Borrowers shall obtain such other insurance, excluding earthquake and windstorm
insurance, against any loss or damage of the kinds from time to time customarily
insured against.
The above insurance coverage shall be maintained with one or more domestic
primary insurers, having both (1) a claims-paying-ability rating by S&P of not
less than "AA" and its equivalent by any other nationally recognized statistical
rating agency (or "B" in the case of insurance policies for coverage of less
than $10,00,000) and (2) an Alfred M. Best Company, Inc. rating of "A" or better
and a financial size category of not less than "X".
The insurance coverage required may be effected under a blanket policy or
policies covering the MHC Properties, provided that any such blanket policy
shall specify, except in the case of public liability insurance, the portion of
the total coverage of such policy that is allocated to the MHC Properties and
any sublimits in such blanket policy applicable to the MHC Properties, which
amounts shall not be less than those required above.
Casualty and Condemnation. The MHC Borrowers will promptly notify the MHC
Mortgagee upon obtaining knowledge of (i) the institution of any condemnation
proceedings relating to any MHC Property or (ii) the occurrence
D-40
<PAGE>
of any casualty, damage or injury to, any MHC Property or any portion thereof
the restoration of which is estimated by the MHC Borrowers in good faith to cost
more than ten percent (10%) of the Allocated Loan Amount for the particular MHC
Property (the "MHC Individual Threshold Amount"). In addition, the MHC Borrowers
are obligated to include with the notice of any casualty, damage, injury or
condemnation, the restoration of which is estimated by the MHC Borrowers to cost
more than the MHC Individual Threshold Amount (or to forward as soon thereafter
as possible), an estimate of the cost of repairing or restoring such casualty,
damage, injury or condemnation in reasonable detail.
Following a casualty or condemnation at a MHC Property, any insurance or
condemnation proceeds will be applied (after payment of the MHC Mortgagee's
reasonable expenses of collection thereof) to amounts due under the MHC Loan and
the prepayment of the principal amount outstanding thereon, if: (i) the proceeds
shall equal or exceed the Allocated Loan Amount with respect to the applicable
MHC Property; (ii) an Event of Default has occurred and is continuing; (iii) a
MHC Total Loss (as defined below) shall have occurred; (iv) (A) the work to be
performed is not capable of being completed before the earlier to occur of the
date which is six (6) months prior to the MHC Maturity Date or the date which
the business interruption insurance expires and (B) the MHC Borrowers shall not
have provided adequate financial assurances or, if the foregoing clauses (i),
(ii) or (iii) of this paragraph apply, the MHC Borrowers shall not have provided
a Substitute Property, and (v) the applicable MHC Property is incapable of
substantial restoration to its condition prior to the condemnation or casualty.
Notwithstanding the foregoing, to the extent such proceeds with respect to such
MHC Property do not exceed $500,000 (the "MHC Casually Amount"), or, if less
than the MHC Casualty Amount but when aggregated with all other then unapplied
proceeds, do not exceed $5,300,000 in the aggregate, such proceeds are to be
paid directly to MHC Borrowers for restoration of the MHC Properties, except if
a Substitute Property is provided.
A "MHC Total Loss" means (x) a casualty, damage or destruction of a MHC
Property, the cost of restoration of which would exceed 75% of the outstanding
principal balance of the applicable Allocated Loan Amount, or (y) a permanent
taking by condemnation of 75% or more of the pads at an MHC Property, in either
case, such that it would be impractical, in the MHC Mortgagee's sole discretion,
even after restoration, to operate the MHC Property as an economically viable
whole and with respect to which the applicable tenant leases do not require
restoration.
Unless a Substitute Property is provided, in the event of (i) a MHC Total
Loss resulting from casualty, damage or destruction, if either (A) the cost to
repair the applicable MHC Property would exceed the MHC Casualty Amount and the
restoration of the applicable MHC Property cannot reasonably be completed before
the date which is the later to occur of the date of expiration of any business
interruption insurance or the date of expiration of any letter of credit posted
in lieu thereof or in addition thereto and the MHC Borrowers shall not have
provided adequate financial assurances or a Substitute Property and under such
circumstances the applicable MHC Borrower is not required under any tenant lease
to make the proceeds available to restore the applicable MHC Property or (B) the
MHC Mortgagee elects not to make such proceeds available to the MHC Borrowers
for the restoration of the applicable MHC Property, or (C) a MHC Total Loss
resulting from a condemnation, then the MHC Borrowers must prepay the MHC Loan
to the extent of the casualty or condemnation proceeds received, up to an amount
equal to the outstanding principal thereon (without prepayment premium or
penalty).
If any insurance or condemnation proceeds (other than business interruption
insurance proceeds) are in excess of the MHC Individual Threshold Amount and the
MHC Mortgagee has elected not to permit restoration of the MHC Property in
question, then all such proceeds will be applied as follows: first, toward
reimbursement of the MHC Mortgagee's reasonable out-of-pocket costs and expenses
in connection with the recovery and disbursement of such proceeds, and then, to
the prepayment of the principal amount outstanding on the MHC Loan, without
prepayment premium or penalty, provided no Event of Default shall exist.
In the event that the casualty and condemnation proceeds (other than
business interruption insurance proceeds) are in excess of the MHC Individual
Threshold Amount and are not required to be applied to the payment or prepayment
of the MHC Loan as described above and a Substitute Property has not been
provided, then the MHC Mortgagee is obligated to make all casualty and
condemnation proceeds (other than business interruption insurance proceeds)
available to the MHC Borrowers for payment or reimbursement of the costs and
expenses of the repair, restoration and rebuilding of the applicable MHC
Property if (i) at the time of the loss or damage or at any time thereafter
while the MHC Borrowers are holding any portion of the proceeds, there is no
continuing Event of Default, (ii) the estimated cost of the work (as estimated
by the independent architect referred to in clause (iii) below) shall
D-41
<PAGE>
exceed the proceeds, the MHC Borrowers shall at their option (within a
reasonable period of time after receipt of such estimate) either deposit with or
deliver to the MHC Mortgagee (A) cash and cash equivalents, (B) a letter or
letters of credit in an amount equal to the estimated cost the work less the
proceeds available, or (C) such other evidence of the MHC Borrowers' ability to
meet such excess costs and which is satisfactory to the MHC Mortgagee and the
Rating Agencies; and (iii) the MHC Mortgagee shall, within a reasonable period
of time prior to request for initial disbursement, be furnished with an estimate
of the cost of the work accompanied by an independent architect's certification
as to such costs and appropriate plans and specifications for the work.
Approval Rights. Under the MHC Cash Collateral Agreement, for each calendar
year commencing with the calendar year 2008, the MHC Borrowers are required to
submit to the MHC Mortgagee, for the MHC Mortgagee's written approval, an annual
budget not later than 30 days prior to the commencement of such calendar year.
In the event that the MHC Borrowers must incur an extraordinary operating
expense or a capital expense not set forth in the approved annual budget, they
are required promptly to deliver to the MHC Mortgagee, for the MHC Mortgagee's
approval, a reasonably detailed explanation of such proposed expense.
Under the MHC Mortgage, the MHC Borrowers shall notify the MHC Mortgagee
and the Rating Agencies of any entity proposed to be designated as manager of
all or any of the MHC Properties no less than 30 days before such proposed
manager begins to manage such MHC Property(ies). Such proposed manager must
manage at least five (5) other manufactured home communities having at least 150
sites each and be reasonably acceptable to the MHC Mortgagee (a "Qualifying
Manager") and with respect to any qualifying manager the MHC Borrowers must
obtain a written confirmation from the Rating Agencies that the retention of
such Qualifying Manager will not result in a downgrade, withdrawal or
qualification of the then ratings of the Certificates. The MHC Manager and MHC
Operating Limited Partnership are deemed by the MHC Mortgagee to be acceptable
property managers. A Qualifying Manager may be retained at the MHC Mortgagee's
direction at any time following the occurrence and during the continuance of any
Event of Default and at any time following the MHC Effective Maturity Date
unless the MHC Loan has been paid in full. The MHC Mortgagee has the right to
approve any new management agreement with the Qualifying Manager.
Provided that no event of default shall have occurred and be continuing,
the MHC Borrowers shall have the right, without the MHC Mortgagee's consent, to
undertake any alteration, improvement, demolition or removal of any MHC Property
or any portion thereof (any such alteration, improvement, demolition or removal,
an "Alteration") so long as (i) the MHC Borrowers provide the MHC Mortgagee with
prior written notice of any Material Alteration (as defined below); and (ii) any
Alteration is undertaken in accordance with the applicable provisions of the MHC
Mortgage and the other documents evidencing and securing the MHC Loan, is not
prohibited by relevant operating agreements and the leases, and shall not upon
completion (giving credit to rent and other charges attributable to leases
executed upon such completion) materially adversely (A) affect the value, use or
operation of such MHC Property taken as a whole or (B) reduce the net operating
income of such MHC Property from the level available immediately prior to
commencement of such Alteration. Any Material Alteration, as defined below,
shall be conducted under the supervision of an independent architect and no such
Material Alteration shall be undertaken until five (5) business days after there
shall have been filed with the MHC Mortgagee detailed plans and specifications
and cost estimates therefor, prepared by such independent architect, as well as
an officer's certificate stating that the Alteration will involve an estimated
cost of more than (x) the greater of the MHC Individual Threshold Amount and
$500,000 with respect to Alterations being undertaken at a single MHC Property
at such time or (Y) $5,300,000 for Alterations at all the MHC Properties (such
an Alteration, a "Material Alteration"). Notwithstanding anything to the
contrary contained in the foregoing, no Material Alteration nor any Alterations
which when aggregated with all other Alterations (other than Material
Alterations) then being undertaken by the MHC Borrowers exceeds $5,300,000,
shall be performed by or on behalf of the MHC Borrowers unless the MHC Borrowers
have delivered to the MHC Mortgagee cash and cash equivalents and/or a letter of
credit as security in an amount not less than the estimated cost of the Material
Alteration or the Alterations in excess of the such amount.
Financial Reporting. The MHC Borrowers are required to provide to the MHC
Mortgagee: (1) not later than sixty (60) days following the end of each calendar
quarter (other than the fourth (4th) quarter of any calendar year), unaudited
financial statements, internally prepared, in accordance with generally accepted
accounting principals, including a balance sheet and a statement of revenues and
expenses; (2) not later than 120 days after the end of the MHC Borrowers' fiscal
year, audited financial statements certified by an independent accountant,
including a
D-42
<PAGE>
balance sheet and a statement of revenues and expenses for the year; (3) not
later than sixty (60) days following the end of each calendar quarter, a
statement as to the occupancy rate for each of the MHC Properties (and in the
aggregate for all of the MHC Properties) as of the last day of the last month of
such quarter; (4) not later than sixty (60) days following the end of the second
(2nd) and fourth (4th) calendar quarter, a rent roll for each of the MHC
Properties as of the last day of the last month of such quarter showing the
percentage of sites leased at each of the MHC Properties (and in the aggregate),
the current annual rent and a lease turnover report, with a copy to the Rating
Agencies; (5) within forty-five (45) days after the end of each calendar year
during the term of the MHC Note, an annual summary of any and all capital
expenditures made at each MHC Property during the twelve (12) month period (with
a copy to the Rating Agencies); and (6) promptly, after written request from the
MHC Mortgagee or the Rating Agencies, such additional information as may be
reasonably requested by the MHC Mortgagee or the Rating Agencies with respect to
the MHC Properties.
D-43
<PAGE>
[Letterhead of Cushman & Wakefield, Inc]
August 25, 1998
Mr. Edward J. Welch
Director
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, NY 10281
Re: Office Market Update
One Liberty Plaza
New York, NY
Dear Mr. Welch:
In accordance with your request we have reviewed the competitive office
market since our last appraisal of the subject property dated November 18, 1997.
The Downtown Office Market in general has shown strong leasing activity which
has led to dramatically lower vacancy rates and increased rentals. The strong
market has also lessened the Landlord's need to provide rental concessions.
The following Downtown Manhattan Office Summary is taken from Cushman &
Wakefield's Manhattan Market Report, First Quarter 1998:
"In 1997, Downtown Manhattan exhibited dramatic recovery fueled by strong
demand and conversions of Class C space to residential and hotel use. Unlike
1997, which was dominated by large "newsworthy leases ", 1998 began with
numerous smaller deals (50,000 square feet and less) with a majority of the
activity for the quarter taking place in Class B properties.
Rental rates continued to climb Downtown as the market tightened. The
Class A direct rate showed the most significant jump, up 12%, from $29.78 per
square foot to $33.36. Meanwhile, availabilities continued to fall with the
overall vacancy rate at 12.1%, down from 17.1% last year. The Class A vacancy
rate was almost cut in half dropping from 15.4% to 8.0% percent. Along with the
strong leasing activity, little new space was added to the market resulting in
positive net absorption of 458,752 square feet.
<PAGE>
Cushman & Wakefield, Inc.
Mr. Edward J. Welch
Merrill Lynch 2 August 25,1998
The World Trade Center continued to be a hotbed of activity with the two
largest leases for the quarter occurring in the complex. Georgeson & Company
took 58,566 square feet in Two World Trade Center with Fred Alger Management
leasing 49,098 square feet in One World Trade Center. Other large leases
included Goldman Sachs, taking the last available floor at One New York Plaza
(42,125 square feet), Healthfirst signing for an additional 40,250 square feet
at 22 Cortlandt Street. After scouting other potential locations Downtown, IBJ
Schroder renewed its lease at One State Street Plaza for 212,859 square feet.
With such strong activity, the amount of large blocks of Class A space (50,000
square feet and larger) have been cut in half from 30 last year to just 15 at
the end of the first quarter of 1998.
There are several tenants in the market considering the remaining large
blocks in Downtown Manhattan. The deals should close within the next two
quarters, shrinking availabilities even further. In addition, the asking rental
rates on the remaining space will continue to climb to record levels. One major
event to look for in the coming year is an announcement from the New York Stock
Exchange regarding its expansion plans."
Since our last appraisal the following new leases have transacted within
the subject property:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
DATE TENANT ADDRESS SIZE: RENT/TERM WORK FREE
SQ.FT, RENT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Oct. 98 General Re One Liberty 41,480 $38.02/RSF $32.55/RSF None
Plaza 1-5 yrs.
$42.00/RSF
6-lOyrs.
- -----------------------------------------------------------------------------------------------------------------------
Jan.98 Tudor One Liberty 35,000 $42.00/IRSF $25.00/RSF None
Investment Plaza 6 yrs.
Corporation
- -----------------------------------------------------------------------------------------------------------------------
June 98 Generali One Liberty 30,000 $36.00/RS $40.00/RSF 8 months
Insurance Plaza 1 - 5 yrs.
$40.00/RSF
6-11 yrs.
- -----------------------------------------------------------------------------------------------------------------------
Mar. 98 Prudential One Liberty 32,000 $35.00/RSF $20.00/RSF None
Plaza 49 mos.
$39.00/RSF
49mos.
$42.00/RSF
52 months
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
No warranty or representation, express or implied, is made as to the accuracy of
the information contained herein, and same is submitted subject to errors,
omissions, change of price, rental or other conditions, withdrawal without
notice, and to any special listing conditions, imposed by our principals.
<PAGE>
Cushman & Wakefield, Inc.
Mr. Edward J. Welch
Merrill Lynch 3 August 25, 1998
In addition, we have researched the market for recent Downtown Manhattan
transactions:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
DATE TENANT ADDRESS SIZE: RENT/TERM WORK FREE
SQ.FT, RENT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Feb.98 CIBC/Oppenheimer One World 17,000 $35.00/RSF - 2 As Is 1
Financial Center yrs. month
- -----------------------------------------------------------------------------------------------------------------------
Feb.-98 Argus Research 90 West Street 12,000 $22.50/RSF - $40.00/RSF 4
(secondary space) Average months
- -----------------------------------------------------------------------------------------------------------------------
Pending Skidmore Owings & 14 Wall Street 50,000 $25.00/RSF - $45.00/RSF 16
Merrill (secondary space) Average months
- -----------------------------------------------------------------------------------------------------------------------
Pending Scott Printing One Exchange 10,000 $23.00/RSF - 5 $40.00/RSF 10
Plaza yrs. months
(secondary space) $25.00/RSF - 5
yrs.
- -----------------------------------------------------------------------------------------------------------------------
Pending GFI 199 Water Street 30,000 $21.50/RSF - 5 $32.50/RSF 10
(sublease) yrs. months
- -----------------------------------------------------------------------------------------------------------------------
Pending Weatherly Securities 40 Wall Street 23,000 $26.50/RSF - 3 $40.00/RSF 12
yrs. months
$28.50/RSF - 4
yrs.
- -----------------------------------------------------------------------------------------------------------------------
Pending Confidential 17 State Street 14,000 $40.00/RSF $35.00/RSF 4
1 - 5 yrs. months
$45.00/RSF
6 - 10 yrs.
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Conclusion of Market Rent - Office
Based upon the above information, it is our opinion that the base rents
cited in our appraisal of November 18, 1997 have increased by 35+/-% to reflect
the following:
o The rapid recovery of the Downtown Manhattan Office Market, as cited
earlier
o The market's recognition of the subject as one of the premier
Downtown office buildings
No warranty or representation, express or implied, is made as to the accuracy of
the information contained herein, and same is submitted subject to errors,
omissions, change of price, rental or other conditions, withdrawal without
notice, and to any special listing conditions, imposed by our principals.
<PAGE>
Cushman & Wakefield, Inc.
Mr. Edward J. Welch
Merrill Lynch 4 August 25, 1998
Based upon the above, it is our opinion that the average effective rent
most applicable to the subject is $31 per square foot. Our examination of the
above comparable leases and discussions with brokers acquainted with the
subject, have led us to conclude that the appropriate improvement allowance is
$25 per square foot and that 12 months of free rent should be granted for a 15
year lease and six months for a five year lease. When our previously concluded
average effective rent of $31 per square foot is readjusted to reflect these
concessions, an average face rate of $40.00+/- per square foot is indicated. Our
review of the leases presented earlier indicates that the typical 15 year lease
will include a step-up at the beginning of years 6 and 11. In the instance of
the subject, we have assumed that a 10 percent step-up applicable.
Based upon the considerations discussed above, we have projected that the
new office leases concluded in the subject as of the date of valuation would be
written as follows:
Term: Partial Floor - 5 years
Full Floor - 15 years
Average Base Rent: $40.00/SF
------------------------------------------------------
Floors Low- Mid- High- Average
Rise Rise Rise
------------------------------------------------------
Years 1-5 $36.00 $38.00 $40.00 $38.00
------------------------------------------------------
Years 6-10 $38.00 $40.00 $42.00 $40.00
------------------------------------------------------
Years 11-15 $40.00 $42.00 $44.00 $42.00
------------------------------------------------------
Average $38.00 $40.00 $42.00 $40.00
------------------------------------------------------
Additional Rent: Pro Rate share of increases in real estate taxes
and operating expenses.
Options: None
Rent Concessions: 6 months free rent for 5 year leases (partial
floor) 12 months free rent for 15 year leases
(full floor)
Tenant Alterations: We have assumed that new tenants will receive an
improvement allowance equal to $25 per square
foot.
Sincerely,
/s/ James F. Ryan
James F. Ryan, MAI
cc: Glen Taylor
No warranty or representation, express or implied, is made as to the accuracy of
the information contained herein, and same is submitted subject to errors,
omissions, change of price, rental or other conditions, withdrawal without
notice, and to any special listing conditions, imposed by our principals.
<PAGE>
================================================================================
COMPLETE APPRAISAL
OF REAL PROPERTY
Office Building
One Liberty Plaza
(a/k/a 149-171 Broadway)
New York, New York
================================================================================
IN A SELF-CONTAINED REPORT
As of November, 1997
Prepared For:
Merrill Lynch & Company
Four World Financial Center
250 Vesey Street - 26th Floor
New York, New York 10281
Prepared By:
Cushman & Wakefield, Inc.
Valuation Advisory Services
51 West 52nd Street, 9th Floor
New York, NY 10019
<PAGE>
[Letterhead of Cushman & Wakefield, Inc.]
November 25, 1997
Mr. Edward J. Welch
Director
Merrill Lynch & Company
Four World Financial Center
250 Vesey Street - 26th Floor
New York, New York 10281
Re: Complete Appraisal of Real Property
Office Building
One Liberty Plaza
(a/k/a 149-71 Broadway)
New York, New York
Dear Mr. Welch:
In fulfillment of our agreement as outlined in the Letter of Engagement,
Cushman & Wakefield of New York is pleased to transmit our report estimating the
market value of the leased fee estate 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. The purpose of the report is to
estimate the market value of the leased fee interest in the subject property in
"as is" condition as of November 18, 1997.
An interior and exterior inspection was performed in conjunction with this
appraisal by James F. Ryan. The valuation is subject to the terms and conditions
of existing leases. This appraisal report has been prepared subject to the Code
of Ethics and Standards of Professional Practice of the Appraisal Institute.
The accompanying report includes pertinent data secured in our
investigation, exhibits and the details of the processes used to arrive at our
conclusion of value.
This report was prepared for the Client and it is intended only for their
specified use. It may not be distributed to or relied upon by other persons or
entities without written permission of the Appraiser.
<PAGE>
Mr. Edward J. Welch
Merrill Lynch & Company -2- November 25, 1997
As a result of the examination and study made, it is our opinion that the
market value of the leased fee interest in the subject property, in "as is"
condition and subject to the terms and conditions of the existing leases and
subject to the assumptions, limiting conditions, certifications, and
definitions, as of November 18, 1997, was:
FOUR HUNDRED THIRTY MILLION DOLLARS
($430,000,000)
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.
We believe, based on the assumptions employed in our cash flow, as well as
our selection of investment parameters for the subject, the value conclusion
represents a market price achievable within 12 month's marketing time on the
open market.
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.
James F. Ryan, MAI
Director
Valuation Advisory Services
New York State Certified
General Real Estate Appraiser
No. 46000003439
JFR:mls
<PAGE>
SUMMARY OF SALIENT FACTS AND CONCLUSIONS
================================================================================
Location: One Liberty Plaza
(a/k/a 149-171 Broadway)
New York, New York
Assessor's Parcel Number: Block 62, Lot 1
Interest Appraised: Leased fee, as unencumbered by the
existing ground lease.
Date of Value: November 18, 1997
Date of Inspection: November 18, 1997
Ownership: World Financial Properties, Inc.
Land Area: 101,307+/- square feet, which includes the
building site of 68,501+/- square feet and
the park located directly across Liberty
Street, which contains 32,806+/- square feet.
Zoning: C-5-5
Restricted Central Commercial District
Highest and Best Use
If Vacant: Hold for future development with retail on
the first level and office space above.
As Improved: Existing use as an office building with
first level retail.
Improvements
Type: Class A (Primary) office tower building
Year Built: 1971
Type of Construction: Fire-proofed structural steel frame
Size
Net Rentable Area: 2,081,231+/- SF (above grade)
2,124,775+/- SF (total)
Condition: Very good
<PAGE>
Summary Of Salient Facts And Conclusions
================================================================================
Value Indicators
Sales Comparison Approach: $416,000,000 to $458,000,000
Income Approach: $430,000,000
Value Conclusion: $430,000,000
Special Assumptions Affecting Valuation:
1. A ground lease between related parties encumbers the subject property. As
requested, the subject has been appraised assuming that it is not
encumbered by this lease.
2. Please refer to the complete list of assumptions and limiting conditions
included at the end of this report.
<PAGE>
ONE LIBERTY PLAZA
[PHOTO OMITTED]
NEW YORK, NEW YORK
<PAGE>
ONE LIBERTY PLAZA
[PHOTO OMITTED]
INTERIORS
<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
Scope of the Appraisal...................................................1
Extent of the Appraisal Process..........................................2
Date of Value and Property Inspection....................................2
Property Rights Appraised................................................2
Definitions of Value, Interest Appraised, and Other Pertinent Terms....2-3
Legal Description........................................................4
NEW YORK REGIONAL ANALYSIS................................................5-12
DOWNTOWN OFFICE MARKET ANALYSIS..........................................13-27
PROPERTY DESCRIPTION........................................................28
Site Description.....................................................28-29
Improvements Description.............................................29-34
REAL PROPERTY TAXES AND ASSESSMENTS......................................35-37
ZONING...................................................................38-39
HIGHEST AND BEST USE........................................................40
VALUATION PROCESS...........................................................41
SALES COMPARISON APPROACH................................................42-45
INCOME CAPITALIZATION APPROACH...........................................46-74
RECONCILIATION AND FINAL VALUE ESTIMATE..................................75-76
ASSUMPTIONS AND LIMITING CONDITIONS......................................77-78
CERTIFICATION OF APPRAISAL..................................................79
ADDENDA.....................................................................80
Office Building Sales
Appraisers' Qualifications
<PAGE>
INTRODUCTION
================================================================================
Identification of Property
The subject property is a 54-story office building containing an above
grade leasable area of 2,070,773+/- square feet. The building is situated on a
101,307+/- square foot site. The site is comprised of two parcels. The parcel
that is improved with the office tower is bounded by Broadway, Liberty, Church
and Cortlandt Streets and contains 68,501+/- square feet. The second parcel is
located directly south of the first and is bounded by Broadway, Liberty, Church
and Cedar Streets. The second parcel contains 32,806+/- square feet and is
utilized as a park. The subject property currently accommodates three retail
tenants on the ground floor and provides 53 office tenant floors above. The
property is commonly known as One Liberty Plaza although its street address is
149-171 Broadway. Both parcels are identified on the tax maps of the Borough of
Manhattan as Lot 1 in Block 62, City, County and State of New York.
Property Ownership and Recent History
The subject property is encumbered by a ground lease between two related
parties, the O&Y Liberty Plaza Company (Lessor) and the Trinity Place Company
(Lessee). As a result of the reorganization of Olympia & York (USA), the title
to the subject has been conveyed to World Financial Properties, the successor
company to Olympia & York (USA) and its subsidaries.
Purpose and Intended Use of the Appraisal
The purpose of the report is to estimate the market value of the leased fee
interest in the subject property in "as is" condition as of November 18, 1997,
as unencumbered by the ground lease between O&Y Liberty Plaza Company as Lessor
(predessor to World Financial Properties, Inc.) and Trinity Place Company as
Lessee. It has been reported to the appraisers that the lessor and lessee are
related parties.
The report is subject to the Code of Ethics and Standards of Professional
Practice of the Appraisal Institute.
Scope of the Appraisal
In the process of preparing this appraisal, we inspected the property,
interviewed a representative of the property management company, reviewed a
detailed rent roll, reviewed the operating expense history and expense budgets,
conducted market research into asking rental rates for comparable space,
obtained information regarding leases recently negotiated, conducted market
investigations, ascertained sale prices of comparable properties, developed a
value estimate by direct sales comparison, and prepared a detailed discounted
cash flow analysis for the purpose of discounting a forecasted net income stream
to a present value estimate for the leased fee estate.
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Introduction
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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 Mr. Robert A. Ross,
Vice President of World Financial Properties, Inc.
o Interviewed Ms. Benedetta Arena, Senior Financial Analyst of World
Financial Properties, Inc.
o Reviewed leasing policy, concessions, tenant build-out allowances,
and history of recent rental rates and occupancy with the building
manager.
o Reviewed a detailed history of income and expense and a budget
forecast for 1998, 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, 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.
Date of Value and Property Inspection
The date of value is as of November 18, 1997. The property was inspected
by James F. Ryan, MAI, on November 18, 1997.
Property Rights Appraised
Leased fee estate, as unencumbered by the existing ground lease.
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:
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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.
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 Rent
The rental income that a property would most probably command in the open
market; indicated by the current rents paid and asked for comparable space
as of the date of the appraisal.
Cash Equivalent
A price expressed in terms of cash, as distinguished from a price
expressed totally or partly in terms of the face amounts of notes or other
securities that cannot be sold at their face amounts.
Market Value As Is on Appraisal Date
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.
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Introduction
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Legal Description
The reader is referred to the Addendum of the report where a legal
description can be found.
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NEW YORK REGIONAL ANALYSIS
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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.
<TABLE>
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New York Metropolitan Area Population
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% Increase % Increase
1980 1990 % Increase 1996 1990-1996 2001 1996-2001
County Census Census 1980-1990 Estimated (Est.) Projection (Projected)
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<S> <C> <C> <C> <C> <C> <C> <C>
New York City 7,071,641 7,322,564 3.54% 7,382,450 0.82% 7,466,689 1.14%
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NYS (Nassau/
Suffolk/Westchester/
Rockland/Orange/
Putnam) 4,068,738 4,141,141 1.78% 4,255,711 2.77% 4,313,220 1.53%
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New Jersey
Counties 4,411,992 4,436,976 0.57% 4,497,693 1.37% 4,434,801 -1.40%
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Connecticut
Fairfield 807,143 827,645 2.54% 834,637 0.84% 845,931 1.35%
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TOTAL 16,359,512 16,728,326 2.25% 16,970,491 1.76% 17,060,641 0.53%
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Source: Equifax National Decision Systems
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</TABLE>
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
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New York Regional Analysis
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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 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.
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New York Regional Analysis
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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, 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, for the most part, have continued to decline
nationally and regionally over the past few years. However, the latest
statistics available from the Department of Labor indicated that the
unemployment rate for the New York region (including New York City, Putnam,
Rockland and Westchester), as of September 1997, was 8.9 percent, an increase
from 8.4 percent twelve months earlier. Long Island's September 1997
unemployment rate remains at 4.0 percent, the same figure reported in September
1996.
In New Jersey, the unemployment rate as of September 1997, was 5.1
percent, compared to 6.0 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
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New York Regional Analysis
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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 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 April of 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 Cortlandt 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.
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New York Regional Analysis
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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.
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 EastSide 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 encompass 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.
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New York Regional Analysis
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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 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 year end 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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DOWNTOWN 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 Downtown Manhattan office market is the third largest in
the nation, behind Midtown Manhattan and Chicago's Loop.
The Manhattan office market got off to a strong start in 1997 and
continued to improve in the third 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.
The Downtown office market contains 244 buildings with a total inventory
of 109+/- million square feet and is divided into five sub-districts:
1. World Trade: bounded by Albany Street, Hudson River, Chambers
Street, Church Street, Vesey Street, Broadway, Liberty Street and
Greenwich Street.
2. Financial East: bounded by Battery Park, Broadway, Liberty Street,
William Street, Pine Street and the East River.
3. Financial West: bounded by Battery Park, Hudson River, Albany
Street, Greenwich Street, Liberty Street and Broadway.
4. Insurance: bounded by Pine Street, William Street, Liberty Street,
Broadway, Park Row and the Brooklyn Bridge.
5. City Hall: bounded by the Brooklyn Bridge, Park Row, Vesey Street,
Chambers Street, Hudson River, Canal Street and the East River.
The following chart summarizes the status of the Downtown office market as
of the third quarter of 1997.
<TABLE>
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Downtown Manhattan Class A Class B Class C Overall
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<S> <C> <C> <C> <C>
Number of Buildings 50 71 123 244
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Inventory (SF) 55,643,005 35,046,934 18,368,430 109,058,369
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Overall Availabilities (SF) 5,536,067 6,483,995 2,808,626 14,828,688
- ----------------------------------------------------------------------------------------------------------------------------------
Overall Vacancy Rate 9.9% 18.5% 15.3% 13.6%
- ----------------------------------------------------------------------------------------------------------------------------------
Average Asking Rental Rate $30.55 $24.67 $17.64 $25.53
- ----------------------------------------------------------------------------------------------------------------------------------
Total Leasing Activity (SF) - 1996 2,493,002 2,007,513 1,182,413 5,682,928
- ----------------------------------------------------------------------------------------------------------------------------------
Total Net Absorption (SF) - 1996 239,302 435,067 337,113 1,011,482
- ----------------------------------------------------------------------------------------------------------------------------------
Total Leasing Activity - 3QYTD 1997 4,280,641 1,527,659 876,308 6,684,608
- ----------------------------------------------------------------------------------------------------------------------------------
Total Net Absorption - 3QYTD 1997 3,020,034 140,275 247,034 3,407,343
- ----------------------------------------------------------------------------------------------------------------------------------
New Construction (SF) - 3QYTD 1997 0 0 0 0
==================================================================================================================================
Source: Cushman & Wakefield Research Services
==================================================================================================================================
</TABLE>
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Downtown Office Market Analysis
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Cushman & Wakefield defines Class A, B, and C space as follows:
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.
The Downtown market was severely affected by the October 1987 stock market
crash and the concomitant retrenchment of the financial services industry, the
prime generator of demand for Downtown office space. The market softened after
the stock market crash and was deeply affected by the recession of the early
1990s. The wave of new construction begun in the early 1980s added millions of
square feet to inventory. Over 100,000 jobs were lost on Wall Street during the
recession and many companies chose to relocate out of the Downtown market. The
loss of workers and overabundance of space led to high vacancy rates and
declining rental rates which plagued the Downtown market for many years.
Downtown Manhattan's office demand is more dependent on the securities
industry while Midtown demand is generated by a more diverse base of potential
users. Generally, there is correlation between demand for Downtown office space
and the "boom and bust" cycles of the finance, insurance and real estate (FIRE)
sector. Historically, the Downtown office market has been the first of the two
Manhattan office districts to feel the effects of any retrenchment of office
demand and the last to reap the benefit of any recovery.
To combat the deterioration of the Downtown market, New York City and New
York State signed legislation forming incentive programs to encourage
development in the Downtown market. The objective was to reduce tenant occupancy
costs, providing financial inducements to make the area a more competitive
business environment. In addition, zoning laws were revised to allow many
obsolete office buildings to be acquired for conversion to residential use. The
conversion of former office buildings to residential use, in whole or in part,
served to reduce the overall inventory of space. Combined, these efforts are
anticipated to continue to reduce overall office vacancies and create a "24-hour
city" rather than the one that is virtually deserted after business hours.
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Downtown Office Market Analysis
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Plan for the Revitalization of Lower Manhattan
The Plan for the Revitalization of Lower Manhattan was conceived as a
response to the decline of the Downtown office market. In December 1994, Mayor
Rudolph Giuliani announced the Downtown Revitalization Program, a series of tax
abatements, zoning proposals and energy-saving incentives covering that area of
Manhattan south of Chambers Street to the Battery. As part of this plan, zoning
changes eliminating restrictions on residential conversion will create up to
2,000 residential units within the next 12 months. This plan to attract
potential residential tenants and investors, combined with the reduction in the
office supply, is anticipated to hasten Downtown's recovery and, ultimately,
recovery of the overall Manhattan office market
The long-term benefits proposed by the mayor also include ICIP (Industrial
Commercial Incentive Program) abatements for new "smart buildings" and renovated
buildings in the commercial core (primarily along Broad Street), and energy cost
savings programs that will reduce electric costs by 30+/- percent for the first
eight years, then decline at a rate of 6 percent a year until the rebate expires
in the twelfth year.
Finally, a special reduction in the calculation of the commercial rent tax
will be available for a period of five years.
A primary example of the Plan's achievement is 55 Broad Street, where
Rudin Management Company spent $15 million renovating, upgrading and installing
the latest telecommunications equipment in a building that had been vacant for
five years. The 400,000 square foot building, now known as the New York
Information Technology Center, is currently 86 percent leased, with three new
leases signed during the second quarter of 1997. William C. Rudin, president of
Rudin Management, credits the Downtown Revitalization Plan for the building's
leasing success.
Two other tenants taking advantage of the Lower Manhattan Revitalization
Program's incentives are the State of New York, which will house the Office of
Court Administration, Department of Insurance, and the Division of Housing and
Community Renewal within its 440,241 square foot lease at 60 Broad Street; and
the City of New York Children's Services with the 306,454 square foot
transaction at 150 William Street.
Inventory
The Downtown market contains approximately 109+ million square feet of
office space, of which approximately 55.6+ million square feet in 50 buildings
is considered Class A space. Approximately 35.0+ million square feet contained
within 71 buildings is considered Class B space, and 18.3+/- million square feet
in 123 buildings is considered Class C space. Distribution of space in the
Downtown market may be summarized as follows:
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Downtown Office Market Analysis
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<TABLE>
<CAPTION>
=============================================================================================================================
Downtown Manhattan Office Market Distribution of Space
As of Third Quarter 1997
=============================================================================================================================
Square Feet Percentage
=============================================================================================================================
District Class A Class B Class C Total Class A Class B Class C
=============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
World Trade 24,331,521 3,034,050 1,396,150 28,761,721 84.64% 10.55% 4.85%
- -----------------------------------------------------------------------------------------------------------------------------
Financial East 21,321,525 15,971,869 2,316,549 39,609,943 53.82% 40.32% 5.84%
- -----------------------------------------------------------------------------------------------------------------------------
Financial West 663,315 3,166,230 3,799,282 7,628,827 8.69% 41.50% 49.80%
- -----------------------------------------------------------------------------------------------------------------------------
Insurance 5,196,179 7,773,027 4,394,485 17,363,691 29.93% 44.77% 25.31%
- -----------------------------------------------------------------------------------------------------------------------------
City Hall 4,130,465 5,101,758 6,461,964 15,694,187 26.31% 32.51% 41.17%
=============================================================================================================================
Total 55,643,005 35,046,934 18,368,430 109,058,369 51.27% 31.81% 16.91%
=============================================================================================================================
Source: Cushman & Wakefield Research Services
=============================================================================================================================
</TABLE>
The total Downtown office inventory has been shrinking since 1995, as
indicated by the following chart. Note that only Class A has a slight increase
of 3.34 percent.
<TABLE>
<CAPTION>
=================================================================================
Category January 1995 September 1997 Percent Change
=================================================================================
<S> <C> <C> <C>
Class A (SF) 53,843,089 55,643,005 3.34
---------------------------------------------------------------------------------
Class B (SF) 38,785,153 35,046,934 (9.63)
---------------------------------------------------------------------------------
Class C (SF) 19,367,351 18,368,430 (5.16)
=================================================================================
Total 111,995,593 109,058,369 (2.62)
=================================================================================
</TABLE>
This decline in the overall supply may be attributable to the conversion
of many obsolete office buildings to residential use. Buildings that have
recently been removed from commercial inventory and that are currently in the
process of being converted are summarized as follows:
===================================================================
DOWNTOWN RESIDENTIAL CONVERSIONS
===================================================================
Address Class Rentable SF
===================================================================
56 Beaver Street C 56,000
-------------------------------------------------------------------
17 Battery Place C 330,000
-------------------------------------------------------------------
71 Broadway B 237,413
-------------------------------------------------------------------
100 Broadway B 294,062
-------------------------------------------------------------------
195 Broadway C 875,000
-------------------------------------------------------------------
25 Hudson Street C 128,000
-------------------------------------------------------------------
145 Hudson Street C 168,000
-------------------------------------------------------------------
17 John Street C 103,979
-------------------------------------------------------------------
80 John Street C 152,039
-------------------------------------------------------------------
127 John Street A 528,369
-------------------------------------------------------------------
45 Wall Street B 488,935
-------------------------------------------------------------------
21 West Street C 250,472
-------------------------------------------------------------------
47 West Street C 80,400
-------------------------------------------------------------------
110 Church Street B 131,509
-------------------------------------------------------------------
120 Church Street B 574,401
-------------------------------------------------------------------
53 Park Place C 115,000
===================================================================
Source: Cushman & Wakefield Research Services
===================================================================
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<PAGE>
Downtown Office Market Analysis
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The conversion of many of these Downtown office buildings is aided by the
real estate tax abatements being provided by the City. The abatements and
exemptions that are being provided by the City may run from 12 to 15 years in
duration (depending upon whether the building has been designated as a
landmark). To qualify, at least 75 percent of the building must be converted to
residential use. In exchange for the abatement, the apartments that are created
must be subject to rent stabilization. The City has also created an exemption
from real estate taxes for the rehabilitation of Mixed-Use properties, in which
25 percent or more of the gross floor area is allocated to commercial space with
the remaining space allocated to residential conversion. It is estimated that
there may be as many as 1,500 to 2,000 additional residential units Downtown
within the next 12 months as a direct result of these conversions.
Of course, not all pre-war buildings are suited for residential
conversion. Long, narrow mid-block locations are ill-suited for conversion due
to the difficulty in providing light and air to the interior portions of any
apartments that may be created. The decrease in their functionality for
continued office use will likely, over time, result in the assemblage of these
properties with neighboring parcels, their demolition, and eventual
redevelopment in either a commercial or residential fashion, as the market
dictates.
Supply and Demand
The following chart provides a summary of leasing activity in the Downtown
market by sub-district from 1986 through the third quarter of 1997.
<TABLE>
<CAPTION>
===================================================================================
DOWNTOWN LEASING ACTIVITY
===================================================================================
World Financial Financial
Year Trade East West Insurance City Hall Total
===================================================================================
<S> <C> <C> <C> <C> <C> <C>
1986 1,608,801 2,593,785 751,776 1,595,418 376,918 6,926,698
- -----------------------------------------------------------------------------------
1987 1,449,429 2,662,149 729,881 1,742,064 350,966 6,934,489
- -----------------------------------------------------------------------------------
1988 2,255,500 1,174,675 494,741 866,266 719,007 5,510,189
- -----------------------------------------------------------------------------------
1989 1,378,361 1,583,681 567,396 861,640 165,436 4,556,514
- -----------------------------------------------------------------------------------
1990 1,879,282 1,546,053 982,578 632,499 191,174 5,231,586
- -----------------------------------------------------------------------------------
1991 964,729 1,000,905 614,808 652,003 204,702 3,437,147
- -----------------------------------------------------------------------------------
1992 788,383 1,197,189 354,607 676,154 157,895 3,174,228
- -----------------------------------------------------------------------------------
1993 943,581 2,171,719 327,878 670,004 255,395 4,368,577
- -----------------------------------------------------------------------------------
1994 673,748 2,454,073 302,410 785,461 165,820 4,381,512
- -----------------------------------------------------------------------------------
1995 847,536 1,617,349 457,475 657,757 389,719 3,969,836
- -----------------------------------------------------------------------------------
1996 1,049,815 2,474,854 568,549 1,321,471 268,239 5,682,928
- -----------------------------------------------------------------------------------
3Q 1997 1,260,686 3,201,342 473,235 1,434,954 314,391 6,684,608
===================================================================================
Source: Cushman & Wakefield Research Services
===================================================================================
</TABLE>
Currently, the Downtown market is in a period of long overdue recovery.
Total leasing activity for 1993 reached 4.37+/- million square feet, the highest
level since 1990 and a 37.6 percent increase over 1992's total of 3.17 million
square feet. Leasing continued to rise through 1994, reaching 4.38 million
square feet by year end. Activity was down 9.4 percent, to 3.97 million square
feet, in 1995, however. Leasing activity in 1996 bounced back to 5.68 million
square feet, more than 1.7 million square feet over the 1995 year-end total. As
of the third quarter of 1997 the demand for Downtown market space totaled 6.6+/-
million square feet, reaching the highest level recorded in the Downtown market
since 1987. The Downtown class A overall vacancy closed at 9.9 percent, down
from 12.2 percent last quarter. The class B rate
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Downtown Office Market Analysis
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increased slightly to 18.5 percent from 18.2 percent, and the class C vacancy
rate fell from 18.9 percent to 15.3 percent. Overall Downtown vacancy was
reported at 12.9 percent as of third quarter 1997.
With transactions totaling 6.6+/- million square feet, leasing was
impressive through the third quarter of 1997. The number of available large
blocks of space in downtown Manhattan is rapidly declining as the number of
large tenants continues to increase. Two third quarter transactions, Goldman
Sachs & Company at 10 Hanover Square and the City of New York (Human Resources
Administration) at 180 Water Street, totaled over 400,000 square feet each. The
number of available class A large blocks of space (50,000 square feet and
greater) has dwindled from 35 blocks at the close of the third quarter one year
ago to 23 presently.
The largest leases Downtown over the past four quarters are summarized on
the following chart.
<TABLE>
<CAPTION>
===================================================================================================================================
Major Leases - Downtown - Last 12 months
===================================================================================================================================
Property Tenant Quarter District SF Leased
===================================================================================================================================
<S> <C> <C> <C> <C>
55 Water Street Standard & Poors Corporation 2Q 97 Financial East 932,873
- -----------------------------------------------------------------------------------------------------------------------------------
10 Hanover Square Goldman Sachs 3Q 97 Financial East 486,378
- -----------------------------------------------------------------------------------------------------------------------------------
60 Broad Street State of New York 3Q 96 Financial East 440,241
- -----------------------------------------------------------------------------------------------------------------------------------
180 Water Street City of New York 2Q 97 Financial East 430,000
- -----------------------------------------------------------------------------------------------------------------------------------
150 William Street City of NY Children's Services 4Q 96 Insurance 306,454
- -----------------------------------------------------------------------------------------------------------------------------------
33 Maiden Lane Federal Reserve Bank of NY 3Q 97 Insurance 291,493
- -----------------------------------------------------------------------------------------------------------------------------------
4 World Trade Banker's Trust 3Q 97 World Trade 273,375
- -----------------------------------------------------------------------------------------------------------------------------------
One Liberty Plaza Gruntal & Company 2Q 97 World Trade 241,362
- -----------------------------------------------------------------------------------------------------------------------------------
One Liberty Plaza Royal Bank of Canada 2Q 97 World Trade 175,000
- -----------------------------------------------------------------------------------------------------------------------------------
55 Water Street Chubb Insurance Company 2Q 97 Financial East 152,116
- -----------------------------------------------------------------------------------------------------------------------------------
120 Broadway Donaldson, Lufkin & Jenrette 4Q 96 Financial East 94,000
- -----------------------------------------------------------------------------------------------------------------------------------
Financial Square Goldman Sachs & Company 1Q 97 Financial East 93,794
- -----------------------------------------------------------------------------------------------------------------------------------
One World Trade Center Lumbermen's Mutual Casualty 4Q 96 World Trade 92,232
- -----------------------------------------------------------------------------------------------------------------------------------
55 Water Street Depository Trust Company 4Q 96 Financial East 91,073
- -----------------------------------------------------------------------------------------------------------------------------------
Three World Financial Center Global Financial Information 3Q 96 World Trade 77,300
- -----------------------------------------------------------------------------------------------------------------------------------
One World Trade Center Cantor-Fitzgerald 1Q 97 World Trade 74,348
- -----------------------------------------------------------------------------------------------------------------------------------
Two World Trade Center Dow Jones & Company, Inc. 2Q 97 World Trade 71,597
- -----------------------------------------------------------------------------------------------------------------------------------
One World Financial Center Nat'l. Financial Services 4Q 96 World Trade 63,765
- -----------------------------------------------------------------------------------------------------------------------------------
120 Broadway Banco Popular 3Q 96 Financial East 63,244
- -----------------------------------------------------------------------------------------------------------------------------------
Two World Trade Center Frenkel & Company 1Q 97 World Trade 60,000
- -----------------------------------------------------------------------------------------------------------------------------------
120 Wall Street The National Urban League 1Q 97 Financial East 48,568
- -----------------------------------------------------------------------------------------------------------------------------------
Financial Square Cowen & Company 1Q 97 Financial East 32,515
- -----------------------------------------------------------------------------------------------------------------------------------
88 Pine Street Willis Corroon Corporation 1Q 97 Insurance 31,384
===================================================================================================================================
Source: Cushman & Wakefield Research Services
===================================================================================================================================
</TABLE>
Building Sales
There were fifteen building sales recorded Downtown in 1996 and twenty sales
recorded in 1997 as of the third quarter of 1997. The largest sale in 1996, in
terms of total price as well as price per square foot, was the purchase of the
former National Westminster Bank building at 175 Water Street, for $59.2
million, or $89 per square foot. The following chart represents the major
Downtown property sales through the third quarter of 1997.
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Downtown Office Market Analysis
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<TABLE>
<CAPTION>
===================================================================================================
Downtown Property Sales Through the 3rd Quarter 1997
===================================================================================================
Address Purchase Dt Rentable SF Purchase Amt. Price Per SF
===================================================================================================
<S> <C> <C> <C> <C>
90 Washington Street 01-Jan-97 328,928 N/A N/A
- ---------------------------------------------------------------------------------------------------
33 Maiden Lane 01-Feb-97 540,000 $44,000,000 $ 81
- ---------------------------------------------------------------------------------------------------
101 Maiden Lane 01-Apr-97 24,000 $ 2,095,000 $ 87
- ---------------------------------------------------------------------------------------------------
21 West Street 01-Apr-97 285,780 $21,500,000 $ 75
- ---------------------------------------------------------------------------------------------------
90 William Street 01-May-97 148,850 $ 4,365,000 $ 29
- ---------------------------------------------------------------------------------------------------
22 Cortlandt Street 01-May-97 601,487 $15,600,000 $ 26
- ---------------------------------------------------------------------------------------------------
100 Church Street 01-May-97 860,000 $55,000,000 $ 64
- ---------------------------------------------------------------------------------------------------
120 Church Street 30-May-97 574,401 N/A N/A
- ---------------------------------------------------------------------------------------------------
50 Broadway 01-Jun-97 270,000 $14,400,000 $ 53
- ---------------------------------------------------------------------------------------------------
80 Lafayette Street 01-Jun-97 312,267 $16,000,000 $ 51
- ---------------------------------------------------------------------------------------------------
250 Broadway 01-Jun-97 515,000 $31,700,000 $ 62
- ---------------------------------------------------------------------------------------------------
17 John Street 01-Aug-97 103,979 $ 5,400,000 $ 52
- ---------------------------------------------------------------------------------------------------
350 Broadway 01-Aug-97 102,000 $ 9,350,000 $ 92
- ---------------------------------------------------------------------------------------------------
80 & 90 Maiden Lane 01-Aug-97 521,125 $34,500,000 $ 66
- ---------------------------------------------------------------------------------------------------
222 Broadway 01-Aug-97 729,751 $72,695,000 $100
- ---------------------------------------------------------------------------------------------------
44 Wall Street 01-Sep-97 265,780 $23,000,000 $ 87
- ---------------------------------------------------------------------------------------------------
20 Exchange Place 01-Sep-97 671,432 $50,000,000 $ 74
- ---------------------------------------------------------------------------------------------------
Source: Cushman & Wakefield Research Services
===================================================================================================
</TABLE>
Absorption
Net absorption in the Downtown market has exhibited wide fluctuations over
the past few years and has also varied considerably by district and between
primary and secondary properties. Net absorption had increased to record levels
at the close of 1996, reaching over 1.0+/- million square feet, the highest
level since 1993. Healthy leasing activity and a relatively insignificant amount
of large blocks of space added to the market during the year allowed the
absorption rate to increase from the previous year's negative 691,884 square
feet. Over 1.5 million square feet of new space added to the market during the
first half of the year contributed to the decrease in the absorption level.
================================================================================
DOWNTOWN ABSORPTION
================================================================================
District 1995 1996 95-96 Difference 3Q YTD 1997
- --------------------------------------------------------------------------------
World Trade 1,744,164 43,408 (1,700,756) (30,433)
- --------------------------------------------------------------------------------
Financial East (728,028) 139,892 867,920 2,494,450
- --------------------------------------------------------------------------------
Financial West (110,511) (29,357) 81,154 144,466
- --------------------------------------------------------------------------------
Insurance (930,253) 147,633 1,077,886 620,861
- --------------------------------------------------------------------------------
City Hall (667,256) 709,906 1,377,162 177,999
================================================================================
Total: (691,884) 1,011,482 1,703,366 3,407,343
================================================================================
Source: Cushman & Wakefield Research Services
================================================================================
Due to Cushman & Wakefield Research Services' reclassifications of
Downtown office space in 1990 and 1995, comparison of absorption figures on a
historical basis is difficult. Downtown absorption by space classification
through the year-end 1996 is presented below, juxtaposed with the comparable
figures for 1995. Third quarter 1997 figures are shown for comparison.
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Downtown Office Market Analysis
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================================================================================
Space Type SF Absorbed- 1995 SF Absorbed- 1996 SF Absorbed YTD 1997
================================================================================
Class A 681,211 239,302 3,020,034
================================================================================
Class B (1,437,950) 435,067 140,275
================================================================================
Class C 64,855 337,113 247,034
================================================================================
Total (691,884) 1,011,482 3,407,343
================================================================================
It is important to note that the two recently completed federal office
buildings were fully responsible for the positive absorption being experienced
in the Downtown market year-end 1996.
Downtown Manhattan Sub-districts
Downtown Manhattan is divided into five sub-districts delineated by
geographic boundaries. Each sub-district has its own characteristics which
distinguish it from the others. The sub-districts are: World Trade, Financial
East, Financial West, Insurance, and City Hall.
The Financial East and Insurance districts are long-standing primary
office locations, while the World Trade District is a newer area that emerged
during the 1980-1987 expansion of the traditional Downtown office market.
Financial West is an older district that appealed to tenants in the 1980s
because of its lower rents. The City Hall District, as its name implies,
contains Manhattan's governmental center. Vacancies in the City Hall District
are consistently below those of the Downtown market as a whole.
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<PAGE>
[CHART OMITTED]
Plot Points to come
Insert Absorption Color Chart -- get from Pete
[provided by Downtown Market Research]
SOURCE: Cushman & Wakefield, Inc.
New York Research Services
<PAGE>
Downtown Office Market Analysis
================================================================================
World Trade District
This district derives its name from the World Trade Center and the twin
110-story towers that are its centerpiece. Buildings One through Five of the
World Trade Center are owned by the Port Authority of New York and New Jersey.
Six World Trade Center is the site of the U.S. Customs House. Seven World Trade
Center is a 47-story building constructed in 1987 by Silverstein Properties.
Located directly across West Street from the World Trade Center is Olympia &
York's World Financial Center in the New York State-sponsored Battery Park City
development. Other notable buildings in this district include One Bankers Trust
Plaza and One Liberty Plaza.
The World Trade District continually commands the strongest Downtown
market rents. This is the result of the district's reputation as the primary
Downtown location for domestic and international corporate headquarters for
industries such as banking, law and the financial services. As a result of the
1995 reclassification of space by Research Services, the inventory of Class A
space in the World Trade District was reduced from 25,891,390 square feet to
23,793,827 square feet. The total amount of office space remained virtually
unchanged in 1996 through the third quarter of 1997, with 28,761,721 square feet
spread among the three classes.
Financial East District
The Financial East District contains the core of what had been New York's
financial services industry, symbolically represented by the New York Stock
Exchange at the corner of Wall and Broad Streets. This district has experienced
a tremendous exodus of tenants to the World Trade District, to Midtown, to
Brooklyn, and to New Jersey. Many of the buildings in this district pre-date
World War II and are functionally obsolete by contemporary standards. Although
Morgan Guaranty Trust constructed a new 50-story headquarters in 1989 at 60 Wall
Street, most new construction in this district occurred along and near the banks
of the East River, including 85 Broad Street, Financial Square, and 7 Hanover
Square.
The reclassification of space by Research Services has reduced the
inventory of Class A space in the Financial East district by 14.4 million square
feet, from 34 million in 1994 to 19.6 million square feet in 1995. Again, the
total inventory of office space in this district remains almost unchanged, with
41.8 million square feet in 1994 versus 41.7 million square feet in 1995. The
total was reduced by an additional 791,776 square feet, to 40.66+/- million
square feet in 1996, as properties have been removed from the inventory for
conversion to an alternate use. Third quarter 1997 inventory was reported as
39.6+/- million square feet.
Financial West District
The Financial West District has traditionally been the beneficiary of the
overflow of demand for office space in the Financial East and World Trade
districts. After a reclassification of space that reduced its primary inventory
from 3.2 million to 1.6 million square feet in 1987 and to 829,196 square feet
in 1990, only 10 percent of the Financial West District's total office inventory
was comprised of Class A space. Our 1995 reclassification of space reduced the
amount of Class A space by 165,881 square feet to 663,315 square feet. The total
office inventory in the Financial West District increased slightly, with 7.9
million square feet in 1994 and 8.0 million square feet in 1995. Through the
fourth quarter of 1996, the total inventory in
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Downtown Office Market Analysis
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this district was reduced an additional 317,813 square feet, to 7.7 million
square feet. As of the third quarter of 1997 total inventory was 7.6 million
square feet.
Insurance District
The Insurance District is located to the north of the Financial East
District, and east of the World Trade District. It is similar in character to
the Financial East District, and like its neighbor to the south, most of this
district's new construction occurred along the East River, with the Continental
Insurance Center, One Seaport Plaza, and 175 Water Street being the most notable
structures. Like the Financial East District, the amount of Class A space in the
Insurance District was drastically reduced, from 12.88 million square feet in
1994 to 5.6 million square feet in 1995, and currently stands at 5.17 million
square feet. The total amount of office space in this district, as a result of
our reclassification, increased from 17.93 million square feet in 1994 to 18.45
million square feet in 1995. As in the Financial East District, the removal of
office product from the overall inventory due to its anticipated conversion to
an alternate use has resulted in an overall Insurance District office supply of
17.83 million square feet as of the fourth quarter of 1996. Third quarter of
1997 was reported as 17.36 million square feet.
City Hall District
As noted earlier, the City Hall District runs across the northern portion
of the Downtown market, from the Hudson to the East River. It derives its name
from the governmental center of New York City. The largest addition to its
primary supply was not generated by government agencies, but by the financial
services sector, when Shearson/American Express constructed a 1.6 million square
foot facility at 390 Greenwich Street. Two new office projects in the City Hall
District were completed in January, 1995; the 818,535 square foot federal
government building at 290 Broadway and the 922,000+/- square foot Federal
Courthouse at Foley Square. These buildings are fully occupied by the courts and
federal agencies. Were it not for the completion and occupation of these two
buildings, the net absorption of space in the Downtown market would have been
negative. Although first quarter of 1997 Downtown net absorption was negative
115,506 square feet, it is still significantly better than the first three
months of 1996.
Even with the addition of these two new buildings to the City Hall
District's Class A inventory, the total amount of such space in this district
has been reduced from 5.95 million square feet in 1994 to 4.13 million square
feet in 1995. However, the City Hall District has experienced the greatest
increase in total office inventory, with 12.63 million square feet in 1994
growing to 15.83 million square feet in 1995. Through the third quarter of 1997,
the overall inventory of office space has been reduced slightly, to 15.69
million square feet.
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Downtown Office Market Analysis
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Office Projects Under Construction and Proposed
Currently, there are no speculative office buildings planned for the
Downtown market.
Trends in the Downtown Office Market
The Downtown office market experienced positive gains throughout 1996 and
unparalleled leasing activity throughout the third quarter of 1997. The Lower
Manhattan Revitalization Program's energy cost-savings and tax abatement
incentive packages have made the Downtown area an economic and attractive
alternative to small and mid-size companies, in addition to large corporations
trying to economize as a result of past downsizing. The New York City Planning
Department, the New York City Economic Development Corporation, and the
Downtown-Lower Manhattan Association are examining potential new uses for older
office buildings. These groups envision a district with a mix of traditional
office space, residential conversions, and space for innovative uses such as
educational centers and computer software design laboratories.
There are a number of older office buildings whose owners are finding it
advantageous to upgrade and/or renovate for use by small to medium-sized
companies, specifically those in the information technology area. The
combination of competitive rents, tax abatements, energy cost savings and
generous tenant work letters for constructing space is attracting tenants who
have considered relocating to other areas in Midtown or outside of New York
City. Banco Popular, the city's largest Hispanic bank, has taken 60,000 square
feet at 120 Broadway, where it will consolidate operations from other offices in
and outside of Manhattan. New Horizons Computer Learning Center, whose parent
company is located in New Jersey, has leased 14,600 square feet at 40 Broad
Street for use as a satellite training center, due to the convenience to its
client base. MCI Telecommunications leased 34,200 square feet at 100 Wall Street
as a consolidation of two offices, one already in the Downtown area at 61
Broadway and the other in Midtown at 757 Third Avenue. The software consulting
firm Micro Modeling Associates leased 2,300 square feet at 111-115 Broadway four
years ago, and at the end of 1996, expanded its operations to 38,000 square
feet, employing 100 people on two full floors of the building.
The owner of 55 Water Street is spending $140 million to overhaul the
building's mechanical systems and elevators and is constructing a new entrance
and lobby. The prestigious law firm of Debevoise & Plimpton announced recently
that it is considering an unprecedented move from its Midtown office, consisting
of 11 floors at 875 Third Avenue, to the 3.5 million square foot tower at 55
Water Street. If a prominent firm such as Debevoise & Plimpton opts for a
Downtown location, it is likely that other firms would follow.
On a larger scale, The New York Mercantile Exchange, which had
contemplated moving to New Jersey, decided to remain Downtown. The Mercantile
Exchange, which merged with the Commodity Exchange, is constructing its own
headquarters in Battery Park City. The Exchange will house its 8,100 employees
in a 20-story building with trading floors and offices located at the north end
of Battery Park City. Both New York City and New York State offered incentives
including $125 million towards construction costs and $43 million in tax
abatements to keep the Exchange in New York.
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Downtown Office Market Analysis
================================================================================
Late in August 1996, the New York Stock Exchange announced that it would
look for larger quarters Downtown. This is the second such announcement by the
Exchange, with an earlier discussion having occurred in 1992. The earlier
proposal concerned the construction of a new facility across from their present
location, on a site that is currently occupied by J.P. Morgan. In October 1996,
this proposal was refined to the point where the "Big Board" has specifically
proposed that the first floor be extended across the roadbed of Broad Street,
with a glass-enclosed atrium that would permit pedestrians to view the
neo-classical facade of the existing Exchange. This would result in the closure
of Broad Street immediately in front of the Exchange. Most experts acquainted
with the current discussions are of the opinion that the "Big Board" will stay
at its present location but it is seeking tax relief from the City. These
discussions and ideas are in their preliminary phase.
Standard & Poors have remained in Manhattan, leasing nearly 950,000 square
feet of office space at 55 Water Street after considering a consolidation move
to New Jersey. The company will receive approximately $19.7 million in sales tax
exemptions and $4 million in energy discounts.
New York City approved plans for a Downtown Business Improvement District
(BID) which is managed by a not-for-profit organization called Alliance for
Downtown New York, Inc. The Alliance has a budget of roughly $0.09 per square
foot, and commenced operations on January 1, 1995. The mission of the Alliance
is to revitalize the Downtown area in order to attract commercial and retail
businesses, residential development and tourists. The Alliance provides extra
security service for the area; and a supplemental sanitation force. The Alliance
also has a professional outreach program working with the homeless within the
BID. Transportation improvements include an up-and-running free shuttle loop
every ten to fifteen minutes between Battery Park City to South Street Seaport,
with many stops and points of interest along the way. The Alliance also sponsors
special events such as art shows, cultural events, and restaurant and retail
promotional campaigns to promote activities in Downtown Manhattan. Long-range
plans for the BID are more complex than those of other BIDs by virtue of its
size and the nature of the Downtown area, and the Alliance will most likely
involve itself in a variety of planning issues and work closely with City
officials.
The Alliance for Downtown New York has also launched a marketing program
for new Internet-ready space in what is being called Downtown's "Silicon Alley."
The City of New York, the Alliance and owners of six downtown properties have
joined the "Plug 'n' Go" program, adding 120,000 square feet of space that is
specifically designed and equipped to meet the needs of today's "high-tech"
firms.
In an effort to absorb some of the area's over-supply of office space, the
City is supporting programs to attract foreign firms and is looking for
opportunities to provide "incubator" space for small businesses. The Port
Authority of New York & New Jersey will provide qualified foreign companies with
rent-free, fully furnished offices at the World Trade Center for up to six
months under a two-year program recently authorized by the agency's Board of
Commissioners.
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Downtown Office Market Analysis
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The Port Authority recently authorized the development of a $10 million
program to undertake various studies and prepare cost estimates for the
revamping of the World Trade Center's public areas. The actual renovations are
expected to cost about $300 million and plans for the spaces include new
escalators, corridors, entrances and skylights to the Plaza level, and adding
light to the currently dim shopping areas. With numerous leases expiring over
the next five years, the Port Authority hopes that these improvements will help
to retain and attract tenants.
The most likely impetus to the resurrection of the Downtown Manhattan
office market will be the state of the market in Midtown. As of the third
quarter 1997, the Midtown Class A vacancy rate was 8.9 percent, down from 10
percent at the year-end 1996. Additionally the average asking Midtown rent at
the close of the third quarter 1997 was $39.10, a 9.4 percent increase above the
average asking Midtown rent at year-end 1996. The most notable aspect of the
Midtown market is the increasing shortage of large blocks of space.
Through the third quarter 1997, the Downtown market's Class A vacancy rate
decreased to 9.9 percent from 12.2 percent in the previous quarter. Leasing
activity increased by 822,807 square feet from December 1995 to the fourth
quarter of 1996 (1.67 million square feet in 1995 versus 2.49 million square
feet through 1996). Overall leasing activity as of the third quarter of 1997 was
at 6,684,608 square feet, with 64 percent, or 4,280,641 square feet coming from
Class A market. The attractiveness of Class A space in the Downtown market is
further enhanced by the price differential between the two Manhattan markets
(Midtown and Downtown). At year-end 1996, the average asking rent for Downtown
Class A space was $30.48 per square foot, $4.49 per square foot less than
Midtown Class A space at $34.97 per square foot. As of the third quarter of
1997, Downtown Class A space was $30.55 per square foot, while Midtown Class A
was at $39.10 per square foot.
The difference in the real cost of space in the two markets increases
further when one considers the difference in effective gross rent (the rent that
is indicated after amortizing free rent and tenant improvement allowances)
between the two Manhattan markets, which in some cases exceeds $10.00 per square
foot. When rent differences of this magnitude are combined with the greater
availability of large blocks of space, the recently approved tax abatements and
reduced electrical rates, Downtown office space starts to become competitive
with the surrounding suburban markets.
Neither new office nor new residential construction is economically
feasible at the present time. However, reconstruction of many of obsolete office
buildings for residential use may prove a viable alternative. While not every
'pre-war' building is suited for residential conversion, several are already in
the process of being converted to either condominium or rental apartment use.
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Downtown Office Market Analysis
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Summary
The Downtown Manhattan office market experienced positive gains in a
number of areas throughout 1996 and through the third quarter 1997. The increase
in leasing activity, absorption and strong investment sales, combined with the
decline in the vacancy rate, indicate that the market, which was stagnant during
the past several years, is headed towards recovery.
The Downtown Revitalization Program has also had a significant impact,
allowing the Downtown market to reposition itself, becoming more attractive to
residential and commercial tenants, as well as potential investors. The Alliance
for Downtown New York, is working to revitalize the lower Manhattan area, with
the goal of assuring the area's economic viability and resurgence as the
preeminent financial and information capital of the world.
Boosted by a stable national economy and a resurgence of industries linked
to Wall Street and high-tech technologies, the New York City economy is likely
to encourage growth in many of the Downtown sectors. In addition, the
availability of quality buildings and competitive rental rates will enable the
Downtown market to remain attractive. The level of leasing is expected to exceed
9.0 million square feet, the highest level on record for lower Manhattan. The
overall vacancy rate, currently at 13.6 percent, is expected to fall to the 11
to 12 percent range, a tremendous improvement from the 17.6 percent reported at
year-end 1996. Overall, it is expected that the Downtown office market will
continue to strengthen through the remainder of the year.
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PROPERTY DESCRIPTION
================================================================================
Site Description
Location: Main Building Site
Block bounded by Broadway, Liberty, Church
and Cortlandt Streets, New York, New York
Park
Block bounded by Broadway, Liberty, Church
and Cedar Streets, New York, New York
Shape: Rectangular
Area: Main Parcel - 68,501+/-Sq. Ft.
Park - 32,806+/-Sq. Ft.
Total - 101,307+/-Sq. Ft.
Frontage: Main Parcel Park
226.11+/-' on Broadway 117.00+/-'
on Broadway
290.47+/-' on Liberty St. 288.34+/-'
on Liberty St.
315.25+/-' on Cortlandt St. 278.30+/-'
on Cedar St.
226.25+/-' on Church St. 114.58+/-'
on Church St.
Topography: Gradual slope in general conformity with
surrounding street grades from Broadway,
downward towards Church Street.
Street Improvements: Typical city improvements including macadam
paved street, street lighting, concrete
sidewalks, curbs and gutters.
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 standard utilities are available to the
subject property.
Access: The site has good access and visibility. The
subject building has truck dock access along
its Cortlandt Street frontage. Pedestrian
access to the building is along its four
frontages. From the subject's concourse
level, access is gained to the New York City
Subway system.
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Property Description
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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.
Site Improvements: The Main Parcel is approximately 61 percent
covered by the existing structure or surface
improvements. The subject is a 54-story
steel and glass office building.
Comments: Overall, the subject site is typical of a
large downtown site. This site is
functionally adequate and well suited for
its existing office tower use.
Improvements Description
The building improvements are a steel frame, 54-seven story Class A office
tower that was built in 1971. The multi-tenanted building contains six elevator
banks, currently serving two office tenants. The first floor features retail
stores and the office lobby. The concourse level permits access to the subway
system.
The building was designed by architects Skidmore, Owings & Merrill. The
builder was Turner Construction.
General Description
Year Built: 1971
Rentable Building Area: 2,081,231+/- square feet (above grade)
2,124,775+/- square feet (total)
Building Height: Office floors have floor to floor
measurement of approximately 12 feet, 6
inches; mechanical floors measure 14 feet, 6
inches from deck to deck.
Construction Detail
Footings and Foundations: Steel reinforced concrete slab on caissons
and piles.
Framing: Fireproof structural steel
Ceiling Height: Finished ceiling heights are 8.5 to
9.0+/-feet.
Floors: Lightweight concrete over corrugated steel
deck.
Exterior Walls: Painted steel and glass curtainwall.
Roof Structure: Corrugated steel deck.
Roof Cover: Built-up tar and gravel finish.
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STACKING PLAN
One Liberty Plaza
- --------------------------------------------------------------------------------
FLOOR OCCUPIED VACANT TOTAL
- --------------------------------------------------------------------------------
54 Mechanical --
53 24,296 19,090 43,386
52 10,611 8,120 24,722 43,453
51 1,522 3,968 1,950 28,390 7,559 43,389
50 43,119 43,119
49 43,119 43,119
48 41,874 41,874
47 32,303 6,500 2,921 133 41,857
46 4,647 32,667 5,301 42,615
45 16,747 25,937 2,098 44,782
44 42,778 42,778
43 42,778 42,778
42 42,778 42,778
41 42,778 42,778
40 Mechanical --
39 41,339 41,339
38 40,821 40,821
37 13,600 27,697 41,297
36 7,537 13,918 3,648 2,500 16,886 44,489
35 40,818 40,818
34 41,779 41,779
33 41,779 41,779
32 42,096 42,096
31 15,605 11,070 6,153 1,470 6,471 40,769
30 40,919 40,919
29 41,480 41,480
28 31,580 3,550 6,007 41,137
27 41,480 41 480
26 41,480 41,480
25 41,408 41,408
24 41,408 41,408
23 40,234 40,234
22 40,234 40,234
21 40,589 40,589
20 40,565 40,565
19 40,621 40,621
18 40,621 40,621
17 40,525 40,525
16 40,496 40,496
15 Mechanical --
14 40,586 40,586
13 39,623 39,623
12 38,623 39,623
11 40,025 40,025
10 40,079 40,079
9 40,079 40,079
8 40,079 40,079
7 40,079 40,079
6 17,265 22,814 40,079
5 40,079 40,079
4 40,079 40,079
3 41,035 41,035
2M 9,500 9,500
2 25,754 8,690 154 34,598
1 650 270 600 7,078 8,598
- --------------------------------------------------------------------------------
Total Above Grade 2,081,231
- --------------------------------------------------------------------------------
Concourse
1 30,000 4,800 240 5,919 4,810 45,769
Concourse
2 946 991 744 3,698 3,068 9,447
- --------------------------------------------------------------------------------
Total Building Area 2,136,447
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Property Description
================================================================================
Windows: Single-glazed in steel frame. The windows
are hinged, and swivel inward for cleaning.
Pedestrian Doors: Typical office space floors have full height
wood doors. Lobby doors are revolving glass
and service and storage doors are metal.
Loading Doors: One automatic overhead door allowing truck
dock access from Cortlandt Street.
Mechanical Detail
Heating and Cooling: The building utilizes Con Edison steam and
electricity. Steam is fed through a
high-pressure steam riser to the stream
turbines on the 54th floor. A 7,500 ton
refrigeration plant, consisting of three
steam centrifugal machines is located on the
54th floor. A 3,000 ton supplementary
cooling plant provides chilled water for
computer room operation.
The typical office floor is heated and
cooled by two systems. The perimeter (to a
depth of 15 feet from the glass wall) is
heated and cooled by a two-pipe system with
induction units. The interior zone is served
by a variable volume central station system.
Plumbing: Venting and drainage of the plumbing
fixtures and equipment is provided through
vent stacks, house drains and house sewers
to street sewers.
There are 6 house tanks: 2 on the 54th
floor; 2 on the 40th floor; and 2 on the
15th floor.
Electrical Service: A reported building load of 24,000 KVA.
Elevator and Escalator Service: 36 passenger elevators rated at 4,000
pounds, broken down into 6 banks with 6 cars
each, as follows:
Bank Cars Floors Serviced
A 6 Plaza, Mezz.-11
B 6 Plaza, 11-19
C 6 Plaza, 20-27
D 6 Plaza, 28-35
E 6 Plaza, 36-45
F 6 Plaza, 46-53
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Property Description
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In addition, there are three freight
elevators each with a 5,000 pound capacity.
The freight elevators serve all floors.
Finally, there are six escalators. Two
escalators connect the plaza and mezzanine;
two connect the plaza and the concourse; and
two connect the subway passage.
Fire Protection: The building is fully sprinklered and
complies with Local Law No. 5. The main
monitoring system is located at lobby level.
The system is also connected to the
emergency power generator. The diesel
generator is located in the sub-basement.
Interior Detail
Layout: Sub-basement - Building office, locker
rooms, supply rooms, store rooms, security
office, ejector room, 2 diesel-powered
emergency generators.
Concourse (Basement) - Access to subway (N
and R lines).
Plaza (Lobby) - Main lobby and retail
spaces.
2nd through 14th Floors - Offices
15th Floor - Mechanical area with one
emergency generator for Credit Suisse.
16th through 39th Floors - Offices
40th Floor - Mechanical area
41st through 53rd Floors - Offices
54th Floor - Mechanical area.
Floor Covering: The lobby is finished with white marble.
Office areas are typically carpeted,
although elevator lobbies and reception
areas may have marble, granite or wooden
finishes.
Walls: The lobby is finished with stainless steel
panels with white marble borders. Office
areas are typically finished with sheetrock
on metal studs. Many offices have wood panel
accents.
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Property Description
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Ceilings: Typical tenant finish is acoustic tile
although some have painted sheetrock finish.
Lighting: 2' x 2' fluorescent fixtures with parabolic
reflectors. Lighting is primarily recessed
fluorescent and incandescent.
Restrooms: One set per floor on office tenant floors.
Hazardous Substances: Please see Assumptions and Limiting
Conditions section of this report.
Site Improvements
On-Site Parking: None provided.
Landscaping: None
Condition: Very good
Comments: As a result of a renovation that ran from
1988 through 1991, the building is in very
good condition with routine maintenance
evident. No items of deferred maintenance
were reported by on-site management or
observed during the appraiser's inspection.
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ONE LIBERTY PLAZA
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REAL PROPERTY TAXES AND ASSESSMENTS
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Under the provisions of Section 305 of the Real Property Tax Law, local
governments are permitted to assess local property at a uniform percentage of
value and to tax real property on a classified basis. The purpose of this
legislation is to shift the greater portion of the tax load from the homeowner
to the commercial and industrial sector. New York City is permitted to classify
real property into four categories:
1. One, two and three family homes;
2. Apartments, co-ops and condominiums;
3. Utility properties;
4. All other properties
Each of these classes are taxed at difference rates. According to these
classifications, One Liberty Plaza is identified as a Class 4 property.
According to information found in public records, the assessment for the
1997/1998 tax year is as follows:
Transitional Actual
------------ ------
Land $ 45,000,000 $ 45,000,000
Improvements $ 77,220,216 $ 81,000,000
------------ ------------
Total $122,220,216 $126,000,000
The assessment for the 1996/97 tax year was:
Transitional Actual
------------ ------
Land $ 48,150,000 $ 45,000,000
Improvements $ 82,170,216 $ 81,000,000
------------ ------------
Total $130,320,216 $126,000,000
The 1997/98 tax rate for the subject property is a Class 4 rate of .10164.
Application of this rate to the lower actual assessment resulted in a 1997/98
tax liability of $12,422,463.
Since 1990/91, Class 4 tax rates have increased at a compound rate of 0.23
percent per annum. Assuming a 0.25 percent increase in this rate yields an
estimated 1998/99 tax rate of $10.189 per $100 of assessment.
New York City's fiscal year commences on July 1, and our cash flow
commences as of January 1, 1998, thus, the calendar year 1998 taxes have been
estimated as follows:
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Real Property Taxes And Assessments
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<TABLE>
<CAPTION>
Taxable Tax Weighted
Year Assessment X Rate = Taxes Pro-Rated = Taxes
<S> <C> <C> <C> <C> <C>
1997/98 $122,220,216 X .10164 = $12,422,463 6 months/12 mos = $ 6,211,231
1998/99 $123,920,000 X .10189 = $12,626,208 6 months/12 mos = $ 6,313,104
Total Estimated CY 1996 Taxes $12,524,335
</TABLE>
The actual assessment theoretically represents 45 percent of full market
value, such actual assessment to be achieved over a five-year period for
existing real estate. The subject was reassessed in 1997 at an actual assessment
that represents a market value of $280,000,000. 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 tentative
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.
An analysis of comparable assessments was undertaken and the results are
shown below.
<TABLE>
<CAPTION>
===========================================================================================
Office Building Tax Comparables
- -------------------------------------------------------------------------------------------
Estimated
Year Rentable Sq. Total Actual 1997/1998
Property Address Built Ft. (R.S.F.) Assessment Taxes* Tax/R.S.F.*
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
140 Broadway 1967 1,141,256+/- $ 49,500,000 $ 5,031,180 $4.41
- -------------------------------------------------------------------------------------------
130 Liberty Street 1974 1,415,086+/- $ 76,500,000 $ 7,775,460 $5.49
- -------------------------------------------------------------------------------------------
One Chase Manhattan 1963 2,239,000+/- $126,000,000 $ 12,806,640 $5.72
===========================================================================================
</TABLE>
*Utilizing Class 4 rate of $10.164/$100 of assessment
Based on the above tax range of $4.41 to $5.72 per square foot, the
subject's tax burden of approximately $5.96 per rentable square foot (above
grade) appears to be reasonable.
In estimating the subject's real estate tax burden over the course of our
cash flow projection, we have targeted an effective reversionary tax rate (taxes
divided by value) of 4.5 to 5.0 percent, in keeping with the City's practice. As
a result, the average annual increase in the subject's real estate tax liability
during our ten year projection is 3.0 percent per annum.
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TAX MAP
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ZONING
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Map 12B of the Zoning Resolution of the City of New York indicates that
the subject property is in a C5-5 Restricted Central Commercial District.
According to the Planning Commission:
"These districts are designed to provide for office buildings and the
great variety of large retail stores and related activities which occupy
the prime retail frontage in the central business district, and which
serve the entire metropolitan region. The district regulations also permit
a few high-value custom manufacturing establishments which are generally
associated with the predominant retail activities and which depend on
personal contacts with persons living all over the region. The district
regulations are also designed to provide for continuous retail frontage."
The C5-5 District permits a floor area ratio that governs building size of
15 times the lot area, 18 with bonus. The subject site contains a total Zoning
Lot area of 101,307 square feet. As of right, the site may be improved with a
1,519,605 square foot building. Assuming a bonusable area of 18 times the lot
area, a 1,823,526 square foot building may be constructed. The subject's above
grade building area appears to exceed when the bonusable limits to development.
As the subject was constructed in 1971, it must have conformed to the legal
requirements of the current Zoning Ordinance, which dates to 1961. We are not
privy to the circumstances surrounding the subject's construction, however.
We know of no deed restrictions, private or public, that further limit the
subject property's use. We cannot guarantee that no such restrictions exist.
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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ZONING MAP
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HIGHEST AND BEST USE
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According to The Dictionary of Real Estate Appraisal, Third Edition, a
publication of the Appraisal Institute, the highest and best use is defined as:
"The reasonably probable and legal use of vacant land or an improved
property, which is physically possible, appropriately supported,
financially feasible, and that results in the highest value. The four
criteria the highest and best use must meet are legal permissibility,
physical possibility, financial feasibility and maximum profitability."
We evaluated the site's highest and best use as if vacant. The highest and
best use must meet four criteria. The use must be (1) physically possible, (2)
legally permissible, (3) financially feasible, and (4) maximally profitable.
The first test is what is physically possible. A 101,307+/- square foot
parcel in Manhattan can be improved with a wide range of urban uses including
residential, retail, hotel, community service, light manufacturing or commercial
use. Although no soil report has been examined, the subject site appears to be
capable of physically supporting a variety of structures built according to
current zoning standards.
The second test concerns permitted uses. Permissible uses include offices
and commercial uses including retail facilities. As noted earlier, the size of
the subject improvements maximizes that which would currently be permitted under
the existing Zoning Ordinance.
The third and fourth tests are, respectively, what is feasible and what
will produce the highest net return to the land. Consideration has been given to
the various factors affecting the highest and best use of the subject property
including location, market demand, neighboring property influences, zoning, and
physical and economic factors.
Considering the subject site's location and size, it is the appraiser's
opinion that if it were vacant and available for development, a likely
improvement would be a commercial office building built to the maximum floor
area allowable by current zoning regulations. As a vacant site, the improvements
would not be erected until the market could support new development costs.
As improved, the subject is being utilized within the context of its
highest and best use. The subject is considered to be a Class A office building
that offers contemporary construction features. The location is considered
desirable, in the heart of the Downtown office core. Given the nature of the
Downtown office market recovery, it is our opinion that the highest and best use
of the subject is its continued use as a commercial office building.
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VALUATION PROCESS
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Appraisers typically use three approaches in valuing real property: the
Cost Approach, the Income 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.
In the Cost Approach to value, accrued depreciation is deducted from the
cost new of the improvements and the profit necessary to attract investment
capital, with the balance added to the land value. Given the age of the subject,
calculations of replacement cost and accrued depreciation would be too
subjective to be meaningful to the valuation of the subject. Furthermore, as
will be illustrated in the Sales Comparison Approach, purchasers of investment
grade properties place little reliance on construction costs in deciding upon
what price to pay for a given property.
The Sales Comparison Approach, the second approach to value, is used to
estimate the value of the land and/or the value of the entire property as
improved. The appraiser gathers data on sales of comparable properties and
analyzes the nature and condition of each sale, making logical adjustments for
dissimilar characteristics. A common denominator, the price per square foot,
will be employed in this analysis. Where available, the financial parameters
indicated by the office sales presented will serve as a guide in determining the
appropriate rates applicable to the cash flows according to the interests in the
subject that are being appraised. The Sales Comparison Approach gives a good
indication of value when sales of similar properties are available.
The Income Approach is predicated on the assumption that there is a
definite relationship between the amount of income a property will generate and
its value. This approach is based on the principle that value is created by the
expectation of benefits derived in the future. The anticipated net income to be
generated to the leased fee interest being appraised is capitalized to produce
an indication of value. In the instance of the leased fee interest in the
subject, that income will be comprised of lease payments. The interest has been
valued on a cash equivalent basis. One method of converting income into an
estimate of value is called direct capitalization, which involves dividing the
net income by a capitalization rate. Factors such as risk, time, interest on the
capital investment and recapture of the depreciating asset are considered in the
rate. The appropriateness of this rate is critical and there are a number of
techniques by which it may be developed. An alternate capitalization method is
the discounted cash flow analysis. Net income to the interest appraised is
estimated for each year of a projection period. The projected cash flows in the
future are discounted to a present value at an appropriate yield rate. This form
of analysis is particularly germane to the problem at hand since most investors
and lenders would follow the same procedures in analyzing investment property.
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WAKEFIELD(R)
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<PAGE>
SALES COMPARISON APPROACH
================================================================================
Methodology
In the Sales Comparison Approach, we estimated value by comparing this
property with similar, recently sold properties in the surrounding or competing
area. Inherent in this approach is the principle of substitution, which holds
that when a property is replaceable in the market, its value tends to be set at
the cost of acquiring an equally desirable substitute property, assuming that no
costly delay is encountered in making the substitution.
By analyzing sales that qualify as arms-length transactions between
willing and knowledgeable buyers and sellers, we can identify value and price
trends. The basic steps of this approach are:
1. research recent, relevant property sales and current offerings
throughout the competitive area;
2. select and analyze properties that are similar to the property
appraised, 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 net rentable area, effective gross income
multiplier, and overall capitalization rate;
5. make appropriate comparative adjustments to the prices of the
comparable properties to relate them to the property being
appraised; and
6. interpret the adjusted sales data and draw a logical value
conclusion.
The most widely-used and market-oriented unit of comparison for properties
such as the subject is the sales price per square foot. All comparable sales
were analyzed on this basis.
Analysis of Sales
In analyzing the subject, we have included a summary chart on the
following page of the most recent transactions of comparable Manhattan office
buildings. These sales were transacted between October, 1996 and July, 1997. The
unit values indicated by the sales range from a low of $80.27 to a high of
$210.74 per square foot, prior to adjustment. Following is a discussion of sales
and adjustments we have exhibited.
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CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
<TABLE>
<CAPTION>
===============================================================================================================================
COMPARABLE OFFICE SALES & ADJUSTMENTS
- -------------------------------------------------------------------------------------------------------------------------------
SUBJECT SALE NO. 1 SALE NO. 2 SALE NO. 3 SALE NO. 4
------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
LOCATION One Liberty Plaza 222 Broadway 90 Park Avenue 100 Wall Street 33 Maiden Lane
New York New York New York New York New York
GRANTOR Swiss Bank Corp. Sumitomo Trust Hexalon R. E., Inc. Federal Tower Assoc.
c/c George Klein
GRANTEE Merrill, Lynch & Co. Vornado Realty 100 Wall LLC Maiden Fed LLC
Trust c/o Witkoff Group c/o Stellar Mngmt.
DATE OF SALE July-97 April-97 April-97 January-97
(Contract) (Contract)
SALE PRICE $73,000,000 $185,000,000 $37,000,000 $44,000,000
INTEREST CONVEYED Leased Fee Fee Simple Leased Fee Leased Fee Leased Fee
YEAR CONSTRUCTED 1971 1961 1964 1968 1984
CONDITION Very Good Good Good Good Very Good
NO. OF STORIES 54 31 41 29 27
NET RENTABLE AREA (SF) 2,081,231 756,138 877,869 457,460 548,157
LOCATION Good Average - Good Good Average - Good Average - Good
UTILITY Good Good Good Good Good
LAND AREA (SF) 101,307 33,340 38,032 22,285 30,785
PRICE/SF $96.54 $210.74 $80.88 $80.27
OVERALL RATE 10.6% 12.7% 19.3%
ADJUSTMENTS
Time 0.0% 5.0% 100% 100%
Time Adjusted Unit Price $96.54 $221.27 $88.97 $88.30
Interest Conveyed 0.0% 0.0% 0.0% 0.0%
Net Rentable Area 0.0% 0.0% 0.0% 0.0%
Building Location 20.0% -10.0% 10.0% 20.0%
Age/Condition 10.0% 5.0% 0.0% 0.0%
Utility 5.0% 0.0% 10.0% 20.0%
TI's & Commission 20.0% 5.0% 0.0% 20.0%
NOI Differential 10.0% 0.0% 50.0% 5.0%
----------------------------------------------------------------------------------
TOTAL ADJUSTMENT 65.0% 0.0% 70.0% 65.0%
ADJUSTED PRICE/SF $159.30 $221.27 $151.25 $145.69
<CAPTION>
SALE NO. 5
----------
<S> <C>
LOCATION 45 Broadway Atrium
(45 Broadway)
New York
GRANTOR Nippon Credit/
HRO International
GRANTEE Paramount Group-
45 Broadway LP
DATE OF SALE October-96
SALE PRICE $31,500,000
INTEREST CONVEYED Leased Fee
YEAR CONSTRUCTED 1983
CONDITION Very Good
NO. OF STORIES 32
NET RENTABLE AREA (SF) 376,109
LOCATION Average - Good
UTILITY Average
LAND AREA (SF) 15,598
PRICE/SF $83.75
OVERALL RATE 10.5%
ADJUSTMENTS
Time 200%
Time Adjusted Unit Price $100.50
Interest Conveyed 0.0%
Net Rentable Area -10.0%
Building Location 10.0%
Age / Condition 0.0%
Utility 30.0%
TI's & Commission 25.0%
NOI Differential 30.0%
------------------
TOTAL ADJUSTMENT 85.0%
ADJUSTED PRICE/SF $185.93
</TABLE>
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
Sales Comparison Approach
================================================================================
Comparable Sale No. 1 is the sale of 222 Broadway, in Downtown Manhattan,
approximately three blocks north of the subject property. This 31-story,
756,138+/- square foot building sold in July 1997 for $73,000,000, or $96.54 per
rentable square foot. The property was purchased by Merrill Lynch from the
Suisse Bank Corp. for its own use. Upward adjustments were made to reflect the
superior location of this property, its older construction and inferior
condition, smaller floor sizes (utility), the tenant improvements that would
have to be made prior to occupancy by Merrill Lynch and the difference in market
rents between the two properties as reflected in "NOI differential". After
adjustment, a unit price of $159.30 per rentable square foot is indicated by
this sale.
Comparable Sale No. 2 is the April 1997 sale of 90 Park Avenue, 41-story,
877,869 square foot Class A office building located on the southern periphery of
the Midtown Manhattan office core. Although located in Midtown, this property
has a similar leasing profile to that of the subject property. The $185,000,000
purchase price indicated by this sale actually reflects the purchase of a
mortgage on the property by Vornado Realty Trust. Prior to adjustment, this
mortgage acquisition price is equal to a unit price of $210.74 per rentable
square foot. A downward adjustment has been made to reflect the peripheral
Midtown location of this property, while upward adjustments were made to reflect
its older construction and its lower level of occupancy which would require the
landlord to incur tenant improvement costs and leasing commissions prior to the
leasing and occupancy of that space. After adjustment, a unit price of $221.27
per rentable square foot is indicated by this sale.
Comparable Sale No. 3, the April 1997 sale of 100 Wall Street, a 29-story,
457,460+/- square foot building located at the corner of Wall and Water Streets
in Downtown Manhattan. A $37,000,000 sales price of this property is reflective
of a recorded price of $34,000,000 plus $3,000,000 in capital expenditures.
Total acquisition price is equal to a unit price of $80.88 per rentable square
foot. Upward adjustments have been made to reflect the positive change in
economic changes over the last six months, its slightly inferior location, and
its smaller floor plates (utility). An upward adjustment has also been made "NOI
differential" as its income per square foot of approximately $10.27 per square
foot is substantially below that, that will be generated by the subject
property. After adjustment, a unit price of $151.25 per square foot is indicated
by this sale.
Comparable Sale No. 4 is the January, 1997 sale of 33 Maiden Lane, a
27-story, 548,157+/- square foot building. This property indicated an unadjusted
unit price of $80.27 per rentable square foot. As of the date of sale,
approximately one-quarter of the building was vacant, one-quarter was occupied
by Chase Manhattan Bank under a short term lease, and the IBM Corporation was
the primary tenant of the lower 15 floors within this building at an above
market rent. IBM had sublet virtually all of its space and has expressed its
intention not to renew its lease. The extremely high overall capitalization rate
reflects above market rents generated by the IBM lease. Upward adjustments were
made to reflect the positive change in economic conditions since the date of
sale of this property, for its inferior location, its inferior utility given its
side core characteristics, for the tenant improvements and commissions that
would be incurred prior to occupancy of the vacant space and for the slight
difference in unit net income between this comparable and the subject property.
After adjustment, a unit price of $145.69 per rentable square foot is indicated
by this sale.
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CUSHMAN &
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<PAGE>
Sales Comparison Approach
================================================================================
Comparable Sale No. 5 is the October 1996 sale of 45 Broadway Atrium, a
32-story, 376,109+/- square foot building located approximately three blocks to
the south of the subject property. This property sold for $31,500,000, or $83.75
per rentable square foot. Upward adjustments were made to reflect the positive
change in economic conditions due to the passage of time, its inferior location,
its inferior utility attributable to side core nature of its construction and
its small floor plates, its low level of occupancy as of the date of sale, its
relatively low net income per square foot relative to the subject. After
adjustment, a unit price of $185.93 per rentable square foot is indicated by
this sale.
Conclusion
After adjustment, the five office building sales reflect unit prices that
ranged from a low of $145.69 to a high of $221.27 per rentable square foot.
Greatest reliance has been placed upon the unit price indicated by Sale No. 2,
despite its Midtown location. This property is the largest of the comparable
sales, although it is still less than one-half the size of the subject property,
and it required the fewest number of adjustments. Placing greatest reliance upon
this sale, secondary reliance upon Sale Nos. 1, 3 and 4, we have concluded that
the market value of the subject property, as indicated by the Sales Comparison
Approach, falls within a range of $200.00 to $220.00 per rentable square foot.
Applying these unit prices to the 2,081,231 square feet contained within the
subject yields values ranging from $416,000,000 to $458,000,000.
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WAKEFIELD(R)
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<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 valuing this property, it is our opinion that the discounted cash flow
method is the most applicable in the valuation of the leased fee interest,
subject to the existing lease encumbrances. The absorption of both the existing
and anticipated vacancies within the subject makes the utilization of the direct
capitalization technique inappropriate.
The principle underlying this method recognizes that a prudent investor
will pay a certain sum in an open market to receive a particular income stream
for a defined holding period. Income producing real estate, as an asset, has the
properties of utility, scarcity, transferability and immobility. The quality and
quantity of these characteristics are directly reflected by the income that the
property produces.
Typical investors are motivated by current economics, tempered by property
performance, and price real estate on their expectation 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
interests similar to the subject. An analytical real estate model that simulates
the behavioral aspects of the property and examines the results mathematically,
much as an investor would, will be employed for the discounted cash flow
analysis. Since investors are the basis of the marketplace in which the subject
property would be bought and sold, this type of analysis is particularly
meaningful to the appraisal problem.
Methodology of the Discounted Cash Flow Analysis
Investors in New York City office buildings typically make a forecast of
net operating incomes and cash flows over a period of time ranging from 10 to 20
years based on investment expectations and the current lease profile. The
subject is a multi-tenanted facility, constructed in 1971. Currently, the
subject's above grade space is 85+/- percent leased. By December 31, 2006, the
entire office tenancy of the subject will have turned over, requiring the
appraisers to make lease-up projections. We will project the absorption of the
space within the subject in order to achieve stabilized occupancy.
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WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
Income Capitalization Approach
================================================================================
A general outline summary of the major steps involved may be listed as
follows:
1. Analysis of the current marketplace; establishment of a market rent
for each direct tenant space; projection of future revenues annually
for a 10 year period commencing on January 1, 1996, based upon
projected leases, probable renewals at market rent and expected
vacancy experience.
2. Analysis of projected escalation recovery income based upon clauses
found in the current leases as well as those currently found in the
market, to provide coverage for increases in operating expenses and
real estate taxes.
3. A projection of future property expenses based upon a comparison
with other buildings of similar vintage or operation. The appraisers
have been presented with the historical income and expense reports
for 1988 through 1995. We have analyzed this data in conjunction
with supporting data, indices and expertise.
4. A derivation of the most probable net operating income and pre-tax
cash flows to be generated by the property by subtracting all
property expenses from the effective gross income.
5. Estimation of a reversionary sale price based upon a capitalization
of the 11th year's projected net operating income for the 10 year
projection starting on January 1, 1996. Our capitalization rates are
selected from market information and surveys.
6. Determination of a yield rate (internal rate of return) which would
attract a prudent investor to invest money in a similar situation
with comparable degrees of risk, non-liquidity and management
burdens.
7. Conversion of the pre-tax cash flows into a present value by
discounting at an acceptable range of yield rates.
Of primary importance to a cash flow projection and, in particular to the
subject property, is the examination of the first year's income and expense
statement. The ensuing years of the projection period are essentially formulated
through the extension of the first year. To facilitate the construction of a
credible first year budget, the income and expenses will be examined by analysis
of the historic operations of the subject, comparative analysis with other
competitive buildings and general market experience.
The market will be researched to identify current leasing trends and
activity in competitive properties which will assist in determining the most
probable renting level. Coinciding with this investigation, a reasonable
determination of appropriate expense recapture contributions will also be
established since these "pass-throughs" are considered a formidable source of
additional income.
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CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
Income Capitalization Approach
================================================================================
Office Space Revenue
Of the subject's 2,081,231+/- square feet of rentable area, 99.8 percent
or 2,065,990 square feet is office space, 4,783+/- square feet is ground level
retail space and 54,002+/- square feet is concourse level office and space.
The most recent lease signed within the subject was a 15 year lease by the
Royal Bank of Canada. This lease was signed in June 1997, but had not been
occupied as of the date of inspection. The base rent will commence on October 1,
1998 at $19.34 per square foot, and will increase to $26.00 per square foot in
April 1999, and to $30.00 per square foot in April 2004. Operating expense and
real estate tax reimbursements are based on NYLCare's pro-forma share of
increases over a base year.
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CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
ONE LIBERTY PLAZA
LEASE ABSTRACT REPORT
FOR ALL TENANTS
<TABLE>
<CAPTION>
PRIMARY/ ANNUAL CEIL-
SECONDARY SQUARE LEASE LEASE OPTION MINIMUM MINIMUM OVERAGE ING
TENANT CODES FEET BEGIN END #/MOS RENT/SF RENT % (000'S)
- ------------------ --------- ------ ----- ----- ------ ------------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
# 1-SUITE 5103 2 7,234 8/97 12/97 - 27.14 196,295 - -
JAMES MARTIN & Co 30
# 2-SUITE P/O 36 2 3,648 1/98 5/02 - 34.75 126,768 - -
JAMES MARTIN & CO 20
# 3-SUITE 3606 2 7,537 9/94 5/02 - 29.00 218,573 - -
AT FINANCIAL 20
# 4-SUITE 22 - 27 1 246,244 7/90 5/14 - 40.00 9,849,760 - -
BANK OF NOVA SCOTI 20 6/99 45.00% 11,080,980
6/04 50.00% 12,312,200
6/09 55.00% 13,543,420
# 5-SUITE STOR 1 240 1/93 5/14 - 11.00 2,640 - -
BANK OF NOVA STOR 40 6/99 12.00 2,880
6/04 13.00 3,120
6/09 14.00 5,360
# 6-SUITE 0102 1 7,078 5/96 3/12 - 0.00 0 - -
BROOKS BROTHERS 50 9/98 40.00 283,120
4/01 45.O0 318,510
4/06 50.00 353,900
# 7-SUITE 0202 1 8,690 5/96 3/12 - 0.00 0 - -
BROOKS BROTHERS 50 8/98 30.00 260,700
# 8-SUITE 5301 2 19,090 1/95 4/02 - 40.00 763,600 - -
CENTRE REINSURANCE 30 1/98 43.50 830,415
# 9-SUITE 30, 39, 41 1 295,956 1/91 12/10 - 47.86% 14,163,566 - -
CLEARLY, GOTTLEIB 20 1/98 48.42% 14,331,077
1/99 48.46% 14,341,436
1/00 49.10% 14,530,848
1/01 49.96% 14,785,074
1/02 50.83% 15,043,740
1/03 51.72% 15,306,845
1/04 52.63% 15,574,980
1/05 53.55% 15,847,556
1/06 54.48% 16,124,867
1/07 55.44% 16,406,913
1/08 56.41% 16,694,286
1/09 57.39% 16,986,098
1-60 42.03% 12,438,415 - -
# 10-SUITE STOR 1 4,800 1/91 12/10 - 17.50 84,000 - -
CLEARLY, GOTTLEIB 20
1-60 42.03 201,734 - -
# 11-SUITE 2803 2 3,550 8/91 10/99 - 37.00 131,350 - -
COSMO SECURITIES 20
# 12-SUITE 2 - 6 146,947 6/97 9/12 - 0.00 0 - -
CREDIT SUISSE 10 10/98 19.34 2,841,955
4/99 26.00 3,820,622
4/04 30.00 4,408,410
<CAPTION>
BREAK-
POINT PRO RATA % OF RENT
TENANT (000'S) RECOVERIES SHARE BASE SUBJ TO CPI
- ------------------ ------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
# 1-SUITE 5103 - 90% GROSS UP POOL %16,246,014
JAMES MARTIN & Co REAL ESTATE TAXES %13,846,550
# 2-SUITE P/O 36 - 90% GROSS UP POOL %20,234,232
JAMES MARTIN & CO REAL ESTATE TAXES %12,422,463
# 3-SUITE 3606 - 90% GROSS UP POOL %15,977,623
AT FINANCIAL REAL ESTATE TAXES %14,445,319
# 4-SUITE 22 - 27 - 90% GROSS UP POOL %13,816,014
BANK OF NOVA SCOTI REAL ESTATE TAXES %13,180,668
# 5-SUITE STOR - NONE
BANK OF NOVA STOR
# 6-SUITE 0102 - 90% GROSS UP POOL ZERO
BROOKS BROTHERS REAL ESTATE TAXES ZERO
# 7-SUITE 0202 - 90% GROSS UP POOL ZERO
BROOKS BROTHERS REAL ESTATE TAXES ZERO
# 8-SUITE 5301 - 90% GROSS UP POOL %14,137,779
CENTRE REINSURANCE REAL ESTATE TAXES %18,290,968
# 9-SUITE 30, 39, 41 - 90% GROSS UP POOL %13,816,014
CLEARLY, GOTTLEIB REAL ESTATE TAXES %14,022,648
- 90% GROSS UP POOL %29,517,858
REAL ESTATE TAXES %18,392,404
# 10-SUITE STOR - 90% GROSS UP POOL %13,816,014
CLEARLY, GOTTLEIB REAL ESTATE TAXES %14,022,668
- 90% GROSS UP POOL %29,517,858
REAL ESTATE TAXES %18,392,404
# 11-SUITE 2803 - 90% GROSS UP POOL %15,146,638
COSMO SECURITIES REAL ESTATE TAXES %18,290,968
# 12-SUITE 2 - 6 - REAL ESTATE TAXES %12,723,953
CREDIT SUISSE 90% GROSS UP POOL %17,316,000
</TABLE>
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
PAGE 2
<TABLE>
<CAPTION>
PRIMARY/ ANNUAL CEIL-
SECONDARY SQUARE LEASE LEASE OPTION MINIMUM MINIMUM OVERAGE ING
TENANT CODES FEET BEGIN END #/MOS RENT/SF RENT % (000'S)
- ------------------ --------- ------ ----- ----- ------ ------------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
# 13-SUITE MZ01 1 9,500 6/97 9/12 - 0.00 0 - -
ROYAL BANK OF CANA 10 10/98 19.34 183,730
4/99 26.00 247,000
4/04 35.54 337,630
# 14-SUITE CONC 1 20,000 9/92 5/98 - 42.19 843,800 - -
DEPOSITORY TRUST 10 7/96 45.10 901,976
# 15-SUITE CONC 1 10,000 9/92 5/98 - 21.00 210,000 - -
DEPOSITORY TRUST 10 12/97 24.00 240,000
# 16-SUITE CONC 1 27,139 6/98 5/08 - 26.00 705,614 - -
ILX SYSTEMS 10 6/03 30.00 814,170
# 17-SUITE 5203 1 24,722 8/95 12/05 - 34.00 840,548 - -
DUNCANSON & HOLT 30
# 18-SUITE 0103 2 600 10/90 9/00 - 67.08 40,248 - -
EASTERN LOBBY SHOP 50 10/96 80.67 48,402
# 19-SUITE 2000 1 81,154 3/90 2/05 - 38.50 3,124,429 - -
FIREMAN'S FUND 10 3/00 42.50 3,449,045
1-60 32.54 2,640,857 - -
# 20-SUITE 3500 1 40,818 8/94 8/04 - 23.16 945,345 - -
FLEMMING ZULACK 20 2/97 20.33 830,010
3/97 23.16 945,345
1-60 34.17 1,394,855 - -
# 21-SUITE 1900 1 40,621 9/93 8/08 - 30.33 1,232,035 - -
FOLKSAMERICA 10 9/98 36.00 1,462,356
9/03 41.50 1,685,772
1-60 35.56 1,444,432 - -
# 22-SUITE 3700 1 27,697 12/88 12/99 - 43.43 1,202,881 - -
GENERAL INSURANCE 20 12/98 48.43 1,341,366
# 23-SUITE 3105 2 1,470 9/93 6/01 - 30.00 44,100 - -
GREIG FESTER 20 7/98 33.50 49,245
# 24-SUITE 3104 2 6,153 9/93 6/01 - 30.00 184,590 - -
GREIG FESTER 20 7/98 32.00 196,896
# 25-SUITE 5105 2 1,950 3/90 7/00 - 36.00 70,200 - -
KUKUSAI INVESTMENT 30
# 26-SUITE 47 - 50 1 160,415 8/88 8/04 - 43.00 6,897,845 - -
LONG TERM CREDIT 30 8/96 45.00 7,218,675
8/99 50.00 8,020,730
1-60 36.75 5,895,510 - -
# 27-SUITE STOR 1 272 7/88 9/98 - 29.00 7.888 - -
MABON SECURITIES 40
<CAPTION>
BREAK-
POINT PRO RATA % OF RENT
TENANT (000'S) RECOVERIES SHARE BASE SUBJ TO CPI
- ------------------ ------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
# 13-SUITE MZ01 - REAL ESTATE TAXES %12,723,953
ROYAL BANK OF CANA 90% GROSS UP POOL %17,316,0O0
# 14-SUITE CONC - 90% GROSS UP POOL %14,183,331
DEPOSITORY TRUST REAL ESTATE TAXES %18,691,148
# 15-SUITE CONC - 90% GROSS UP POOL %14,183,331
DEPOSITORY TRUST REAL ESTATE TAXES %18,691,148
# 16-SUITE CONC - 90% GROSS UP POOL %20,234,232
ILX SYSTEMS REAL ESTATE TAXES %12,524,335
# 17-SUITE 5203 - 90% GROSS UP POOL %15,977,623
DUNCANSON & HOLT REAL ESTATE TAXES %12,578,422
# 18-SUITE 0103 - 90% GROSS UP POOL %16,683,323
EASTERN LOBBY SHOP REAL ESTATE TAXES %13,846,550
# 19-SUITE 2000 - 90% GROSS UP POOL %14,166,787
FIREMAN'S FUND REAL ESTATE TAXES %14,917,468
- 90% GROSS UP POOL ZERO
REAL ESTATE TAXES %15,403,351
# 20-SUITE 3500 - 90% GROSS UP POOL %15,977,623
FLEMMING ZULACK REAL ESTATE TAXES %14,445,319
- 90% GROSS UP POOL %24,179,492
REAL ESTATE TAXES %14,954,710
# 21-SUITE 1900 - 90% GROSS UP POOL %15,146,638
FOLKSAMERICA REAL ESTATE TAXES %18,691,148
- 90% GROSS UP POOL %27,140,560
REAL ESTATE TAXES %16,831,656
# 22-SUITE 3700 - 90% GROSS UP POOL %13,816,014
GENERAL INSURANCE REAL ESTATE TAXES %13,513,609
# 23-SUITE 3105 - 90% GROSS UP POOL %15,071,097
GREIG FESTER REAL ESTATE TAXES %18,290,968
# 24-SUITE 3104 - 90% GROSS UP POOL %15,071,097
GREIG FESTER REAL ESTATE TAXES %18,290,968
# 25-SUITE 5105 - 90% GROSS UP POOL %12,422,463
KUKUSAI INVESTMENT 90% GROSS UP POOL %17,316,000
# 26-SUITE 47 - 50 - 90% GROSS UP POOL %12,333,018
LONG TERM CREDIT REAL ESTATE TAXES %13,180,668
- 90% GROSS UP POOL %24,179,492
REAL ESTATE TAXES %14,954,710
# 27-SUITE STOR - 90% GROSS UP POOL %12,333,018
MABON SECURITIES REAL ESTATE TAXES %13,180,668
</TABLE>
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
PAGE 3
<TABLE>
<CAPTION>
PRIMARY/ ANNUAL CEIL-
SECONDARY SQUARE LEASE LEASE OPTION MINIMUM MINIMUM OVERAGE ING
TENANT CODES FEET BEGIN END #/MOS RENT/SF RENT % (000'S)
- ------------------ --------- ------ ----- ----- ------ ------------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
# 28-SUITE 3101 1 11,070 7/88 9/98 - 38.00 420,660 - -
MABON SECURITIES 20
# 29-SUITE 2800 2 330 10/91 12/97 - 35.82 11,821 - -
MUTUAL OF AMERICA 20
# 30-SUITE 4703 2 2,921 2/97 8/04 - 34.00 99,314 - -
MUTUAL OF AMERICA 20
# 31-SUITE 3701 2 13,600 8/88 11/99 - 41.00 557,600 - -
NATIONAL REINSURAN 20
# 32-SUITE 7 - 11 1 200,341 8/95 2/06 - 25.00 5,008,525 - -
NEW YORK LIFE 20
1-60 36.25 6,525,659 - -
# 33-SUITE 5202 2 10,611 7/90 9/00 - 50.00 530,550 - -
OGAKI KYORITSU BAN 30 7/96 53.00 562,383
# 34-SUITE 0105 2 270 1/93 12/02 - 18.47 4,986 - -
PASQUA 50 1/98 19.14 5,168
12/98 19.39 5,235
1/99 20.10 5,427
12/99 20.36 5,497
1/00 21.11 5,700
12/00 21.38 5,773
1/01 22.16 5,983
12/01 22.45 6,062
1/02 23.27 6,283
# 35-SUITE 0104 2 650 1/93 12/02 - 51.42 33,426 - -
PASQUA 50 12/97 52.09 33,859
1/98 54.00 35,100
12/98 54.69 35,549
1/99 56.70 36,855
12/99 57.43 37,330
1/00 59.53 38,695
12/00 60.29 39,189
1/01 62.51 40,632
12/01 63.31 41,152
1/02 65.63 42,660
# 36-SUITE 5106 2 3,968 10/96 6/00 - 33.00 130,944 - -
SAP AMERICA 30
# 37-SUITE 4601 1 32,667 4/88 4/98 - 45.00 1,470,015 - -
PRUDENTIAL BACHE 30
# 38-SUITE 4603 2 4,647 1/95 6/06 - 34.00 157,998 - -
RESERVE BANK OF AU 30 8/99 38.00 176,586
# 39-SUITE 3301 1 83,558 1/93 8/04 - 47.02 3,928,897 - -
ODYSSEY REINSURANC 20 9/99 52.02 4,346,687
1-60 34.17 2,855,390 - -
# 40-SUITE STOR 1 925 1/93 8/04 - 22.50 20,813 - -
ODYSSEY REINSURANC 40 9/99 25.25 23,356
1-60 13.54 12,525 - -
<CAPTION>
BREAK-
POINT PRO RATA % OF RENT
TENANT (000'S) RECOVERIES SHARE BASE SUBJ TO CPI
- ------------------ ------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
# 28-SUITE 3101 - 90% GROSS UP POOL %12,333,018
MABON SECURITIES REAL ESTATE TAXES %13,180,668
# 29-SUITE 2800 - 90% GROSS UP POOL %15,146,638
MUTUAL OF AMERICA REAL ESTATE TAXES %18,290,968
# 30-SUITE 4703 - 90% GROSS UP POOL %17,316,000
MUTUAL OF AMERICA REAL ESTATE TAXES %12,422,463
# 31-SUITE 3701 - 90% GROSS UP POOL %15,504,516
NATIONAL REINSURAN REAL ESTATE TAXES %13,180,668
# 32-SUITE 7 - 11 - 90% GROSS UP POOL %15,534,149
NEW YORK LIFE REAL ESTATE TAXES %13,125,909
- 90% GROSS UP POOL %25,585,880
REAL ESTATE TAXES %15,865,451
# 33-SUITE 5202 - 90% GROSS UP POOL %14,662,210
OGAKI KYORITSU BAN REAL ESTATE TAXES %15,988,385
# 34-SUITE 0105 - 90% GROSS UP POOL %11,219,981
PASQUA REAL ESTATE TAXES %18,691,148
# 35-SUITE 0104 - 90% GROSS UP POOL %11,219,981
PASQUA REAL ESTATE TAXES %18,691,148
# 36-SUITE 5106 - REAL ESTATE TAXES %13,125,909
SAP AMERICA 90% GROSS UP POOL %17,316,000
# 37-SUITE 4601 - 90% GROSS UP POOL %14,763,018
PRUDENTIAL BACHE REAL ESTATE TAXES %12,439,440
# 38-SUITE 4603 - 90% GROSS UP POOL %16,159,957
RESERVE BANK OF AU REAL ESTATE TAXES %14,445,319
# 39-SUITE 3301 - 90% GROSS UP POOL %13,424,026
ODYSSEY REINSURANC REAL ESTATE TAXES %13,513,609
- 90% GROSS UP POOL %24,179,492
REAL ESTATE TAXES %14,954,710
# 40-SUITE STOR - NONE
ODYSSEY REINSURANC
- NONE
</TABLE>
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
---------------------------
<PAGE>
PAGE 4
<TABLE>
<CAPTION>
PRIMARY/ ANNUAL CEIL-
SECONDARY SQUARE LEASE LEASE OPTION MINIMUM MINIMUM OVERAGE ING
TENANT CODES FEET BEGIN END #/MOS RENT/SF RENT % (000'S)
- ------------------ --------- ------ ----- ----- ------ ------------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
# 41-SUITE 2902 1 41,480 11/94 9/98 - 36.14 1,499,087 - -
SYDNEY REINSURANCE 20
1-60 26.50 1,099,220 - -
# 42-SUITE 4702 2 6,500 11/88 8/04 - 32.00 208,000 - -
THE BANK OF FUKUOK 30
# 43-SUITE 4704 2 133 4/97 8/04 - 17.00 2,261 - -
THE BANK OF FUKUOK 30
# 44-SUITE 3604 2 11,418 5/92 5/02 - 34.36 392,323 - -
TOKIO RE CORP. 20 6/99 37.41 427,098
# 45-SUITE 3605 2 2,500 5/92 5/02 - 10.00 25,000 - -
TOKIO RE CORP. 20
# 46-SUITE 5100 1 28,390 3/90 7/00 - 45.00 1,277,550 - -
TUDOR INVESTMENT 30 2/97 47.00 1,334,330
# 47-SUITE 5102 1 1,522 3/90 7/0O - 45.00 68,490 - -
TUDOR INVESTMENT 30 2/97 47.00 71,534
# 48-SUITE 5201 1 8,120 3/90 7/00 - 40.00 324,800 - -
TUDOR INVESTMENT 30 4/99 42.00 341,040
# 49-SUITE 5302 1 24,296 1/93 4/04 - 40.00 971,840 - -
ZURICH INSURANCE 30 4/99 43.50 1,056,876
1-60 36.75 892,917 - -
# 50-SUITE 2801 1 31,580 1/93 5/06 - 30.00 947,400 - -
ZURICH INSURANCE 30 12/97 33.50 1,057,930
1-60 36.75 1,160,616 - -
# 51-SUITE 30 - 32 1 98,620 4/96 5/06 - 27.00 2,662,740 - -
ZURICH INSURANCE 20 5/04 28.50 2,810,670
# 52-SUITE 3106 2 6,471 7/95 6/06 - 29.00 187,659 - -
BANK OF INDONESIA 20 7/01 32.50 210,308
# 53-SUITE 3601/08 1 16,886 1/97 3/08 - 30.00 506,580 - -
HYPERION CAPITAL 20 4/03 33.00 557,238
# 54-SUITE 12 - 18 1 241,474 3/98 5/13 - 0.00 0 - -
GRUMTAL & CO, INC 10 8/98 12.37 2,987,033
9/98 26.50 6,399,061
6/03 30.50 7,364,957
6/08 34.5O 8,330,853
# 55-SUITE 4604 1 5,301 11/96 6/06 - 32.00 169,632 - -
MARIA FIORINI-RAMI 30 8/02 35.00 185,535
# 56-SUITE 0601 1 22,814 10/96 10/06 - 30.00 684,420 - -
WORLD FINANCIAL 10
# 57-SUITE SPEC 3 40,696 1/98 12/07 - 26.50 1,078,444 - -
MID RISE 20
<CAPTION>
BREAK-
POINT PRO RATA % OF RENT
TENANT (000'S) RECOVERIES SHARE BASE SUBJ TO CPI
- ------------------ ------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
# 41-SUITE 2902 - 90% GROSS UP POOL %12,333,018
SYDNEY REINSURANCE REAL ESTATE TAXES %13,180,668
- 90% GROSS UP POOL %20.234,232
REAL ESTATE TAXES %12,524,335
# 42-SUITE 4702 - 90% GROSS UP POOL %17,316,000
THE BANK OF FUKUOK REAL ESTATE TAXES %12,422,463
# 43-SUITE 4704 - 90% GROSS UP POOL %17,316,000
THE BANK OF FUKUOK REAL ESTATE TAXES %12,422,463
# 44-SUITE 3604 - 90% GROSS UP POOL %15,146,638
TOKIO RE CORP. REAL ESTATE TAXES %19,091,324
# 45-SUITE 3605 - 90% GROSS UP POOL %15,146,638
TOKIO RE CORP. REAL ESTATE TAXES %19,091,324
# 46-SUITE 5100 - 90% GROSS UP POOL %13,816,014
TUDOR INVESTMENT REAL ESTATE TAXES %13,846,550
# 47-SUITE 5102 - 90% GROSS UP POOL %13,816,014
TUDOR INVESTMENT REAL ESTATE TAXES %13,846,550
# 48-SUITE 5201 - 90% GROSS UP POOL %15,071,097
TUDOR INVESTMENT REAL ESTATE TAXES %17,139,676
# 49-SUITE 5302 - 90% GROSS UP POOL %14,137,779
ZURICH INSURANCE REAL ESTATE TAXES %18,290,968
- 90% GROSS UP POOL %24,179,492
REAL ESTATE TAXES %14,954,710
# 50-SUITE 2801 - 90% GROSS UP POOL %14,137,779
ZURICH INSURANCE REAL ESTATE TAXES %18,290,968
- 90% GROSS UP POOL %24,179,492
REAL ESTATE TAXES %14,954,710
# 51-SUITE 30 - 32 - REAL ESTATE TAXES %12,852,166
ZURICH INSURANCE 90% GROSS UP POOL %15,534,149
# 52-SUITE 3106 - 90% GROSS UP POOL %15,977,623
BANK OF INDONESIA REAL ESTATE TAXES %12,578,422
# 53-SUITE 3601/08 - REAL ESTATE TAXES %12,422,463
HYPERION CAPITAL 90% GROSS UP POOL %17,316,000
# 54-SUITE 12 - 18 - REAL ESTATE TAXES %12,422,463
GRUMTAL & CO, INC 90% GROSS UP POOL %20,234,232
# 55-SUITE 4604 - REAL ESTATE TAXES %13,125,909
MARIA FIORINI-RAMI 90% GROSS UP POOL %15,534,149
# 56-SUITE 0601 - REAL ESTATE TAXES %13,125,909
WORLD FINANCIAL 90% GROSS UP POOL %15,534,149
# 57-SUITE SPEC - 90% GROSS UP POOL %20,234,232
MID RISE REAL ESTATE TAXES %12,524,335
</TABLE>
CUSHMAN &
WAKEFIELD(R)
---------------------------
VALUATION ADVISORY SERVICES
---------------------------
<PAGE>
Income Capitalization Approach
================================================================================
The following pages provide a summary of the subject's tenants and their
lease terms, as of the date of value.
Estimate of Market Rent - Office
Our market information details the factors affecting any building; market
rent levels, absorption, vacancy and new construction. The information points to
stronger demand for space attributable to declining rent levels, but with high
vacancies due to the overbuilding of the preceding decade. The subject is
perceived to be a primary building at a primary location. However, until the
competitively priced spaces are absorbed, it will be necessary for the subject
to compete on the basis of price and concessions.
In order to further support our market information, exhibited on the
following page is a summary chart delineating recent Downtown leases.
The comparable leases exhibit a range in average rental rates from a low
of $20.94 per square foot to a high of $33.00 per square foot for office space.
After adjusting these average "face" rates for free rent and the amortization of
tenant improvement allowances, effective rent rates range from $12.01 to $21.60
per square foot. This range in rental rates reflects the immediate monies due
and reflects other data including escalations as well as timing, floor sizes,
location and commissions. We have also spoken to brokers active in this area in
an effort to round out this information.
Comparable Rental No. 1 is the 1997 lease of 17,600 square feet at 40 Wall
Street. This 10 year lease was drawn for an initial base rent of $30.00 per
square foot with step-ups in the fourth and seventh floors. This lease averages
$33.00 per square foot over its 10 year term. Twelve months of free rent and a
$40.00 tenant improvement allowance were conceded by the landlord, resulting in
an average effective rent of $21.60 per square foot over the term of the lease.
Although this building was constructed in 1931, it has been undergoing a major
renovation. Therefore, a slight upward adjustment was made to reflect the
superior age relative to the subject property. A slight upward adjustment was
also made to reflect the term of this lease relative to those typical found
within the subject property. After adjustment, an average effective rent of
$23.76 per rentable square foot is indicated by this comparable.
================================================================================
-53-
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================
COMPARABLE OFFICE RENTS & ADJUSTMENTS
- -------------------------------------------------------------------------------------------------------------------
RENTAL NO. 1 RENTAL NO.2 RENTAL NO.3
------------ ----------- -----------
<S> <C> <C> <C>
LOCATION 40 Wall Street 180 Water Street 125 Broad Street
(fomerly 130 John Street)
New York New York New York
ANNUAL RENT/SF Years 1 thru 3 - $30.00 Years 1 thru 5 - $17.25 Years 1 thru 5 - $22.00
Years 4 thru 6 - $32.00 Years 6 thru 10 - $20.50 Years 6 thru 10 - $28.00
Years 7 thru 10 - $36.00 Years 11 thru 15 - $22.50 Years 11 thru 15 - $31.00
Average - $33.00 Years 16 thru 20 - $23.50 Years 16 thru 20 - $34.00
Average - $20.94 Average - $29.50
TERMS 10 years 20 years 20 years
TI's - $4O.O0/sf TI's - $25.O0/sf TI's - $5O.O0/sf
Free Rent - 12 months Free Rent - 1 month Free Rent - 20 months
Direct pass-through Direct pass-through Direct pass-through
FLOOR LOCATION High-Rise Mid-Rise
DATE OF LEASE May-97 May-97 May-97
SIZE (SF) 17,600 467,000 67,568
BUILDING LOCATION Similiar Inferior Inferior
YEAR CONSTRUCTED 1931 1970 1970
CONDITION Good Good Good
QUALITY Similiar Inferior Inferior
AVERAGE EFFECTIVE RENT/SF $21.80 $17.83 $18.73
ADJUSTMENTS
Time 0.0% 0.0% 0.0%
Time Adjusted Unit Price $21.80 $17.83 $18.73
Size 0.0% 0.0% 0.0%
Building Location 0.0% 10.0% 5.0%
Floor Location 0.0% 0.0% 0.0%
Age/Condition 5.0% 10.0% 5.0%
Quality 0.0% 5.0% 5.0%
Term 5.0% -5.0% -5.0%
---------------------------------------------------------------------------------
TOTAL ADJUSTMENT 10.0% 20.0% 10.0%
ADJUSTED RENT/SF $22.76 $21.40 $20.60
<CAPTION>
RENTAL NO.4 RENTAL NO. 5 RENTAL NO.6
----------- ------------ -----------
<S> <C> <C> <C>
LOCATION 22 Cortlandt Street One Chase Manhattan Plaza 180 Maiden Lane
New York New York New York
ANNUAL RENT/SF Years 1 thru 5 - $22.00 Years 1 thru 5 - $28.00 Years 1 thru 5 - $25.00
Years 6 thru 10 - $24.00 Years 6 thru 10 - $32.00 Years 6 thru 10 - $27.00
Average - $23.00 Years 11 thru 15 - $36.00 Years 11 thru 15 - $29.00
Average - $32.00 Average - $27.00
TERMS 10 years 15 years l5 years
TI's - $4O.O0/sf TI's - $6O.O0/sf TI's - $25.O0/sf
Free Rent - 15 months Free Rent - 18 months Free Rent - 18 months
Direct pass-through Direct pass-through Direct pass-through
FLOOR LOCATION
DATE OF LEASE 1996 1996 1996
SIZE (SF) 33,000 163,000 145,000
BUILDING LOCATION Similiar Inferior Inferior
YEAR CONSTRUCTED 1971 1960 1984
CONDITION Average - good Similiar Very Good
QUALITY Inferior Similiar Similiar
AVERAGE EFFECTIVE RENT/SF $12.01 $18.59 $18.78
ADJUSTMENTS
Time 10.0% 10.0% 10.0%
Time Adjusted Unit Price $13.21 $20.45 $20.66
Size 0.0% 0.0% 0.0%
Building Location 0.0% 0.0% 5.0%
Floor Location 0.0% 0.0% 0.0%
Age/Condition 10.0% 0.0% 0.0%
Quality 10.0% 0.0% 0.0%
Term 5.0% 0.0% 0.0%
------------------------------------------------------------------------------
TOTAL ADJUSTMENT 25.0% 0.0% 5.0%
ADJUSTED RENT/SF $16.51 $20.45 $21.69
===================================================================================================================
</TABLE>
CUSHMAN &
WAKEFIELD(R)
---------------------------
VALUATION ADVISORY SERVICES
---------------------------
<PAGE>
Income Capitalization Approach
================================================================================
Comparable Rental No. 2 is the 1997 lease of 467,000 square feet at 180
Water Street by the City of New York. This 20 year lease was drawn at an initial
base rent of $17.25 per square foot, with step-ups every 5 years. This lease
averages $20.94 over its term. The landlord granted one month of free rent and a
tenant improvement allowance equal to $25.00 per square foot, resulting in an
average effective rent of $17.83 per rentable square foot. Upward adjustments
were made to reflect the inferior location of this building, its inferior
condition relative to the subject, and its inferior quality of construction
relative to the subject property. A downward adjustment has been made to reflect
the longer term relative to those typically found within the subject. After
adjustment, an average effective rent of $21.40 per rentable square foot is
indicated by this comparable.
Comparable Rental No. 3 is the 1997 lease of 67,568 square feet at 125
Broad Street (also known as 2 New York Plaza), at the tip of Manhattan. This 20
year lease was drawn for an initial base rent of $25.00 per square foot, with
step-ups every five years with an average rent of $29.50 per square foot over
the 20 year term. Twenty months of free rent and a $50.00 per square foot tenant
improvement allowance were conceded by the landlord, resulting in an average
effective rent of $18.73 per square foot. Upward adjustments were made to
reflect the slightly inferior location of this property, its slightly inferior
condition, and its slightly inferior quality of construction. A downward
adjustment was made to reflect a longer term of this lease relative to those
typically found within the subject. After adjustment, an average effective rent
of $20.60 per rentable square foot is indicated by this comparable.
Comparable Rental No. 4 is the 1996 lease of 33,000 square feet of space
at 22 Cortlandt Street, across the street from the subject property. This 10
year lease was drawn for an initial base rent of $22.00 per square foot with a
step-up in its 6th year. This lease averages $23.00 per square foot over its 10
year term and includes 15 months of free rent and a $40.00 per square foot
tenant improvement allowance granted by the landlord. The resulting average
effective rent is $12.01 per rentable square foot. Upward adjustments were made
to reflect the inferior condition of this property relative to the subject, its
inferior quality of construction, and its shorter term relative to those
typically found within the subject. After adjustment, the average effective rent
of $16.51 per rentable square foot is indicated by this comparable.
Comparable Rental No. 5 is the 1996 lease of 163,000 square feet at One
Chase Manhattan Plaza, two blocks to the east of the subject. This 15 year lease
was drawn for an initial base rent of $28.00 per square foot with step-ups in
the 6th and 11th years. The average base rent for this lease is $32.00 per
square foot, however, the landlord granted 18 months of free rent and a tenant
improvement allowance equal to $60.00 per square foot. The resulting average
effective rent was $18.59 per square foot. The only adjustment considered to be
necessary was an upward adjustment to reflect the positive change in economic
conditions since this lease was executed. The resulting average effective rent
indicated by this comparable is $20.45 per square foot.
================================================================================
-55-
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
Income Capitalization Approach
================================================================================
Comparable Rental No. 6 is the 1996 lease of 145,000 square feet by the
law firm of Stroock, Stroock and Lavan at 180 Maiden Lane. This 15 year lease
was drawn for an initial base rent of $25.00 per square foot, with steps in the
6th and 11th years. This lease averages $27.00 per square foot over its term
with landlord concessions of 18 months of free rent and a tenant improvement
allowance equal to $25.00 per square foot. The resulting average effective rent
was equal to $18.78 per square foot. Upward adjustments were made to reflect the
positive change in economic conditions since this lease was executed, and for
the slightly inferior location of this property relative to the subject. After
adjustment, an average effective rent of $21.69 per rentable square foot is
indicated.
After adjustment the average effective rents indicated by the comparables
range from a low of $16.51 to a high of $23.76 per square foot.
Free Rent
As mentioned previously, free rent has been an element in many of the
recent leases in the building. Tenants typically do not pay rent during the
period when their space is being prepared for occupancy which generally ranges
from 3 to 4 months. In addition, the current soft office market conditions have
placed pressure on landlords to provide additional free rent or "real free rent"
to prospective tenants. Based upon the most recent leases signed in the market,
we have assumed that 18 months of free rent will be granted to tenants signing
15 year leases, and 6 months will be granted to tenants signing leases that are
5 years in duration. As the market strengthens, however, we feel that these
concessions will decline to 15 months by 1999 (for 15 year leases). The
following schedule summarizes our free rent forecast.
=====================================================================
Year Free Rent-15 Yr. Leases Free Rent-5 Yr. Leases
---------------------------------------------------------------------
1998 18 months 6 months
1999 and 15 months 3 months
Thereafter
=====================================================================
Tenant Improvement Allowance
Some of the leases previously exhibited contain stipulated workletters,
provided by the landlord. Landlord work ranging from $26 per square foot to $60
per square foot is common in the current market. We have assumed that the
landlord would incur an average $40 per square foot charge to refurbish space
for new tenants and one-half of that amount for renewing tenants. Here too, we
expect some scaling back as the market strengthens. Due to the burden of the
initial cash outlay, we expect this concession to be reduced to $35 per square
foot for new tenants and $15.00 per square foot for renewals by 2001. The
following schedule summarizes our conclusions:
Year Allowance
1998 and 1999 $40.00/SF
Thereafter $35.00/SF
================================================================================
-56-
CUSHMAN &
WAKEFIELD(R)
---------------------------
VALUATION ADVISORY SERVICES
---------------------------
<PAGE>
Income Capitalization Approach
================================================================================
Conclusion of Market Rent - Office
Based upon the above, it is our opinion that the average effective rent
most applicable to the subject is $21 per square foot. Our examination of the
comparable leases and discussions with brokers acquainted with the subject, have
led us to conclude that the appropriate improvement allowance is $40 per square
foot and that 18 months of free rent should be granted for a 15 year lease and
six months for a five year lease. When our previously concluded average
effective rent of $21 per square foot is readjusted to reflect these
concessions, an average face rate of $29.00+/- per square foot is indicated. Our
review of the leases presented earlier indicates that the typical 15 year lease
will include a step-up at the beginning of years 6 and 11. In the instance of
the subject, we have assumed that a 10 percent step-up is applicable.
Based upon the considerations discussed above, we have projected that new
office leases concluded in the subject as of the date of valuation would be
written as follows:
Term: Partial Floor - 5 years
Full Floor - 15 years
Average Base Market Rent: $29.00/SF
========================================================================
Low- Mid- High-
Floors Rise Rise Rise Average
------------------------------------------------------------------------
Years 1-5 $24.50 $26.50 $28.50 $26.50
------------------------------------------------------------------------
Years 6-10 $27.00 $29.00 $31.00 $29.00
------------------------------------------------------------------------
Years 11-15 $29.50 $31.50 $33.50 $31.50
------------------------------------------------------------------------
Average $27.00 $29.00 $31.00 $29.00
========================================================================
Additional Rent: Pro rata share of increases in real estate taxes
and operating expenses.
Options: None
Rent Concessions: 6 months free rent for 5 year leases (partial
floor) 18 months free rent for 15 year leases
(full floor)
Tenant Alterations: We have assumed that new tenants will receive an
improvement allowance equal to $45 per square
foot.
Estimate of Market Rent-Retail
Presented on the following page is a chart detailing four comparable
retail rents in the downtown area. Prior to adjustment, the leases have initial
rents per square foot ranging from $40.00 to $65.00 per square foot. This range
reflects the immediate monies due and other data including escalations, as well
as timing, floor sizes, location and commissions.
================================================================================
-57-
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WAKEFIELD(R)
---------------------------
VALUATION ADVISORY SERVICES
---------------------------
<PAGE>
Income Capitalization Approach
================================================================================
Retail Rental No. 1 is the April, 1995 lease of 15,000 square feet at 52
Broadway. This 8 year lease was drawn at an initial base rent of $50.00 per
square foot. Relative to the subject, an upward adjustment was made to reflect
the larger size of this space relative to that available at the subject
property. Downward adjustments were made to reflect its superior location on
Broadway, which enjoys a higher flow of pedestrian traffic, and for its superior
age and condition. After adjustment, an initial base rent of $40.00 per square
foot is indicated by this lease.
Retail Rental No. 2 is the April, 1995 lease of 4,200 square feet of space
at 335 Broadway for $65.00 per square foot. This space is located in close
proximity to 26 Federal Plaza, the federal office building and the new
government office and courthouse complex located at 290 Broadway. Therefore, a
downward adjustment has been made to reflect the superior location of this
retail space. An upward adjustment has been made to reflect the prewar nature of
this building. After adjustment, an initial base rent of $58.50 per square foot
is indicated.
Retail Rental No. 3 is the November, 1994 lease of 1,700 square feet of
space at 175 Water Street, an initial base rent of $40.00 per square foot. A
slight downward adjustment has been made to reflect the deterioration of the
market since the date of this lease. The only other adjustment required was a
downward adjustment to reflect the newer condition of this space relative to the
subject. After adjustment, a unit rent of $34.20 per square foot is indicated by
this lease.
Retail Rental No. 4 is the March, 1994 lease of 1,923 square feet at 55
Broadway at an initial base rent of $40.00 per square foot. A slight downward
adjustment has again been made to reflect the deterioration of the market since
this lease was signed. Downward adjustments were also made to reflect the
superior Broadway location of this space and the superior age and condition of
this property. After adjustment, an initial unit rent of $26.60 per square foot
is indicated.
After adjustment, the indicated initial unit rents range from a low of
$26.60 to a high of $58.50 per square foot. Therefore, it is our conclusion that
the retail market rent most applicable to the subject property ranges from
$50.00 to $75.00 per square foot.
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WAKEFIELD(R)
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<PAGE>
<TABLE>
<CAPTION>
===============================================================================================================================
COMPARABLE RETAIL RENTS & ADJUSTMENTS
- -------------------------------------------------------------------------------------------------------------------------------
RENTAL NO. 1 RENTAL NO. 2 RENTAL NO. 3
------------ ------------ ------------
<S> <C> <C> <C>
LOCATION 52 Broadway 335 Broadway 175 Water Street
New York New York New York
ANNUAL RENT/SF $50.00 $65.00 $40.00
(Initial) (Initial) 3% increase every year
TERMS 8 years 10 years 10 years
Pro-rata share of taxes Pro-rata share of taxes Pro-rata share of taxes
over base year over base year over base year
DATE OF LEASE April-95 April-95 November-94
SIZE (SF) 15,000 4,200 1,700
BUILDING LOCATION Similar Inferior Similar
YEAR CONSTRUCTED 1987 1981 1984
CONDITION Very Good Inferior Very Good
QUALITY Similar Similar Similar
ADJUSTMENTS
Time 0.0% 0.0% -5.0%
Time Adjusted Unit Price $50.00 $65.00 $38.00
Size 10.0% 0.0% 0.0%
Building Location -20.0% -20.0% 0.0%
Age/Condition -10.0% 10.0% -10.0%
Quality 0.0% 0.0% 0.0%
-------------------------------------------------------------------------------------------
TOTAL ADJUSTMENT -20.0% -10.0% -10.0%
ADJUSTED RENT/SF $40.00 $58.50 $34.20
<CAPTION>
RENTAL NO. 6
------------
<S> <C>
LOCATION 55 Broadway
New York
ANNUAL RENT/SF $40.00
(Initial)
TERMS 15 years
Pro-rata share of taxes
over base year
DATE OF LEASE March-94
SIZE (SF) 1,923
BUILDING LOCATION Inferior
YEAR CONSTRUCTED 1984
CONDITION Very Good
QUALITY Similar
ADJUSTMENTS
Time -5.0%
Time Adjusted Unit Price $38.00
Size 0.0%
Building Location -20.0%
Age/Condition -10.0%
Quality 0.0%
------------------------------------
TOTAL ADJUSTMENT -30.0%
ADJUSTED RENT/SF $26.60
================================================================
</TABLE>
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
Income Capitalization Approach
================================================================================
Expense Recoveries
There are two forms of expense recapture forecasted for leases in the
subject building as derived from our typical lease assumption: recapture of the
increase in real estate taxes and off operating expenses over a base year. The
subject's existing tenants pay for electric service based on sub-metering.
All tenants will reimburse the landlord for any increases in real estate
taxes and operating expenses on a pro rata share formula. This formula may be
highlighted as follows:
Billing Year Real Estate Taxes
Less: Base Year Real Estate Taxes
Equals: Increase in Real Estate Taxes
Multiplied by: Tenant's Proportionate Share of Building
Equals: Real Estate Tax Escalation for Billing Year
Operating expense reimbursements are calculated in a fashion similar to
that used for the calculation of tax reimbursements for tenants with a direct
pass-through clause. Typically, the base year in which calculations are derived
is the year in which the tenant occupies the space and the lease commences. The
defined building area is usually the rentable area, but there may be some
differences between a tenant's pro-rata share and the percentage designated in
the lease. All new leases are projected to include a direct pass-through clause
rather than the porters wage clause, which may be found in some of the existing
leases.
The porter's wage clause is an aggressive method of reimbursement, and is
not considered acceptable in the current soft market. The porter's wage method
of reimbursement is calculated as follows:
Billing Year Wage Rate
Less: Base Year Wage Rate
Equals: Increase in Wage Rate
Multiplied by: Tenant's Pro-rata Square Footage
Equals: Escalation Computed
Multiplied by: 1.0 or 1.5 plus fringes
Equals: Porter's Wage Escalation
Sale and Sundry
In addition to base rental income and expense recoveries, the landlord is
capable of generating income from the sale of miscellaneous services performed
on behalf of a tenant. These sales and services include overtime electric and
air conditioning, maintenance and repairs within the tenant's space, as well as
a variety of smaller items. A history of this income of the subject may be
summarized as follows:
================================================================================
-60-
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
Income Capitalization Approach
================================================================================
Year Miscellaneous
====================================
1992 $2,042,168
1993 $2,565,213
1994 $1,894,386
1995 $2,116,253
1996 $1,036,515
Sept. 1997 $1,548,150
====================================
Based upon the above, we have projected Sale and Sundry Income to be
$2,100,000 in 1998, growing 3 percent per annum thereafter.
Absorption
As noted earlier in this report, the subject contains 13,720 square feet
of above grade office space that is currently vacant, less than 1 percent of its
total. Given its level of occupancy, absorption of any vacant space does not
appear to be a concern for the subject.
Vacancy
Any assumption of vacancy in the building must account for the following
factors: the length of the leases in force; current economic and market
conditions; historical trends; and the characteristics inherent to the building
itself. The location of the subject has historically been very desirable for
office tenancies. The writers have assumed that direct leases in the subject
will be drawn for a period of 5 to 10 years. These assumptions are based on the
leases in the subject as well as current offering information. These assumptions
attempt to recognize the differences in product, the nature of the tenancies and
the attractiveness of a fixed rental rate which would make tenants reluctant to
vacate.
In analyzing the subject, an allowance for potential vacancy and credit
loss would clearly be provided by a prudent investor. As real estate is
basically a long term investment, there always exists the possibility of
occasional rent loss such as the period between the day one tenant vacates the
premises and the day the incoming tenant begins to pay rent. Downtime and
turnover vacancy is reflected in the "Minimum Rent - All Tenants" line in our
Cash Flow analysis on page 90. Please note that we have assumed an initial
weighted average of 8 months vacancy attributable to downtime and vacancy in
turnover. Assuming leases within the subject to average ten years in duration,
this equals a vacancy of 6.7 percent (8 months/120 months). When added to our
5.0 percent global vacancy and credit loss, total vacancy and credit loss equal
11.7 percent. Given the long term prospects for Class A space in the World Trade
District, this total level of vacancy appears to be reasonable.
The market studies, exhibited previously, yielded a current vacancy rate
for Class A office buildings in the World Trade District area of 10.2 percent
with an average asking rental for this space of $31.86 per square foot in the
subject's district as of the third quarter of 1997. Class B figures for this
same period indicated an average vacancy rate of 31.2 percent and an average
asking rent of $25.50 per square foot.
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CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
Income Capitalization Approach
================================================================================
It should be noted that space which is presently listed as vacant in
occupied buildings may not actually be so. Tenant indications to landlords of
their desire to leave or not renew will automatically place their space in a
listing as available.
Property Expenses
As property expenses are a serious offset to any income, an accurate
estimate of what operating expenses will be for a building of this type is
crucially important to the cash flow. The subject property consists of a 27 year
old building whose size is typical of those found in the marketplace.
We have exhibited on the following page a comparison of several
buildings in New York for which operating expenses were available. We project
operating costs to vary in several categories as operating efficiencies are
different from building to building. All of the expense comparables require an
upward adjustment to reflect what will be stabilized calendar year 1998
estimates for the subject. As certain expenses are more sensitive to occupancy
levels (heat, cleaning, electric), the full impact of those expenses will be
considered in the adjustments made in order to arrive at a value for the subject
"as is". It should also be noted that there are significant differences in the
various categories from one building to another. As a check on the expenses
indicated by the comparables, we have also consulted the Building Owners and
Managers Association Experience Exchange Report and Cushman & Wakefield's
Management Services Division in order to ascertain the reasonableness of our
expense estimates in the absence of an owner's statement for the subject.
================================================================================
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WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
<TABLE>
<CAPTION>
=========================================================================================================
HISTORICAL OPERATING INCOME & EXPENSES
=========================================================================================================
CATEGORY CY 1998 ACTUAL CY 1996 ACTUAL Thru 9/30/97 ACTUAL
$ $/SF $ $/SF $ $/SF
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCOME
Base Rent $62,651,806 $30.10 $64,143,862 $30.82 $48,212,517 $23.17
Electric $ 3,468,133 $ 1.67 $ 3,167,217 $ 1.52 $ 2,397,671 $ 1.15
Escalations $ 1,912,924 $ 0.92 $ 1,590,651 $ 0.76 $ 1,692,404 $ 0.81
Sales and Sundry $ 2,116,252 $ 1.02 $ 1,036,515 $ 0.50 $ 1,548,150 $ 0.74
Tenant Loan Repayment $ 18,327 $ 0.01 $ 5,128 $ 0.00 $ 0 $ 0.00
Interest Income $ 270,728 $ 0.13 $ 382,622 $ 0.18 $ 315,514 $ 0.15
Other Income $ 7,271,680 $ 3.49 $ 1,372,293 $ 0.66 $15,191,250 $ 7.30
TOTAL RENTAL INCOME $77,709,850 $37.34 $71,698,288 $34.45 $69,357,506 $33.33
EXPENSES
Payroll $ 3,193,259 $ 1.53 $ 3,326,070 $ 1.60 $ 2,558,964 $ 1.23
Cleaning & Other Contract
Services $ 3,423,703 $ 1.65 $ 3,022,670 $ 1.45 $ 2,522,941 $ 1.21
Repairs & Maintenance $ 2,197,879 $ 1.06 $ 2,590,591 $ 1.24 $ 2,631,786 $ 1.26
Rubbish $ 293,737 $ 0.14 $ 157,480 $ 0.08 $ 29,176 $ 0.01
Gas and Steam $ 1,445,512 $ 0.69 $ 1,757,948 $ 0.84 $ 1,227,093 $ 0.59
Electricity $ 5,909,120 $ 2.84 $ 6,014,054 $ 2.89 $ 4,321,881 $ 2.08
Water $ 230,782 $ 0.11 $ 23,717 $ 0.01 $ 279,836 $ 0.13
Miscellaneous $ 116,653 $ 0.06 $ 102,091 $ 0.05 $ 74,602 $ 0.04
Professional Fees $ 230,962 $ 0.11 $ 131,305 $ 0.06 $ 250,762 $ 0.12
Insurance $ 425,968 $ 0.20 $ 408,582 $ 0.20 $ 499,090 $ 0.24
Renting Expense $ 3,125 $ 0.00 $ 6,667 $ 0.00 $ 16,838 $ 0.01
Management $ 1,172,789 $ 0.56 $ 1,477,224 $ 0.71 $ 1,304,343 $ 0.63
Total Operating Expenses $18,643,489 $ 8.96 $19,018,399 $ 9.14 $15,717,312 $ 7.55
Real Estate Taxes $13,684,059 $ 6.57 $12,895,120 $ 6.20 $12,829,291 $ 6.16
Other Taxes $ 0 $ 0.00 $ 0 $ 0.00 $ 0 $ 0.00
Total Fixed Expenses $13,684,059 $ 6.57 $12,895,120 $ 6.20 $12,829,291 $ 6.16
TOTAL EXPENSES $32,327,548 $15.53 $31,913,519 $15.33 $28,546,603 $13.72
NET OPERATING INCOME $45,382,302 $21.81 $39,784,769 $19.12 $40,810,903 $19.61
<CAPTION>
=========================================================================================
CATEGORY 1997 ANNUALIZED CY 1998 FORECAST
$ $/SF $ $/SF
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCOME
Base Rent $64,283,356 $30.89 $67,660,032 $ 32.51
Electric $ 3,196,895 $ 1.54 $ 3,182,700 $ 1.53
Escalations $ 2,256,539 $ 1.08 $ 5,006,975 $ 2.41
Sales and Sundry $ 2,064,200 $ 0.99 $ 2,100,000 $ 1.01
Tenant Loan Repayment $ 0 $ 0.00 $ 0 $ 0.00
Interest Income $ 420,685 $ 0.20 $ 0 $ 0.00
Other Income $20,255,000 $ 9.73 $ 46,461 $ 0.02
TOTAL RENTAL INCOME $92,476,675 $44.43 $77,996,168 $ 37.48
EXPENSES
Payroll $ 3,411,952 $ 1.64 $ 3,750,000 $ 1.80
Cleaning & Other Contract
Services $ 3,363,921 $ 1.62 $ 3,850,000 $ 1.85
Repairs & Maintenance $ 3,509,048 $ 1.69 $ 2,450,000 $ 1.18
Rubbish $ 38,901 $ 0.02 $ 50,000 $ 0.02
Gas and Steam $ 1,636,124 $ 0.79 $ 1,725,000 $ 0.83
Electricity $ 5,762,508 $ 2.77 $ 6,000,000 $ 2.88
Water $ 373,115 $ 0.18 $ 240,000 $ 0.12
Miscellaneous $ 99,469 $ 0.05 $ 125,000 $ 0.06
Professional Fees $ 334,349 $ 0.16 $ 250,000 $ 0.12
Insurance $ 665,453 $ 0.32 $ 400,000 $ 0.19
Renting Expense $ 22,451 $ 0.01 $ 4,500 $ 0.00
Management $ 1,739,124 $ 0.84 $ 730,678 $ 0.35
Total Operating Expenses $20,956,416 $10.07 $19,575,178 $ 9.41
Real Estate Taxes $12,829,291 $ 6.16 $12,524,336 $ 6.02
Other Taxes $ 0 $ 0.00 $ 190,962 $ 0.09
Total Fixed Expenses $12,829,291 $ 6.16 $12,715,298 $ 6.11
TOTAL EXPENSES $33,785,707 $16.23 $32,290,476 $ 15.52
NET OPERATING INCOME $58,690,968 $28.20 $45,705,692 $ 21.96
=========================================================================================
</TABLE>
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
Income Capitalization Approach
================================================================================
Operating expenses for the purposes of this report are defined as the
dollar amounts per square foot necessary to operate the building. These expenses
exclude those monies which are paid for real estate taxes, tenant commissions
and tenant improvements or alterations. The comparison of real estate taxes may
be misleading as they are a function of location, the last date of sale, where
applicable, and individual tax situations. Tenant installations and commissions
are a function of the tenant rent roll and the contractual agreements with
tenants and brokers, each landlord having specific agreements. Therefore, in
comparing operating expenses, these highly subjective expenses must be
eliminated.
The following expense estimates are for calendar year 1996, in order to
facilitate comparison with the subject's historical operations. Our cash flow
projection will be on a calendar year basis.
Real Estate Taxes
The subject's real estate tax burden has been discussed earlier. Its
1997/98 taxes are $12,422,463, or $5.97 per rentable square foot. The subject's
tenants benefit from the Lower Manhattan Revitalization Plan's tax abatement
program. This program does not affect the net income and case flow generated by
the subject as the tenant reimbursements (income) are offset by a corresponding
reimbursement to the landlord from the City (expenses).
In addition to its real estate tax liability, the subject falls within the
boundaries of the Downtown Lower Manhattan Business Improvement District. The
total amount due for 1998 is $190,962, or $0.09 per rentable square foot.
Insurance
We have projected that insurance will be approximately $400,000, or $0.19
per rentable square foot of building area. Our analysis of the expenses of
comparable buildings, a review of the BOMA indices, and a conversation with C&W
building personnel indicated that such an expense was in line with typical
insurance expenses for a building of this type. This reflects the standard
structural and liability coverage, and appears reasonable when compared to the
comparables.
Payroll
The cost of the building personnel, including fringe benefits (workmen's
compensation; hospitalization; union dues, pension and annuity fund; and social
security) was estimated to be $3,750,000 per annum, or $1.80 per rentable square
foot in the first year of our projection.
Repairs and Maintenance
This category includes such items as general upkeep, rubbish removal,
elevator maintenance, plumbing and electrical repairs, supplies, structural, and
roof repairs. Based on current projections, we have stabilized this expense at
$2,500,000 annually, or $1.20 per square foot. While slightly lower than the
historical costs with which we have been presented, it is in line with our
comparables.
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CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
Income Capitalization Approach
================================================================================
Cleaning and Cleaning Supplies
This category includes the cost of providing cleaning, cleaning supplies
and janitorial service. Our review of the subject's history led us to conclude
that these expenses conformed with market level costs. Based on current
parameters, this expense will be $3,850,000 in the first year of our projection,
or $1.85 per rentable square foot.
Electric
This expense item covers the cost of electric for the tenant spaces,
hallways and lobbies, as the subject is master metered. For 1998, we have
estimated this expense at $6,000,000, or $2.88 per rentable square foot.
Utilities
This item covers water and sewer charges from the City as well as the cost
of purchasing high pressure steam from Con Ed to heat the building. Based on the
subject's history and our analysis of the comparables, we have estimated this
expense at $1,965,000 or $0.94 per rentable square foot in the first year of our
analysis.
Renting Expenses
This covers those expenses associated with the leasing of the property
that are not covered or included in leasing commission. These expenses were
estimated to be $4,500 or $0.01 per square foot.
Management Fee and Other Administrative Expenses
Typical fees for managing a property such as this range from 1.0 to 3.0
percent. As management and leasing agencies are frequently linked, real estate
firms frequently bid quite competitively for the management contract. Therefore,
we are of the opinion that 1.0 percent is an appropriate fee for management and
administration, or $730,585 in year 1.
Miscellaneous
It is prudent to include a sum for miscellaneous expenses. This will cover
any expenses out of the ordinary that management may incur. We project $0.06 per
square foot or $125,000 to be reasonable.
Professional Fees
This cost covers legal and accounting fees, and has been estimated at
$250,000 or $0.12 per rentable square foot.
Capital Additions (Reserves for Replacement)
It is customary and prudent to deduct an annual sum from effective gross
revenues to establish a reserve for replacing short-lived items in the building.
A reserve equal to $0.20 per square foot, or $424,791 in year 1, is considered
to be a reasonable amount to cover the cost of replacing the roof and mechanical
systems.
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CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
Income Capitalization Approach
================================================================================
The subject property's calendar year 1998 operating expenses are projected
to be $9.08 per square foot, excluding taxes, BID dues and reserves. In light of
other expenses for competing office buildings in the area, it is a level
considered to be quite reasonable. The total per square foot operating expense
is slightly above the operating expenses of other properties. However, the
writers feel that this is reasonable as the subject's expenses include common
area and tenant electric.
Leasing Commissions
Tenant commissions, for the purpose of projection, are assumed to be the
average present rates currently in force for various New York leasing brokers.
Commissions are expended in the year in which they occur and are calculated
using the following standard commission rates:
================================
Year New Lease Renewal
-------------------------------
1 5.00% 2.50%
2 4.00 2.00
3 3.50 1.75
4 3.50 1.75
5 3.50 1.75
6 2.50 1.25
7 2.50 1.25
8 2.50 1.25
9 2.50 1.25
10 2.50 1.25
================================
The writers have endeavored to keep the assumptions to a minimum, the
thought being that minimizing the number of assumptive or speculative variables
would reduce the possible number of potential errors. An overview of the
assumptions employed in our analysis is as follows:
I. Projection Period 11 year period, commencing January 1, 1998.
II. Growth Rates
A. Market Rental Rates Year Growth Rate
Rates ---- -----------
1998-2001 5% per annum
Thereafter 3%
This projected rent growth averages 3.49
percent over the 10 years of the holding
period.
B. Operating Expenses 3.0 percent per annum
C. Real Estate Taxes 3.0 percent per annum, in order to reflect
an average effective tax rate (taxes divided
simple value) of 4.5+/-percent, in
accordance with City targets for Class 4
properties.
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CUSHMAN &
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VALUATION ADVISORY SERVICES
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<PAGE>
Income Capitalization Approach
================================================================================
D. CPI 3.0 percent per annum
III. Market Rents 1998 Gross Rent/SF
Office Space 5 year leases
Low-Rise - $27.00/SF
Mid-Rise - $29.00/SF
High-Rise - $31.00/SF
=================================================================
Floors Low-Rise Mid-Rise High-Rise Average
-----------------------------------------------------------------
Years 1-5 $24.50 $26.50 $28.50 $26.50
-----------------------------------------------------------------
Years 6-10 $27.00 $29.00 $31.00 $29.00
-----------------------------------------------------------------
Years 11-15 $29.50 $31.50 $33.50 $31.50
-----------------------------------------------------------------
Average $27.00 $29.00 $31.00 $29.00
=================================================================
IV. Revenues
A. Rental Income Based upon actual leases
B. Tenant Electric Submetered
C. Escalation Income Tenants responsible for increase in real
estate taxes and operating expenses over a
base year based on direct pass-through.
D. Vacancy/Credit Loss
Year Vacancy Between Leases
1998 12 months
1999 9 months
Thereafter 8 months
Plus 5.0 percent global credit loss
V. Expenses
A. Operating Expenses
1. Building Operating
Expenses Based upon typical expenses incurred as a
primary, multi-tenant office building.
1998 Expenses Per Square Foot
------------- ---------------
$18,894,500 $9.08
(1) Based upon total net rentable area of 2,081,231+/- square feet,
above grade.
B. Real Estate Taxes Estimated real estate taxes for CY 1998 are
$12,524,336 or $6.02 per rentable square
foot.
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VALUATION ADVISORY SERVICES
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<PAGE>
Income Capitalization Approach
================================================================================
C. Business Improvements
District Dues Business improvement district dues for
1996/97 are $190,962, or $0.09 per rentable
square foot.
VI. Rollovers and Renewals
A. Tenant Mix Upon
Lease Expiration Assuming that 50 percent of the space renews
and 50 percent vacates.
B. Office Space: Characteristics of New Leases
1. Lease Term 5 to 15 years
Vacancy Between
2. Vacant Period Year Leases
---- ------
1999 12 months
1999 9 months
Thereafter 8 months
3. Free Rent 6 months for 5 year leases
18 months for 15 year leases, declining to
15 months in 1997.
4. Base Rent Base rent is assumed to be market rent in
the year of rollover.
5. Type of Escalation Pass-through of pro rata share of increases
in real estate taxes and operating expenses;
reimbursement for electric costs on a
sub-meter basis.
6. Leasing
Commissions
i. New Leases 24.38 percent of first year's rent for a 5
year lease payable in the year incurred; 40
percent for a 10 year lease (assumes that a
commission and one-quarter will be paid for
outside broker participation in securing
tenants).
ii. Renewals One-half of the above described commission.
7. Tenant Alteration
i. New Leases Estimated 1998 and 1990 cost of $40 per
square foot.
ii. Renewals One-half the cost of a new installation
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CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
Income Capitalization Approach
================================================================================
VII. Reversion
At the end of the 10th year, a sale is assumed to occur based upon a
capitalization of the following year's net operating income. The basis for
the use of this method is the definition of value, which may be viewed as
the present worth of the rights to future benefits. Three percent sales
costs have been deducted.
VIII. Discounted Present Value
The calculation of the discounted present worth of the cash flows will be
based upon the selection of appropriate yield and capitalization rates to
be applied to the subject property's cash flow. These will be discussed in
the appropriate section.
The general underlying theory that serves as support for these cash flows
assumes that the owners are astute, prudent financial managers who will operate
the building in order to maximize the returns on the property. This theory
assumes competent management and that all necessary steps are taken in order to
insure the maximization of the cash flows from the building and the sensible
upkeep of all the improvements.
Exhibited on following page is the cash flow analysis which will form the
basis for our conclusions of the market value of the fee simple interest, as
encumbered by the existing and projected leases, via the discounted cash flow
analysis.
It has been determined that the property can reasonably be expected to
operate at a level capable of generating adequate revenues above expenses. The
opportunity for appreciation through increasing rates of return coincides with
the property's ability to keep pace with market conditions. This situation is
influenced by the nature of the existing and projected tenancy, and the
associated contractual arrangements.
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<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
One Liberty Plaza
Cash Flow Report
- ---------------------------------- -------------------------------------------------
<S> <C> <C> <C>
Building Size (SF) 2.061.231 Reconciled Value $430,000,000
Cost of Sales 2.0% Value per SF $206.61
Holding Period (Years) 10 Residual as % of Reconciled Value 43.1%
- ---------------------------------- -------------------------------------------------
<CAPTION>
1998 1999 2000 2001 2002 2003 2004
<S> <C> <C> <C> <C> <C> <C> <C>
BASE RENT 67,660,032 76,287,072 76,480,656 77,146,880 76,943,328 78,099,312 80,412,240
Free Rent (1,363,223) (130,182) (566,927) (591,787) (244,983) (79,456) (2,455,952)
Expense Recoveries 5,006,975 5,576,062 6,142,263 6,935,311 7,794,788 8,764,656 9,077,059
-----------------------------------------------------------------------------------------------------------
GROSS INCOME 71,303,784 81,732,952 82,055,992 83,490,404 84,493,133 86,784,512 87,033,347
Credit/Vacancy Loss (3,565,190) (4,086,648) (4,102,796) (4,174,511) (4,224,656) (4,339,224) (4,351,665)
Miscellaneous Incomes 5,329,161 5,488,489 5,652,556 5,821,567 5,995,648 6,174,950 6,359,632
-----------------------------------------------------------------------------------------------------------
EFFECTIVE GROSS INCOME 73,067,755 83,134,773 83,605,752 85,137,460 86,264,125 88,620,238 89,041,314
EXPENSES
Real Estate Taxes 12,524,338 12,900,066 13,287,068 13,685,680 14,096,250 14,519,136 14,954,710
Operating Expenses 19,766,140 20,437,873 21,030,778 21,651,937 22,287,217 22,953,517 23,619,746
-----------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 32,290,476 33,337,939 34,317,846 35,337,617 36,383,467 37,472,653 38,574,456
NET OPERATING INCOME 40,777,279 49,796,834 49,287,906 49,799,843 49,880,658 51,147,585 50,466,858
COMMISSIONS 883,001 55,770 898,418 111,569 259,760 75,597 2,065,139
TENANT IMPROVEMENTS 15,306,348 127,598 1,746,204 224,787 543,274 137,956 3,959,736
CAPITAL ADDITIONS 424,791 437,535 450,661 464,181 478,106 492,449 507,223
-----------------------------------------------------------------------------------------------------------
CASH FLOW 24,163,139 49,175,931 46,192,623 48,999,306 48,599,518 50,441,583 43,934,760
Implied Overall Rate 9.5% 11.6% 11.5% 11.6% 11.6% 11.9% 11.7%
Cash on Cash Return 5.6% 11.4% 10.7% 11.4% 11.3% 11.7% 10.2%
<CAPTION>
2005 2006 2007 2008
<S> <C> <C> <C> <C>
BASE RENT 79,274,416 79,125,696 81,180,208 82,228,968
Free Rent (624,237) (2,715,466) (971,501) (1,712,497)
Expense Recoveries 9,451,125 8,964,718 9,449,140 10,118,370
--------------------------------------------------------------
GROSS INCOME 88,101,304 85,374,948 89,657,847 90,634,841
Credit/Vacancy Loss (4,405,062) (4,268,751) (4,482,892) (4,531,740)
Miscellaneous Incomes 6,549,853 6,745,782 6,947,590 7,155,450
--------------------------------------------------------------
EFFECTIVE GROSS INCOME 90,246,095 87,851,979 92,122,545 93,258,551
EXPENSES
Real Estate Taxes 15,403,352 15,865,452 16,341,414 16,831,656
Operating Expenses 24,313,673 24,992,068 25,758,178 26,514,649
--------------------------------------------------------------
TOTAL EXPENSES 39,717,025 40,857,520 42,099,592 43,346,305
NET OPERATING INCOME 50,529,070 46,994,459 50,022,953 49,912,246
COMMISSIONS 501,289 2,743,669 357,143 1,735,209
TENANT IMPROVEMENTS 1,138,785 4,750,609 619,407 3,013,385
CAPITAL ADDITIONS 522,439 538,112 554,256 570,883
--------------------------------------------------------------
CASH FLOW 48,366,557 38,962,069 48,492,147 44,592,769
Implied Overall Rate 11.8% 10.9% 11.6% 11.6%
Cash on Cash Return 11.2% 9.1% 11.3% 10.4%
</TABLE>
[The following table was depicted as a line chart in the printed material.]
- --------------------------------------------------------------------------------
CASH FLOW
1 24,163,139
2 49,175,931
3 46,192,623
4 48,999,306
5 48,599,518
6 50,441,583
7 43,934,760
8 48,366,557
9 38,962,069
10 48,492,147
11 44,592,769
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Sale Yield Matrix
Terminal Cap Rate
------------------------------------------------------------
Discount Rate 9.0% 9.5% 10.0%
- --------------------------------------------------------------------------------
10.5% $473,849,017 $462,069,730 $451,530,369
11.0% $458,796,199 $447,536,884 $437,462,760
11.5% $444,379,939 $433,615,458 $423,984,081
12.0% $430,569,068 $420,275,604 $411,065,863
12.5% $417,334,109 $407,489,091 $396,680,390
- --------------------------------------------------------------------------------
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
Income Capitalization Approach
================================================================================
Investors realize that a property's net income stream can fluctuate over a
typical holding period and are concerned about the effects on the bottom line.
The escalating expenses can offset profits if the leasing arrangements are
without clauses that can protect the income streams. Tenant expense contribution
clauses, as in the case of the subject property, insure to a degree that
escalating expenses will not seriously damage the net income. Upon renewals, the
landlord incurs base year expenses and, by absorbing operating expenses during
different years in the holding period, causes the net income to vary.
Additionally, in years where there is a substantial amount of turnover, not only
will the landlord incur a corresponding amount of base year expenses, he will
also bear the responsibility of leasing commissions and rental concessions.
The major consideration for the subject property in the investment
marketplace is its location in Downtown Manhattan's office district. This market
is more dependent upon the financial services sector than the Midtown Manhattan
market. The recovery of the Downtown market typically lags that of Midtown. Most
experts are of the opinion that the Midtown market started to recover in the
second half of 1993.
One of the items that is sometimes overlooked in any investment analysis
is the quality of the construction and the type of technology that is used to
construct the improvements. In the case of the subject property, the
improvements are roughly 27 years old. It contains mechanical systems, such as
the chillers, and elevators that are in need of replacement. This will enhance
the desirability of the building as an economic vehicle.
Capitalization
Capitalization is defined as the process of converting a series of
anticipated future periodic installments of net income into present value (or
obtaining the present worth of).
The anticipated net income stream is converted into a value estimate by a
rate which attracts capital to purchase 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 office building.
Discounted Cash Flow Analysis
Discounted cash flow analysis can be used to estimate present value of an
income stream. Periodic cash flows and the projected reversion amount at the end
of a holding period are discounted at an appropriate rate. Our analysis refers
to an all-cash purchase.
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CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
Income Capitalization Approach
================================================================================
Reversionary Capitalization
Reversionary capitalization rates or "terminal" capitalization rates are
typically slightly higher than "going-in" (first-year) capitalization rates. The
theory is that, all other things being equal, an investor will pay less for an
older building with a shorter remaining economic life than a newer building.
Based on the location of the subject property and assuming market stability and
operational stability of the subject, we have estimated a terminal
capitalization rate of 9.5 percent for the subject property.
Discount Rate Selection
The projected net operating income for each of the ten years prior to sale
have been discounted to reflect the risk inherent in receiving future cash
flows. The deferred return of the initial investment (reversion) when the
property is estimated to be sold 13 years in the future is also discounted.
The discount rate is the rate of return which equals the sum of the real
return anticipated in the investment, plus a change in value and any risk
premiums associated with the specific investment when compared to alternative
investments. It is the average annual rate of return necessary to attract
capital based upon the overall investment characteristics.
The discount rate selection requires the appraiser to interpret the
attitudes and expectations of market participants. Discount rates are partly a
function of perceived risks. Risk is a function of general economic conditions
and characteristics of the investment. The critical elements of an investment
include the quantity and certainty of gross income, operating expenses, and
resultant net income over some future time period. Value is a reflection of
future income expectations, and such elements are risky.
A determination of the proper discount and capitalization rates for the
subject involved speaking with investors, and brokers of office properties
throughout the country, discussing investment parameters with other industry
experts and considering the results of several published investment surveys.
The following survey is published by Cushman & Wakefield's Valuation
Advisory Services. This office investors survey indicates an average-low
going-in capitalization rate of 8.9 percent and an average-high of 9.5 percent.
The average-low terminal capitalization rate is 9.2 percent with an average-high
of 9.7 percent. Results of this survey also indicate an average-low internal
rate of return of 11.0 percent, and an average-high of 11.8 percent. The results
of the Cushman & Wakefield Summer 1997 Investor Survey for Class A Urban offices
(value added) are on the following table.
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CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
Income Capitalization Approach
================================================================================
Office Market
Urban / CBD
<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
- -----------------------------------------------------------------------------------------------------------------------------------
Class A - Leased Asset
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5.0% 10.0%
9.0% 9.0% 5.5% 8.5% 3.0 5.0
9.0% 9.0% 9.5% 9.5% 11.5% 11.5% 4.0% 4.0% 4.0% 4.0% 10.0 10.0
9.0% 9.0% 9.0% 9.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0
9.5% 9.5% 9.5% 9.5% 11.5% 11.5% 4.0% 4.0% 3.0% 3.0% 5.0 5.0
10.5% 10.5% 9.5% 9.5% 4.0% 4.0% 4.0% 4.0% 5.0 5.0
8.0% 9.0% 9.0% 10.0% 10.5% 12.0% 3.5% 3.5% 3.5% 3.5% 10.0 10.0
6.5% 9.5% 9.0% 9.5% 10.5% 11.5% 10.0 10.0
9.0% 9.5% 9.5% 10.0% 12.0% 12.0% 3.5% 4.0% 3.5% 4.0% 10.0 10.0
9.5% 9.5% 10.0% 10.0% 4.0% 5.0% 4 0% 4.0% 10.0 10.0
8.0% 10.0% 8.5% 11.0% 10.0% 12.0% 3.5% 3.5% 10.0 10.0
- -----------------------------------------------------------------------------------------------------------------------------------
Responses 11 11 10 10 6 6 7 7 8 8 10 10
Average(%) 8.9% 9.5% 9.2% 9.7% 11.0% 11.8% 3.9% 4.1% 3.7% 3.8% 8.3 8.5
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Korpacz Real Estate Investor Survey, Third Quarter 1997, summarizes
investor requirements for Central Business District offices. The going-in
capitalization rate ranged from 7.5 percent to 11.5 percent. The average
going-in capitalization rate was 9.25 percent. The range of terminal
capitalization rates for the subject's category was 8.25 percent to 11.5
percent, with an average of 9.61 percent. The internal rate of return was
reported to range from 10.0 percent to 15.0 percent with an average of 11.70
percent. In addition, the market rent change rate was reported to range from
zero percent to 8.0 percent with an average of 3.50 percent. The operating
expense change rate was reported to range from 3.0 percent to 5.0 percent, with
an average of 3.66 percent.
Discounted Cash Flow Model
Our valuation analyses and matrixes are presented on the following page.
Incorporated in our model are these assumptions and estimates.
Projection Period: Ten years with sale/refinancing at beginning
of eleventh year.
Internal Rate of Return: 10.5 to 12.5 percent
Terminal Capitalization Rate: Estimated at 9.5 percent, applied to the
11th year's net operating income. We have
deducted 3.0 percent for estimated closing
costs from the forecasted sale price.
The discounted cash flow analysis presented on the following page provides
an estimated value of the subject within the parameters described.
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CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
---------------------------
<PAGE>
Income Capitalization Approach
================================================================================
Direct Capitalization
Direct capitalization is a method used to convert an estimate of a
single year's income expectancy into an indication of value. The single year's
income is typically designed to reflect a subject property's stabilized level of
operation and revenue potential. The conversion into a value indication is
accomplished in one direct step by dividing the income estimate by an
appropriate capitalization rate.
The previously illustrated investor surveys revealed a range of going-in
overall rates as follows:
===========================================================
Investor Surveys Range of Rates
===========================================================
Cushman & Wakefield 8.9 to 9.5%
Korpacz 7.5% to 11.5%
===========================================================
The following table illustrates overall capitalization rates for the
subject property that have been derived based on our estimate of value via the
discounted cash flow method. The Year 1 overall capitalization rate of 9.5
percent falls comfortably within the parameters indicated by both the Cushman &
Wakefield and the Korpacz surveys and, given the long-term, relatively level
nature of the income stream, was considered to be reasonable.
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CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
RECONCILIATION AND FINAL VALUE ESTIMATE
================================================================================
We have considered each of the three traditional approaches to Market
Value: the Cost Approach, the Sales Comparison Approach, and the Income
Approach. The Cost Approach was not utilized due to the fact that the
improvements are 27 years old and estimates regarding reproduction costs or
accrued depreciation could not be made with reasonable accuracy. The Sales
Comparison Approach was utilized as a check upon the value indicated for the
leased fee interest in the subject. The Income Approach was utilized as there is
sufficient market data to develop an indication of value and this approach was
considered to be the most applicable in the valuation of an investment grade
property.
The subject property will be bought and sold in investment circles and is
highly suited to analysis by the discounted cash flow method. As the basis for
investment is profit in the form of return or yield on investment, the focusing
of the property in relation to the anticipated income is well founded. The
magnitude or lack of benefits realized weighed against typical investor
expectations is utilized in reaching value conclusions.
Through the projection of all variables that determine the net income,
positive and negative aspects of the building's behavior may be accounted for by
a detailed analysis of such variables. By incorporating reasonable market
assumptions acceptable in the marketplace at the time of the analysis for a
projection of variables into the future, a simulative building model may be
created mathematically.
Once the model has been formulated, financial expectations applicable at
the time may be implemented to rate the investment. The process of discounting
at appropriate yield rates to arrive at a present value estimate equivalent to
the right to receive the income stream over the life of the building is the
investment tool most widely used in today's market. By using the same
perspectives in analyzing a property as an investor would, the applicability of
the approach becomes meaningful.
The subject property, as an investment vehicle, is sensitive to all
changes in the marketplace and the expectations of investors. The discounted
cash flow method operates within the framework of both quite successfully and
may easily reflect changes in either by adjusting the variables used to qualify
the model. Due to the ability of this method to account for change, assuming an
investment posture and having a basis in financial data, the writer will weigh
most heavily upon the results of this analysis.
The discounted cash flow analysis is especially useful in reflecting the
level of vacancy at the subject, the absorption of that space, and the impact of
the accompanying free rent, tenant improvements and leasing commissions. Direct
capitalization was utilized as a check upon the value developed via the
discounted cash flow technique. After developing an estimate of the subject's
market value assuming stabilized occupancy, we have deducted the present value
of those lease-up costs in order to arrive at a value for the subject in its "as
is" condition.
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CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
Reconciliation and Final Value Estimate
================================================================================
Conclusions
We have analyzed the applicability of the three traditional appraisal
methods to the appraisal problem that is the subject of this report. Due to the
highly subjective nature of estimating replacement costs and accrued
depreciation, the Cost Approach was not considered to be applicable. Primary
reliance has been placed upon the discounted cash flow method of developing an
estimate of value for the leased fee interest in the subject property, as
encumbered by its existing leases. It is our opinion that the market value of
the leased fee interest in the subject property, as of November 18, 1997, was:
FOUR HUNDRED THIRTY MILLION DOLLARS
($430,000,000)
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 prediction of a date of sale.
We believe, based on the assumptions employed in our cash flow, as well as
our selection of investment parameters for the subject, the value conclusion
represents a market price achievable within 12 month's marketing time on the
open market.
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CUSHMAN &
WAKEFIELD(R)
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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, 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.
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WAKEFIELD(R)
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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 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 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 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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WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
CERTIFICATION OF APPRAISAL
================================================================================
I certify that, to the best of my knowledge and belief:
1. James F. Ryan, 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 my personal,
unbiased professional analyses, opinions, and conclusions.
4. I have no present or prospective interest in the property that is the
subject of this report, and I have no personal interest or bias with
respect to the parties involved.
S5. 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. 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. My 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, James F. Ryan, MAI has completed the
requirements of the continuing education program of the Appraisal
Institute.
James F. Ryan, MAI
Director
Valuation Advisory Services
New York State Certified
General Real Estate Appraiser
No. 46000003439
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WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
ADDENDA
================================================================================
OFFICE BUILDING SALES
APPRAISERS' QUALIFICATIONS
================================================================================
-80-
<PAGE>
OFFICE BUILDING SALE
================================================================================
Location Data
Property Name: 222 Broadway
Location: 222 Broadway Btwn. Fulton and Ann Streets
City: New York
County: New York
State/Zip: New York
Assessor's Parcel No(s): BLOCK 89, LOT 12
Atlas Reference: N/A
Physical Data
Type: CBD
Land Area: 33,340 Sqft Zoning: C5-5CR/Restricted
Cent'l Com'l
Gross Building Area: 756,138 SF
Net Rentable Area: 735,413 SF
Usable Building Area: 735,413 SF
Year Built: 1961
# of Stories: 31
Parking: None
Condition: Good
Exterior Walls: Masonry
Amenities: Quality Retail
Class: B
Sale Data
Transaction Type: Contract
Date of Transaction: 07/97
Marketing Time: 14 months
Grantor: Swiss Bank Corp.
Grantee: Merrill Lynch & Company
Document No.: UNDER CONTRACT
Sale Price: $73,000,000
Financing: Cash to Seller
Cash Equivalent Price: $73,000,000
Required Capital Cost: $0
Adjusted Sale Price: $73,000,000
Verification: C&W VAS NY 7/97
Financial Data
Assumptions & Forecast: Appraiser
Occupancy at Sale: 98%
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: N/A N/A
BROADWAY 222
<PAGE>
OFFICE BUILDING SALE
================================================================================
Analysis
Value Indicators: Direct Cap, DCF and P.S.F
Overall Capitalization Rate (OAR): N/A %
Projected IRR: N/A%
Effective Gross Multiplier (EGIM): N/A
Operating Expense Ratio (OER): N/A %
Price Per Square Foot: $99.26
Comments
Swiss Bank Corporation, purchased the building in 1988 for approximately
$150 million and spent over $40 million on extensive renovations,
including a brokerage trading floor. The seller occupied approximately
half of the building which was being vacated in advance of the company's
move to Stamford, Connecticut. Merrill Lynch intends to occupy much of the
building for their own use and future expansion. The New York based
brokerage firm received subsidies from the New York City Economic
Development Corporation. The cash and tax incentives were expected to
reach in excess of $28 million and in turn, Merrill Lynch pledged to
increase employment by 2,000 persons. The building is located one block
east of the World Trade Center and two blocks south of City Hall Park. The
site comprises the entire blockfront with very good retail space. Asking
rents at the time of sale were $26.00 per square foot.
The building has large lower floorplates 32,000 - 34,850 square feet. The
tower floors range from 8,250 to 15,500 square feet. Other major tenants
include Barclay's Bank with 6 floors in the middle of the building.
Barclay's was reported to be paying an above market rent with a lease
through 2002.
BROADWAY 222
<PAGE>
OFFICE BUILDING SALE
================================================================================
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
================================================================================
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, Vornado 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
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OFFICE BUILDING SALE
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Location Data
Property Name: 100 Wall Street
Location: 100 Wall Street, Btwn. Water & Front Streets
City: New York
County: New York
State/Zip: New York
Assessor's Parcel No(s): BLOCK 38 LOT 1
Atlas Reference: N/A
Physical Data
Type: CBD
Land Area: 22,285 Sqft Zoning: C6-9CR; General
Cent'l Com'l
Gross Building Area: 475,000 SF
Net Rentable Area: 457,460 SF
Usable Building Area: 457,460 SF
Year Built: 1968
# of Stories: 29
Parking: None
Condition: Excellent
Exterior Walls: Steel & Glass
Amenities: Retail, new lobby
Class: A
Sale Data
Transaction Type: Sale
Date of Transaction: 04/97
Marketing Time: N/A
Grantor: Hexalon R.E. Inc. c/o Martin J. Hoek-
Dutch Fund
Grantee: 100 Wall, LLC c/o Witkoff Group, Steven
Witkoff
Document No.: LIBER 2460 PAGE 2090 Rec. Date: 05/29/97
Sale Price: $34,000,000
Financing: Cash to Seller
Cash Equivalent Price: $34,000,000
Required Capital Cost: $3,000,000
Adjusted Sale Price: $37,000,000
Verification: C&W VAS NY 6/97
Financial Data
Assumptions & Forecast: Buyer
Occupancy at Sale: 97%
Existing or Pro Forma
Income: Existing
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: $4,700,000 $10.27
WALL ST 100
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OFFICE BUILDING SALE
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Analysis
Value Indicators: Direct Cap and DCF
Overall Capitalization Rate (OAR): 12.70 %
Projected IRR: N/A%
Effective Gross Multiplier (EGIM): N/A
Operating Expense Ratio (OER): N/A %
Price Per Square Foot: $80.88
Comments
The property was renovated and refurbished with a new lobby in 1994 and
received a BOMA award for quality.
The building is located on the full blockfront of Wall Street with good
views and exposures. The floorplates are rectangular ranging from 16,700
to 17,100 square feet.
The anchor tenants were Swiss American Corp., and Waterhouse Securities
with over 75,000 square feet. Office asking rents at sale were $28 -
$30/SF, direct. A 6140 SF bank branch was vacant at time of sale. The
property was sold by a foreign Dutch Fund. The buyer indicated that the
property was purchased based on in-place income with significant vacancy
exposure in 1999; 120,000 square feet was to vacate. The recorded price
was $34.0 million, however, the actual price was $37.0 million according
to the buyer.
WALL ST 100
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OFFICE BUILDING SALE
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Location Data
Property Name: 33 Maiden Lane
Location: 33 Maiden Lane A/K/A 56-70 Nassau St Btwn.
Maiden Ln & John St
City: New York
County: New York
State/Zip: New York
Assessor's Parcel No(s): BLK 67, L 23 (30 & 31)
Atlas Reference: N/A
Physical Data
Type: CBD
Land Area: 30,783 Sqft Zoning: C5-5CR, Rest
Cent'l Com'l
Gross Building Area: 570,000 SF
Net Rentable Area: 548,157 SF
Usable Building Area: 548,157 SF
Year Built: 1984
# of Stories: 27
Parking: None
Condition: Excellent
Exterior Walls: Brick Veneer
Amenities: Outdoor & indoor pedestrian plaza,
subway entry
Class: A
Sale Data
Transaction Type: Sale
Date of Transaction: 01/97
Marketing Time: N/A
Grantor: FED Tower Assocs. Ltd. c/o George Klein
Grantee: Maiden Fed LLC c/o Steven Witkoff c/o
Steller Mgt.
Document No.: LIBER 2430 PAGE 1283 Rec. Date:03/10/97
Sale Price: $44,000,000
Financing: Cash to Seller
Cash Equivalent Price: $44,000,000
Required Capital Cost: $0
Adjusted Sale Price: $44,000,000
Verification: C&W-VAS, NY - 7/1997
Financial Data
Assumptions & Forecast: Appraiser
Occupancy at Sale: 71%
Existing or Pro Forma
Income: Existing
TOTAL P.S.F.
----- ------
Potential Gross Income: $15,359,844 $28.02
Vacancy and Credit Loss: N/A N/A
Effective Gross Income: $15,359,844 $28.02
Expenses: $7,616,556 $13.89
Net Operating Income: $7,743,288 $14.13
MAIDEN LN 33
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OFFICE BUILDING SALE
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Analysis
Value Indicators: Direct Cap,DCF and P.S.F
Overall Capitalization Rate (OAR): 17.60 %
Projected IRR: N/A%
Effective Gross Multiplier (EGIM): 2.86
Operating Expense Ratio (OER): 49.59 %
Price Per Square Foot: $80.27
Comments
The buyer purchased the existing mortgage note at a discount from
Mitsubishi Trust as part of this sale. The building was anchored by IBM
and Chase bank with 50% of the space. The Chase space was on the market
for lease at the time of sale. These leases expire 2 to 4 years from the
date of sale and had rental rates which were well above current market
rents.
The building is side core construction with semi-rectangular floor plates.
The floors have 22,000 to 23,000 rentable square feet. Asking office rents
were $32.00 per square foot at the time of sale. The building has limited
retail space due to the plaza and sloping street grade. The seller, Park
Tower Realty Corporation, was to be retained as the managing agent after
the sale, however The Witkoff Group (the buyer) installed their own
management. IBM was an equity partner in the initial development, however
their ownership interest was later forfeited.
MAIDEN LN 33
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OFFICE BUILDING SALE
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Location Data
Property Name: 45 Broadway Atrium
Location: 45 Broadway, Btwn. Exchange PL & Morris St @
Trinity PL
City: New York
County: New York
State/Zip: New York
Assessor's Parcel No(s): BLOCK 20, LOT 9
Atlas Reference: N/A
Physical Data
Type: CBD
Land Area: 15,598 Sqft Zoning: C5-5, Restricted
Greenwich Str
Gross Building Area: 377,398 SF
Net Rentable Area: 376,109 SF
Usable Building Area: 376,109 SF
Year Built: 1983
# of Stories: 32
Parking: None
Condition: Good
Exterior Walls: Brick Veneer
Amenities: Plaza Atrium
Class: A
Sale Data
Transaction Type: Sale
Date of Transaction: 10/96
Marketing Time: N/A
Grantor: 45 Bdwy Atrium Ptnrs. c/o HRO Internat'l/
Nippon Cr
Grantee: 45 Bdwy LP c/o Paramount Group
Document No.: LIBER 2387, PAGE 1454 Rec. Date: 10/31/96
Sale Price: $30,300,000
Financing: Cash to Seller
Cash Equivalent Price: $30,300,000
Required Capital Cost: $1,200,000
Adjusted Sale Price: $31,500,000
Verification: C&W Broker - 10/96
Financial Data
Assumptions & Forecast: Broker
Occupancy at Sale: 58%
Existing or Pro Forma
Income: Existing
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: $3,300,000 $8.77
BROADWAY 45
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OFFICE BUILDING SALE
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Analysis
Value Indicators: Direct Cap
Overall Capitalization Rate (OAR): 10.48 %
Projected IRR: N/A%
Effective Gross Multiplier (EGIM): N/A
Operating Expense Ratio (OER): N/A %
Price Per Square Foot: $83.75
Comments
The building is located through-block between Broadway and Trinity
Place. The property was developed by Howard Ronson - HRO International
who also developed 55 Broadway during the early 1980. While HRO
International owned the property, Nippon Credit Bank controlled the
asset for the sale.
The building features small column-free floorplates ranging from 11,725
to 15,500 square feet. Asking rents at the time of sale were $27 -
$32/SF. The broker indicated that the property was purchased based on
in-place income and an overall rate of 10 percent. The recorded price
was $30.3 million; however, the actual price was $31.5 million including
closing adjustments.
BROADWAY 45
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QUALIFICATIONS OF JAMES F. RYAN
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Mr. Ryan commenced his career as a real estate appraiser in June 1973.
After six years as a residential real estate appraiser in suburban New York
City, he made the transition to the field of commercial property appraisal.
During his career, Mr. Ryan has been awarded the designation of Senior
Residential Appraiser (SRA) and Member, Appraisal Institute (MAI) by the
Appraisal Institute. Mr. Ryan has national experience with a wide variety of
properties including: major office buildings; apartment buildings; retail and
industrial properties of various sizes; vacant land and subdivisions; hotels;
and such limited market properties as computer chip manufacturing plants,
airline catering facilities, and airplane manufacturing facilities. He has
served as a consultant to property owners contesting their ad valorem
assessments, to security firms marketing limited partnership interests, and to
other appraisers involved in the appraisal of properties for income tax
resolution. He is knowledgeable in the application of such computer programs as
PRO-JECT, Office 2, Center, Excel and Lotus. Mr. Ryan has also a lectured at New
York University.
Real Estate Experience
Cushman & Wakefield, Inc. (1982-1983 and 1986-present) - Currently a
Director with New York Valuation Advisory Services. Responsible for local and
national appraisal and consulting assignments, including the co-ordination of
projects that involve several offices. Assists in training of junior personnel,
with business development, and quality control. Was Assistant Manager of San
Francisco office prior to relocating back to New York.
BA Appraisals, Inc. (1983-1986) - Initially a Vice President in the New
York office of this BankAmerica Corp. subsidiary. Relocated to San Francisco to
manage that office in early 1985. Responsible for hiring, terminating, training,
business development, and quality control.
James H. Bums Company, Inc. (1979-1982) - Initiated commercial appraising
career, rising to Senior Appraiser and Office Manager.
Prior to employment at the James H. Bums Company, Inc., Mr. Ryan was
employed as a residential appraiser in suburban New York City.
Professional Affiliations
Member of the Appraisal Institute (MAI Designation No. 6868)
New York State Certified General Real Estate Appraiser (No. 46000003439)
Licensed Salesperson, State of New York
Real Estate Board of New York
Teaching
Former lecturer - Valuation of Income Producing Properties at New York
University Real Estate Institute
Former instructor - "Real Estate Appraisal Principles" at Golden Gate
University in San Francisco
Testimony in Courts of Law and Quasi-Judicial Hearings
Supreme Court, Mineola, New York
Supreme Court, New York, New York
State of New York Attorney General's Office, New York, New York
United States Bankruptcy Court, Southern District of New York
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QUALIFICATIONS OF JAMES F. RYAN
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Education
Miami University, Oxford, Ohio - BA, Political Science (1973)
Various seminars addressing current valuation concepts, real estate
trends, and computer applications.
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Economic Study and Appraisal
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Sheraton Chicago Hotel & Towers
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Chicago, Illinois
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Prepared by:
Hospitality Valuation Services
A Division of Hotel Consulting Services, Inc.
372 Willis Avenue
Mineola, NY 11501
516-248-8828
Submitted to:
Mr. Edward J. Welch
Director - Investment Banking
Merrill Lynch Pierce Fenner & Smith
World Financial Center, North Tower
250 Vesey Street, 26th Floor
New York, NY 10281
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[Letterhead of HVS International Hospitality Valuation Services]
March 18, 1998
Mr. Edward J. Welch
Director - Investment Banking
Merrill Lynch Pierce Fenner & Smith
World Financial Center, North Tower
250 Vesey Street, 26th Floor
New York, NY 10281
Re: Sheraton Chicago Hotel & Towers
Chicago, Illinois
Ref. #9810108
Dear Mr. Welch:
Pursuant to your request, we herewith submit our economic study and appraisal
pertaining to the above-captioned property. We have inspected the site and
facilities and analyzed the hostelry market conditions in the Cook area. This
document, which represents a complete, self-contained report, was prepared in
accordance with, and is subject to, the requirements of the Financial
Institutions Reform, Recovery, and Enforcement Act (FIRREA) and the Uniform
Standards of Professional Appraisal Practice (USPAP), as provided by the
Appraisal Institute.
Based on the available data, our analysis, and our experience in the hotel
industry, it is our opinion that the market value of the leasehold interest in
the subject property described in this report, as of January 1, 1998, is:
$247,000,000
TWO HUNDRED FORTY SEVEN MILLION DOLLARS
We hereby certify that we have no undisclosed interest in the property, and our
employment and compensation are not contingent upon our findings and valuation.
The economic study and appraisal is made part hereof, and must remain attached
in order for the value opinion set forth to be considered valid. This study is
subject to the comments made throughout this report and to all assumptions and
limiting conditions set forth herein.
Very truly yours,
HOSPITALITY VALUATION SERVICES
A Division of Hotel Consulting
Services, Inc.
/s/ Anjali Poorswani
Anjali Poorswani
Consulting and Valuation Analyst
/s/ Sabena Arora
Sabena Arora
Senior Associate
/s/ Stephen Rushmore
Stephen Rushmore, CRE, MAI, CHA
President
AP:SA:SR:nnw
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HVS International, Mineola, New York Table of Contents
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Table of Contents
1. Executive Summary ................................................ 1
2. Nature of the Assignment ......................................... 3
3. Description of the Land, Improvements,
Zoning, Taxes, and Neighborhood .................................. 7
4. Market Area Analysis ............................................. 30
5. Overview of External Forces Affecting the U.S. Lodging Industry .. 45
6. Lodging Market Supply and Demand Analysis ........................ 61
7. Projection of Occupancy and Average Rate ......................... 80
8. Highest and Best Use ............................................. 93
9. Approaches to Value .............................................. 95
10. Income Capitalization Approach ................................... 98
11. Sales Comparison Approach ........................................ 140
12. Cost Approach .................................................... 150
13. Reconciliation of Value Indications .............................. 152
14. Statement of Assumptions and Limiting Conditions ................. 156
15. Certification .................................................... 159
Addenda
Photographs of the Subject Property
Photographs of the Competitors
Legal Description
Management Agreement
Explanation of the Simultaneous Valuation Formula
Qualifications
Anjali Poorswani
Sabena Arora
Stephen Rushmore, CRE, MAI, CHA
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HVS International, Mineola, New York Executive Summary 1
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1. Executive Summary
Property: Sheraton Chicago Hotel & Towers
Location: 301 East North Water Street
Chicago, Illinois 60611
Date of Inspection: March 5, 1998
Interest Appraised: Leasehold, including the improvements and
the furniture, fixtures, and equipment
Date of Value: January 1, 1998
Land Description
Area: +/-2.3028 acres, or +/-100,310 square feet
Zoning: PD - Business-Residential Planned
Development
Assessor's Parcel Number: Real Estate Index Number 17-10-221-001
Improvements Description
Age: Opened in March of 1992
Property Type: First-class, convention hotel
Guestrooms: 1,204
Number of Stories: 33 stories plus two basement levels
Food and Beverage Facilities:
Riverside Cafe (210 seats)
Streeterville Grille & Bar (115 seats)
Spectators Bar & Grill (83 seats)
Waves Lounge (261 seats)
Esplanade Express (28 seats plus outdoor
seating)
Meeting Space: 60,235 square feet
Exhibit Space: 35,000 square feet
Parking: 372 underground spaces
Summary of Value Parameters
Highest and Best Use (as if
vacant): Lodging facility
Highest and Best Use (as
improved): Lodging facility
Marketing Period: Three to six months
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Number of Years to
Stabilize: Three
Stabilized Year: 2000
Valuation Assumptions
Mortgage Interest Rate: 8.5%
Amortization Period: 25 years
Debt Service Constant: 0.096627
Loan-to-Value Ratio: 70%
Stabilized Inflation Rate: 3.0%
Equity Yield Rate: 18.0%
Terminal Capitalization Rate: 10.5%
Brokerage and Legal Fees: 2.0%
Holding Period: Ten years
Calculated Discount Rate: 12.0%
Estimates of Value
Income Capitalization Approach: $247,122,000
Sales Comparison Approach: $192,000,000 to $229,000,000
Cost Approach (Replacement Cost): $197,000,000
Market Value Conclusion: $247,000,000
Market Value Conclusion per Room: $205,150
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HVS International, Mineola, New York Nature of the Assignment 3
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2. Nature of the Assignment
Subject of the The subject of the economic study and appraisal (which
Economic Study represents a complete, self-contained report) is the
and Appraisal leasehold interest in a +/-100,310-square-foot
(+/-2.3028-acre) parcel improved with a 1,204-room,
first-class, convention lodging facility known as the
Sheraton Chicago Hotel & Towers, which opened in March
of 1992. In addition to guestrooms, the subject property
contains five food and beverage outlets, roughly 60,235
square feet of meeting and banquet space, a
35,000-square-foot exhibition hall, a fitness center, a
gift shop, two levels of underground parking, and other
facilities and amenities typical of a first-class,
convention-oriented hotel. The Sheraton is located on
the eastern side of North Columbus Drive in the
Cityfront Center mixed-use development, immediately
north of the Chicago River. Municipal jurisdictions
governing the property include the City of Chicago, Cook
County, and the State of Illinois. The hotel's civic
address is 301 East North Water Street, Chicago,
Illinois, 60611.
Objective of the The objective of the economic study and appraisal is to
Economic Study evaluate the supply and demand factors affecting the
and Appraisal market for transient accommodations in the Chicago area
for the purpose of estimating the market value of the
subject property. Market value is defined by the Office
of the Comptroller of the Currency (OCC), 12 CFR, Part
34, 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;
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HVS International, Mineola, New York Nature of the Assignment 4
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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.(1)
Use of the This appraisal is being prepared for the use of Merrill
Appraisal Lynch Pierce Fenner & Smith in connection with
refinancing decisions. The information presented in this
report should not be disseminated to the public or third
parties without the express written consent of
Hospitality Valuation Services.
Scope of All information was collected and analyzed by the staff
the Appraisal of Hospitality Valuation Services. Data such as
historical operating statements, site plans, floor
plans, and so forth were supplied by the Tishman Hotel
Corporation and the property's on-site management
representatives. Unless noted otherwise, we have
inspected the competitive lodging facilities and
analyzed the sales summarized in this report, and our
value conclusion is based on this investigation and
analysis.
Property The property rights appraised are the leasehold
Rights Appraised ownership of the improvements, including the furniture,
fixtures, and equipment. The leasehold interest is
defined as "the right to use and occupy real estate for
a stated term and under certain conditions; conveyed by
a lease."(2) The hotel is appraised as a going concern
(i.e., an open and operating facility).
The Sheraton Chicago & Towers is subject to a ground
lease between the Chicago Dock and Canal Trust (which
has been assigned to the Hotel Land Company LLC) and the
subject property's owner, the Cityfront Hotel Associates
Limited Partnership. The ground rent terms set forth in
the October 1, 1988 agreement indicate payment of the
greater of either a base rent or a percentage rent. Base
rent is payable monthly (in arrears beginning November
1, 1991); beyond 1996, the base rent increases each year
in conjunction with the Consumer Price Index, with a
minimum annual increase of 5% and a maximum annual
increase of 10%. The percentage rent is payable
(1) Federal Register, Vol. 55, No. 165, August 24,
1990; p. 34696.
(2) The Dictionary of Real Estate Appraisal - Second
Edition, American Institute of Real Estate
Appraisers, Chicago, IL, 1989, p. 177.
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on a quarterly basis, and is calculated as an escalating
percentage of rooms, food, beverage, and other revenue.
The rent agreement will be outlined in more detail later
in this report.
Method of Study The methodology used to develop this economic study and
appraisal is based on the market research and valuation
techniques set forth in the textbooks authored by HVS
International for the American Institute of Real Estate
Appraisers and the Appraisal Institute, entitled The
Valuation of Hotels and Motels,(1) Hotels, Motels and
Restaurants: Valuations and Market Studies,(2) The
Computerized Income Approach to Hotel/Motel Market
Studies and Valuations,(3) and Hotels and Motels: A
Guide to Market Analysis, Investment Analysis, and
Valuations.(4)
The appraisal will consider the three standard
approaches to value: income capitalization, sales
comparison, and cost. Because lodging facilities are
income-producing properties that are normally bought and
sold on the basis of capitalization of their anticipated
stabilized earning power, the greatest weight is given
to the value indicated by the income capitalization
approach. We find that most hotel investors employ a
similar procedure in formulating their purchase
decisions, and thus the income capitalization approach
most closely reflects the rationale of typical buyers.
When appropriate, the sales comparison and cost
approaches are used to test the reasonableness of the
results indicated by the income capitalization approach.
(1) The Valuation of Hotels and Motels, Stephen
Rushmore, American Institute of Real Estate
Appraisers, Chicago, IL, 1978.
(2) Hotels, Motels and Restaurants: Valuations and
Market Studies, Stephen Rushmore, American
Institute of Real Estate Appraisers, Chicago, IL,
1983.
(3) The Computerized Income Approach to Hotel/Motel
Market Studies and Valuations, Stephen Rushmore,
American Institute of Real Estate Appraisers,
Chicago, IL, 1990.
(4) Hotels and Motels: A Guide to Market Analysis,
Investment Analysis, and Valuations, Stephen
Rushmore, Appraisal Institute, Chicago, IL, 1992.
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HVS International, Mineola, New York Nature of the Assignment 6
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Ownership, A photocopy of the subject property's legal description
Franchise, and is presented in the addenda to this report; the
Management appraisers assume no responsibility regarding the
accuracy of this document. The Sheraton Hotel & Towers
opened in March of 1992; the construction cost was
reported to have been $180,724,500. The facility is
owned by the Cityfront Hotel Associates Limited
Partnership since its development, and it is managed by
the Sheraton Operating Corporation. The land on which
the hotel is situated was leased from the Chicago Dock
and Canal Trust, and has now been assigned to Hotel Land
Company LLC. The subject property also operates under a
management agreement with the Sheraton Operating
Corporation; this agreement expires on December 31,
2009. We should note that this contract carries two
20-year renewal options.
Marketing Period In light of the renewed interest in hotel investments
and the increasing availability of debt and equity
capital, we believe that it will take three to six
months to sell the subject property assuming it is
placed on the market at the concluded value.
Effective Date The effective date of the appraisal is January 1, 1998.
of the Appraisal All projections are expressed in inflated dollars, and
the value estimate represents 1998 dollars.
Date of Inspection The subject property was inspected by Sabena Arora and
Anjali Poorswani on March 5, 1998.
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Description of the Land, Improvements,
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3. Description of the Land, Improvements, Zoning, Taxes, and Neighborhood
LAND The suitability of the land for the operation of a
lodging facility is an important consideration affecting
the economic viability of a property and its overall
value. Factors such as size, topography, access,
visibility, and the availability of utilities have a
direct impact on the desirability of a particular site.
Size and The subject site is located on the eastern side of North
Topography Columbus Drive in the Cityfront Center mixed-use
development, immediately north of the Chicago River.
Municipal jurisdictions governing the property include
the City of Chicago, Cook County, and the State of
Illinois.
According to information provided by management
representatives, the subject parcel measures
approximately +/-100,310 square feet, or +/-2.3028
acres, and is an irregular rectangle. The site features
417.8 feet of frontage on East North Water Street to the
north and 246.4 feet abutting North River Drive to the
east; the 424.6-foot southern property line fronts the
Chicago River. The subject property's western boundary,
which fronts North Columbus Drive, extends 74.6 feet
north from the western end of the southern property
line, turns west for 27.5 feet, and then continues north
for 149.7 feet to meet the western end of the northern
boundary. The subject site is generally flat, and its
size and topography appear well suited for hotel use.
Access A lodging facility's ease of access and degree of
and Visibility visibility should be evaluated with respect to local
modes of transportation and the area's demand
generators. The subject property is located
approximately three blocks east of Michigan Avenue, one
of the major thoroughfares serving downtown Chicago.
Michigan Avenue, which lies on a north/south axis,
extends virtually the length of the city; in the
vicinity of the subject property, this route features a
number of first-class retail outlets, office space, fine
dining establishments, historic sites, and entertainment
alternatives. The hotel's proximity to Michigan Avenue
is considered a locational advantage, although in
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Description of the Land, Improvements,
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terms of prestige and visibility, it is not as favorable
as a site directly on Michigan Avenue.
Regional Access Chicago is well served by a mixture of local, county,
state, and interstate highways. The region's most
important arterial expressways include Interstates 90,
94, 294, 290, 55, 57, 80, and 88.
Interstate 90 originates in Boston and extends west
through Albany and Buffalo, New York; Cleveland and
Toledo, Ohio; Chicago, Illinois; southern Minnesota and
South Dakota; and northeastern Wyoming. This highway
then turns northwest before terminating in Seattle,
Washington. Interstate 94 is another major east/west
highway that originates in Detroit and continues west
through Chicago, Milwaukee, Madison, Minneapolis, and
southern North Dakota before terminating at its
intersection with I-90 outside of Billings, Montana. In
downtown Chicago, I-90 and I-94 combine to form the
Kennedy Expressway; north of the downtown district, I-90
extends northwest (where it is known as the Northwest
Tollway) and I-94 extends north to become the Edens
Expressway and the Tri-State Tollway (upon intersection
with I-294).
Access to the subject property is relatively
straightforward. Motorists traveling in either direction
on the Kennedy Expressway take Exit 50B to Ohio Street,
which carries eastbound traffic, and proceed
approximately two miles before turning right onto North
Fairbanks Court/North Columbus Drive. The subject
property is located roughly three blocks south of this
intersection, on the left-hand side. To reach the
Kennedy Expressway from the hotel, guests must travel
four blocks north to East Ontario Street; this route
carries westbound traffic and leads directly to the
expressway.
Interstate 290, which is also known as the Eisenhower
Expressway, originates in downtown Chicago (immediately
south of the Loop) and extends west for approximately 14
miles to I-294. In the Chicago area, I-294 is known as
the Tri-State Tollway. Access to the Sheraton from
I-290/294 is fairly direct. Interstate 290 terminates at
the Chicago River, where it continues east and becomes
Congress Parkway. Congress Parkway ends at Columbus
Drive, and the subject property is situated less than
one mile north of this intersection, on the right-hand
side of Columbus Drive.
Interstate 55, which is also known as the Stevenson
Expressway, originates in Chicago and continues in a
southwesterly direction through St. Louis, Memphis, and
Jackson before terminating just north of New Orleans.
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Michigan Avenue provides direct access to Interstate 55,
which is situated less than three miles south of the
Sheraton.
Lake Shore Drive also provides access to I-55; guests
leaving the subject property can travel one block north
to East Illinois Street, turn right, and continue
approximately two blocks to the point where Illinois
Street terminates at Lake Shore Drive. Because Illinois
Street carries only eastbound traffic, motorists
arriving at the subject property from Lake Shore Drive
must travel west on East Grand Avenue (which is located
one block north of Illinois Street) in order to reach
Columbus Drive.
Interstate 57 extends south from Chicago to provide
access to eastern Illinois (including the state capital
of Champaign); this highway terminates at its
intersection with I-55 in southeastern Missouri.
Southbound I-94 provides access to I-57 from downtown
Chicago.
Interstate 80 extends from New York City to San
Francisco, and passes roughly five miles south of the
Chicago city limits; this roadway can be reached via
I-94 or I-57. Interstate 88, which is also known as the
East-West Tollway, extends southwest from the western
terminus of I-290; this highway traverses northern
Illinois and terminates at I-80 in Davenport, Iowa.
Regional access to the subject property is excellent.
The area's well developed network of high-speed
interstates and superior local roadways significantly
increases the hotel's primary market area and
facilitates the capture of room night demand and food
and beverage patronage.
Local Access Direct access to the subject site is provided by East
North Water Street, which forms the property's northern
boundary. As it passes the Sheraton, Water Street is a
two-lane, bi-directional, undivided roadway. Visibility
is relatively unobstructed from both directions, thus
facilitating left- and right-hand turns into and out of
the subject property.
Motorists arriving at the Sheraton from Michigan Avenue
travel two blocks east on East Illinois Street, turn
right at North Fairbanks Court/North Columbus Drive, and
continue south one block to East North Water Street. The
Sheraton is situated at the southeastern corner of this
intersection. As noted earlier, a number of the area's
east-west arteries (including East Illinois Street) are
restricted to one-way traffic. Although this
configuration may be slightly confusing, alternating
streets carry traffic in opposite directions, thus
minimizing the inconvenience to arriving guests.
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Visibility of the subject site varies depending on the
vantage point. Northbound motorists on Michigan Avenue
have an excellent view of the hotel from the Michigan
Avenue bridge over the Chicago River; travelers cross
this bridge approximately three blocks prior to the East
Illinois Street intersection (which provides access to
North Columbus Drive and the subject property). The view
of the hotel from the southbound lanes of North Michigan
Avenue is obscured by numerous high-rise buildings
located between North Columbus Drive and North Michigan
Avenue. Because the subject parcel has more than 220
feet of frontage along North Columbus Drive, the
Sheraton enjoys excellent visibility from that roadway.
Likewise, visibility is favorable from Lake Shore Drive
(particularly northbound) and upper East Wacker Drive
(across the river from the hotel).
Airport Access Additional transportation to the Chicago area is
provided by O'Hare International Airport and Midway
Airport. O'Hare is located roughly 30 miles northwest of
the subject property via Interstate 90; travel time is
approximately 35 minutes. Midway Airport is situated
roughly ten miles southwest of the Sheraton, near
Interstate 55. Motorists can reach the subject property
from O'Hare via the Kennedy Expressway, as outlined
previously; access to Midway Airport is gained via
Interstate 55. Although the Sheraton does not receive
direct airport-related demand in the form of airline
crews or delayed passengers, many arriving passengers
rent automobiles or take taxis and drive to demand
generators located in the subject property's market
area.
Arriving passengers at either airport can also use the
Chicago Transit Authority's (CTA) rapid-transit trains
to reach the downtown district. The Blue Line extends
from O'Hare into downtown Chicago; Blue Line trains
leave from the lower level of the airport terminal every
five to ten minutes during the day and evening, and
every 30 minutes from 1:00 am to 5:00 am. The train ride
takes approximately 40 minutes and costs $1.50.
Similarly, the Orange Line CTA train provides
transportation from Midway Airport to downtown Chicago;
the train ride takes roughly half an hour and also costs
$1.50. Orange Line trains leave from a station connected
to the east side of airport, and run from 5:00 am to
11:30 pm Monday through Saturday and from 7:30 am to
11:30 pm on Sundays and holidays. To reach the subject
property, CTA train passengers from both airports must
exit at Washington and Dearborn in downtown Chicago and
take a taxi to the Sheraton. Various van, limousine, and
taxi services are also available at both airports.
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Access to Local The Sheraton Chicago Hotel and Towers is proximate to
Demand Generators the area's primary demand generators of lodging demand.
Demand is generated primarily by retail outlets and
other major businesses located along the Michigan Avenue
corridor. McCormick Place, a major convention facility
in downtown Chicago, is the site of major citywide
events. Michigan Avenue, Lake Shore Drive, and Columbus
Drive provide access from the subject property to the
McCormick Place, which is situated approximately two and
one-half miles south of the Sheraton. A locational
advantage of the subject property is its ready access to
McCormick Place via Lake Shore Drive and Columbus Drive;
by using these routes, hotel guests can reach the
convention center in roughly 15 minutes while avoiding
the congestion on Michigan Avenue. In addition, the
hotel occupies a central location with respect to a
number of local businesses. By virtue of the excellent
transportation network in the immediate vicinity, the
Sheraton enjoys access that is comparable or superior to
that of its competitors. Leisure demand is also
generated by downtown Chicago's many sites, attractions,
and events. The following table outlines some of these
major demand generators and their distance from the
subject site.
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Table 3-1 Demand Generators
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Approximate Distance Approximate Driving
Demand Generator from Subject Site (in Miles) Time (in Minutes)
- ---------------- ---------------------------- -------------------
Navy Pier 0.5 5
The Magnificent Mile 1.0 5
Art Institute 1.0 5
Sears Tower 2.0 10
McCormick Place Expo Center 2.5 15
Soldier Field 3.0 15
John G. Shedd Aquarium 3.0 15
O'Hare International Airport 30.0 30
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Overall, the subject site is well positioned in relation
to Chicago's primary demand generators, and the hotel
should continue to benefit from this favorable location.
Utilities The subject site is served by all necessary utilities,
which are provided as follows.
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Table 3-2 Available Utilities
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Utility Provider
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Water City of Chicago
Electricity Commonwealth Edison
Telephone Illinois Bell & AT&T
Sewer City of Chicago
Gas Enron Capital & Trade
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Soil and Geological and soil reports were not provided to the
Subsoil Conditions appraisers or made available for review during the
preparation of this report. The appraisers are not
qualified to evaluate soil conditions other than by a
visual inspection of the surface.
Nuisances The appraisers have not been informed of any
and Hazards site-specific nuisances or hazards, and there were no
visible signs of toxic ground contaminants at the time
of our inspection. Because the appraisers are not
experts in this field, we do not warrant the absence of
hazardous waste, and we urge the reader to obtain an
independent analysis of this factor.
Easements We were not provided with any information concerning
easements affecting the subject property. For the
purpose of this appraisal, we assume that the subject
property is not encumbered by any unusual or onerous
easements that would affect its use or marketability.
Land Conclusion The subject parcel appears well suited as the site of a
lodging facility. We have analyzed the issues of size,
topography, access, visibility, and the availability of
utilities, and noted the following advantages and
disadvantages.
Advantages
o The parcel is of sufficient size and enjoys
favorable frontage on Columbus Drive and the
Chicago River.
o The subject parcel features a smooth topography.
o A highly developed transportation network is in
place in the property's immediate vicinity.
o Visibility is favorable from Lakeshore Drive and
from the northbound lanes of Michigan Avenue.
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o Access to McCormick Place and numerous other local
demand generators is simple and convenient.
o All necessary utilities are available.
Disadvantages
o Visibility of the site from southbound Michigan
Avenue is restricted by a number of high-rise
buildings.
o The subject property is not located on Michigan
Avenue, which is improved with numerous
first-class retail outlets, hotels, office
buildings, dining establishments, entertainment
alternatives, and historic sites.
Because these few disadvantages are mitigated by the
Sheraton's highly desirable locational attributes, we
believe that the subject parcel is well suited for hotel
use.
IMPROVEMENTS The quality of a lodging facility's physical
improvements has a direct influence on its marketability
and attainable occupancy and average rate. The design
and functionality of the structure can also affect
operating efficiency and overall profitability. This
section investigates the subject property's physical
improvements and personal property in an effort to
determine how they contribute to total value. The
following description of the improvements is based on
our inspection of the hotel and information provided by
on-site management representatives.
The Sheraton Chicago Hotel & Towers is a full-service,
first-class lodging facility containing 1,204 rentable
units, five food and beverage outlets, approximately
+/-60,235 square feet of meeting and banquet space, and
appropriate back-of-the-house facilities. The 33-story
property opened in March of 1992, and operates under a
management agreement with Sheraton Operating
Corporation. Overall, the hotel appears to be in very
good condition; management representatives report that
all building systems are in good working order.
Exterior The hotel structure occupies virtually the entire
subject site. Vehicular access to the property is
provided by East North Water Street, which forms the
parcel's northern boundary. A designated convention
entrance situated just east of the main hotel entrance
opens into the lobby, which is located on Level Three.
This separate convention entrance provides the Sheraton
with an advantage over several of its competitors by
reducing congestion around the front desk during
check-in and check-out periods. Service
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traffic can gain access to the hotel's main loading dock
and ramps along the western side of Level One. A loading
dock and a ramp serving the exhibition hall are located
along the eastern side of the building; service vehicles
can reach these facilities by turning right onto North
River Street beyond the north side of the hotel.
A porte cochere built into Level Three covers the
passenger area in front of the main hotel and convention
entrances. Because these entrances are located on the
northern side of the building, fronting East North Water
Street, they can be distinguished by passing motorists.
Level One The exhibition hall occupies a majority of Level One;
support facilities include two registration desks, two
sets of public restrooms, public telephones, the
Esplanade Express food and beverage outlet, and a small
support kitchen. Access to the Esplanade, which extends
along the Chicago River banks, is available from this
level. Limited outdoor seating is provided in this area
during the summer months. Back-of-the-house space
located in the western portion of Level One includes
five loading docks, a trash storage area, the receiving
and purchasing offices, a security office, the employee
entrance, employee locker rooms, and a uniform room. A
mechanical room housing air handling units is situated
in the northeastern portion of Level One, as are the car
ramp leading to the valet parking garage, a truck dock,
and a service ramp leading to the eastern portion of the
exhibition hall.
Level Two The public areas of Level Two primarily consist of 14
small meeting rooms, the Riverside Cafe, and two sets of
public restrooms and telephones. Access to the guest
parking garage is available from the southwestern
portion of this level. The western and northern areas of
Level Two are devoted to back-of-the-house space such as
the food and beverage offices, the human resources
office, the employee cafeteria, and the hotel's main
kitchen. This kitchen, which serves the Riverside Cafe
and room service, includes dedicated areas for
stewarding and executive chef offices, food storage,
banquet preparation areas, a garde manger station, a
butcher shop, a bakery, and the main dishwashing room.
Level Three As noted earlier, the subject property's main entrance
is located on Level Three, and leads into the lobby,
which is situated in the central and western portions of
this floor. The lobby is circular, and features marble
and woodwork finishes. New carpeting was installed
recently, and the area is attractive and inviting. A
seating area is located in the center of the lobby, and
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the bell stand is situated immediately left of the
entrance. Farther left is the front desk and
registration area. The subject property's rooms
department is operated on a computerized system;
management representatives report that this system works
efficiently. Several of the hotel's administrative
offices are located behind the front desk, including the
front desk manager's office, the hotel switchboard, the
reservations office, the general cashier's office, the
yield manager's office, and guest vaults.
Immediately right of the main hotel entrance are the
entrance to the Streeterville Grille and Bar (which has
its own full-service kitchen); public restrooms;
elevators leading to the valet parking garage; and a
luggage storage room. The concierge desk is located
beyond the main entrance and to the right. A security
office and management's mailboxes are located behind the
concierge desk.
Two guest elevator banks are located beyond the
concierge desk, to the right. The Columbus meeting
rooms, public restrooms, and public telephones are
located in the southwestern portion of Level Three, past
the elevator banks. A large seating area and Waves (the
lobby bar) are located east of the elevators, beyond the
front desk; this area extends almost the entire southern
length of Level Three. Spectators Bar and Grill and an
adjoining support kitchen are located in the
southeastern corner of Level Three.
The convention entrance opens into the northeastern
portion of Level Three. Public space located in this
area includes the gift shop, the Sheraton Executive
Center (which offers six small meeting rooms), two
additional meeting rooms, public restrooms and
telephones, a coat room, and the guest relations office.
Facilities located between the main hotel entrance and
the convention entrance include a convention
registration desk, a shoeshine stand, an automatic
teller machine, a business center, public telephones, a
luggage storage room, and a Starbucks coffee counter.
Level Four Level Four is a mezzanine that houses back-of-the-house
space, including the general storeroom, banquet storage,
and convention services storage.
Level Five Public space on Level Five includes the subject
property's main ballroom, two ballroom registration
areas with permanent beverage service equipment, two
sets of restrooms, and public telephones.
Back-of-the-house areas include the ballroom kitchen, a
silver storage room, a stewarding area, refrigerators,
and service corridors that surround the northern,
eastern, and western perimeters of the ballroom.
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Level Six The sixth level is dedicated to general storage areas,
swimming pool equipment, audio-visual offices (which are
leased to an independent company), the mini-bar
storeroom, banquet offices, and the computer systems
room.
Level Seven Level Seven houses a considerable number of
administrative offices, as well as some public areas and
back-of-the-house space. Administrative facilities
located on the seventh floor include the executive
office (which is used by the general manager, the hotel
manager, and the executive assistant manager), the sales
and catering office, and offices for convention
services, marketing, and public relations. The fitness
center is also located on the seventh floor. Mechanical
equipment on this level consists of hot water pumps and
air handling units for the corridors.
Guestroom Levels Levels Eight through 34 primarily house guestrooms; it
should be noted that there is no designated 13th floor.
Levels Eight through 30 feature typical guestrooms,
Level 31 is the Sheraton Executive Level, and Levels 32
through 34 are designated as the Towers. Guestrooms are
double-loaded along L-shaped corridors. The following
tables illustrate the number of units on each floor and
the various types of accommodations available at the
subject property.
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Table 3-3 Rooms per Level
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Rooms
Level per Level
---------------------------------------
8 & 9 42
10 47
11 & 12 48
14-16 47
17-19 49
20-29 52
30 & 31 47
32 & 33 25
34 27
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Total 1,204
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Table 3-4 Guestroom Configuration
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Number
Room Type of Units
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Double/Doubles 573
Kings 579
Suites 52
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Total 1,204
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Most of the subject property's guestrooms are configured
in a typical manner. The closet and bathroom are
situated on opposite sides of the entryway; the bedroom
lies immediately beyond a small vestibule. Bedrooms
contain the following furnishings and equipment.
o One king-sized bed or two double beds
o Armoire with mini-bar
o Color television with remote control
o Nightstand(s) with lamp(s)
o Desk and chair
o Floor lamp
o Couch or armchair
o Side table or coffee table
o Valet stand
o Sheers and draperies with black-out lining
o In-room safe (in closet)
o Bedside and desk-top telephones
o Vanity sink
Guest bathrooms are standard three-fixture units
equipped with tank toilets, combination tub/shower
units, counter-type sinks, and wall-mounted mirrors.
Coffeemakers are also provided in each bathroom. Typical
bathroom finishes include ceramic tile, vinyl, and
paint. At the time of our inspection, the subject
property's guestrooms appeared to be in very good
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condition, and were modern and attractive. According to
management representatives 404 guestrooms received a
soft goods renovation in 1997, and an additional 204
units will be completed in 1998; new soft goods will be
installed in the remaining rooms in 1999.
Guestrooms situated on Levels 32 through 34 are
designated as Towers units, and feature a separate
registration desk on Level 33. Towers guests are offered
complimentary continental breakfast and evening hors
d'oeuvres on each day of their stay. These services are
provided in the Towers Lounge, a two-story facility
located on Levels 33 and 34. Towers units feature
upgraded bathroom finishes and amenities such as marble
floors and vanities, in-room hair dryers, scales, and
wall-mounted magnifying mirrors; bedroom soft goods are
also superior to those available in the standard
guestrooms. As noted earlier, Level 31 is the Sheraton
Executive Level; management representatives indicate
that this floor currently functions as another Towers
level. According to management, four three-bay suites
were converted to two six-bay suites, effectively
reducing the original room count by two rooms (from
1,206 to 1,204).
Guestroom corridors are wide enough to permit the use of
housekeeping and room service carts, and guestroom
doorways are slightly recessed to facilitate traffic
circulation. Elevator lobbies are located on the
northern side of the intersection of the L-shaped
corridors, thus minimizing the distance from the
elevators to the northern- and easternmost guestrooms.
The elevator lobbies are spacious, and glass walls on
the northern side provide natural light and exterior
views. Guestroom corridors are finished with carpeted
floors and vinyl-covered walls, and the lighting is
adequate.
Each guestroom floor is equipped with an ice machine and
a housekeeping closet. The housekeeping closets provide
access to the linen chute that serves all floors, and
provide space for linen and supply storage.
Basement Level The subject property is equipped with two basement
levels, designated P1 and P2. Level P1 houses the valet
parking garage, which is operated by Standard Parking.
This 372-space facility, which is located directly
beneath the exhibition hall, can accommodate roughly 450
vehicles because valet attendants can use both parking
spaces and circulation areas. Additional facilities
located on Level P1 include a valet lounge, accounting
offices, and engineering offices. A large mechanical
room is located between Levels P1 and P2; this area is
equipped with three chillers, water softeners, a
compressor, and boilers.
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Level P2 houses the laundry, housekeeping, and valet
departments. The subject property's laundry is equipped
with three 700-pound-capacity Washex washing machines,
two 120-pound-capacity Washex washing machines, two
large Norman dryers, two ironers, and two folders. All
laundry and valet services are performed on the site.
Food and The subject property offers five food and beverage
Beverage Outlets outlets. The Riverside Cafe is situated on Level Two;
this all-purpose dining facility seats 210 people at
tables and banquettes (inclusive of the private Hudson
Room), and serves three meals daily. The Riverside Cafe
is equipped with a built-in buffet, and direct access to
the main kitchen is available. Finishes include carpeted
floors and acoustic-tile ceilings; the facility is
attractive and appears to be in very good condition.
Additional signage advertising the Riverside Cafe is
installed in the Level Three lobby and in the guest
elevators, thereby mitigating its disadvantageous
location on Level Two.
More upscale dining is available in the 115-seat
Streeterville Grille & Bar, which features Italian
cuisine. This outlet, which is located on the lobby
level, is open for lunch on weekdays and for dinner
Monday through Saturday. Management representatives
indicate that the Streeterville Grille & Bar enjoys a
strong local following despite the lack of an exterior
entrance from Columbus Drive. The restaurant is served
by its own kitchen.
Spectators Bar & Grill, which is located in the
southeastern corner of Level Three, features an upscale
sports motif. In addition to cocktails and televised
entertainment, this facility offers a limited selection
of pub-style food that is prepared in a small adjoining
kitchen. The outlet seats 83 people at booths, tables,
and the bar.
Waves is a 261-seat lobby lounge located on Level Three.
This facility is restricted to beverage service except
when the hotel is accommodating large groups or when
volume is particularly high; at these times, a
buffet-style continental breakfast is set up on the bar.
The Esplanade Express is situated in the southeastern
corner of Level One. This outlet accommodates
approximately 28 people, and serves grilled menu items
and sandwiches from a small adjoining kitchen. The
Esplanade Express operates primarily when the exhibition
hall is in use and during the summer, when it can
capitalize on pedestrian traffic along the Chicago River
Esplanade (located immediately outside of the facility).
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As noted earlier, the subject property's main kitchen is
located in the northern portion of Level Two. This
facility features direct access to the Riverside Cafe
and service corridors leading to the Level Two meeting
rooms; however, the main ballroom is located on Level
Five, which features only a small kitchen area. As a
result of this configuration, food must be transported
from the main kitchen to the ballroom level via service
elevators. Given the size of the subject property's main
ballroom, we consider this a configurational
disadvantage.
Access to the main kitchen from the loading dock and the
receiving area, which are situated on western side of
Level One, is provided by freight and service elevators.
Most of the hotel's food and beverage storage areas are
located in the vicinity of the main kitchen. Management
representatives indicate that all kitchen equipment is
in good working order.
Overall, the food and beverage outlets appear to be in
very good condition. The Streeterville Grille & Bar
received new carpeting in 1997, and new furniture is
scheduled to be installed in this facility in 1998.
Furthermore, the back-of-the-house service flow appears
adequate for this type of hotel.
Meeting and Meeting and banquet space totaling 60,235 square feet is
Banquet Space located on Levels Two, Three, and Five. The
40,000-square-foot Sheraton Chicago Ballroom is located
on Level Five; this is the largest column-free ballroom
in the midwest, and offers 22-foot ceilings and full
audio-visual capabilities. Movable partitions may be
used to divide the ballroom into as many as ten smaller
facilities ranging from 1,953 to 4,875 square feet.
Service corridors surround the northern, eastern, and
western sides of the ballroom, allowing direct and
simultaneous food and beverage service to each division.
The 13,000-square-foot Ballroom Promenade extends the
length of the ballroom's southern perimeter, and can be
used as pre-function space.
As noted earlier, the ballroom is situated three levels
above the main kitchen. Although a small prep kitchen
adjoins the northwestern portion of the ballroom, this
facility cannot accommodate the food service demands of
large groups. Hence, it is often necessary to transport
food from the second level via service and freight
elevators, which is somewhat inefficient and represents
a configurational disadvantage.
Meeting rooms on Level Three include the Sheraton
Executive Center, Parlor A, the Lincoln Executive
Boardroom, and Columbus Corner. The Sheraton Executive
Center, which is situated in the northeastern corner of
the
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lobby level, consists of six small meeting rooms
(Parlors B through G). Columbus Corner is formed by two
meeting rooms (Columbus A and B) located in the
southwestern corner of this floor. The subject
property's business center is also located on Level
Three, near the meeting rooms, which is considered
advantageous. There are no service corridors providing
access to the Level Three meeting rooms, thus
necessitating the use of public corridors to deliver
food and beverages; this represents another
configurational inefficiency.
The Sheraton's remaining function space is located on
Level Two. Most of these rooms feature direct service
access from the main kitchen, thus facilitating the
transfer of food and beverages. The exceptions are the
Mayfair, Ontario, and Huron Rooms and the Illinois
Executive Boardroom. The Colorado, Missouri, and Mayfair
Rooms received new carpets, light fixtures, and wall
vinyl in February of 1995, at a reported cost of
$144,000.
Exhibition Hall The 35,000-square-foot River Exhibition Hall is located
on Level One. This area can be divided into two
facilities measuring 17,875 and 17,125 square feet. The
6,000-square-foot River Exhibition Hall Promenade
extends along the southern perimeter of the exhibition
hall, and can be used as a registration area or as
pre-function space; the promenade can accommodate
approximately 700 people for receptions.
Fitness Center A full fitness center is available for guest use;
equipment includes four Lifecycles, three Life Step
machines, three Trotter Supertrainers (treadmills), one
Life Rower, and a Universal weight circuit. Local
memberships are not offered. Additional facilities and
amenities include an indoor swimming pool (featuring a
glass ceiling that provides natural light), locker rooms
with saunas, and massage therapy. Hotel guests are
charged $8.00 per day to use the fitness center, or
$15.00 for unlimited use for the duration of their stay.
There is an additional charge for massages.
Gift Shop A 1,082-square-foot gift shop is situated in the
northeastern portion of the lobby level; this facility
is leased to an independent operator known as Gift
Partners L.P.I. on a year-to-year basis.
Vertical Vertical transportation at the Sheraton is provided by
Transportation elevators, escalators, and stairwells. Two guest
elevator banks are situated in the southwestern portion
of the hotel. One bank of four elevators serves the
lobby level, the ballroom level, and Levels Seven
through 17. The second bank of four elevators provides
access to the lobby, the ballroom level, and Levels 18
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through 34. All guest elevators are high-speed,
4,000-pound-capacity Montgomery units; management
representatives indicate that the use of two separate
banks provides efficient service and maximizes guest
comfort. Two additional elevators extending from the
lobby to Level P1 (the valet parking garage) are located
in the northwestern portion of Level Three.
The subject property is equipped with five service
elevators that extend the length of the building. These
are also 4,000-pound-capacity Montgomery units, and
management representatives indicate that they are
insufficient during peak demand periods. Two freight
elevators extend from Level P1 to the ballroom level,
and a larger freight elevator extends from Level 1 to
Level Five.
In addition to elevators, the subject property is
equipped with seven sets of escalators, six of which are
located along the south side of Levels One, Two, Three,
and Five. Each set extends only one level, and these
escalators serve to expedite transportation for people
attending meetings, conventions, and exhibitions. It
should be noted that the escalators extending to Levels
One and Two provide the only means of guest access to
these floors (except fire stairs). A seventh set of
escalators is situated in the southwestern portion of
Level 1, and provides access to the valet parking
garage.
Three sets of interior fire stairs extend from the lobby
level through the 34th floor, and numerous service
stairwells provide access to Levels One, Two, Three, and
Five. We are of the opinion that the subject property's
public vertical transportation system provides extremely
efficient access to the guestrooms and meeting space,
and is superior to those found in most of the hotel's
competitors.
Heating, All of the building's HVAC systems are electrical.
Ventilation and Guestrooms feature a two-pipe system; units are heated
Air Conditioning by 1,000- to 1,500-watt heat coils and cooled by chilled
(HVAC) water. Guestrooms feature individual climate control
when the deadbolt is secured; otherwise, the temperature
is pre-set at 60 degrees Fahrenheit. This type of system
is advantageous because it provides a high degree of
climate control to each guestroom. Although electric
resistance heat tends to be the most expensive energy
source, it is efficient; individual units can be turned
off in rooms that are not occupied.
Fire Protection All building areas are equipped with fire sprinklers and
hard-wired smoke alarms. Annunciator panels for the
smoke alarm system are located in the
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lobby, in the security office, on the ballroom level,
and in the mechanical rooms on Level Seven.
Renovation The following table lists the budgeted capital
improvements and renovations that were scheduled for
1997, based on information provided by management
representatives. Budget provisions were made for a total
of $1,549,000; our site inspection suggests that these
allocations are adequate. The subject property is in
excellent condition, but management believes that
ongoing maintenance and renovation projects are
necessary to ensure the hotel's competitive position. We
note that these projects are still underway, and are at
various stages of completion.
========================================================
Table 3-5 Renovation and Budgeted Capital Improvements
- 1997
--------------------------------------------------------
Budget
Project Description Provision
--------------------------------------------------------
ADA - Two Roll-In Showers $20,000
Three Presidential Suites (at $25,000 each) 75,000
Seven Illinois Suites (at $35,000 each) 245,000
14 Illinois Suites (at $15,000 each) 210,000
Ballroom Foyer Carpet 100,000
Lobby Carpet 50,000
Seventh Floor Corridor & Health Club Carpet 30,000
Spectators/Waves 90,000
Systems - Personal Computers 180,000
Corporate Club Rooms 101,000
Lighting Upgrade 208,000
Streeterville Carpet 25,000
Miscellaneous Guestrooms 50,000
Banquet Chairs 60,000
Back of House Equipment 30,000
Design Fees 75,000
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Total $1,549,000
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Improvements In general, the subject property's improvements appear
Conclusion well suited for hotel use. The building is
straightforward in design and configuration, permitting
efficiency of operation and convenient guest traffic
flow. The exterior design is modern and inviting, and
the interior finishes are attractive and appear to be in
very good condition. The fact that the Sheraton remains
the newest major hotel in the Chicago market further
enhances the property's marketability to commercial,
leisure, and meeting and convention travelers.
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One significant configurational inadequacy is the lack
of direct food and beverage service to the main
ballroom. Although operating efficiency would improve if
the main kitchen were closer to the ballroom, management
representatives indicate that guest satisfaction does
not suffer as a result of this configuration. Because
the Sheraton reportedly operates with little difficulty
even at high volume, we do not believe that this problem
will have any notable impact on the hotel's future
performance.
Zoning The subject property is zoned as follows.
PD - Business-Residential Planned Development
Development in this district is subject to regulations
set forth in the Plan of Development (dated November 6,
1985), as negotiated by the Department of Planning, the
Chicago Dock & Canal Trust, and the Equitable Life
Assurance Society of the United States. This district
measures approximately 1,799,668 square feet (or 41.31
acres, exclusive of public rights of way), and includes
the subject property and its immediate vicinity.
The Sheraton is located in Sub-Area B of this
development. According to the Chicago Dock-Equitable
Venture Plan of Development, maximum development in
Sub-Area B consists of 500,000 square feet of retail
space, 3,850,000 square feet of commercial space, and/or
3,000 hotel rooms. There is a maximum floor-to-area
ratio of 14.01, and the maximum site coverage is 75%. At
least one parking space is required for every four
guestrooms, and the building height is restricted to 450
feet.
Based on this information, the subject property appears
to conform to local zoning regulations. We assume that
all necessary permits and approvals have been secured
(including an appropriate liquor license), and that the
subject property was constructed in accordance with
local zoning ordinances, building codes, and all other
applicable regulations.
Assessed Property tax is one of the primary revenue sources of
Value and Taxes municipalities. Based on the concept that the tax burden
should be distributed in proportion to the value of all
properties within a taxing jurisdiction, a system of
assessments is established by the local assessor.
Theoretically, the assessed value placed on each parcel
bears a definite relationship to market value, so
properties of equal market value will have similar
assessments and properties with higher and lower values
will have proportionately larger and smaller
assessments.
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Depending on the taxing policy of the municipality,
property taxes can be based on the value of the real
property or the value of the personal property and the
real property. The taxing jurisdiction governing the
subject property assesses real property only. In Cook
County, the assessor's fair market value is based on
triennial reassessments. The next reassessment is in
1998. According to management representatives and the
Cook County Assessor's Office, the subject property's
real estate assessment is under appeal.
In 1989, the assessed value ratio for commercial
properties of more than three stories was set at 38% of
market value. The assessor's determination of value is
multiplied by the assessment ratio to yield a property's
assessed value. The State of Illinois also applies an
equalization rate that changes each year; the effective
tax rate is equal to the tax rate multiplied by the
equalization factor, and is expressed as the tax per
$100 of assessed value. The following table sets forth
the historical tax rates, equalization factors, and
effective tax rates in the subject property's
jurisdiction.
================================================================================
Table 3- Historical Tax Rates
- --------------------------------------------------------------------------------
Effective
Equalization Tax Rate Percent
Year Tax Rate Factor (per $100) Change
- --------------------------------------------------------------------------------
1983 10.042 1.9122 19.2023 --
1984 10.160 1.8445 18.7401 (2.4%
1985 9.710 1.8085 17.5605 (6.3)
1986 10.352 1.8486 19.1367 9.0
1987 9.660 1.8916 18.2729 (4.5)
1988 9.927 1.9266 19.1254 4.7
1989 10.197 1.9133 19.5099 2.0
1990 9.964 1.9946 19.8742 1.9
1991 9.474 2.0523 19.4435 (2.2)
1992 9.659 2.0897 20.1844 3.8
1993 9.590 2.1407 20.5293 1.7
1994 9.422 2.1135 19.9134 (3.0)
1995 9.345 2.1243 19.8516 (0.3)
1996 9.453 2.1517 20.3400 2.5
Avg. Annual
Comp. Change,
1983-96: 0.4%
1991-96: 0.9
Source: Cook County Tax Assessor's Office
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Effective tax rates in the subject property's
jurisdiction have remained relatively stable, increasing
at an average annual compounded rate of only 0.4%
between 1983 and 1996. From 1991 to 1996, the effective
tax rate increased by 0.9% annually. As a result of this
stability, our projection of the subject property's tax
burden is primarily based on estimated increases in the
assessed value and the underlying monetary inflation
rate.
Taxes are levied on the basis of calendar years, but are
not payable until the following calendar year. Thus, the
subject property paid taxes in 1997 that were based on
its 1996 assessment. For accounting purposes, however,
the Sheraton's reported tax expense is based on an
estimate of the year's actual tax burden (which is not
known until the following year, when it is payable). The
subject property's 1996 real estate assessment was
$32,026,404. To forecast the Sheraton's 1998 tax burden,
we have increased the property's 1996 effective tax and
equalization rates by an inflation factor of 2.5%
annually; we also assume a 10% increase in the real
estate assessment in 1998. The following table
illustrates the subject property's historical
assessments, the applicable tax rates, and our estimate
of the hotel's 1998 real estate tax burden.
<TABLE>
<CAPTION>
=============================================================================================
Table 3-7 Historical Assessments, Tax Rates, and Projected 1998 Taxes
- ---------------------------------------------------------------------------------------------
Assessment Property Percent Equalization Effective
Year Assessment Change Tax Rate Rate Tax Rate Tax Burden
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1991 -- -- 9.474 2.0523 19.4435 --
1992 $15,868,053 -- 9.659 2.0897 20.1844 $3,202,873
1993 19,864,308 25.2% 9.590 2.1407 20.5293 4,078,006
1994 25,163,602 26.7 9.422 2.1135 19.9134 5,010,928
1995 27,679,957 10.0 9.345 2.1243 19.8516 5,494,910
1996 32,026,404 15.7 9.453 2.1517 20.3400 6,514,177
1997 32,026,404 0.0 9.689 2.2055 21.3697 6,843,957
1998 35,229,044 10.0 9.932 2.2606 22.4516 7,909,484
Source: Cook County Assessor's Office
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</TABLE>
In subsequent projection periods, property taxes are
expected to rise by 3.0% annually, in tandem with the
assumed underlying inflation rate. We should note in
addition to real estate taxes, the subject property is
subject to a city sewer tax. In 1997, this tax equated
to $64,000; we assume that this amount will increase at
the underlying inflation rate. The following table
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illustrates our projection of the hotel's property and
sewer tax burden through a stabilized year of operation.
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Table 3-8 Forecast of Property and Sewer Taxes
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1998 1999 Stabilized
- --------------------------------------------------------------------------------
Projected Property Taxes (+000) $7,975 $8,214 $8,461
- --------------------------------------------------------------------------------
NEIGHBORHOOD The neighborhood surrounding a lodging facility often
has an impact on a hotel's status, image, class, style
of operation, and sometimes its ability to attract and
properly serve a particular market segment. For example,
although one would expect a luxury hotel to be situated
in a first-class area, the quality of neighborhood may
be of less importance in the case of a budget facility.
This section investigates the subject property's
neighborhood and evaluates any pertinent locational
factors that could affect the hotel's occupancy, average
rate, revenues, overall profitability, marketability,
and value. A neighborhood or district is defined as a
grouping of complementary land uses with relatively
observable uniformity, and exhibits a greater degree of
commonality than the larger area.
The subject property is situated in a mixed-use urban
development known as Cityfront Center. This complex is
bounded by the Chicago River to the south, Lake Shore
Drive to the east, East Grand Avenue to the north, and
North Michigan Avenue and North St. Clair Street to the
west. Approximately 40 acres of this land (including the
subject site) were owned by the Chicago Dock and Canal
Trust, a real estate investment trust, until early 1997.
The land on which the subject property is situated has
been assigned to Hotel Land Company LLC.
The master design plan for Cityfront Center provides for
a community with generous open public space, riverfront
improvements, and recreational activities that will
enhance the locational attributes of the development.
The master plan was formulated by Cooper, Eckstut
Associates (the planners of Battery Park City in New
York City) in conjunction with the City of Chicago
Department of Planning. The Chicago Dock and Canal Trust
had intended the development to integrate office, hotel,
residential, and retail uses, and for its Cityfront
Center property to eventually include up to 22,000,000
square feet of developable space. A substantial portion
of the
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Cityfront Center complex is expected to be completed
during the next 15 years.
Existing improvements in the subject property's vicinity
include office space, retail outlets, and residential
buildings. The NBC Tower is situated immediately
northwest of the Sheraton. North Pier, a mixed-use
facility offering retail, restaurant, and office
improvements, is located approximately two blocks
northeast of the hotel. To the east and immediate
northeast of the subject property is Cityfront Place,
which consists of 900 apartments housed in two mid-rise
buildings and one high-rise structure. Ogden Park is a
one-acre park located at the northeastern corner of
North Columbus Drive and East North Water Street, just
north of the Sheraton. McClurg Court Plaza, which is
situated immediately southeast of the subject property,
provides riverfront seating surrounding a fountain. The
River Esplanade, a pedestrian walkway along the Chicago
River, extends along the southern perimeter of the
Sheraton.
Plans for the neighborhood include extending the
Esplanade east of the hotel to Lake Shore Drive as
development increases in this area; there are also plans
to improve Point du Sable Park, a 3.5-acre park located
on the peninsula east of Lake Shore Drive. New luxury
townhouses and condominiums are located along the
southern bank of Ogden Slip, approximately 200 yards
east of the subject property. In addition, the Senior
Lifestyle Corporation intends to build a 225-unit
apartment complex on a site east of Cityfront Place.
Navy Pier is situated across Lake Shore Drive from the
Sheraton, roughly one-half mile east of the hotel. A
$196,000,000 revitalization of the pier was completed in
July of 1995. In addition to offering a variety of
restaurants and activities, Navy Pier includes Festival
Hall (with 170,000 square feet of meeting and banquet
space), the Skyline Stage (seating 1,500 people), a
Ferris wheel, an ice-skating rink, a carousel, a
children's museum, and a large-screen theater. The
subject property's management representatives indicate
that the hotel is attracting some seasonal demand from
these facilities, although the Days Inn that adjoins
Navy Pier offers lower rates, and is expected to capture
much of the increased demand from this source.
A foundation permit was issued on February 10, 1997 for
construction of a six-story parking garage that will add
700 spaces to the 1,400 spaces currently available at
Navy Pier. The new garage is likely to help Navy Pier to
retain conventions and other businesses by mitigating
the growing parking
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problem that has plagued the area since the 1995
revitalization. The Chicago Music and Dance Theatre,
which recently abandoned plans to build a $32,000,000,
1,500-seat theater at Cityfront Center, is reportedly
showing renewed interest in a Navy Pier location.
A seven-story annex of the University of Chicago
Business School opened in January of 1994, and provides
classrooms and administrative space for the evening and
executive business programs offered by the school. The
Sheraton Chicago has been successful in marketing the
annex during the evening hours for meetings and banquet
functions hosted by the hotel, thus benefiting both
entities. The annex parcel is owned by Equitable, which
also owns four undeveloped parcels west of North
Columbus Drive.
It should be noted that the subject property is situated
approximately three blocks east of North Michigan
Avenue, and this distance may represent a locational
disadvantage. Michigan Avenue is improved with numerous
dining and retail establishments and offers a
prestigious address that is easy to identify. Although
the subject property's neighborhood provides attractive
views of the river and proximity to the retail and
dining outlets of Navy Pier, relatively few
entertainment alternatives are available within walking
distance of the hotel. In general, the area is quiet and
residential in character. Because of the glut of
available office space in the market, commercial and
office development in the subject property's
neighborhood is expected to be slower than initially
planned. We note that the residential concentrations in
the immediate area benefit the Sheraton by providing a
base of food and beverage patronage.
Conclusion In conclusion, the neighborhood surrounding the subject
property appears well suited for the operation of a
lodging facility. A base level of commercial and meeting
visitation is generated by nearby offices, and the
area's retail outlets and dining establishments provide
a source of diversion for the hotel's guests. The
neighborhood's attractive surroundings and first-class
image enhance the subject property's market position and
should have a favorable impact on its attainable
occupancy, average rate, and food and beverage volume.
Developable land is still available in Cityfront Center,
and the growth anticipated for the area should serve to
generate additional lodging demand and maintain the
desirability of the neighborhood.
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4. Market Area Analysis
The economic vitality of the market surrounding the
subject property is an important consideration in
forecasting lodging demand and income potential.
Economic and demographic trends that reflect the amount
of visitation provide a basis from which to project
hostelry demand. The purpose of the area analysis is to
review available economic and demographic data to
determine whether the local market will undergo economic
growth, stability, or decline. In addition to predicting
the direction of the economy, the rate of change must be
quantified. These trends are then correlated based on
their propensity to reflect variations in lodging demand
with the objective of forecasting the growth or decline
in visitation by individual market segment.
Market Area The subject property's market area includes the Chicago
Definition Metropolitan Statistical Area (MSA) and the
Chicago-Gary-Kenosha IL-IN-WI Consolidated Metropolitan
Statistical Area (CMSA). More specifically, the hotel is
situated in the City of Chicago in Cook County,
Illinois. Cook is one of the nine counties that
constitute the Chicago; the remaining eight are DeKalb,
DuPage, Grundy, Kane, Kendall, Lake, McHenry, and Will
Counties. Approximately 75% of the metropolitan area's
population resides in Cook County.
Located in the northeastern portion of Illinois, at the
base of Lake Michigan, Chicago is the third most
populous city in the United States, behind New York and
Los Angeles. As the headquarters of the nation's two
largest food processors (Beatrice and Kraft), two major
commodities and futures exchanges (the Board of Trade
and the Chicago Mercantile), and a multitude of domestic
and international financing institutions, Chicago is
considered the financial and industrial center of the
midwest, and second only to New York in the United
States. Together, the Chicago exchanges account for more
than 75% of the world's commodities traded. The city is
the nation's leader in stock options trading, currency
futures, and interest rate futures, and ranks second in
precious metals trading.
<PAGE>
AREA MAP
[MAP OMITTED]
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HVS International, Mineola, New York Market Area Analysis 31
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Economic and Based on fieldwork conducted in the area and our
Demographic Data in-house sources, we have evaluated various economic and
demographic statistics to determine trends in lodging
demand. A primary source of economic and demographic
statistics used in this analysis is the Complete
Economic and Demographic Data Source published by Woods
& Poole Economics, Inc., a well-regarded forecasting
service based in Washington, DC. Using a data- base
containing more than 300 variables for each county in
the nation, Woods & Poole employs a sophisticated
regional model to forecast economic and demographic
trends. Historical statistics are based on census data
and information published by the Bureau of Economic
Analysis. Projections are formulated by Woods & Poole.
All dollar amounts have been adjusted for inflation, and
thus growth or decline represents real change in
constant dollars.
Population Between 1980 and 1996, Cook County registered an average
annual compounded population decline of 0.1%, while the
MSA, the CMSA, the State of Illinois, and the United
States achieved growth rates of 0.4%, 0.4%, 0.2%, and
1.0%, respectively. Between 1990 and 1996, annual
compounded population increases in the county, the MSA,
the CMSA, and the State of Illinois rose to 0.1%, 0.7%,
0.7%, and 0.6%, respectively; the national average
remained at 1.0% per year. Projections indicate
virtually no change in the population of Cook County
from 1996 through the year 2000, and the MSA, the CMSA,
the state, and the nation are anticipated to achieve
average annual compounded gains of 0.4%, 0.4%, 0.3%, and
0.9%, respectively. These growth rates are similar to
those registered from 1980 to 1996. We find that the
rate of population growth generally establishes a
minimum rate of increase for commercial hotel demand;
this observation also holds true for the meeting and
group segment if a majority of the meetings are
business-oriented.
Retail Sales Retail sales in Cook County increased at an average
annual compounded rate of 0.6% between 1980 and 1996.
This level was lower than the 1.3% gain registered by
the MSA and the CMSA, the 1.0% growth rate exhibited by
the state, and the 1.7% annual increase achieved by the
nation as a whole. Slightly higher growth rates were
apparent from 1990 to 1996 in all of these areas; during
that period, there were average annual compounded
increases of 1.0% in the county, 1.6% in the MSA and the
CMSA, 1.5% in Illinois, and 1.8% in the United States.
Slower retail sales growth is anticipated from 1996 to
the year 2000. In the county, a minimal gain of 0.1%
annually is anticipated through the end of the decade;
somewhat higher increases are projected in the MSA and
the CMSA (at 0.6%), the state (at
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0.5%), and the nation (at 1.1%). Overall, retail sales
trends indicate slower economic growth in the subject
property's market area, as well as in the nation as a
whole.
Personal Income Between 1980 and 1996, personal income in Cook County
increased at an inflation-adjusted average annual
compounded rate of 1.3%; this gain was outpaced by those
of the MSA, the CMSA, the state, and the nation (at
levels of 1.9%, 1.9%, 1.7%, and 2.4%, respectively).
During the more recent period of 1990 to 1996, growth
increased in four out of the five geographic areas.
Personal income in Cook County, the MSA, the CMSA, and
the State of Illinois rose at average annual compounded
rates of 1.6%, 2.0%, 2.0%, and 1.9%, respectively; the
national average slipped to 2.1% during that period.
Projections show slower increases from 1996 to the year
2000, at rates of 1.0% in the county, 1.6% in the MSA,
the CMSA, and the state, and 2.1% in the nation.
Work Force Between 1980 and 1996, the most rapid growth in
Characteristics employment in Cook County occurred in the agricultural
services and services sectors (at average annual
compounded rates of 4.7% and 2.7%, respectively).
Overall employment rose by a modest 0.1% annually during
this period, and most sectors registered declines.
Minimal gains were apparent in construction; the
transportation, communications, and public utilities
(TCPU) sector; and the finance, insurance, and real
estate (FIRE) industry. Projections show no change in
total employment from 1996 through the year 2000.
Services and agricultural services are anticipated to
continue to achieve some growth, and FIRE employment is
projected to increase at an average annual compounded
rate of 1.2%.
Chicago is the headquarters location of numerous
multi-billion-dollar companies, and 78 of the Fortune
1,000 industrial and services firms maintain corporate
headquarters in the metropolitan area. The city is also
a center of education and research, boasting 12 major
colleges and universities.
The major employers in Chicago represent a cross section
of hotel demand potential. Some are national in scope,
while others operate on a more local basis. Most of
these employers are engaged in manufacturing,
high-technology industries, services, insurance, or
banking. The following table outlines some of the major
employers in Chicago.
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Table 4-1 Chicago's Major Employers
--------------------------------------------------------
Number of
Firm Employees
--------------------------------------------------------
Chicago Public Schools 45,118
City of Chicago 41,551
U.S. Government 33,712
Cook County 27,385
Jewel Food Stores 24,945
U.S. Postal Service 24,114
Motorola, Inc. 23,500
State of Illinois 21,509
Advocate Health Care 19,914
Ameritech Corp. 19,038
First Chicago NBD Corp. 16,708
Abbott Laboratories 15,300
United Airlines 14,613
Sears, Roebuck & Co. 13,000
Chicago Transit Authority 12,881
Walgreen Co. 12,508
Commonwealth Edison Co. 11,992
University of Illinois - Chicago 11,746
American Airlines 11,422
Dominick's Finer Foods, Inc. 11,170
Source: Crain's Chicago Business
--------------------------------------------------------
Office Space Trends in occupied office space are among the most
reliable indicators of lodging demand, because firms
that occupy office space often exhibit a strong
propensity to attract commercial visitors. Thus, trends
that cause changes in vacancy rates or in the amount of
occupied office space may have a proportional impact on
commercial lodging demand, and a less direct effect on
meeting demand. Moreover, the development of office and
industrial space often indicates that new businesses are
moving into the area, or that existing firms are
expanding.
More than a decade of continuous growth in the inventory
of downtown Chicago office space came to a halt in 1992,
but not before the addition of approximately 39,500,000
square feet of space. In 1990, construction commenced on
several large buildings, at a time when the demand for
office space underwent a sharp decline. In 1992, the
relocation of major companies such as Sears, Roebuck &
Company and Ameritech to the western suburbs exacerbated
the problem. The result was negative net absorption in
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1992, and a record increase in the vacancy rate. Market
dynamics have improved since that time, however, and
there has been a steady decline in the downtown vacancy
rate. This trend has been aided by a lack of new
construction and the demolition and conversion of some
Class C space. As illustrated by the following table,
the office vacancy rate stood at 15.6% at the end of
1996.
================================================================================
Table 4-2 Chicago Office Market 1996 Performance Statistics
- --------------------------------------------------------------------------------
Submarket Square Feet Vacancy Rate Net Absorption
- --------------------------------------------------------------------------------
West Loop 26,577,288 12.2% 1,147,562
Central Loop 44,510,873 16.8% 62,186
East Loop 21,929,434 19.1% 145,851
North Michigan Avenue 13,307,009 15.7% 213,884
River North 2,873,819 14.3% 162,533
- --------------------------------------------------------------------------------
Totals 109,198,423 15.6% 1,732,016
Source: CB Commercial
- --------------------------------------------------------------------------------
Airport Traffic Two main airports are available in the Chicago area:
O'Hare International and Midway. The city is served by
more than 50 major domestic and international carriers
that offer non-stop service to the business centers of
Europe and Asia. O'Hare International Airport is a
significant asset to the regional and national
economies. A $618,000,000 international terminal was
completed in 1994, which increased the capacity for
international flights. Midway Airport is served by 16
commercial airlines, and handles more corporate jet
traffic than O'Hare. The city recently invested
$100,000,000 in parking, terminal, and airfield
improvements at Midway.
Because of its strategic location and extensive network
of interstate highways, railroads, commercial flight
paths, and waterways, Chicago has long been one of the
nation's major transportation hubs. The area ships a
greater tonnage of manufactured goods by rail than any
other production center in the nation. Passenger
activity at O'Hare International Airport totaled more
than 70,000,000 in 1997, making it the nation's busiest
commercial air center. O'Hare International Airport
carries more freight and mail than any other facility in
the country, and the value of its import and export
shipments exceeds that of any other inland facility in
the nation. The following table shows historical
passenger counts at O'Hare International Airport.
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HVS International, Mineola, New York Market Area Analysis 35
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Table 4-3 O'Hare International Airport Passenger
Statistics
--------------------------------------------------------
Passenger
Year Movements Change(1) Change(2)
--------------------------------------------------------
1985 49,961,008 -- --
1986 54,771,979 9.6% 9.6%
1987 57,543,865 5.1 7.3
1988 58,860,349 2.3 5.6
1989 59,215,032 0.6 4.3
1990 60,010,234 1.3 3.7
1991 59,852,330 (0.3) 3.1
1992 64,441,087 7.7 3.7
1993 65,091,168 1.0 3.4
1994 66,468,269 2.1 3.2
1995 67,253,358 1.2 3.0
1996 69,153,528 2.8 3.0
1997 70,385,073 1.8 2.9
(1) Average annual compounded percent change from the
previous year
(2) Average annual compounded percent change from 1985
Source: City of Chicago Department of Aviation
--------------------------------------------------------
According to the City of Chicago Department of Aviation,
there were 70,385,073 passenger arrivals and departures
at O'Hare in 1997, representing an average annual
compounded increase of approximately 2.9% over the
49,961,008 level registered in 1985.
Midway Airport is located on the southwest side of the
city, approximately 15 miles southwest of the subject
property. In recent years, Southwest Airlines has become
the dominant carrier at this airport, and the addition
of new discount airlines such as American Trans Air have
increased Midway's commercial traffic. Air passenger
traffic increased by approximately 41% from 1993 to
1994, and by 3.8% between 1994 and 1995; however, there
was a slight decline of 0.1% from 1996 to 1997.
Convention Activity Convention activity is a strong force in the Chicago
hotel market. Large conventions held in the city
recently include the International Manufacturing
Technology Show, the National Restaurant Association
Show, the National Sporting Goods Association
Convention, and the 1996 Democratic National Convention.
<PAGE>
HVS International, Mineola, New York Market Area Analysis 36
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Located approximately two and one-half miles from the
subject property, McCormick Place is the most extensive
convention facility in the nation. Chicago's ability to
attract large meetings and conventions should be
enhanced by a recent expansion of McCormick Place. This
$987,000,000 project was completed in 1997, resulting in
the addition of more than 1,000,000 square feet of
exhibition space (doubling the amount available
previously). The expanded facility is better equipped to
accommodate small events, as well as large regional and
national conventions.
Construction of the 800-room Hyatt McCormick Place
should further enhance the city's ability to attract
conventions by ensuring an adequate supply of guestrooms
in the immediate vicinity of McCormick Plaza. The
Metropolitan Pier and Exposition Authority voted to
issue bonds to develop the hotel in order to help the
city compete with other major convention destinations
for large events. The construction cost of the Hyatt
McCormick Place is estimated at $80,000,000, and
completion is scheduled for summer of 1998. The
following table sets forth historical attendance figures
at Chicago conventions and trade shows.
<TABLE>
<CAPTION>
====================================================================================================================================
Table 4-4 Conventions, Trade Shows and Corporate Meetings in Chicago
- ------------------------------------------------------------------------------------------------------------------------------------
Estimated
---------------------------
1991 1992 1993 1994 1995 1996 1997 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Conventions
Number of Events 1,105 1,055 1,224 1,377 1,205 1,135 1,100 1,130
Attendance 333,407 470,768 567,493 712,472 853,466 983,000 957,000 1,000,500
Trade Shows
Number of Events 205 192 180 165 153 140 156 150
Attendance 2,092,600 1,998,250 1,952,550 1,961,799 2,006,604 2,214,742 2,343,000 2,449,500
Corporate Meetings
Number of Events 28,288 28,835 34,317 35,993 37,499 41,353 43,000 45,580
Attendance 931,853 951,566 1,132,457 1,118,769 1,237,525 1,633,800 1,840,000 1,940,000
Total Events
Number of Events 29,598 30,082 35,721 37,535 38,857 42,628 44,256 46,860
Percent Change -- 1.6% 18.7% 5.1% 3.5% 9.7% 3.8% 5.9%
Attendance 3,357,860 3,420,584 3,652,500 3,793,040 4,097,595 4,831,542 5,140,000 5,390,000
Percent Change -- 1.9% 6.8% 3.8% 8.0% 17.9% 6.4% 4.9%
Source: Chicago Convention and Tourism Bureau
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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HVS International, Mineola, New York Market Area Analysis 37
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The number of conventions, trade shows, and corporate
meetings held in Chicago increased at a substantial
average annual compounded rate of 5.7% between 1991 and
1996, and attendance at these events increased by 4.8%
annually. Estimated 1997 and 1998 figures indicate
increases that are healthy, if somewhat lower than those
registered in 1996. Given the recent expansion of
McCormick Place and the historical and projected
increases in convention attendance in Chicago, we
anticipate meeting and group demand in the local market
to undergo strong growth. The following table lists
Chicago's top conventions, trade shows, and consumer
shows in 1996; these events are ranked in order of
attendance.
================================================================================
Table 4-5 Largest Conventions, Trade Shows, and Consumer Shows - 1996
- --------------------------------------------------------------------------------
Convention Attendance Show Type
- --------------------------------------------------------------------------------
Chicago Auto Show 993,646 Consumer
Chicago Chevy-Vette Fest 193,000 Consumer
International Manufacturing Technology Show 121,601 Trade
Motorcycle Swap Meet 106,000 Consumer
World of Wheels 103,752 Consumer
National Restaurant Association Show 103,457 Trade
National Sporting Goods Association Exposition 94,166 Trade
Softbank Comdex 92,794 Trade
Packaging Machinery Manufacturing Institute 77,555 Consumer
National Hardware Show 70,000 Trade
Promise Keepers 69,000 Convention
Design Engineering Show & Conference -
National Manufacturing 65,000 Trade
Radiological Society of North America 61,000 Trade
National Houseware Manufacturers 58,917 Trade
Source: Chicago Convention and Tourism Bureau, October 8, 1997
- --------------------------------------------------------------------------------
Leisure Travel and Leisure demand is generated by downtown Chicago's many
Tourist Attractions sites, attraction, and events. Numerous museums,
historic sites, and exclusive retail outlets assist the
city in drawing leisure travelers from around the world.
Navy Pier was recently converted to an exposition and
entertainment venue. Located approximately a half a mile
east of the subject property, on Illinois Street, this
development includes a 1,500-seat performing arts
pavilion, several thousand feet of meeting and
exhibition space, an amusement park, and a myriad of
shops and restaurants. The following table outlines some
of Chicago's main attractions and the number of visitors
at each in 1996.
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HVS International, Mineola, New York Market Area Analysis 38
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Table 4-6 1996 Visitation Statistics for Chicago Attractions
- --------------------------------------------------------------------------------
Attraction Attendance
- --------------------------------------------------------------------------------
Navy Pier 5,000,000
Lincoln Park Zoo 4,000,000
Art Institute of Chicago 2,366,914
John G. Shedd Aquarium 1,775,765
Museum of Science and Industry 1,760,813
Sears Tower Skydeck 1,363,824
Field Museum of Natural History 1,212,475
Chicago Children's Museum 600,000
Chicago Cultural Center 565,882
Adler Planetarium & Astronomy Museum 458,357
Chicago Symphony Orchestra 453,059
Museum of Contemporary Art 372,158
Lyric Opera of Chicago 326,031
The Chicago Athenaeum: Museum of Architecture and Design 250,000
DuSable Museum of African-American History 247,502
Chicago Architecture Foundation Tours 247,000
Goodman Theatre 225,832
Chicago Historial Society 176,015
Steppenwolf Theatre 174,286
Terra Museum of American Art 94,722
Mexican Fine Arts Center Museum 94,610
Chicago Academy of Sciences: The Nature Museum 56,313
Chicago Theatre 45,000
Hubbard Street Dance Festival 22,154
Prairie Avenue House Museums 10,731
National Vietnam Veterans Art Museum (April - December) 5,000
Source: Chicago Office of Tourism, Chicago Convention and Tourism Bureau, 1997
- --------------------------------------------------------------------------------
International visitation to the Chicago area has also
undergone significant growth. The following table
outlines the number of international visitors in the
Chicago area in 1994 and 1995 (the most recent
statistics available).
<PAGE>
HVS International, Mineola, New York Market Area Analysis 39
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Table 4-7 International Visitation Statistics for 1994
and 1995
--------------------------------------------------------
Country of Origin 1994 1995
--------------------------------------------------------
Canada 342,000 371,450
United Kingdom 141,768 198,299
Germany 123,510 143,091
Japan 138,546 120,557
Mexico 75,000 64,222
--------------------------------------------------------
Totals 820,824 897,619
Source: City of Chicago Department of Cultural Affairs,
Chicago Office of Tourism
--------------------------------------------------------
As illustrated above, the number of international
visitors in Chicago rose by 76,795 from 1994 to 1995.
There were increases in the number of visitors from
Canada, the United Kingdom, and Germany, although the
number of tourists arriving from Japan and Mexico
declined.
Conclusion Our review of various economic and demographic data
indicates that the subject property's market area can be
expected to remain relatively stable barring any
unforeseen changes. Cook County and the Chicago MSA have
exhibited moderate gains in most categories since 1990,
and similar trends are anticipated through the year
2000. The following table summarizes the economic and
demographic trends discussed throughout this section.
All figures that reflect dollar amounts have been
adjusted for inflation, and thus they reflect real
change. It should be noted that the percent changes
indicated in the following tables are based on unrounded
figures; consequently, they may not calculate exactly.
<PAGE>
HVS International, Mineola, New York Market Area Analysis 40
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Table 4-8 Economic and Demographic Data for the Subject Property's Market Area
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Avg. Annual
Data Type Period Data Point Data Point Comp. Change
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-Term Historical Population (+000)
Cook County 1980-1996 5,246.5 5,136.9 (0.1)%
Chicago, IL MSA 1980-1996 7,245.8 7,757.6 0.4
Chicago-Gary-Kenosha, IL-IN-WI CMSA 1980-1996 8,113.3 8,625.0 0.4
State of Illinois 1980-1996 11,435.4 11,873.0 0.2
United States 1980-1996 227,225.6 265,225.5 1.0
Short-Term Historical Population (+000)
Cook County 1990-1996 5,106.0 5,136.9 0.1
Chicago, IL MSA 1990-1996 7,426.1 7,757.6 0.7
Chicago-Gary-Kenosha, IL-IN-WI CMSA 1990-1996 8,257.1 8,625.0 0.7
State of Illinois 1990-1996 11,448.3 11,873.0 0.6
United States 1990-1996 249,403.0 265,225.5 1.0
Projected Population (+000)
Cook County 1996-2000 5,136.9 5,129.1 (0.0)
Chicago, IL MSA 1996-2000 7,757.6 7,880.0 0.4
Chicago-Gary-Kenosha, IL-IN-WI CMSA 1996-2000 8,625.0 8,754.6 0.4
State of Illinois 1996-2000 11,873.0 12,020.1 0.3
United States 1996-2000 265,225.5 274,581.0 0.9
Long-Term Historical Retail Sales (+000,000)
Cook County 1980-1996 37,470.9 41,175.7 0.6
Chicago, IL MSA 1980-1996 53,505.0 65,677.6 1.3
Chicago-Gary-Kenosha, IL-IN-WI CMSA 1980-1996 59,329.3 72,386.0 1.3
State of Illinois 1980-1996 81,282.6 95,325.4 1.0
United States 1980-1996 1,636,425.6 2,143,737.6 1.7
Short-Term Historical Retail Sales (+000,000)
Cook County 1990-1996 38,737.1 41,175.7 1.0
Chicago, IL MSA 1990-1996 59,758.7 65,677.6 1.6
Chicago-Gary-Kenosha, IL-IN-WI CMSA 1990-1996 65,707.3 72,386.0 1.6
State of Illinois 1990-1996 87,121.3 95,325.4 1.5
United States 1990-1996 1,926,189.3 2,143,737.6 1.8
Projected Retail Sales (+000,000)
Cook County 1996-2000 41,175.7 41,404.9 0.1
Chicago, IL MSA 1996-2000 65,677.6 67,238.4 0.6
Chicago-Gary-Kenosha, IL-IN-WI CMSA 1996-2000 72,386.0 74,056.4 0.6
State of Illinois 1996-2000 95,325.4 97,315.3 0.5
United States 1996-2000 2,143,737.6 2,239,888.5 1.1
Long-Term Historical Retail Sales per Capita
Cook County 1980-1996 7,142.1 8,015.6 0.7
Chicago, IL MSA 1980-1996 7,384.3 8,466.2 0.9
Chicago-Gary-Kenosha, IL-IN-WI CMSA 1980-1996 7,312.6 8,392.6 0.9
State of Illinois 1980-1996 7,108.0 8,028.8 0.8
United States 1980-1996 7,201.8 8,082.7 0.7
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
HVS International, Mineola, New York Market Area Analysis 41
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================================================================================
Table 4-8 Economic and Demographic Data for the Subject Property's Market Area
(continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Avg. Annual
Data Type Period Data Point Data Point Comp. Change
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short-Term Historical Retail Sales per Capita
Cook County 1990-1996 7,586.6 8,015.6 0.9%
Chicago, IL MSA 1990-1996 8,047.1 8,466.2 0.8
Chicago-Gary-Kenosha, IL-IN-WI CMSA 1990-1996 7,957.7 8,392.6 0.9
State of Illinois 1990-1996 7,610.0 8,028.8 0.9
United States 1990-1996 7,723.2 8,082.7 0.8
Projected Retail Sales per Capita
Cook County 1996-2000 8,015.6 8,072.6 0.2
Chicago, IL MSA 1996-2000 8,466.2 8,532.8 0.2
Chicago-Gary-Kenosha, IL-IN-WI CMSA 1996-2000 8,392.6 8,459.2 0.2
State of Illinois 1996-2000 8,028.8 8,096.0 0.2
United States 1996-2000 8,082.7 8,157.5 0.2
Long-Term Historical Eating and Drinking Place Sales (+000,000)
Cook County 1980-1996 4,081.6 4,926.6 1.2
Chicago, IL MSA 1980-1996 5,454.6 7,191.0 1.7
Chicago-Gary-Kenosha, IL-IN-WI CMSA 1980-1996 6,049.5 7,852.2 1.6
State of Illinois 1980-1996 7,983.8 10,238.3 1.6
United States 1980-1996 153,945.2 225,235.6 2.4
Short-Term Historical Eating and Drinking Place Sales (+000,000)
Cook County 1990-1996 4,577.9 4,926.6 1.2
Chicago, IL MSA 1990-1996 6,496.6 7,191.0 1.7
Chicago-Gary-Kenosha, IL-IN-WI CMSA 1990-1996 7,086.2 7,852.2 1.7
State of Illinois 1990-1996 9,242.2 10,238.3 1.7
United States 1990-1996 199,371.1 225,235.6 2.1
Projected Eating and Drinking Place Sales (+000,000)
Cook County 1996-2000 4,926.6 5,152.0 1.1
Chicago, IL MSA 1996-2000 7,191.0 7,632.8 1.5
Chicago-Gary-Kenosha, IL-IN-WI CMSA 1996-2000 7,852.2 8,329.9 1.5
State of Illinois 1996-2000 10,238.3 10,841.1 1.4
United States 1996-2000 225,235.6 244,351.7 2.1
Long-Term Historical Eating and Drinking Place Sales per Capita
Cook County 1980-1996 778.0 959.1 1.3
Chicago, IL MSA 1980-1996 752.8 927.0 1.3
Chicago-Gary-Kenosha, IL-IN-WI CMSA 1980-1996 745.6 910.4 1.3
State of Illinois 1980-1996 698.2 862.3 1.3
United States 1980-1996 677.5 849.2 1.4
Short-Term Historical Eating and Drinking Place Sales per Capita
Cook County 1990-1996 896.6 959.1 1.1
Chicago, IL MSA 1990-1996 874.8 927.0 1.0
Chicago-Gary-Kenosha, IL-IN-WI CMSA 1990-1996 858.2 910.4 1.0
State of Illinois 1990-1996 807.3 862.3 1.1
United States 1990-1996 799.4 849.2 1.0
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
HVS International, Mineola, New York Market Area Analysis 42
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Table 4-8 Economic and Demographic Data for the Subject Property's Market Area
(continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Avg. Annual
Data Type Period Data Point Data Point Comp. Change
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Projected Eating and Drinking Place Sales per Capita
Cook County 1996-2000 959.1 1,004.5 1.2%
Chicago, IL MSA 1996-2000 927.0 968.6 1.1
Chicago-Gary-Kenosha, IL-IN-WI CMSA 1996-2000 910.4 951.5 1.1
State of Illinois 1996-2000 862.3 901.9 1.1
United States 1996-2000 849.2 889.9 1.2
Long-Term Historical Personal Income (+000,000)
Cook County 1980-1996 104,881.4 128,595.0 1.3
Chicago, IL MSA 1980-1996 146,719.8 199,699.0 1.9
Chicago-Gary-Kenosha, IL-IN-WI CMSA 1980-1996 161,502.3 216,708.3 1.9
State of Illinois 1980-1996 212,689.1 278,242.2 1.7
United States 1980-1996 3,861,548.9 5,687,220.1 2.4
Short-Term Historical Personal Income (+000,000)
Cook County 1990-1996 116,917.5 128,595.0 1.6
Chicago, IL MSA 1990-1996 177,110.1 199,699.0 2.0
Chicago-Gary-Kenosha, IL-IN-WI CMSA 1990-1996 192,294.0 216,708.3 2.0
State of Illinois 1990-1996 248,428.1 278,242.2 1.9
United States 1990-1996 5,011,216.3 5,687,220.1 2.1
Projected Personal Income (+000,000)
Cook County 1996-2000 128,595.0 134,015.8 1.0
Chicago, IL MSA 1996-2000 199,699.0 212,977.4 1.6
Chicago-Gary-Kenosha, IL-IN-WI CMSA 1996-2000 216,708.3 231,009.2 1.6
State of Illinois 1996-2000 278,242.2 295,924.4 1.6
United States 1996-2000 5,687,220.1 6,172,122.3 2.1
Long-Term Personal Income per Capita
Cook County 1980-1996 19,991.0 25,033.0 1.4
Chicago, IL MSA 1980-1996 20,249.0 25,742.0 1.5
Chicago-Gary-Kenosha, IL-IN-WI CMSA 1980-1996 19,906.0 25,126.0 1.5
State of Illinois 1980-1996 18,599.0 23,435.0 1.5
United States 1980-1996 16,994.0 21,443.0 1.5
Short-Term Historical Personal Income per Capita
Cook County 1990-1996 22,898.0 25,033.0 1.5
Chicago, IL MSA 1990-1996 23,850.0 25,742.0 1.3
Chicago-Gary-Kenosha, IL-IN-WI CMSA 1990-1996 23,288.0 25,126.0 1.3
State of Illinois 1990-1996 21,700.0 23,435.0 1.3
United States 1990-1996 20,093.0 21,443.0 1.1
Projected Personal Income per Capita
Cook County 1996-2000 25,033.0 26,129.0 1.1
Chicago, IL MSA 1996-2000 25,742.0 27,027.0 1.2
Chicago-Gary-Kenosha, IL-IN-WI CMSA 1996-2000 25,126.0 26,387.0 1.2
State of Illinois 1996-2000 23,435.0 24,619.0 1.2
United States 1996-2000 21,443.0 22,478.0 1.2
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
HVS International, Mineola, New York Market Area Analysis 43
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Table 4-8 Economic and Demographic Data for the Subject Property's Market Area
(continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Avg. Annual
Data Type Period Data Point Data Point Comp. Change
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-Term Historical Employment - Cook County (+000)
Farming 1980-1996 1.2 0.6 (4.2)%
Agricultural Services 1980-1996 6.6 13.8 4.7
Mining 1980-1996 5.7 2.6 (4.7)
Construction 1980-1996 105.2 112.2 0.4
Manufacturing 1980-1996 645.7 433.9 (2.5)
Transportation, Communications, & Public Utilities 1980-1996 170.0 196.9 0.9
Total Trade 1980-1996 658.9 658.3 (0.0)
Wholesale 1980-1996 223.5 189.7 (1.0)
Retail 1980-1996 435.4 468.7 0.5
Finance, Insurance, & Real Estate 1980-1996 274.4 333.1 1.2
Services 1980-1996 675.8 1,041.7 2.7
Total Government 1980-1996 362.4 357.7 (0.1)
Federal Civilian 1980-1996 57.7 54.1 (0.4)
Federal Military 1980-1996 14.6 13.1 (0.6)
State & Local 1980-1996 290.1 290.5 0.0
Total 1980-1996 2,905.9 3,150.9 0.5
Short-Term Historical Employment - Cook County (+000)
Farming 1990-1996 0.7 0.6 (2.5)
Agricultural Services 1990-1996 10.9 13.8 3.9
Mining 1990-1996 4.0 2.6 (6.7)
Construction 1990-1996 123.6 112.2 (1.6)
Manufacturing 1990-1996 479.6 433.9 (1.7)
Transportation, Communications, & Public Utilities 1990-1996 190.7 196.9 0.5
Total Trade 1990-1996 687.6 658.3 (0.7)
Wholesale 1990-1996 217.1 189.7 (2.2)
Retail 1990-1996 470.5 468.7 (0.1)
Finance, Insurance, & Real Estate 1990-1996 337.5 333.1 (0.2)
Services 1990-1996 934.0 1,041.7 1.8
Total Government 1990-1996 362.6 357.7 (0.2)
Federal Civilian 1990-1996 62.0 54.1 (2.2)
Federal Military 1990-1996 19.7 13.1 (6.5)
State & Local 1990-1996 281.0 290.5 0.6
Total 1990-1996 3,131.2 3,150.9 0.1
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
HVS International, Mineola, New York Market Area Analysis 44
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================================================================================
Table 4-8 Economic and Demographic Data for the Subject Property's Market Area
(continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Avg. Annual
Data Type Period Data Point Data Point Comp. Change
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Projected Employment - Cook County (+000)
Farming 1996-2000 0.6 0.6 (2.4)%
Agricultural Services 1996-2000 13.8 14.3 1.0
Mining 1996-2000 2.6 2.6 (0.7)
Construction 1996-2000 112.2 109.5 (0.6)
Manufacturing 1996-2000 433.9 409.9 (1.4)
Transportation, Communications, & Public Utilities 1996-2000 196.9 196.6 (0.0)
Total Trade 1996-2000 658.3 641.9 (0.6)
Wholesale 1996-2000 189.7 182.2 (1.0)
Retail 1996-2000 468.7 459.7 (0.5)
Finance, Insurance, & Real Estate 1996-2000 333.1 349.5 1.2
Services 1996-2000 1,041.7 1,074.2 0.8
Total Government 1996-2000 357.7 356.8 (0.1)
Federal Civilian 1996-2000 54.1 53.7 (0.2)
Federal Military 1996-2000 13.1 11.8 (2.6)
State & Local 1996-2000 290.5 291.3 0.1
Total 1996-2000 3,150.9 3,155.8 0.0
Source: Woods & Poole Economics, Inc., Washington, DC
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In later sections of this economic study and appraisal,
we will relate these historical and projected growth
trends to specific market segments based on their
propensity to reflect visitation. This analysis will
provide a basis for forecasting changes in room night
demand in the subject property's area.
<PAGE>
Overview of External Forces Affecting
HVS International, Mineola, New York the U.S. Lodging Industry 45
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================================================================================
5. Overview of External Forces Affecting the U.S. Lodging Industry
Introduction Hotel ownership is ultimately the business of creating
and enhancing value. To understand the investment
potential of lodging facilities, investors must be
thoroughly aware of the many forces that can cause
changes in the value of their properties. Although some
of these forces are internal (such as the layout and
design of the facilities, the quality of management, and
the condition of the property), others are external
(such as the local economic environment and the
competitive nature of the market). The risk associated
with hotel investment lies largely with the external
forces that are beyond the control of ownership and
contribute to the variability of future income flows.
Investors and appraisers can project financial results
by evaluating the historical impact of external forces
on hotel values. Successful hotel investors seek
opportunities where the risk of external forces can be
minimized, thus reducing the uncertainty associated with
income expectations.
When investors engage in due diligence prior to
acquiring a lodging facility, they are primarily
interested in trends affecting a limited geographic
market area, such as a town, city, or county. A broader
overview takes into account national and international
travel patterns and trends. An understanding of the
general characteristics of the United States hotel
market is important because these trends often
foreshadow economic and demographic changes in smaller
areas.
This section of the appraisal will present an overview
of the U.S. lodging industry by tracing many of the
forces that influence hotel values. Historical economic
and demographic data, and industry statistics will be
analyzed to provide a basi s for projections. Forecasts
will be evaluated to determine their reasonableness. The
conclusions represent another set of criteria that hotel
investors consider in making their acquisition
decisions.
<PAGE>
Overview of External Forces Affecting
HVS International, Mineola, New York the U.S. Lodging Industry 46
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HVS
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The Supply and
Demand Relationship Most business ventures are influenced by the
relationship between supply and demand. In the hotel
industry, supply refers to the number of units. A unit
consists of one or more rooms and represents the
smallest accommodation that can be rented to a guest.
Each unit must have a full bath and its own entrance to
a public hallway or the building exterior. Demand refers
to a room night, which is one unit that is occupied for
one night. The supply and demand relationship has a
significant influence on a hotel's occupancy and/or
average room rate.
Occupancy is calculated by dividing the number of rooms
that are occupied for a specific period by the total
number of rooms that are available during the same
period. Average room rate is determined by dividing the
total rooms revenue achieved during a specific period by
the number of rooms occupied during that period; it also
represents the weighted average of all the room rates
charged during that period. In a market where demand is
increasing faster than supply, occupancies rise and
average rate growth generally exceeds inflation. When
supply is increasing faster than demand, occupancies
fall and average rates typically remain level or
decline. Hotels generate revenue based on occupancy and
average rate, and thus the supply and demand
relationship is an important factor in analyzing profits
and value.
Hotel occupancy levels have shown definite cycles that
reflect the balance between supply and demand. The early
1970s marked the beginning of a hotel building boom
reminiscent of the 1920s. Many factors contributed to
this expansion, but the two main elements were readily
available financing and aggressive chains that were
eager to sell franchises. The new construction during
the 1970s was made possible by the enormous amount of
financing generated by all lenders, particularly real
estate investment trusts (REITs). These high-leverage
finance companies were created to allow small investors
to participate in real estate mortgages and equities.
The concept was quickly accepted by Wall Street, and
soon billions of dollars were available to finance real
estate projects. Many lenders became so overwhelmed with
new money that their underwriting procedures broke down
and some marginal developments were approved.
During the late 1960s and early 1970s, hotel companies
actively expanded their chains through franchising.
Franchising was a source of new capital, allowing hotel
companies to grow and achieve national recognition using
the franchisee's financial investment in individual
properties. Some franchisors, eager to demonstrate
sustained growth and establish a national
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presence, employed questionable marketing tactics to
sell new franchises. Salespeople were often compensated
based on the number of franchises sold, so there was
little incentive to discourage developers from investing
in poor locations and overbuilt markets. Many lenders
and hostelry developers were led to believe that a
national franchise would guarantee a successful
operation.
The combination of readily available financing and
aggressive hotel chains eager to sell franchises
resulted in overbuilding and development of many poorly
located, undercapitalized hostelries managed by
inexperienced owners. The bubble burst on the lodging
industry when inflation caused construction costs and
interest rates to escalate. The 1974 energy crisis
drastically reduced travel, and the accompanying
recession curtailed business trips, conferences, and
conventions.
Operators of marginal properties quickly fell behind in
their mortgage payments, and lenders were forced to
foreclose. As lenders became hostelry owners, they
either organized work-out departments headed by
experienced hoteliers or engaged professional hotel
management companies to assume operational
responsibilities. Sales data indicate that lenders who
were looking for quick sales to remove nonperforming
hotel assets from their books had to lower their prices
substantially to attract all-cash buyers. Lenders who
were willing to hold on to foreclosed hotels and employ
professional management to reposition and improve the
properties' operation were generally able to recoup
their original investments in three to five years, once
the industry began to recover. However, even lenders who
repositioned their hotels had to take back favorable
purchase-money financing to sell the properties because
money from other sources was not available.
History has shown that during economic downturns, hotel
values generally do not fall in proportion to the
properties' declining incomes. Sellers, and particularly
lenders who take back hotels through foreclosure, are
often unwilling to sell at substantially reduced prices.
They are more likely to wait out the downward cycle and
dispose of their assets when the market begins to
rebound. Thus, appraisers can best reflect market
behavior by projecting a facility's net income to a
point of recovery and applying the proper discounted
cash flow procedure over that time period.
The late 1970s was a period of relative calm for the
lodging industry. Because most lenders were recovering
from the financial wounds inflicted by
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the 1975 recession, they had little interest in making
hotel mortgages. New construction was restrained, and
primarily consisted of additions to existing properties
and the development of some large, downtown hotels
oriented toward the commercial and convention markets.
The rebirth of center-city hostelries was a direct
result of fuel shortages and the availability of
government financing for inner-city redevelopment
projects. Highway-oriented properties, on the other
hand, were adversely affected by escalating gasoline
prices and decreased automobile travel, and these
lodging facilities lost some of their appeal among
investors and hotel companies.
Decreased building activity, the normal retirement of
older hostelries from the market, and an improving
economy created a favorable supply and demand
relationship and record-high occupancy levels from 1979
to 1980. Average room rates increased rapidly as
operators took advantage of the excess demand to recoup
earlier losses and keep up with inflation.
After the decline in hotel development during the late
1970s, the environment appeared suitable for a period of
renewed expansion. However, the Federal Reserve
tightened the money supply in the early 1980s, sending
the prime interest rate up to double-digit levels. Most
of the projects that were in the preliminary planning
stages but lacked sensible financing were put on hold.
Fiscal policy and declining energy prices eventually
reduced the national inflation rate. This caused a
decline in hotel interest rates beginning in 1983, and
suddenly massive amounts of capital were available for
real estate investments. Hotel developers who had been
out of the market since the mid-1970s rushed to initiate
new projects. They were aided by several major real
estate development incentives: high occupancies and
escalating room rates, readily available debt and equity
financing, and unique income tax benefits designed to
stimulate the national economy out of a recession.
During the early 1980s, trends were generally favorable
for new hotel development. Although the recession caused
a decline in lodging demand, many markets showed
relatively high occupancy levels. Room rates were
usually able to keep up with inflation, and the travel
industry was expected to boom as a result of a
recovering economy. Franchise sellers signed up new
prospects aggressively, using product segmentation to
justify the saturation of a market with a common brand.
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Financing was readily available from the savings and
loan industry. Following deregulation, these banks were
permitted to lend on commercial real estate, such as
hotels. Although savings and loans had experience in
making loans on single-family homes, few had expertise
with commercial properties, and fewer still with hotels.
The result was almost identical to the real estate
investment trust fiasco the decade before: loan
underwriting and administration were inept and sometimes
nonexistent, the number of loans made seemed more
important than the quality of the real estate and the
integrity of the borrower, and short-term funds were
often used to finance long-term mortgages. In the early
1990s, the industry suffered the consequences of this
lending spree: most major hotel markets became severely
overbuilt and many savings and loans went out of
business.
Another factor contributing to hotel development in the
1980s was the very favorable treatment provided by
income tax regulations. By carefully structuring hotel
syndications to take advantage of all available tax
benefits, investors could virtually recoup their total
cash outlay in the first year and reap additional
benefits in the future regardless of the economic
success of the underlying asset. Because there was
little incentive to justify a transaction's economics
(i.e., cash flow and reversionary benefits), a number of
syndicators overpaid for hotel properties, took out
usurious fees, and overloaded their hotels with debt.
A change in the tax law in the mid-1980s eliminated many
of the benefits associated with hotels, but the
overbuilding in most markets was either in progress or
had already taken place. By the end of the 1980s, the
abuses of the savings and loans had become apparent, but
it was too late to reverse the overbuilding. Between
1985 and 1990, approximately 556,000 rooms were added to
the U.S. hotel supply.
The national economy entered another recession in 1990,
and this factor (coupled with overbuilding and the
Persian Gulf War in 1991) caused the national hotel
occupancy rate to bottom out at 60.9%. In some markets,
hotel occupancies were as low as 35%. This supply and
demand imbalance was almost identical to the situation
in the 1970s that led to numerous hotel failures. As in
the REIT days, the number of non-performing loans
reached record levels, and lenders moved to a work-out
mode of operation in order to foreclose and restructure
their hotel investments. Many of the savings and loans
were taken over by the government and their hotel assets
were sold at auction.
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According to the American Council of Life Insurance,
which represents major life insurance companies, the
number of delinquent hotel loans and the number of hotel
loans in foreclosure peaked in 1991. This trend is
undergoing a reversal as the U.S. lodging industry
begins to recover. Loan restructuring was an attractive
alternative to foreclosure during this period, and the
number of loans in good standing with restructured terms
almost doubled.
By 1993, new hotel construction had declined
significantly. Lenders, trying to get out from under
problematic hotel portfolios, curtailed all real estate
lending and would not even consider hotels. The tax
benefits associated with lodging facilities had been
reduced significantly, and passive investors left the
hospitality market entirely.
The slowdown in the growth of supply had a beneficial
impact on occupancy levels, which started to recover in
1992. Improved occupancies are expected to continue
through the late 1990s as increases in lodging demand
outpace growth in supply.
Beginning in 1991, many lenders and the Resolution Trust
Corporation (RTC) sold their oldest and least desirable
hotels at liquidation prices. Because virtually no
third-party financing was available, most lenders were
forced to take back purchase-money mortgages at
favorable terms in order to sell these properties
without suffering massive write-downs. The newer and
more desirable hotels were not put on the market,
because their lenders/owners were waiting for values to
recover. This course of action significantly reduced the
number of transactions involving good-quality lodging
facilities. The following table shows the volume of
hotel transactions exceeding $10,000,000 between 1990
and 1996.
================================================================================
Table 5-1 Summary of Major Hotel Transactions
<TABLE>
<CAPTION>
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Year 1990 1991 1992 1993 1994 1995 1996
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<S> <C> <C> <C> <C> <C> <C> <C>
Number of Transactions 127 56 68 53 115 141 231
Number of Rooms 39,708 16,824 26,118 19,446 39,972 47,810 73,151
Average Price per Room $137,000 $93,000 $83,000 $83,000 $80,000 $80,000 $109,000
Source: HVS International
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In 1991, there were only 56 major hotel sales recorded.
This number increased to 68 in 1992 and declined to 53
in 1993, then rose dramatically in 1994 and 1995. During
the low-volume years, many sellers remained on the
sidelines waiting for values to increase before placing
their properties on the market. The jump in 1994 is
attributable to a number of factors, including the
greater availability of mortgage funds, a return of
institutional investors to the market, and a resurgence
of investor interest in lodging facilities.
The profile of typical hotel buyers has changed
somewhat. During the mid-1980s, when tax-driven
syndications were popular, many hotels were purchased by
passive investors who hired management companies to
operate their properties. These owners had little
involvement in day-to-day management decisions, which
occasionally led to poor management and financial
losses. Today, most buyers of major hotels are
owner-operators who bring with them both the acquisition
funds (usually from a joint venture partner) and
management expertise. We also note that real estate
investment trusts (REITs) and public hotel companies
(C-Corps) are actively acquiring hotels using funds from
public equity stock offerings.
The supply of new hotel rooms is expected to increase
slowly during the next several years. Lenders are
beginning to return to the market, and are making some
hotel loans based on conservative criteria. Initially,
mortgage funds were available mainly to the budget and
economy lodging sectors, for the purpose of refinancing
existing properties or assisting buyers in acquisitions.
Now, a number of lenders are willing to finance new
construction for these small, low-end properties.
Although financing is also becoming available for the
acquisition of large, full-service hotels, very little
has been allocated for new construction. At present,
active hotel lenders are not necessarily traditional
banks and insurance companies, but may include credit
companies and Wall Street securities firms.
A number of hotel owners and developers are now
constructing budget and economy hotels; a few are
planning more upscale, full-service properties. Most
lenders are taking a conservative approach to new hotel
loans, which should limit new development to those
projects that demonstrate true economic feasibility. As
a result, severe short-term overbuilding is unlikely.
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Room Rates The supply and demand relationship has a direct impact
on hotel occupancies and an indirect influence on room
rate growth. Between 1978 and 1995, hotel room rates
increased at an average annual compounded rate of almost
6%. Significant rate growth was recorded during the late
1970s and early 1980s as a result of strong occupancies
(70%'s) coupled with a high monetary inflation rate
(14%). In recent years, room rate growth slowed as a
result of low occupancies and a drop in inflation.
Hotel room rates generally increase faster than the
Consumer Price Index (CPI) when occupancies are strong
or moving upward. When occupancies are low or declining,
room rate growth tends to lag behind the CPI; in some
cases, rates may remain flat or actually drop. The
following table compares the historical and projected
annual increase in hotel room rates in the United States
to the change in the national CPI.
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Table 5-2 Percent Change in Average Room Rates Versus CPI - U.S. Hotels
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Consumer Price
Hotel Rate Index Hotel
Year Percent Change Percent Change Occupancy
--------------------------------------------------------
1973 4.2% 6.2% 70.2%
1974 7.6 11.0 64.0
1975 7.3 9.1 63.7
1976 8.2 5.7 65.8
1977 8.1 6.5 67.3
1978 14.0 7.7 69.2
1979 17.0 11.3 71.9
1980 15.2 13.5 70.6
1981 10.0 10.3 67.9
1982 6.5 6.2 66.7
1983 5.1 3.2 64.4
1984 6.9 4.3 64.0
1985 4.6 3.6 63.1
1986 3.2 1.9 62.5
1987 3.6 3.6 61.9
1988 3.6 4.1 62.3
1989 3.5 4.8 63.2
1990 3.0 5.4 62.4
1991 0.6 4.2 60.9
1992 1.4 3.0 62.1
1993 2.8 3.0 63.1
1994 4.8 2.6 64.7
1995 4.8 2.8 65.5
1996* 5.0 3.0 66.0
1997* 5.5 3.5 67.0
1998* 6.0 4.0 68.0
1999* 5.5 4.0 68.0
*Projected
Sources: Smith Travel Research and HVS International
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This table shows two periods when hotel room rate growth
failed to keep pace with the CPI. From 1973 to 1975, the
hotel industry was suffering from overbuilding related
to real estate investment trusts, a recession, and a
downturn in travel caused by the oil embargo. The second
period of slow room rate growth occurred between 1988
and 1993, when the industry was again affected by
overbuilding and a weak economy. The table illustrates
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that during periods of prosperity, room rates are a good
hedge against inflation; this was true even when the CPI
increased at double-digit levels.
The projections indicate a strong recovery of room rates
as the relationship between supply and demand becomes
more favorable. Growth is expected to peak in 1998 at
6%, which is significantly higher than the projected
gain in the CPI. This may appear high, but a similar
trend occurred in 1978, when room rates rose 14.0% and
the CPI increased by only 7.7%.
Hotels are unique because their room rates can be
adjusted at any time. Unlike office space, where rents
are typically negotiated for a five-year period, hotel
operators are free to base rates on occupancy trends.
Using sophisticated yield management programs, modern
lodging facilities can ride the demand curve and
maximize room rates whenever the market permits. As a
result, hotels generally offer significant upside
potential during periods of economic prosperity.
If lodging facilities can increase room rates faster
than the CPI and still maintain occupancies, bottom-line
profits usually escalate. If they can raise room rates
and occupancy at the same time, profits will grow
significantly. The opposite occurs when room rates fail
to keep pace with inflation. Because market value is
basically a multiple of bottom-line profits, changes
caused by fluctuations in occupancy and average rate
have a direct impact on value.
Rooms Revenue The ability of a hotel to maximize its occupancy and
per Available room rate is measured in terms of rooms revenue per
Room (RevPAR) available room (RevPAR), which is the product of
occupancy and average rate. Between 1978 and 1995,
RevPAR in the U.S. lodging industry increased at an
average annual compounded rate of approximately 5%. As
in the case of average rate, most of the increase
occurred during the late 1970s, when occupancies
escalated rapidly. The only decline in RevPAR occurred
in 1991.
Trends in Hotel Sales HVS International constantly monitors hotel markets in
order to collect information on sales of lodging
facilities. This comprehensive database is known as the
Hospitality Market Data Exchange (HMDE). The HMDE
includes more than 90% of all hotel sales that took
place during this period.
The HMDE data shows that the number of transactions
peaked at 726 in 1986. This strong activity is largely
attributable to pending changes in the tax laws, which
made it less favorable to own hotels. It is also
possible that forward-thinking investors noted the
substantial overbuilding and
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declining economy and decided to bail out at that time.
In 1987 and 1990, the average sales price per room
peaked at $75,000. This was more than twice the 1981
average of $36,000.
Following the 1990 peak, hotel prices fell rapidly as
occupancies and profits were eroded by the massive
number of hotel rooms entering the market. By 1991, the
year of the Persian Gulf War, sales prices had fallen to
$38,000 per room. Even the highest price per room
declined from the record $1,195,652 (for the sale of the
Bel Aire Hotel) to $251,816 in 1992. The market hit
bottom in 1993 when the average sales price dropped to
$36,000 per room. Prices recovered rapidly in 1994 and
1995 as investors became interested in hotels again and
more full-service properties were put on the market. In
1995, the average sales price was $61,000 per room.
The figures presented in the HMDE represent actual sales
prices; no attempt was made to adjust for factors such
as favorable or unfavorable financing, forced or
liquidation sales, bankruptcy sales, foreclosures, and
so forth. As a result, the average price per room does
not necessarily reflect market value, which assumes a
willing buyer and a willing seller. Many of the
transactions that took place during the early 1990s
involved unwilling sellers - usually lenders who were
forced to liquidate hotel portfolios quickly at prices
that were below market levels. Most hotel experts agree
that a recovery is underway, and they recommend that
owners hold their properties until more favorable
conditions prevail.
Trends in A more meaningful indicator of trends in hotel value is
Hotel Values the Hotel Valuation Index (HVI), developed by HVS
International. This index tracks changes in hotel values
in 23 major markets and the nation as a whole. It is
developed through an income approach, using market area
data provided by Smith Travel Research and operational
and capitalization rate information from HVS
International, and is indexed to the 1986 U.S.A. value
(1.0000). The following table sets forth the HVI from
1986 to 1995.
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Table 5-3 Hotel Valuation Index per Room
<TABLE>
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Valuation Index Per Room
---------------------------------------------------------------------------------------
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States 1.0000 0.9464 1.0536 1.1250 1.0714 0.9214 0.9929 1.1429 1.3214 1.6071
Honolulu 3.3571 4.0357 4.6964 5.2857 5.3214 4.7857 4.9286 4.2857 4.3929 5.6071
New Orleans 1.5357 1.7500 2.2857 2.3929 2.5000 2.6071 3.2857 3.2500 3.8929 4.4286
New York 3.5714 4.1071 4.6429 4.5357 3.9286 3.0357 2.5714 2.5714 3.1429 4.1071
San Francisco 2.5000 3.0893 3.2500 3.0714 2.9286 2.5714 2.5714 2.9643 3.2143 4.0000
Phoenix 1.2143 1.0714 1.1786 1.5357 1.4286 1.2500 1.5000 1.9643 2.3571 3.2143
San Diego 2.8571 2.3571 2.5714 2.6786 2.3929 2.5357 2.5357 2.2143 2.3571 3.0357
Miami 1.4286 1.6071 1.7321 2.1429 2.1786 2.2500 2.5714 2.7857 2.3214 2.9286
Washington, DC 2.1786 2.1786 2.4464 2.6071 2.2500 1.8571 2.0357 2.5000 2.3929 2.8929
Atlanta 1.0714 1.0179 1.0536 1.0357 1.1429 1.1250 1.2857 1.7857 2.1429 2.6786
Minneapolis 0.7321 0.6964 0.7143 0.7143 0.7857 1.0000 1.2857 1.5714 1.8214 2.1786
Chicago 1.4643 1.5000 1.5714 1.5000 1.4286 1.2143 1.2500 1.5000 1.8571 2.1786
Boston 2.3571 2.7143 2.6071 2.1429 1.8214 1.2500 1.3036 1.3214 1.6071 2.1071
Fort Lauderdale 1.4643 1.2679 1.3214 1.4286 1.4821 1.3571 1.7143 1.8929 1.6071 1.9286
Orlando 1.5000 1.6429 1.9286 2.5000 2.5357 1.8929 2.0714 1.7857 1.6071 1.8929
Denver 0.5357 0.4464 0.4643 0.4821 0.7857 0.9268 1.0357 1.3214 1.5000 1.8571
Dallas 0.5536 0.6250 0.6607 0.7321 0.7857 0.7143 0.9643 1.0357 1.3214 1.7143
Los Angeles 2.1071 2.2857 2.3929 2.4643 2.1786 1.5714 1.0714 0.9643 1.1964 1.5000
Tampa 0.8393 0.7679 0.8571 1.1429 1.2857 1.0357 1.0714 1.0357 1.1071 1.3214
Anaheim 1.7679 1.7321 1.7500 1.8571 1.6071 1.2857 0.9642 0.9464 0.8393 1.2500
Houston 0.3571 0.4286 0.6964 0.7857 1.1071 1.1607 1.1429 1.0357 1.0000 1.1786
Philadelphia 1.4643 1.5357 1.4286 1.3214 1.0714 0.6786 0.5714 0.6071 0.7500 1.0714
Norfolk 1.1786 1.0536 0.9286 0.7857 0.6429 0.5357 0.6071 0.6429 0.7500 0.9643
Riverside 0.9643 1.2143 1.5714 1.7143 1.4643 1.2500 0.7857 0.5357 0.4286 0.5357
Source: HVS International
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</TABLE>
The HVI can be used to show the value change in a
particular market over time or to show the relative
difference in hotel values in various cities. The
following table shows the annual change in hotel values
in 23 major markets and the United States as a whole.
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Table 5-4 Percent Change in the Hotel Valuation Index
<TABLE>
<CAPTION>
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Annual Percent Change
-------------------------------------------------------------------------------------------------------
'86-'87 '87-'88 '88-'89 '89-'90 '90-'91 '91-'92 '92-'93 '93-'94 '94-'95 '86-'95
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States (5)% 11% 7% (5)% (14)% 8% 15% 16% 22% 61
Honolulu 20 16 13 1 (10) 3 (13) 3 28 67%
New Orleans 14 31 5 4 4 26 (1) 20 14 188
New York 15 13 (2) (13) (23) (15) 0 22 31 15
San Francisco 24 5 (5) (5) (12) 0 15 8 24 60
Phoenix (12) 10 30 (7) (13) 20 31 20 36 165
San Diego (18) 9 4 (11) 6 0 (13) 6 29 6
Miami 12 8 24 2 3 14 8 (17) 26 105
Washington, DC 0 12 7 (14) (17) 10 23 (4) 21 33
Atlanta (5) 4 (2) 10 (2) 14 39 20 25 150
Minneapolis (5) 3 0 10 27 29 22 16 20 198
Chicago 2 5 (5) (5) (15) 3 20 24 17 49
Boston 15 (4) (18) (15) (31) 4 1 22 31 (11)
Fort Lauderdale (13) 4 8 4 (8) 26 10 (15) 20 32
Orlando 10 17 30 1 (25) 9 (14) (10) 18 26
Denver (17) 4 4 63 18 12 28 14 24 247
Dallas 13 6 11 7 (9) 35 7 28 30 210
Los Angeles 8 5 3 (12) (28) (32) (10) 24 25 (29)
Tampa (9) 12 33 12 (19) 3 (3) 7 19 57
Anaheim (2) 1 6 (13) (20) (25) (2) (11) 49 (29)
Houston 20 62 13 41 5 (2) (9) (3) 18 230
Philadelphia 5 (7) (8) (19) (37) (16) 6 24 43 (27)
Norfolk (11) (12) (15) (18) (17) 13 6 17 29 (18)
Riverside 26 29 9 (15) (15) (37) (32) (20) 25 (44)
Source: HVS International
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</TABLE>
On a national basis, hotel values rose in 1988 and 1989,
then declined in 1990 and dropped by 14% in 1991. A
turnaround commenced in 1992, when values increased by
8%; still greater increases of 15% in 1993, 16% in 1994,
and 22% in 1995 signaled that a recovery was well
underway. In the case of the individual cities, it is
obvious that the movement in national hotel values has
been offset somewhat by trends in local markets. Between
1986 and 1995, Riverside hotels lost more than 40% of
their value, while San Francisco showed a 60% increase.
Anaheim, Los Angeles, and Philadelphia also suffered
significant drops.
Future Trends Most hotel owners, operators and lenders agree that the
U.S. lodging industry has emerged from one of the worst
periods since the Depression of 1929. Today, there are
many indications that signal a strong recovery is
underway, and most hotels have experienced a dramatic
rise in profitability. Conversely, the hotel industry
remains cyclical, and there are long-term trends and
risk factors that could have an unfavorable impact on
the operating results and investment potential of
lodging facilities. The following
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list summarizes the positive and negative factors that
are likely to influence the U.S. lodging industry in
coming years.
o No significant amount of new hotel development is
likely to occur during the next three to five years.
Lenders stopped financing new hotels in the early
1990s because of the high rate of loan defaults, and
they are only now starting to make construction loans.
Although mortgage funds are available to refinance
existing properties and construction loans are being
made for economy hotels, mortgages for new hotels in
the mid-rate, first-class, and luxury categories are
still difficult to secure. This lack of financing is
major barrier to entry, and will prevent a number of
proposed projects from moving forward. With only a
slow increase in supply, hotel occupancies should
rebound as fast as the growth in demand permits.
o An additional barrier to entry is the current
discrepancy between market values and replacement
costs for first-class and luxury hotels. In today's
market, many upscale hotels are still selling for
prices that are below what it would cost to develop a
comparable hotel. As a result, there is little
justification for building a new hotel when a similar,
existing facility is available for sale at some
fraction of the cost. Until the gap between market
value and replacement cost narrows, there will be
minimal new hotel construction in the upper-tier
segments. The market values and replacement costs of
budget and economy hotels have been in equilibrium for
several years which is another reason why new
development is proceeding in these segments.
o The U.S. economy continues to improve, which suggests
that more people are traveling. Many people curtailed
their travel plans during the recent recession, and
there is likely to be pent-up demand that will be
released as consumer confidence escalates.
o Minimal additions to the hotel supply coupled with
growth in demand should result in further improvement
in occupancies during the next several years.
o As shown by the historical data, hotel room rates rise
rapidly as occupancies escalate. The most frequent
complaint that owners and operators had during the
recent recession was their inability to achieve
average rate gains. Starting in 1994, gains in hotel
room rates returned to levels in excess of inflation,
foreshadowing enhanced profitability. In real dollars,
hotel room rates are expected to return to 1988 levels
by 1998. This
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is a good indication that hotel values will return to
record levels in the next two to four years.
o The low cost of capital is another factor that tends
to enhance value. Because capitalization rates are
tied directly to the price of capital, the lower the
cost, the lower the cap rate and the higher the value.
The cost of hotel debt capital averaged 10.5% in 1990.
Today, similar financing is available at 8.5% to 9.5%.
Recent hotel sales support the downward trend in
capitalization rates.
o Government regulations are becoming increasingly
expensive for the U.S. hotel industry. A national
health care policy could force small operators to
provide better benefits for many more employees,
particularly the part-time workers who are used
extensively by hotels and restaurants. Environmental
laws are becoming stricter and will require hotels to
implement recycling, reuse, and conservation
procedures. Congress has limited deductions for meals
and entertainment expenses, which increases the cost
of doing business in hotels and restaurants. Local
municipalities use hotel rooms taxes as a source of
revenue for general use, and the hotel rooms tax is so
high in some areas that it has driven away demand.
This is particularly true with respect to meetings and
conventions, which can be held in cities that tax
accommodations at a lower rate.
o Improved technology is rapidly changing the way
business is conducted. During the next decade,
advances such as video communication, enhanced data
transfer, and faster transportation are expected to
limit the need for face-to-face meetings and shorten
the time that executives are away from their offices.
Commercial hotels are bound to be influenced by this
trend.
Conclusion Interest in hotel acquisition has increased
significantly during the past several years. Buyers have
concluded that future earnings trends are likely to be
favorable, and the risks posed by overbuilding or an
economic downturn are small. Some sellers are holding
their properties until prices reach a higher level.
Consequently, we believe there is pent-up desire to sell
once prices begin to approach levels that allow the
existing (or restructured) debt to be paid off.
The fact that numerous buyers are chasing very few
acquisition opportunities has had a favorable impact on
recent sales prices. For buyers to be successful in this
highly competitive market, their projected operating
results
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must take into account at least a portion of any upside
created from improved performance, particularly if the
improvement can be readily achieved through management
efficiencies. Capitalization rates based on historical
operating income have fallen during the past several
years. Hotel buyers in today's market must be aggressive
in all of their acquisition assumptions. As a result,
hotel values in some parts of the country are
approaching the levels registered during the mid-1980s,
and a full recovery is expected to occur in the next two
to four years.
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6. Lodging Market Supply and Demand Analysis
MARKET FOR The market for transient accommodations is an
TRANSIENT all-encompassing term referring to the many types of
ACCOMMODATIONS travelers who use lodging facilities in a given area.
These travelers represent the market's accommodated room
night demand. This section will begin with an analysis
of historical demand trends to determine what changes
have occurred; the historical number of competitive
hotel rooms will then be estimated to evaluate local
supply trends. Areawide occupancy levels can be
calculated based on the number of hotel rooms available
in the market and the demand for lodging accommodations.
The total hotel room night demand will be divided into
individual market segments to allow us to forecast
growth rates based on the economic and demographic data
set forth earlier in this report.
Historical Supply Smith Travel Research (STR) has compiled historical
and Demand Data supply and demand data for the subject property and its
competitors. This information is presented in the
following table, along with the marketwide occupancy,
average rate, and rooms revenue per available room
(RevPAR). RevPAR is calculated by multiplying occupancy
by average rate, and provides an indication of how well
rooms revenue is being maximized.
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Table 6-1 Historical Room Supply and Demand Trends (STR)
<TABLE>
<CAPTION>
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Avg. Annual
Year-to-Date January Comp. Change
--------------------- -------------------
1992 1993 1994 1995 1996 1997 1997 1998 1992-97 1995-97
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Number of Rooms 11,790 11,984 11,984 11,984 11,984 11,984 11,984 11,984 0.3% 0.0%
Annual Guestroom
Supply 4,303,360 4,374,160 4,374,160 4,374,160 4,374,160 4,374,160 371,504 371,504
Percent Change -- 1.6% 0.0% 0.0% 0.0% 0.0% -- 0.0%
Room Night Demand 2,763,625 2,988,298 3,102,591 3,159,238 3,286,047 3,335,684 188,964 218,004 3.8 2.8
Percent Change -- 81% 3.8% 1.8% 4.0% 1.5% -- 15.4%
Occupancy 64.2% 68.3% 70.9% 72.2% 75.1% 76.3% 50.9% 58.7% 3.5 2.8
Percent Change -- 6.4 3.8% 1.8% 4.0% 1.5% -- 15.4%
Average Rate $110.02 $113.23 $117.80 $123.18 $137.43 $149.70 $126.17 $131.74 6.4 10.2
Percent Change -- 2.9% 4.0% 4.6% 11.6% 8.9% -- 4.4%
RevPAR $70.66 $77.35 $83.56 $88.97 $103.25 $114.16 $64.18 $77.31 10.1 13.3
Percent Change -- 9.5% 8.0% 6.5% 16.0% 10.6% -- 20.5%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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It is important to note some limitations of the STR
data. Hotels are occasionally added to or removed from
the sample, and not every property reports data in a
consistent and timely manner; these factors can
influence the overall quality of the information by
skewing the results. These inconsistencies may also
cause the STR data to differ from the results of our
competitive survey. Nonetheless, we find that hotel
buyers often rely on STR statistics, and thus they are
considered relevant to this study.
As illustrated by the previous table, supply rose in
1993; this reflects the opening of the subject property,
which had its first full year of operation in that year.
Supply has remained stable since that time. Room night
demand jumped by 8.1% in 1993, as the market began
recovering from the national recession; this was
followed by more moderate gains of 3.8% in 1994, 1.8% in
1995, 4.0% in 1996, and 1.5% in 1997. Year-to-date
January figures are auspicious, showing strong demand
growth of 15.4% from 1997 to 1998. Overall, demand rose
at an average annual compounded rate of 3.8% from 1992
through 1997. Because there have been no changes in
supply since 1993, occupancy trends have mirrored demand
growth. We note that despite the opening of the subject
property, occupancy continued to increase consistently;
this suggests that the opening of the subject property
may have induced demand into the market. Between 1992
and 1997, the marketwide occupancy increased at an
average annual compounded rate of 3.5%.
Like occupancy, average rate increased consistently
throughout the historical period. The strongest
increases occurred in 1996 and 1997 (at 11.6% and 8.9%,
respectively). From 1992 through 1997, average rate rose
by 6.4% compounded annually, which was well in excess of
inflation; from 1995 through 1997, the rate of increase
was even stronger, at 10.2% per year. As a result of the
moderate gains in occupancy rates and the strong average
growth, RevPAR increased at a substantial average annual
compounded rate of 10.1% from 1992 through 1997. As a
result of the jump in average rate, the largest RevPAR
increases occurred in 1996 (at 16.0%) and 1997 (at
10.6%). Overall, our analysis of the STR data indicates
a healthy market that is likely to undergo moderate
growth during the next few years.
Demand Analysis For the purpose of demand analysis, the overall market
Using Market is divided into individual segments based on the nature
Segmentation of travel. Although a market may have various segments,
the three primary classifications occurring in most
areas are commercial, meeting and group, and leisure.
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Market segmentation is a useful procedure because
individual classifications often exhibit unique
characteristics in terms of growth potential,
seasonality of demand, average length of stay, double
occupancy, facility requirements, price sensitivity, and
so forth. By quantifying the room night demand by market
segment and analyzing the characteristics of each
segment, the overall demand for transient accommodations
can be projected. Lodging demand in the downtown Chicago
market is generated primarily by the following three
market segments.
Segment 1 Commercial
Segment 2 Meeting and Group
Segment 3 Leisure
Based on our fieldwork, area analysis, and knowledge of
the local lodging market, we estimate the 1997
distribution of accommodated hotel room night demand as
follows.
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Table 6-2 1997 Accommodated Room Night Demand
- --------------------------------------------------------------------------------
Marketwide Subject Property
----------------------- --------------------------
Accommodated Percent Accommodated Percent
Market Segment Demand of Total Demand of Total
- --------------------------------------------------------------------------------
Commercial 793,000 27% 56,000 16%
Meeting and Group 1,808,000 61 259,000 75
Leisure 353,000 12 30,000 9
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Total 2,955,000 100% 345,000 100%
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Meeting and group demand predominates in the subject
property's market, and contributed approximately 61% of
the 1997 room night demand. Commercial demand followed,
with a 27% share, and leisure travelers comprised the
remaining 12% of the 1997 total. The subject property's
demand segmentation differs from that of the market to
some degree. Approximately 75% of the Sheraton's
occupancy is derived from the meeting and group segment,
reflecting the hotel's large inventory of function
space. The commercial segment constitutes roughly 16% of
the subject property's demand, which is substantially
lower than the marketwide ratio. Leisure travelers
account for only 9% of the hotel's occupancy. Using the
distribution of accommodated hotel demand as a starting
point, we will analyze the
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characteristics of each market segment in an effort to
determine future trends in room night demand.
Commercial Segment The commercial segment consists of individual
businesspeople who are visiting various firms in the
subject property's market. Commercial demand in the
subject property's market is generated by businesspeople
who are visiting various firms in the subject property's
market. Commercial demand is strongest Monday through
Thursday nights, declines significantly on Friday and
Saturday, and increases somewhat on Sunday. The typical
length of stay ranges from one to three days, and the
rate of double occupancy is a low 1.2 to 1.3 people per
room. Commercial demand is relatively constant
throughout the year, although some declines are
noticeable in late December and during other holiday
periods.
In general, commercial travelers are not overly
rate-sensitive, and will make use of a hotel's food and
beverage outlets and recreational facilities.
Consequently, this segment represents a highly desirable
and lucrative market that provides a consistent level of
demand at relatively high room rates.
Commercial demand for the subject property is generated
primarily by retail outlets and other businesses in the
North Michigan Avenue corridor. Many of the nation's
most exclusive retailers are represented along the
Magnificent Mile; the stores that contribute the
greatest amount of lodging demand are Bloomingdale's,
Neiman-Marcus, Lord & Taylor, and Saks Fifth Avenue.
Smaller outlets in the area include Ann Taylor, Banana
Republic, Structure, and Crate & Barrel.
Local hotels also receive some demand from firms located
in the Loop (Chicago's financial district), because many
businesspeople prefer the exclusivity and entertainment
options provided by North Michigan Avenue and the
surrounding neighborhood. Commercial demand is also
generated by companies with corporate headquarters in
downtown Chicago, such as Allied Products, Helene
Curtis, Quaker Oats, Amoco, Sara Lee, the Beatrice
Company, Continental Bank, Commonwealth Edison,
Ameritech, USG Corporation, Inland Steel, Sears, Roebuck
& Company, Borg Warner, Fruit of the Loom, ITEL
Corporation, Navistar International, the Tribune
Company, Wm. Wrigley Jr., Stone Container, the Whitman
Corporation, Amsted, the Hartmarx Corporation, Morton
International, Inc., AM International, FMC Corporation,
and Great American Management.
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To reach a more specific forecast of demand expectations
in this segment, we have evaluated the economic and
demographic information that has the greatest propensity
to reflect changes in commercial visitation. Between
1980 and 1996, shifts in non-agricultural employment in
the Chicago MSA ranged from a 4.7% average annual
compounded decline in mining to a 2.7% annual increase
in the service sector. Total employment rose at an
average annual compounded rate of 0.5% during this
period. Office vacancy in downtown Chicago stood at
15.6% in 1996. Lodging data provided by Smith Travel
Research indicates that total demand in the subject
property's rose at an average annual compounded rate of
3.8% from 1992 to 1997. Based on economic conditions in
the market and historical trends in occupancy and room
night demand, we expect commercial demand to increase by
3.0% annually throughout the projection period.
Meeting and The meeting and group market includes meetings,
Group Segment seminars, conventions, trade association shows, and
similar gatherings of ten or more people. Peak
convention demand typically occurs in the spring and
fall. Because of vacations, the summer months represent
the slowest period for this market segment; winter
demand varies. The average length of stay for typical
meetings and groups ranges from three to five days. Most
commercial groups meet during the weekday period of
Monday through Thursday, but associations and social
groups will sometimes gather on weekends. Commercial
groups tend to have a low double occupancy of 1.3 to 1.5
people per room, while social groups are likely to have
double occupancy rates ranging from 1.5 to 1.9.
Meeting and group patronage is quite profitable for
hotels. Although room rates are discounted for large
groups, the property benefits from the use of meeting
space and the revenues generated by in-house banquets
and cocktail receptions. Facilities that are necessary
to attract meetings and groups include function areas
with adequate space for breakout, meals, and receptions;
recreational amenities; and a sufficient number of
guestrooms to house the attendees.
A majority of Chicago's meeting and convention demand is
generated by events held at McCormick Place. These
functions provide significant occupancy to the area's
large, convention-oriented hotels, and some business
spills over to smaller properties in the downtown
district. Hotels with adequate function space are able
to host small meetings of regional or state associations
independently. Given the recent expansion of McCormick
Place and historical and projected increases in
convention attendance in Chicago,
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we anticipate relatively strong growth in meeting and
group demand in the local market.
In projecting meeting and group demand, we give
considerable weight to data reflecting convention center
activity, because citywide conventions are the primary
source of room nights in this segment. For the purpose
of this study, we forecast meeting and group demand to
increase by 3.5% per year from 1998 through 2001, and by
3.0% annually in subsequent years. These growth rates
reflect the strong historical gains exhibited by the
Chicago area, and the anticipated increases engendered
by the opening of the Hyatt McCormick Place and the
expansion of the convention center.
Leisure Segment The leisure market segment consists of individuals and
families who are spending time in the area or passing
through en route to other destinations. Their travel
purposes may include sightseeing, recreation, visiting
friends and relatives, or numerous other non-business
activities. Leisure demand is strongest Friday and
Saturday nights and all week during holiday periods and
the summer months. These peak periods are negatively
correlated with commercial visitation, underscoring the
stabilizing effect of capturing weekend and summer
tourist travel. The typical length of stay ranges from
one to four days, depending on the destination and
travel purpose, and the rate of double occupancy
generally ranges from 1.8 to 2.5 people per room.
Leisure travelers tend to be the most price-sensitive
segment of the lodging market. They often prefer
low-rise accommodations where parking is convenient to
the rooms, and they typically demand extensive
recreational facilities and amenities. Ease of highway
access and proximity to tourist attractions are
important locational considerations.
Leisure demand is generated by downtown Chicago's many
sites, attractions, and events. Local hotels, including
the subject property, promote leisure demand by
providing weekend, holiday, and special-event packages.
Chicago offers a wide array of activities, and draws
visitors from throughout the midwestern United States.
Numerous museums, historic sites, and the exclusive
retail outlets on Michigan Avenue and Oak Street assist
the Sheraton in capturing leisure demand. The 1995
opening of Navy Pier, which is located roughly one-half
of a mile from the subject property (on the other side
of Lake Shore Drive), has also assisted the Sheraton in
attracting room nights.
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Future leisure demand is related to the overall economic
health of the nation. Trends showing changes in state
and regional unemployment and disposable personal income
often have a strong impact on non-commercial visitation.
Attendance figures at local attractions indicate steady
growth in this market segment; the recent rise in
international visitation also supports this conclusion.
Based on our review of economic and demographic trends
in the subject property's market area and the popularity
of local attractions and events, we anticipate leisure
demand to increase by 1.0% annually throughout the
projection period.
Growth Rates The purpose of segmenting the lodging market is to
define each major type of demand, identify customer
characteristics, and estimate future growth trends.
Starting with an analysis of the local area, three
segments were defined as representing the subject
property's lodging market. Various types of economic and
demographic data were then evaluated to determine their
propensity to reflect changes in hotel demand. Based on
this procedure, we forecast the following average annual
compounded market segment growth rates.
================================================================================
Table 6-3 Average Annual Compounded Market Segment Growth Rates
- --------------------------------------------------------------------------------
Segment 1998 1999 2000 2001 2002 2003
- --------------------------------------------------------------------------------
Commercial 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
Meeting and Group 3.5 3.5 3.5 3.5 3.0 3.0
Leisure 1.0 1.0 1.0 1.0 1.0 1.0
- --------------------------------------------------------------------------------
These growth rates will be used in subsequent sections
of this study to forecast changes in lodging demand.
COMPETITION An integral component of the supply and demand
relationship that has a direct impact on the
availability of lodging demand is the current and
anticipated supply of competitive lodging facilities.
The downtown Chicago lodging market can be divided into
two geographical regions, which are separated by the
Chicago River. The subject property is located north of
the river in the North Michigan Avenue corridor, which
is the city's premier retail district. The Sheraton also
competes with hotels located south of the river in the
financial district, which is known as the Loop. Most
hotels situated south of the river are large properties
that cater to firms located in the Loop and to demand
generated by McCormick Place, which is located
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approximately three and one-half miles south of the
financial district. Despite the differences in size and
location, these hotels compete with the Sheraton because
many businesspeople visiting firms in the Loop prefer
accommodations in the North Michigan Avenue area, which
offers a wider variety of retail outlets, restaurants,
pubs, and entertainment alternatives.
Criteria used to determine the degree of competitiveness
include average rate structure, occupancy, market
orientation and segmentation, location, chain
affiliation, age, quality, condition of facilities,
availability of meeting facilities, recreational
amenities, type of food and beverage outlets, frequent
guest programs, travel agent commission policy, market
perceptions, and the comments of property management. A
number of lodging facilities in the market are judged to
be secondarily competitive or non-competitive based on
these criteria.
We have identified four properties that are considered
primarily competitive with the Sheraton Chicago Hotel &
Towers. Including the subject property, these primary
competitors total 7,578 rooms. Seven additional lodging
facilities are judged to be only secondarily
competitive; although the facilities, rate structures,
or market orientations of these hotels prevent their
inclusion among the primarily competitive supply, they
do compete with the subject property to some extent. The
room count of each secondary competitor has been
weighted to reflect the degree to which it competes with
the Sheraton Chicago Hotel & Towers; the aggregate
weighted room count of the secondary competitors is
2,908.
Primary Competitors The following table summarizes the important operating
characteristics of the primary competitors and the
aggregate secondary competitors. This information was
compiled from personal interviews, inspections, lodging
directories, and our in-house library of operating data.
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Table 6-4 Primary Competitors and Aggregate Secondary Competitors
<TABLE>
<CAPTION>
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Estimated 1997
Square Footage Market Segmentation Estimated 1996
------------------ ------------------------ -------------------------
Meeting 1997
Year No. of Meeting Space Mtg. & Published Average
Property/Location Opened Rooms Space per Room Comm. Group Leisure Rates Occ. Rate RevPAR
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Subject Property
301 East North Water St 1992 1,204 95,235 79 16% 75% 9% $109 - $275 74.4% $140.63 $104.63
Chicago Marriott
540 North Michigan Ave 1978 1,172 58,800 50 40 50 10 $139 - $199 80.0 143.00 114.40
Hyatt Regency Chicago
151 East Wacker Dr. 1974 2,019 227,300 113 10 80 10 $149 - $195 76.0 123.00 93.48
Chicago Hilton &Towers
720 South Michigan Ave 1927 1,543 234,000 152 30 55 15 $155 - $255 74.2 132.50 98.32
Palmer House
17 East Monroe 1926 1,640 173,000 105 20 65 15 $125 - $205 76.8 127.85 98.19
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Sub-Totals and Averages 7,578 157,667 100 22% 66% 12% 76.0% $131.93 $100.22
Secondary Competitors 2,908 40 48 12 74.0 144.02 106.58
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Totals and Averages 10,486 27% 61% 12% 75.5% $135.23 $102.1
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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Estimated 1997
-----------------------------------------------------
Average Occupancy Yield
Property/Location Occ. Rate RevPAR Penetration Penetration
- --------------------------------------------------------------------------------
Subject Property
301 East North Water St 78.5% $148.25 $116.38 101.7% 103.6%
Chicago Marriott
540 North Michigan Ave 81.0 153.00 123.93 104.9 110.4
Hyatt Regency Chicago
151 East Wacker Dr. 77.0 135.00 103.95 99.7 92.6
Chicago Hilton &Towers
720 South Michigan Ave 77.0 139.00 107.03 99.7 95.3
Palmer House
17 East Monroe 77.8 140.00 108.92 100.8 97.0
- --------------------------------------------------------------------------------
Sub-Totals and Averages 78.0% $141.89 $110.72 101.1% 98.6%
Secondary Competitors 75.0 155.22 116.42 97.2 103.7
- --------------------------------------------------------------------------------
Totals and Averages 77.2% $145.48 $112.30 100.0% 100.0%
- --------------------------------------------------------------------------------
<PAGE>
COMPETITION MAP
[MAP OMITTED]
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Our survey of the primary competitors shows a
representation of full-service properties, all but one
of which are affiliated with nationally recognized
lodging franchises. The hotels range in size from 1,172
rooms at the Chicago Marriott to 2,019 at the Hyatt
Regency. In 1997, the primary competitors maintained an
overall occupancy of 78.0% at an average rate of
$141.89, yielding RevPAR of $110.72. Their market
segmentation is estimated to have been 66% meeting and
group, 22% commercial, and 12% leisure.
The subject property performed well in 1997. The hotel's
occupancy of 78.5% represented a 4.1 percentage point
increase from 1996, and the hotel's average rate of
$148.25 was nearly eight dollars higher than that
registered the previous year. By virtue of its healthy
occupancy and average rate levels, the Sheraton
maintained a yield penetration factor in excess of 100%
in both 1996 and 1997. In terms of average rate, the
subject property is surpassed only by the Marriott. In
light of the significant improvement in operating
performance from 1996 to 1997, the Sheraton's management
representatives now anticipate maintaining occupancy at
more or less the current level while pursuing further
average rate gains. Each primary competitor was
inspected and evaluated, and descriptions of our
findings are presented below.
Chicago Marriott The Marriott is located in the heart of the North
Michigan Avenue Magnificent Mile, directly across from
Cityfront Center. The Marriott offers 1,172 rooms,
including two concierge floors and 25 suites. This hotel
opened in 1978, and is highly comparable to the subject
property in terms of location and size.
A $13,000,000 renovation of the Marriott's guestrooms,
meeting space, lobby, and public areas was completed in
1988. Management representatives indicate that the soft
goods in the lobby and the guestrooms were replaced
again in 1991 and 1992; however, the property still
suffers from a non-descript exterior and meeting
facilities that are dispersed on four levels. An
approximate $3,000,000 renovation of the lobby and the
executive conference center began in 1997; upon
completion of this project, the lobby will feature a
two-story atrium. Management representatives also
anticipate the addition of approximately 50,000 square
feet of retail space. Guestroom corridors are also being
upgraded, and are expected to be completed in March of
1998. A guestroom renovation is scheduled for 1999, at
an estimated cost of $10,000,000 to $12,000,000; this
project will include replacement of workstations, soft
goods, and some case goods.
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Food and beverage service at the Marriott is provided by
Allie's American Grill, the hotel's all-purpose
restaurant; J.W.'s, which features continental cuisine;
the Fourth Edition Lounge; a lobby bar; and Upper
Avenue, which provides nightly entertainment. Like many
areas of the hotel, these outlets appear worn.
Recreational facilities consist of a health club, a
sports center, an indoor swimming pool, an outdoor
sports deck, and an outdoor basketball court. We note
that the recreational facilities are available for guest
use at no charge.
Meeting and banquet facilities total roughly 58,800
square feet, which equates to roundly 50 square feet per
guestroom; this level is considerably lower than the 79
square feet per guestroom available at the subject
property, and the space is less flexible. The largest
meeting rooms offered by the Marriott are the Grand
Ballroom (19,552 square feet) and the Chicago Ballroom
(12,972 square feet).
The Marriott's excellent North Michigan Avenue location
provides ready access to numerous retail outlets and
restaurants, and allows the hotel to serve a variety of
markets. Furthermore, Marriott's Honored Guest Program
enables this property to achieve the highest occupancy
among the primary competitors. Weekend demand is
particularly strong, and the Marriott achieves extremely
high occupancies on Friday and Saturday nights (although
at a lower average rate than that achieved during the
week). We estimate that the Chicago Marriott derived
approximately 50% of its 1997 room night demand from
meetings and groups, 40% from commercial travelers, and
the remaining 10% from the leisure market segment.
Hyatt Regency The Hyatt Regency is located in the Illinois Center
Chicago mixed-use complex, approximately one block south of the
subject property (across the Chicago River). Illinois
Center forms the southern boundary of the North Michigan
Avenue corridor, and a pedestrian mall on the concourse
level links the hotel to the complex. As a result, the
Hyatt is successful in capturing a significant amount of
the commercial demand generated by Illinois Center.
This property contains 2,019 guestrooms, including 172
suites, and is the largest hotel in Chicago. A Regency
Club located on the top four floors of the west tower
features upgraded amenities and services geared toward
frequent business travelers.
The Hyatt was constructed in 1974 as a 1,000-room
convention hotel, and a 1,019-room tower was added in
1980. The two towers are separated by
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Stetson Avenue, although a sky bridge on the
second-floor lobby level provides pedestrian access.
This configuration can be somewhat confusing, and
necessitates long public circulation corridors. A
$21,000,000 renovation of the Hyatt's guestrooms and
function space was completed recently.
Food and beverage facilities are extensive, and include
a multi-purpose restaurant known as the All-Seasons
Cafe, the hotel's all-purpose restaurant; Stetson's
Restaurant and Lounge; Mrs. O'Leary's Restaurant and
Lounge; and Knuckles Lounge. In addition, the Big Bar is
located on the second level of the East Tower,
overlooking the atrium lobby.
Function space totals approximately 227,300 square feet,
which equates to roundly 113 square feet per guestroom;
this ratio is higher than that of the subject property.
The Hyatt's 24,500-square-foot ballroom was the largest
in the city prior to the Sheraton's opening. A
significant portion of the hotel's meeting space is
located on the lower levels, and because these rooms do
not receive any natural light, the subject property's
meeting and banquet facilities are more attractive than
those of the Hyatt.
We estimate that the Hyatt derived approximately 80% of
its 1997 occupancy from meetings and groups, 10% from
commercial travelers, and the remaining 10% from leisure
demand. The Hyatt and the Sheraton compete directly for
designation as headquarters hotel for McCormick
Place-based conventions and trade shows, and both hotels
are capable of hosting their own events.
Chicago The Hilton is located on South Michigan Avenue in the
Hilton & Towers vicinity of Chicago's Loop, approximately one and
one-half miles south of the subject property. This
location is quite removed from most of the city's
entertainment alternatives, which places the hotel at
somewhat of a disadvantage. The Chicago Hilton & Towers
opened in May of 1927 as the Stevens Hotel. The original
property contained 3,000 guestrooms, five sub-basements,
an 18-hole miniature golf course on the roof, a
hospital, and a 1,200-seat theater. During World War II,
the hotel was used as a U.S. Army barracks for one year.
Stephen Healy, a local contractor, purchased and
re-opened the Stevens Hotel in November of 1943; in
February of 1945, Conrad Hilton purchased the property
and renamed it the Conrad Hilton Hotel. The property was
sold to a joint venture partnership that included the
Hilton Hotels Corporation, the Prudential Insurance
Company, and Charles Shaw (a local developer) in 1984.
The hotel closed in December of that year to undergo a
major reconstruction project, and 806 rooms were
available for occupancy by
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October of 1985. Approximately 100 additional rooms were
finished each month until June of 1986, when the entire
inventory became available. Renovation costs, including
the purchase of the building and land by Hilton,
reportedly totaled approximately $173,000,000. The
renovation effectively created a new hotel within an old
shell. The hotel's external facade (fronting South
Michigan Avenue) was refurbished in 1996.
This property's 1,543 guestrooms include Tower units
that offer upgraded services and amenities. The 23rd
floor features a private registration lobby, a
concierge, and the Towers Lounge, which provides
complimentary beverages and hors d'oeuvres throughout
the day. Approximately 626 of the Hilton's guestrooms
are equipped with two baths; this configuration is the
result of two small rooms being combined to form one
larger unit. These rooms are very popular among meeting
and convention attendees, who are often doubled up in
rooms. The Hilton's extensive meeting and convention
facilities are considered highly competitive with those
of the subject property. Food and beverage service is
provided by the Pavilion, an all-purpose restaurant;
Buckingham's, a fine dining outlet; Kitty O'Shea's Irish
pub; the Lakeside Green lobby lounge; and the Fast Lane
delicatessen.
The Hilton offers extensive function space totaling over
234,000 square feet, which includes approximately
120,000 of dedicated exhibition space. Meeting space
equates to more than 152 square feet per guestroom; this
ratio is notably higher than those of the other primary
competitors, and provides a competitive advantage. We
estimate that the Hilton derived approximately 55% of
its 1997 room night demand from the meeting and group
segment, 30% from commercial guests, and 15% from
leisure travelers.
Palmer House The Palmer House, which was constructed in 1926, is
located near the Loop and in the heart of the financial
district, roughly one mile southwest of the subject
property. Although the property does not bear the Hilton
name, it is operated by the Hilton Hotels Corporation.
This hotel features 1,640 guestrooms, including 500
triples and 100 quads, and is considered primarily
competitive with the Sheraton as a result of its size
and extensive meeting and banquet facilities. Two floors
are Tower levels that offer upgraded guestrooms and
special services. This property features attractive
architectural and design details that cannot be found in
more modern buildings.
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During the past decade, this facility has undergone a
major renovation that is expected to cost approximately
$100,000,000 upon completion. Currently, soft goods and
case goods are being replaced in approximately 400
guestrooms; this project is expected to be completed by
the end of March, 1998. Those guestrooms that were not
renovated in previous years will be revamped during the
winter of 1998/99. Further plans for 1998 include a
complete upgrading of the elevator system; this
multi-million-dollar project is expected to take three
years to complete.
Food and beverage outlets include the Palmer Steak and
Seafood House; Trader Vic's, which serves cocktails,
lunch, and dinner; the French Quarter, which features
Cajun specialties; and the Palmer Cafe. Recreational
amenities consist of an executive fitness center that
offers an exercise room, an indoor swimming pool, a
sauna, a whirlpool, and aerobics instruction.
Meeting and banquet space totals roughly 173,000 square
feet, which equates to roundly 105 square feet per
available guestroom. Although this is higher than the
ratio offered by the subject property, the largest
function room available at the Palmer House is the
13,200-square-foot grand ballroom, which can accommodate
approximately 1,700 people for banquets. This is notably
lower than the subject property's maximum banquet
capacity.
Although the Palmer House is situated near the
commercial demand generators in the Loop, the
neighborhood offers little evening activity and suffers
from a rather poor reputation; this limits the hotel's
ability to attract leisure travelers. Because it is not
situated amid the concentration of downtown hotels, the
Palmer House attracts less convention demand than the
Sheraton, and the group demand that it does accommodate
is generally characterized by lower rates. Nonetheless,
this hotel can combine marketing forces with the Chicago
Hilton & Towers, and thus it is considered primarily
competitive in the meeting and group market segment. We
estimate that this hotel derived approximately 65% of
its 1997 occupancy from meeting and group demand, 20%
from commercial guests, and 15% from leisure travelers.
Secondary The following table summarizes the important operating
Competitors characteristics of the secondary competitors. This
information was compiled from personal interviews,
inspections, lodging directories, and our in-house
library of operating data.
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Table 6-5 Secondary Competitors
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Estimated 1997
Market Segmentation Estimated 1996
------------------------ ------------------------
Weighted
Year No. of Percent No. of Mtg. & Average
Property Opened Rooms Competitive Rooms Comm. Group Leisure Occ. Rate RevPAR
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Renaissance 1991 565 75% 424 35% 50% 15% 76% $151.00 $114.76
Fairmont N/A 692 75 519 40 50 10 78 148.00 115.44
Hotel Inter-Continental 1990 860 75 645 40 50 10 72 136.00 97.92
Swissotel 1988 630 75 473 50 40 10 77 142.00 109.34
Westin River North 1987 421 50 211 55 35 10 76 141.00 107.16
Westin Michigan Avenue 1987 740 50 370 25 60 15 70 129.00 90.30
Drake Hotel N/A 535 50 268 40 40 20 71 170.22 120.86
- ---------------------------------------------------------------------------------------------------------------------------
Totals and Averages 4,443 2,908 40% 48% 12% 74% $144.02 $106.58
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------
Estimated 1997
------------------------
Average
Property Occ. Rate RevPAR
- --------------------------------------------------
Renaissance 73% $175.00 $127.75
Fairmont 80 163.00 130.40
Hotel Inter-Continental 79 141.00 111.39
Swissotel 73 145.00 105.85
Westin River North 69 166.00 114.54
Westin Michigan Avenue 73 141.00 102.93
Drake Hotel 70 175.00 122.50
- --------------------------------------------------
Totals and Averages 75% $155.22 $116.42
- --------------------------------------------------
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The secondary competitors include both franchised and
independent, full-service hotels ranging in size from
421 rooms at the Westin River North (formerly the Hotel
Nikko) to 860 at the Inter-Continental. As noted
earlier, the room counts have been weighted to reflect
each property's degree of competitiveness with the
Sheraton. In 1997, the secondary competitors
accommodated a higher percentage of commercial demand
than the primary competitors, at 40% of the total; the
meeting and group segment contributed 48%, and leisure
travelers comprised the remaining 12%. In 1997, these
properties maintained an overall occupancy of 75.0% at
an average rate of $155.22, yielding a RevPAR level of
$116.42.
Proposed It is important to consider any new hotels that may have
Competitors an impact on the subject property's operating
performance. Based on our fieldwork in the market and
our discussions with local hotel operators, developers,
and government officials, there are numerous hotels that
are proposed or under development in the Chicago area.
The following table outlines these potential projects,
as reported by the Department of Planning and
Development.
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Table 6-6 Hotels Proposed or Under Development in Chicago
<TABLE>
<CAPTION>
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Project Name Address Rooms Development Status
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Essex Inn 800 S. Michigan Ave. --- Unknown In Planning
730 N. Michigan Ave. 730 N. Michigan Ave. 200 New In Planning
Courtyard by Marriott 2185 S. Michigan Ave. 165 Conversion In Planning
Marriott - Franklin Point 600 S. Wells St. 458 New In Planning
Central Station Hotel 1201 S. Michigan Ave. 500 Conversion In Planning
541 N. Wabash 541 N. Wabash --- New In Planning
River East Center 350 E. Illinois 500 New In Planning
Grand Pier Development 250 E. Illinois 500 New In Planning
540 N. Michigan Ave. 540 N. Michigan Ave. --- Renovation In Planning
540 N. Wabash 540 N. Wabash --- New In Planning
Loews Hotel - Block 37 10 N. State St. 250 New In Planning
Carbon & Carbide Building 230 N. Michigan Ave. 350 Conversion In Planning
Donnelly Building 350 Cermack Ave. --- Conversion In Planning
Oxford House 252 N. Wabash 194 Renovation In Planning
Marina City Hotel 333 N. Dearborn St. 370 Conversion In Planning
Wyndham Chicago 633 N. St. Clair 418 Conversion In Planning - 7/98
100 S. Michigan 100 S. Michigan Ave. --- Conversion In Planning - Late 1998
Residence Inn 2180 S. Indiana Ave. 165 Conversion In Planning - Late 1999
Bismarck Hotel 134 N. LaSalle St. 483 Conversion In Planning - Late 1999
Hyatt Regency McCormick Place 355 E. Cermack Ave. 800 New Under Construction
Allerton Hotel 701 N. Michigan Ave. 400 Renovation Under Construction
Hampton Inn and Suites 33 W. Illinois St. 230 New Under Construction
Crowne Plaza Silversmith Chicago 10 S. Wabash Ave. 143 Conversion Under Construction - 12/97
One North Western Center 165 N. Canal St. 170 Conversion Under Construction - Fall 1998
320 N. Michigan 320 N. Michigan Ave. 115 Conversion Under Construction - Late 1998
Park Hyatt 801 N. Rush St. 192 New Under Construction - Winter 1999
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Based on this information, a total of 6,603 new rooms
are proposed or under construction in the Chicago area.
Some of these projects represent conversions or
renovations of older hotels or buildings. Virtually all
of these proposed hotels are anticipated to be
transient-based facilities with less function space than
is found among the primary competitors.
Our analysis assumes that the 800-room Hyatt McCormick
Place will be directly competitive with the subject
property. As noted earlier, the Metropolitan Pier and
Exposition Authority voted to issue bonds to develop
this hotel in order to help the city compete with other
major convention destinations in capturing large events.
The property will reportedly cost approximately
$80,000,000 to construct, and completion is scheduled
for June
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of 1998; Hyatt has been selected to manage the hotel.
Although this property is expected to accommodate a
large portion of the room nights generated by the
convention center, it will not be able to handle all of
the demand associated with large trade shows and
conventions; consequently, some business is expected to
spill over to downtown hotels. It is also possible that
many people attending functions at McCormick Place will
prefer to stay in downtown Chicago; the convention
center is situated roughly three and a half miles south
of the downtown district, in a neighborhood that offers
few attractions. These factors should mitigate some of
the impact of this new hotel on the downtown properties;
however, this facility will be the newest hotel in the
market, and it may be able to attract groups that have
not met in Chicago previously. We also note that this
hotel will share an affiliation with the Hyatt Regency
Chicago, allowing these hotels to be marketed jointly to
large national groups. As a result of this relationship,
the Hyatt Regency Chicago is also likely to be the first
hotel that receives overflow demand from the new
property.
As a market reaches occupancy levels in excess of 75%,
barriers to supply entry begin to diminish. As
illustrated by the previous table, numerous hotels are
under development in the Chicago area. None of these
properties will compete with the Sheraton; however, the
opening of large hotels with meeting space and national
franchise affiliations may have an impact on the
competitive set. Demand may be diluted as these rooms
are absorbed, causing a decline in the marketwide
occupancy. In an attempt to reflect the potential for
supply gains over and above the 800-room Hyatt McCormick
Place, our analysis assumes that 400 new guestrooms will
enter the market in January of 1999, followed by 500
more in the year 2000. We assume that these hotels will
cater to commercial travelers and small corporate
groups, and that they will be roughly 75% competitive
with the subject property.
CONCLUSION A review of historical demand trends in the subject
property's area indicates steady growth in the local
market. Both occupancy and average rate have increased,
which should prove beneficial to the Sheraton. A total
of 7,578 guestrooms are included in the primarily
competitive supply, and seven additional hotels are
considered secondarily competitive with the subject
property; these hotels have achieved strong increases in
both occupancy and average rate since 1992. The recent
expansion of McCormick Place and the market's strong
historical performance lend support to our forecast of
moderate demand growth during the next several years.
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Projection of Occupancy
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7. Projection of Occupancy and Average Rate
Historical The following table sets forth the subject property's
Operating historical occupancy, average rate, and RevPAR. For the
Performance purpose of comparison, we have also presented
corresponding data (as provided by Smith Travel
Research) for the competitive hotels described in the
previous section. In addition to the annual percent
change calculations, we have determined the subject
property's occupancy, average rate, and RevPAR
penetration factors. Table 7-1 Historical Trends
[GRAPHIC OMITTED]
================================================================================
Tabel 7-1 Historical Trends
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Year-to-Date Jannuary
--------------------- Avg. Annual
Comp. Change,
1994 1995 1996 1997 1997 1998 1994-97
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Subject Property
Occupancy 67.8% 71.5% 74.4% 78.5% 53.7% 68.0%
Percent Change -- 5.5% 4.0% 5.6% -- 26.6% 5.0%
Occupancy Penetration 95.6% 99.0% 99.0% 103.0% 105.6% 115.9%
Average Rate $121.77 $128.97 $140.63 $148.25 $116.72 $131.71
Percent Change -- 5.9% 9.0% 5.4% -- 12.8% 6.8
Average Rate Penetration 103.4% 104.7% 102.3% 99.0% 92.5% 100.0%
RevPAR $82.56 $92.23 $104.58 $116.43 $62.68 $89.56
Percent Change -- 11.7% 13.4% 11.3% -- 42.9% 12.1
RevPAR Penetration 98.8% 103.7% 101.3% 102.0% 97.7% 115.8%
Areawide (STR)
Occupancy 70.9% 72.2% 75.1% 76.3% 50.9% 58.7%
Percent Change -- 1.8% 4.0% 1.5% -- 15.4% 2.4
Average Rate $117.80 $123.18 $137.43 $149.70 $126.17 $131.74
Percent Change -- 4.6% 11.6% 8.9% -- 4.4% 8.3
RevPAR $83.56 $88.97 $103.25 $114.16 $64.18 $77.31
Percent Change -- 6.5% 16.0% 10.6% -- 20.5% 11.0
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Projection of Occupancy
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As illustrated by the previous table, the subject
property achieved occupancies lower than the marketwide
averages reported by STR from 1994 through 1996. The
Sheraton's occupancy rose gradually from 67.8% in 1994
to 78.5% in 1997, yielding an average annual compounded
growth rate of 5.0%. Average rate growth has been
consistent, although the gains registered by the
Sheraton have been somewhat lower than those of the
market. The subject property's average rate rose from
$121.77 in 1994 to $148.25 in 1997, and there was a
substantial 9.0% increase in 1996. Overall, the
Sheraton's 1997 average rate was only slightly lower
than those of the hotels included in the STR survey.
Occupancy penetration increased from 95.6% in 1994 to
103.0% in 1997, indicating that the subject property is
now accommodating slightly more than its fair share of
the market demand. By virtue of the gains in occupancy
and average rate, the Sheraton's RevPAR increased at an
average annual compounded rate of 12.1% from 1994
through 1997, outpacing the 11.0% growth rate exhibited
by the participating STR hotels.
Premise of To a certain degree, occupancy and rate attainment can
the Projections be manipulated by management. For example, hotel
operators may choose to lower rates in an effort to
maximize occupancy. Our forecasts reflect an operating
strategy that we believe would be implemented by a
competent hotel management team to achieve an optimal
mix of occupancy and average rate.
Projected Room Lodging demand and occupancy can be projected through a
Night Demand process known as room night analysis. A room night is a
unit of demand that equals one room that is occupied for
one night. After estimating the number of room nights a
hotel can be expected to attract during a 12-month
period, we can determine occupancy by dividing the
number of room nights of demand captured by the number
of room nights available (calculated as the room count x
365). The total annual number of room nights occupied in
the competitive hotels equates to the market's
accommodated room night demand, as shown in the
following table.
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Projection of Occupancy
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Table 7-2 1997 Accommodated Room Night Demand
- --------------------------------------------------------------------------------
Marketwide Subject Property
----------------------- ---------------------------
Accommodated Percent Accommodated Percent
Market Segment Demand of Total Demand of Total
- --------------------------------------------------------------------------------
Commercial 793,000 27% 56,000 16%
Meeting and Group 1,808,000 61 259,000 75
Leisure 353,000 12 30,000 9
- --------------------------------------------------------------------------------
Total 2,955,000 100% 345,000 100%
- --------------------------------------------------------------------------------
Latent Demand The previous table illustrates the accommodated room
night demand in the subject property's competitive
market. Because this estimate is based on occupancies,
it includes only those hotel rooms that were used by
guests. Latent demand considers guests who could not be
accommodated by the existing competitive supply, and can
be divided into unaccommodated demand and induced
demand.
Unaccommodated Unaccommodated demand refers to individuals who are
Demand unable to secure accommodations in the market because
all of the local hotels are filled. These travelers must
defer their trips, settle for less desirable
accommodations, or stay in properties located outside
the market area. Because this demand did not yield
occupied room nights, it is not included in the estimate
of historical accommodated room night demand.
Unaccommodated demand is generally estimated as a
percentage of accommodated demand.
Climate has a strong influence on the degree of
seasonality affecting the Chicago lodging market, and
the highest occupancies occur during the spring, summer,
and fall. As a result of the large number of conventions
hosted by McCormick Place and a number of the
competitive properties, local hotels often fill to
capacity during these periods and are forced to turn
away business. For the purpose of this analysis, we
estimate that 5% of the market's current meeting and
group demand goes unaccommodated. This equates to
roughly 90,413 room nights, as illustrated by the
following table. We assume that 60% of this demand will
be phased into the market in 1998 and 100% in 1999, as
new guestroom supply is absorbed.
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Projection of Occupancy
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Table 7-3 1997 Accommodated and Unaccommodated Demand
- --------------------------------------------------------------------------------
Accommodated Unaccommodated
Room Night Unaccommodated Room Night
Market Segment Demand Demand Percentage Demand
- --------------------------------------------------------------------------------
Commercial 793,000 0.0% 0
Meeting and Group 1,808,000 5.0 90,413
Leisure 353,000 0.0 0
- --------------------------------------------------------------------------------
Total 2,955,000 90,413
- --------------------------------------------------------------------------------
Induced Demand Induced demand represents the additional room nights
that are expected to be attracted to the market
following the introduction of a new demand generator.
Situations that can induce demand include the opening of
a new manufacturing plant, the expansion of a convention
center, or the addition of a new hotel with a distinct
chain affiliation or unique facilities. Although the
expansion of McCormick Place is likely to induce demand
into the local market, we have considered this factor in
our determination of demand growth rates rather than
estimating induced demand separately.
Total Usable Total usable room night demand is estimated by combining
Room Night Demand accommodated demand and usable latent demand. Usable
latent demand is that portion of latent demand that can
be absorbed based on the number of existing and proposed
hotel rooms in the market. As noted earlier in this
report, the Hyatt at McCormick Place is scheduled to
open in June of 1998. Our analysis also assumes that 400
rooms will enter the market in 1999, followed by another
500 in the year 2000. These rooms are assumed to be 75%
competitive with the Sheraton. Unaccommodated demand
cannot be accommodated until this new supply begins to
become available. The following table shows the
projected annual change in accommodated and usable room
night demand in the subject property's competitive
market.
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Projection of Occupancy
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Table 7-4 Total Usable Room Night Demand
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Historical 1998 1999 2000 2001 2002 2003
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial
Growth Rate -- 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
Accommodated Demand 793,429 817,232 841,749 867,001 893,011 919,801 947,395
Usable Latent Demand -- 0 0 0 0 0 0
Meeting and Group
Growth Rate -- 3.5% 3.5% 3.5% 3.5% 3.0% 3.0%
Accommodated Demand 1,808,268 1,871,557 1,937,061 2,004,858 2,075,028 2,137,279 2,201,397
Usable Latent Demand -- 56,146 96,852 100,242 103,750 106,863 110,069
Leisure
Growth Rate -- 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%
Accommodated Demand 352,879 356,408 359,972 363,572 367,208 370,880 374,589
Usable Latent Demand -- 0 0 0 0 0 0
Totals
Commercial 793,429 817,232 841,749 867,001 893,011 919,801 947,395
Meeting and Group 1,808,268 1,927,703 2,033,913 2,105,100 2,178,778 2,244,142 2,311,466
Leisure 352,879 356,408 359,972 363,572 367,208 370,880 374,589
- -----------------------------------------------------------------------------------------------------------------
TOTAL DEMAND 2,954,576 3,101,343 3,235,634 3,335,673 3,438,997 3,534,823 3,633,450
Overall Growth
Including Latent Demand -- 5.0% 4.3% 3.1% 3.1% 2.8% 2.8%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Guestroom Supply In 1997, the competitive properties provided a weighted
total of 10,486 guestrooms. As noted earlier, the
800-room Hyatt at McCormick Place is expected to enter
the market in June of 1998, followed by 400 secondarily
competitive rooms in 1999 and 500 in the year 2000. The
following table shows the projection of total demand,
the number of available room nights, and the overall
competitive occupancy. To calculate the annual number of
available room nights, the number of available rooms is
multiplied by 365.
<PAGE>
Projection of Occupancy
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Table 7-5 Available Rooms and Room Nights
--------------------------------------------------------
Total Room Overall
Night Competitive
Year Demand Available Occupancy
--------------------------------------------------------
Historical 2,954,576 3,827,481 77%
1998 3,101,343 3,998,666 78
1999 3,235,634 4,228,981 77
2000 3,335,673 4,365,856 76
2001 3,438,997 4,365,856 79
2002 3,534,823 4,365,856 81
2003 3,633,450 4,365,856 83
--------------------------------------------------------
Overall As a result of steady increases in demand, we expect
Competitive occupancy to remain relatively stable. The slight dip in
Occupancy 1999 and the year 2000 reflects the addition of new
supply, followed by consistent increases. It should be
noted, however, that the seasonality affecting the
Chicago lodging market makes it difficult to maintain
annual occupancies of 80% or greater, and our estimate
of the subject property's stabilized occupancy considers
this factor.
Competitive Competitive indexes are used to analyze the relative
Index Analysis market position of each property on the basis of a
particular demand segment. The index represents the
number of times each year that one room is occupied by
one type of traveler (e.g., commercial, meeting and
group, or leisure), or the number of room nights
actually accommodated per year, per room, per market
segment. For example, if a hotel has a commercial
competitive index of 190, each room in the property is
occupied 190 times a year by a commercial traveler. The
competitive index is calculated by dividing a hotel's
annual accommodated room night demand in a particular
market segment by that property's room count.
Competitive indexes will be used to illustrate each
property's position in the market based on its ability
to compete with other local lodging facilities.
Commercial Segment The 1997 commercial segment competitive indexes ranged
from 28 at the Hyatt Regency to 118 at the Chicago
Marriott. The Chicago Hilton & Towers was the second
most successful of the primary competitors in the
commercial segment, with an index of 84. As a result of
its location and meeting and group orientation, we
expect the Hyatt McCormick Place to accommodate a
minimal amount of corporate demand. By the year 2000,
this hotel is expected to reach a stabilized
<PAGE>
Projection of Occupancy
HVS International, Mineola, New York and Average Rate 86
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commercial segment competitive index of 25. Given the
planned renovation programs, the secondary hotels are
expected to achieve a slight increase in competitiveness
in this market, stabilizing at an index of 120 in 1999.
The proposed rooms in the new secondary competitors are
expected to stabilize at commercial segment indexes of
140 in the case of the 400 rooms and 130 in the case of
the 500 rooms. The following table shows the projected
commercial segment competitive indexes of the area's
hotels.
================================================================================
Table 7-6 Commercial Segment Competitive Indexes
- --------------------------------------------------------------------------------
Property Historical 1998 1999 2000 2001 2002 2003
- --------------------------------------------------------------------------------
Subject Property 47 47 47 47 47 47 47
Chicago Marriott 118 118 118 118 118 118 118
Hyatt Regency Chicago 28 28 28 28 28 28 28
Chicago Hilton &Towers 84 84 84 84 84 84 84
Palmer House 57 57 57 57 57 57 57
Secondary Competitors 110 115 120 120 120 120 120
Hyatt at McCormick Place 0 15 20 25 25 25 25
Proposed 400 Rooms 0 0 90 120 140 140 140
Proposed 500 Rooms 0 0 0 100 120 130 130
- --------------------------------------------------------------------------------
Meeting and We project the Sheraton's meeting and group segment
Group Segment index to decline somewhat, because we expect management
to replace some low-rated group business with commercial
travelers in response to improving economic conditions
and the opening of the Hyatt McCormick Place. As noted
earlier, we also believe that overflow demand that
cannot be accommodated by the Hyatt McCormick Place is
likely to be directed to the Hyatt Regency Chicago;
consequently, we project that hotel's meeting and group
segment competitive index to increase to 230 in 1999.
The Chicago Marriott is also expected to become
increasingly competitive in this segment as a result of
its upcoming renovation, and the potential to capture
overflow demand. The 400 new rooms are expected to reach
a stabilized index of 90 in this segment, and the 500
rooms are projected to attain a level of 110. The
following table illustrates the competitive indexes in
the meeting and group segment.
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Projection of Occupancy
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Table 7-7 Meeting and Group Segment Competitive Indexes
- --------------------------------------------------------------------------------
Property Historical 1998 1999 2000 2001 2002 2003
- --------------------------------------------------------------------------------
Subject Property 215 215 214 212 212 212 212
Chicago Marriott 148 150 155 155 155 155 155
Hyatt Regency Chicago 225 227 230 230 230 230 230
Chicago Hilton &Towers 155 155 155 155 155 155 155
Palmer House 185 185 185 185 185 185 185
Secondary Competitors 131 138 150 150 150 150 150
Hyatt at McCormick Place 0 160 190 220 220 220 220
Proposed 400 Rooms 0 0 60 70 90 90 90
Proposed 500 Rooms 0 0 0 70 90 110 110
- --------------------------------------------------------------------------------
Leisure Segment In light of the small amount of leisure demand
accommodated by the Sheraton and its competitors and the
degree of price sensitivity associated with these
travelers, we anticipate minimal changes in this market
segment, although the existing secondary competitors are
expected to undergo an increase as a result of ongoing
and planned renovations. The Hyatt McCormick Center,
which will be a convention-oriented facility, is
projected to reach a stabilized index of only 20 in
1999. The proposed rooms are projected to attain the
highest stabilized indexes in the leisure segment,
reflecting their new facilities. The following table
illustrates the competitive indexes in the leisure
segment.
================================================================================
Table 7-8 Leisure Segment Competitive Indexes
- --------------------------------------------------------------------------------
Property Historical 1998 1999 2000 2001 2002 2003
- --------------------------------------------------------------------------------
Subject Property 25 25 25 25 25 25 25
Chicago Marriott 30 35 40 40 40 40 40
Hyatt Regency Chicago 28 28 28 28 28 28 28
Chicago Hilton &Towers 42 42 42 42 42 42 42
Palmer House 43 43 43 43 43 43 43
Secondary Competitors 33 40 40 40 40 40 40
Hyatt at McCormick Place 0 15 20 20 20 20 20
Proposed 400 Rooms 0 0 50 55 55 55 55
Proposed 500 Rooms 0 0 0 50 55 55 55
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Subject Property's After the competitive index is calculated, it is
Room Night Capture adjusted to reflect the property's room count, yielding
and Occupancy a figure referred to as the market share adjuster. The
market share adjuster of each property is then divided
by the total market share adjuster for all of the
competitors, resulting in each hotel's market
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Projection of Occupancy
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share. By multiplying the projected market share by the
area's usable room night demand, we can determine the
total number of room nights captured by a specific
hotel. Occupancy is then calculated by dividing the
projected number of room nights captured by the
property's total number of available room nights.
Multiplying the subject property's projected market
share by the estimated room night demand in each segment
results in the following estimate of room nights
captured by the hotel.
================================================================================
Table 7-9 Room Nights Captured by the Subject Property
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial
Demand 817,232 841,749 867,001 893,011 919,801 947,395
Market Share 0.0693 0.0653 0.0617 0.0608 0.0606 0.0606
- -----------------------------------------------------------------------------------------------
Capture 56,674 54,972 53,503 54,308 55,713 57,384
Meeting and Group
Demand 1,927,703 2,033,913 2,105,100 2,178,778 2,244,142 2,311,466
Market Share 0.1354 0.1255 0.1214 0.1206 0.1202 0.1202
- -----------------------------------------------------------------------------------------------
Capture 260,997 255,324 255,463 262,718 269,644 277,733
Leisure
Demand 356,408 359,972 363,572 367,208 370,880 374,589
Market Share 0.0779 0.0723 0.0690 0.0687 0.0687 0.0687
- -----------------------------------------------------------------------------------------------
Capture 27,768 26,036 25,076 25,218 25,470 25,725
Total Capture 345,439 336,332 334,042 342,244 350,827 360,842
- -----------------------------------------------------------------------------------------------
</TABLE>
Dividing the total number of room nights captured by the
subject property's number of available room nights per
year (calculated as 1,204 x 365) produces the projected
occupancy percentage.
<PAGE>
Projection of Occupancy
HVS International, Mineola, New York and Average Rate 89
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Table 7-10 Calculation of the Subject Property's Projected Occupancy
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Room Nights Captured 345,439 336,332 334,042 342,244 350,827 360,842
Available Room Nights 439,460 439,460 439,460 439,460 439,460 439,460
Occupancy 78.61% 76.53% 76.01% 77.88% 79.83% 82.11%
Rounded 79% 77% 76% 78% 80% 82%
- ---------------------------------------------------------------------------------------------
</TABLE>
For the purpose of forecasting income and expense, we
will use the following occupancy levels.
================================================================================
Table 7-11 Occupancy Forecast
- --------------------------------------------------------------------------------
Year Occupancy
-------------------------------
1998 79%
1999 77
Stabilized 76
- --------------------------------------------------------------------------------
Although the preceding room night analysis shows the
subject property achieving an 82% occupancy in 2003, we
believe that a stabilized level of 76% is more
reasonable. The stabilized occupancy is intended to
reflect the anticipated results of the property over its
remaining economic life, given any and all changes in
the life cycle of the hotel. Thus, the stabilized
occupancy excludes from consideration any abnormal
relationship between supply and demand, as well as any
nonrecurring conditions that may result in unusually
high or low occupancies. Although the subject property
may operate at occupancies above this stabilized level,
we believe it equally possible for new competition and
temporary economic downturns to force the occupancy
below this selected point of stability.
AVERAGE One of the most important considerations in estimating
RATE ANALYSIS the value of a lodging facility is a supportable
forecast of its attainable average rate, which is more
formally defined as the average rate per occupied room.
Average rate can be calculated by dividing the total
rooms revenue achieved during a specified period by the
number of rooms sold during the same period. The
projected average rate and the anticipated occupancy
percentage are used to forecast rooms revenue, which in
turn provides the basis for estimating most other income
and expense categories.
<PAGE>
Projection of Occupancy
HVS International, Mineola, New York and Average Rate 90
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Competitive The average rate of the Sheraton Chicago Hotel & Towers
Positioning will be projected using a competitive positioning
method. This technique begins with an analysis of the
average rates achieved by the subject property and its
competitors. These rates establish a range that reflects
certain characteristics of the specific market, such as
price sensitivity, demand orientation, and occupancy.
The subject property's average rate is then compared to
those of the hotels to which it is most similar in terms
of size, quality, facilities, amenities, market
orientation, location, management, image, and
affiliation. Adjustments are made to reflect any
relevant differences.
Although the average rate analysis presented here
follows the occupancy projections, these two statistics
are highly correlated; in reality, one can not project
occupancy without making specific assumptions regarding
average rate. This relationship is best illustrated by
rooms revenue per available room (RevPAR), which
reflects a property's ability to maximize rooms revenue.
The following table summarizes the 1997 average rate and
RevPAR of the subject property and its primary
competitors.
================================================================================
Table 7-12 1997 Average Rate and RevPAR of the Primary Competitors
- --------------------------------------------------------------------------------
Property Average Rate RevPAR
----------------------------------------------
Subject Property $148.25 $116.38
Chicago Marriott 153.00 123.93
Hyatt Regency Chicago 135.00 103.95
Chicago Hilton &Towers 139.00 107.03
Palmer House 140.00 108.92
----------------------------------------------
Average $141.89 $110.72
- --------------------------------------------------------------------------------
The Chicago Marriott maintains the highest average rate
among the primary competitors, largely as a result of
its highly successful Honored Guest Program. The
Sheraton, which offers the newest facilities, holds
second place.
Average It is important to note that hotel room rate increases
Rate Increases do not necessarily conform to the underlying monetary
inflation rate, because lodging facilities are
influenced by market conditions such as the relationship
between supply and demand. A hotel's ability to raise
room rates is affected by a number of factors, including
the following.
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Projection of Occupancy
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o Supply and Demand Relationships - The relationship
between supply and demand is one of the factors
that determine hotel occupancies and average
rates. Strong markets where lodging demand is
increasing faster than supply are often
characterized by rate growth that exceeds
inflation. Markets that are overbuilt or suffering
from declining demand are unlikely to exhibit any
significant increases in average rates.
o Inflationary Pressures - Price increases caused by
inflation affect hotel room rates by eroding
profit margins and encouraging operators to raise
prices. This strategy is effective only in markets
that are characterized by a healthy supply and
demand relationship.
o Improving the Competitive Standard - When a new
lodging facility enters a mature market, its rates
may be set higher than the marketwide average in
an effort to justify the development costs. This
may allow other competitors to achieve
corresponding gains by effectively raising the
amount the market will bear; however, if the
addition to supply has a severe impact on the
occupancy levels of other hotels, price
competition may ensue.
o Property-Specific Improvements - Changes that make
a hotel more or less attractive to guests can have
an impact on average rate. An expansion,
renovation, upgrading, or the introduction of
additional facilities and amenities may enable
greater-than-inflationary room rate increases.
Likewise, deferred maintenance may make a property
less competitive, engendering a decline in room
rates.
In determining average rate projections, changes that
occur prior to occupancy stabilization are generally
attributable to factors that are specific to the
property and the market. After a hotel achieves a
stabilized occupancy, room rates are generally expected
to continue to increase at the underlying inflation rate
throughout the remainder of the projection period.
As illustrated by the Smith Travel Research data
presented earlier, marketwide average rates increased at
average annual compounded rates of 6.4% from 1992 to
1997 and 10.2% from 1995 to 1997. These rates are well
in excess of inflation. Moreover, the new Hyatt at
McCormick Place and the proposed rooms that are expected
to enter the market will offer high-quality facilities,
which should allow further gains in the marketwide
average rate. Based on these considerations, the
following table shows our projection of average rate
increases in the market and at the subject property.
<PAGE>
Projection of Occupancy
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Table 7-13 Average Rate Forecast
- --------------------------------------------------------------------------------
Marketwide Subject Property
------------------------ ---------------------------
Rate Rate Projected
Year Occupancy Increase Increase Average Rate
- --------------------------------------------------------------------------------
Historical -- -- -- $148.25
1998s 78% 6% to 8% 8% 160.09
1999s 77 6 to 8 6 169.70
2000s 76 4 to 6 4 176.49
2001s 79 2 to 3 3 181.78
2002s 81 2 to 3 3 187.24
2003s 83 2 to 3 3 192.85
- --------------------------------------------------------------------------------
We anticipate the Sheraton to achieve average rate gains of 8.0% in 1998, 6.0%
in 1999, and 4.0% in the year 2000. In subsequent projection periods, average
rate increases are expected to conform to the underlying monetary inflation rate
of 3.0% annually.
<PAGE>
HVS International, Mineola, New York Highest and Best Use 93
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8. Highest and Best Use
The concept of highest and best use recognized by the
Appraisal Institute distinguishes between the highest
and best use of the land (as though vacant) and that of
the property (as improved). Highest and best use is
defined as:
The reasonably probable and legal use of vacant
land or improved property, which is physically
possible, appropriately supported, financially
feasible, and that results in the highest
value.(1)
The concept of highest and best use is the premise upon
which value is based, and is a product of competitive
forces in the marketplace. 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. The point of economic
balance is achieved when the combination of land and
building 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 larger amounts
of the agents of production produce greater net income
up to a certain point, after which the law of
diminishing returns is applied.(2)
It is important to recognize that the highest and best
use of the land (as though vacant) may differ from the
highest and best use of the property (as improved). This
may occur when a site has existing improvements and the
highest and best use of the land differs from the
current use. Nonetheless, the current property use will
continue until the value of the land under its highest
and best use exceeds the value of the property in its
current use, plus the cost to remove the existing
improvements.
(1) The Appraisal of Real Estate - Eleventh Edition,
Appraisal Institute, Chicago, IL, 1996, p. 50.
(2) Ibid., p. 44.
<PAGE>
HVS International, Mineola, New York Highest and Best Use 94
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In consideration of the factors influencing development
in the immediate area, it is the appraisers' opinion
that the highest and best use of the subject site, as
vacant, would be for the development of a lodging
facility. Given the fact that the value of the land does
not exceed the value of the hotel plus the cost of
demolition, it is our further opinion that the subject
property's highest and best use, as improved, is its
current use as a lodging facility.
<PAGE>
HVS International, Mineola, New York Approaches to Value 95
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9. Approaches to Value
In appraising real estate for market value, the
appraiser has three approaches from which to select: the
income capitalization, sales comparison, and cost
approaches. Although all three valuation procedures are
given consideration, the inherent strengths of each
approach and the nature of the subject property must be
evaluated to determine which will provide supportable
estimates of market value. The appraiser is then free to
select one or more of the appropriate approaches in
arriving at a final value estimate.
The Income The income capitalization approach takes a property's
Capitalization projected net income before debt service and allocates
Approach this future benefit to the mortgage and equity
components based on market rates of return and
loan-to-value ratios. Through a discounted cash flow and
income capitalization procedure, the value of each
component is calculated. The total of the mortgage
component and the equity component equals the value of
the property. This approach is often selected as the
preferred valuation method for income- producing
properties, because it most closely reflects the
investment rationale of knowledgeable buyers.
The Sales The sales comparison approach estimates the value of a
Comparison property by comparing it to similar properties that have
Approach been sold on the open market. To obtain a supportable
estimate of value, the sales price of a comparable
property must be adjusted to reflect any dissimilarities
between it and the property being appraised.
The sales comparison approach may provide a useful value
estimate in the case of simple forms of real estate,
such as vacant land and single-family homes, where the
properties are homogeneous and the adjustments are few
and relatively simple to compute. In the case of complex
investments such as shopping centers, office buildings,
restaurants, and lodging facilities, where the
adjustments are numerous and more difficult to quantify,
the sales comparison approach loses much of its
reliability.
<PAGE>
HVS International, Mineola, New York Approaches to Value 96
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Hotel investors typically do not employ the sales
comparison approach in reaching their final purchase
decisions. Factors such as the lack of recent sales
data, the numerous insupportable adjustments that are
necessary, and the general inability to determine the
true financial terms and human motivations of comparable
transactions often make the results of this technique
questionable. Although the sales comparison approach may
provide a range of values that supports the final
estimate, reliance on this method beyond the
establishment of broad parameters is rarely justified by
the quality of the sales data.
The market-derived capitalization rates sometimes used
by appraisers are susceptible to the same shortcomings
inherent in the sales comparison approach. To
substantially reduce the reliability of the income
capitalization approach by employing capitalization
rates obtained from unsupported market data weakens the
final value estimate and ignores the typical investment
analysis procedures employed by hotel purchasers.
Because appraisers are obligated to mirror the actions
of the marketplace, we generally give the sales
comparison approach minimal weight in the hotel
appraisal process beyond bracketing the final
estimate.(1)
The Cost Approach The cost approach estimates market value by computing
the current cost to replace the property and subtracting
any depreciation resulting from physical deterioration,
functional obsolescence, and external (or economic)
obsolescence. The value of the land, as if vacant and
available, is then added to the depreciated value of the
improvements to produce a total value estimate.
The cost approach may provide a reliable estimate of
value in the case of new properties; however, as
buildings and other improvements grow older and begin to
deteriorate, the resultant loss in value becomes
increasingly difficult to quantify accurately. We find
that knowledgeable hotel buyers base their purchase
decisions on economic factors such as projected net
income and return on investment. Because the cost
approach does not reflect these income-related
considerations and requires a number of highly
subjective depreciation estimates, this approach is
given minimal weight in the hotel valuation process. As
noted in Hotels and Motels: A Guide to Market
(1) Hotels and Motels: A Guide to Market Analysis,
Investment Analysis, and Valuations, Stephen Rushmore,
Appraisal Institute, Chicago, IL, 1992, p. 209.
<PAGE>
HVS International, Mineola, New York Approaches to Value 97
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Analysis, Investment Analysis, and Valuations, "the cost
approach is seldom used to value existing hotels and
motels."(1)
Reconciliation The final step in the valuation process is the
reconciliation and correlation of the value indications.
Factors that are considered in assessing the reliability
of each approach include the purpose of the appraisal,
the nature of the subject property, and the reliability
of the data used. In reconciliation, we consider the
applicability and supportability of each approach and
examine the range of value indications. The most
significant weight is given to the approach that
produces the most reliable solution and most closely
reflects the criteria used by typical investors.
Our nationwide experience with numerous hostelry buyers
and sellers indicates that the procedures used in
estimating market value by the income capitalization
approach are comparable to those employed by the
investors who constitute the marketplace. For this
reason, the income capitalization approach produces the
most supportable value estimate, and it is given the
greatest weight in the hotel valuation process.
(1) Hotels and Motels: A Guide to Market Analysis,
Investment Analysis, and Valuations, Stephen Rushmore,
Appraisal Institute, Chicago, IL, 1992, p. 208.
<PAGE>
HVS International, Mineola, New York Income Capitalization Approach 98
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================================================================================
10. Income Capitalization Approach
The income capitalization approach is based on the
principle that the value of a property is indicated by
its net return, or what is known as the present worth of
future benefits. The future benefits of income-producing
properties, such as hotels, are net income before debt
service and depreciation (as estimated by a forecast of
income and expense) and any anticipated reversionary
proceeds from a sale. These future benefits can be
converted into an indication of market value through a
capitalization process and discounted cash flow
analysis. Using the income capitalization approach, the
subject property has been valued by analyzing the local
market for transient accommodations, examining existing
and proposed competition, and developing a forecast of
income and expense that reflects current and anticipated
income trends and cost components through a stabilized
year of operation.
The forecast of income and expense is expressed in
current dollars for each year. The stabilized year is
intended to reflect the anticipated operating results of
the property over its remaining economic life, given any
or all applicable stages of build-up, plateau, and
decline in the life cycle of the hotel. Thus, income and
expense estimates from the stabilized year forward
exclude from consideration any abnormal relationship
between supply and demand, as well as any nonrecurring
conditions that may result in unusual revenues or
expenses.
As stated in the textbook entitled Hotels and Motels: A
Guide to Market Analysis, Investment Analysis, and
Valuations, published by the Appraisal Institute, "of
the three valuation approaches available to the
appraiser, the income capitalization approach generally
provides the most persuasive and supportable conclusions
when valuing a lodging facility."(1) This text
recommends that using a ten-year forecast and an equity
yield rate "most accurately reflects the actions of
typical hotel buyers, who purchase properties based
(1) Hotels and Motels: A Guide to Market Analysis,
Investment Analysis, and Valuations, Stephen Rushmore,
Appraisal Institute, Chicago, IL, 1992, p. 236.
<PAGE>
HVS International, Mineola, New York Income Capitalization Approach 99
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on their leveraged discounted cash flow."(1) The simpler
procedure of using a ten-year forecast and a discount
rate is "less reliable because the derivation of the
discount rate has little support. Moreover, it is
difficult to adjust the discount rate for changes in the
cost of capital."(2)
We have used both methods to discount the subject
property's projected net income into an estimate of
value. Method One is a ten-year discounted cash flow
analysis in which the cash flow to equity and the equity
reversion are discounted to the present value at the
equity yield rate, and the income to the mortgagee is
discounted at a mortgage interest rate. The sum of the
equity and mortgage values is the total property value.
Method Two is a simple ten-year discounted cash flow
analysis in which the annual net income before debt
service and the reversionary proceeds following a sale
at the end of the tenth year are discounted back to the
date of the appraisal at an overall discount rate, and
then totaled to produce an indication of the present
worth of future benefits.
To convert the projected income stream into an estimate
of value through Method One, the anticipated net income
(before debt service and depreciation) is allocated to
the mortgage and equity components based on market rates
of return and loan-to-value ratios. The process is
described as follows.
1. The terms of typical hotel financing are set
forth, including interest rate, amortization term,
and loan-to-value ratio.
2. An equity yield rate of return is established.
Numerous hotel buyers base their equity
investments on a ten-year equity yield rate
projection that takes into account ownership
benefits such as periodic cash flow distributions,
residual sale or refinancing distributions that
return any property appreciation and mortgage
amortization, income tax benefits, and various
non-financial considerations such as status and
prestige. The equity yield rate is also known as
the internal rate of return on equity.
(1) Hotels and Motels: A Guide to Market Analysis,
Investment Analysis, and Valuations, Stephen Rushmore,
Appraisal Institute, Chicago, IL, 1992, p. 236.
(2) Ibid.
<PAGE>
HVS International, Mineola, New York Income Capitalization Approach 100
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3. The value of the equity component is calculated by
first deducting the annual debt service from the
projected net income before debt service, leaving
the net income to equity for each year. The net
income as of the 11th year is capitalized into a
reversionary value. After deducting the mortgage
balance at the end of the tenth year and the
typical brokerage and legal costs, the equity
residual is discounted back to the date of value
at the equity yield rate. The net income to equity
for each of the ten projection years is also
discounted to the present value. The sum of these
discounted values equates to the value of the
equity component. Adding the equity component to
the initial mortgage balance yields the overall
property value.
Because the mortgage and the debt service amounts
are unknown but the loan-to-value ratio was
determined in Step #1, the preceding calculation
can be solved through an iterative process or by
use of a linear algebraic equation that computes
the total property value. The algebraic equation
that solves for the total property value using a
ten-year mortgage and equity technique was
developed by Suzanne R. Mellen, MAI, Managing
Director of the San Francisco office of HVS
International. A complete discussion of the
technique is presented in her article entitled,
"Simultaneous Valuation: A New Technique."(1)
4. The value is proven by allocating the total
property value between the mortgage and equity
components and verifying that the rates of return
set forth in Steps #1 and #2 can be met from the
projected net income.
The process of converting the projected income stream
into an estimate of value through Method Two is
described as follows.
1. A discount rate is established by evaluating the
total property yield derived by Method One.
Occasionally, the discount rate may be adjusted
slightly based on the total property yields
indicated by recent transactions involving hotels
similar to the subject property.
2. The reversionary value is calculated by
capitalizing the 11th-year net income by the
terminal capitalization rate and deducting typical
brokerage and legal fees.
(1) Suzanne R. Mellen, MAI, "Simultaneous Valuation: A
New Technique," Appraisal Journal, April, 1983.
<PAGE>
HVS International, Mineola, New York Income Capitalization Approach 101
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3. The ten-year forecast of net income (before debt
service and depreciation) and the reversionary
value are discounted to the date of value at the
rate derived above.
Review of Because the Sheraton Chicago Hotel & Towers is an
Operating History existing hotel with an established operating
performance, its historical income and expense
experience can serve as a basis for projections. The
subject property opened in March of 1992, and achieved
occupancy levels of 74.4% in 1996 and 78.5% in 1997. The
following income and expense statements were provided by
the subject property's on-site managers and the Tishman
Hotel Corporation, and are unaudited. Where applicable,
we have reorganized the statements in accordance with
the Uniform System of Accounts for Hotels.
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Table 10-1 Historical Operating Performance
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1997 1996
---------------------------------------------- -------------------------------------------------
No. of Rooms: 1,204 1,204
No. of Occupied Rooms: 345,169 327,697
No. of Days Open: 365 366
Occupancy: 78.5% Amount per Amount per 74.4% Amount per Amount per
Average Rate: $148.25 Percent Available Occupied $140.63 Percent Available Occupied
(+000) of Gross Room Room (+000) of Gross Room Room
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE
Rooms $51,166 63.2% $42,497 $148.24 $46,086 63.6% $38,277 $140.63
Food 20,969 25.9 17,416 60.75 18,681 25.8 15,516 57.01
Beverage 4,610 5.7 3,829 13.36 4,198 5.8 3,487 12.81
Telephone 2,445 3.0 2,031 7.08 2,178 3.0 1,809 6.65
Minor Operating Dept. 1,013 1.3 841 2.93 850 1.2 706 2.60
Rent & Other Income 750 0.9 623 2.17 506 0.7 420 1.54
Total 80,953 100.0 67,237 234.53 72,500 100.1 60,216 221.24
- ----------------------------------------------------------------------------------------------------------------------------------
DEPARTMENTAL EXPENSES*
Rooms 10,948 21.4 9,093 31.72 9,757 21.2 8,104 29.78
Food & Beverage 14,957 58.5 12,423 43.33 14,275 62.4 11,856 43.56
Telephone 824 33.7 684 2.39 787 36.1 653 2.40
Total 26,729 33.0 22,200 77.44 24,819 34.2 20,613 75.74
- ----------------------------------------------------------------------------------------------------------------------------------
DEPARTMENTAL INCOME 54,224 67.0 45,036 157.09 47,681 65.9 39,602 145.50
- ----------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Administrative & General 5,280 6.5 4,386 15.30 4,897 6.8 4,067 14.94
Management Fee 2,775 3.4 2,305 8.04 2,186 3.0 1,815 6.67
Marketing 4,347 5.4 3,610 12.59 4,132 5.7 3,432 12.61
Property Oper. & Maint. 3,045 3.8 2,529 8.82 3,033 4.2 2,519 9.25
Energy 2,481 3.1 2,060 7.19 2,592 3.6 2,152 7.91
Total 17,928 22.2 14,891 51.94 16,838 23.3 13,985 51.38
- ----------------------------------------------------------------------------------------------------------------------------------
HOUSE PROFIT 36,295 44.8 30,145 105.15 30,843 42.6 25,617 94.12
- ----------------------------------------------------------------------------------------------------------------------------------
FIXED EXPENSES
Property and Sewer Taxes 7,064 8.7 5,867 20.46 6,057 8.4 5,031 18.48
Insurance 75 0.1 62 0.22 78 0.1 64 0.24
Reserve for Replacement 2,434 3.0 2,021 7.05 2,175 3.0 1,806 6.64
Ground Rent 2,617 3.2 2,174 7.58 2,164 3.0 1,798 6.60
Leases 378 0.5 314 1.09 327 0.5 271 1.00
Total 12,567 15.5 10,438 36.41 10,801 15.0 8,971 32.96
- ----------------------------------------------------------------------------------------------------------------------------------
NET INCOME $23,728 29.3% $19,707 $68.74 $20,042 27.6% $16,646 $61.16
==================================================================================================================================
*Departmental expense ratios are expressed as a percentage of departmental revenues
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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================================================================================
Table 10-2 Historical Operating Performance
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1995 1994
--------------------------------------------- -------------------------------------------------
No. of Rooms: 1,204 1,204
No. of Occupied Rooms: 314,273 297,960
No. of Days Open: 365 365
Occupancy: 71.5% Amount per Amount per 67.8% Amount per Amount per
Average Rate: $128.37 Percent Available Occupied $121.77 Percent Available Occupied
(+000) of Gross Room Room (+000) of Gross Room Room
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE
Rooms $40,530 63.0% $33,663 $128.97 $36,281 62.9% $30,134 $121.77
Food 16,825 26.2 13,974 53.54 15,248 26.5 12,665 51.18
Beverage 3,776 5.9 3,136 12.02 3,428 5.9 2,847 11.51
Telephone 1,882 2.9 1,563 5.99 1,807 3.1 1,501 6.06
Minor Operating Dept. 724 1.1 601 2.30 490 0.8 407 1.64
Rent & Other Income 554 0.9 460 1.76 384 0.7 319 1.29
Total 64,291 100.0 53,398 204.57 57,639 99.9 47,873 193.44
- ----------------------------------------------------------------------------------------------------------------------------------
DEPARTMENTAL EXPENSES*
Rooms 8,676 21.4 7,206 27.61 8,317 22.9 6,908 27.91
Food & Beverage 13,360 64.8 11,096 42.51 13,431 71.9 11,155 45.08
Telephone 748 39.7 621 2.38 691 38.2 574 2.32
Total 22,784 35.4 18,923 72.50 22,439 38.9 18,637 75.31
- ----------------------------------------------------------------------------------------------------------------------------------
DEPARTMENTAL INCOME 41,507 64.6 34,475 132.07 35,200 61.0 29,236 118.14
- ----------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Administrative & General 4,601 7.2 3,822 14.64 4,500 7.8 3,737 15.10
Management Fee 1,775 2.8 1,474 5.65 1,451 2.5 1,205 4.87
Marketing 3,867 6.0 3,211 12.30 3,879 6.7 3,222 13.02
Property Oper. & Maint. 2,710 4.2 2,251 8.62 2,661 4.6 2,210 8.93
Energy 2,384 3.7 1,980 7.58 1,866 3.2 1,550 6.26
Total 15,337 23.9 12,738 48.80 14,357 24.8 11,924 48.18
- ----------------------------------------------------------------------------------------------------------------------------------
HOUSE PROFIT 26,171 40.7 21,737 83.27 20,843 36.2 17,312 69.96
- ----------------------------------------------------------------------------------------------------------------------------------
FIXED EXPENSES
Property and Sewer Taxes 5,409 8.4 4,493 17.21 5,456 9.5 4,531 18.31
Insurance 89 0.1 74 0.28 89 0.2 74 0.30
Reserve for Replacement 1,291 2.0 1,072 4.11 871 1.5 724 2.92
Ground Rent 1,201 1.9 997 3.82 150 0.3 125 0.50
Leases 397 0.6 330 1.26 446 0.8 371 1.50
Total 8,386 13.0 6,965 26.68 7,012 12.3 5,824 23.53
- ----------------------------------------------------------------------------------------------------------------------------------
NET INCOME $17,785 27.7% $14,772 $56.59 $13,831 23.9% $11,488 $46.43
==================================================================================================================================
*Departmental expense ratios are expressed as a percentage of departmental revenues
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
HVS International, Mineola, New York Income Capitalization Approach 104
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The historical statements show significant occupancy and
average rate growth between 1994 and 1997, and rooms
revenue rose by $5,080,000 in 1997. Total departmental
income also increased as an amount per occupied room
from 1996 to 1997, and total revenues rose by
$8,453,000. Departmental expenses declined as a ratio to
departmental income. Although rooms expense increased
slightly on a per occupied room basis and as a
percentage of rooms revenue, there has been a
significant improvement in the property's food and
beverage expense ratio, which reached 58.5% of food and
beverage revenues in 1997.
Other than management fees, all operating expenses
declined in 1997 as percentages of total revenue; this
reflects a continuation of a trend that began in 1994.
Fixed expenses remained relatively stable in 1997,
largely as a result of the high property taxes that are
payable in Cook County. Net income increased by
$3,686,000 in 1997, and equated to 29.3% of total
revenue in that year. Overall, the historical statements
reflect an efficient operation.
Forecast of The forecast of income and expense is intended to
Income and Expense reflect the appraisers' subjective estimate of how a
typical buyer would project the subject property's
operating results. Depending on the dynamics of the
local market, a typical buyer's projection may be
adjusted upward or downward. We have attempted to
consider these factors in formulating this forecast.
HVS International uses a fixed and variable component
model to project a lodging facility's revenue and
expense levels. This model is based on the premise that
hotel revenues and expenses have one component that is
fixed and another that varies directly with occupancy
and facility usage. A projection can be made by taking a
known level of revenue or expense and calculating its
fixed and variable components. The fixed component is
then held constant, while the variable component is
adjusted for the percent change between the projected
occupancy and facility usage and that which produced the
known level of revenue or expense.
Base-Year Based on our review of the operating histories of the
Statement of subject property and comparable hotels, we have derived
Income and Expense a base-year statement of income and expense that is
expressed in 1997 dollars. The units of comparison
include a percentage of departmental and total revenue,
amounts per available room, and amounts per occupied
room. The income and expense ratios reflect an occupancy
of 78.5%, which is the level achieved by the hotel in
1997. The base-year profit and loss statement will be
used to determine the relationship between the fixed and
variable components.
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================================================================================
Table 10-4 Base-Year Statement of Income and Expense
- --------------------------------------------------------------------------------
1997 Dollars
----------------------------------------------
No. of Rooms: 1,204
Occupancy: 78.5%
Average Rate: $148.24 Amount per Amount per
No. of Occupied Rooms: 345,169 Percent Available Occupied
(+000) of Gross Room Room
- ------------------------------------------------------------------------------
REVENUES
Rooms $51,166 62.6% $42,497 $148.24
Food 21,746 26.6 $18,061 63.00
Beverage 4,660 5.7 3,870 13.50
Telephone 2,445 3.0 2,031 7.08
Minor Operating Dept. 1,003 1.2 833 2.90
Rent & Other Income 750 0.9 623 2.17
Total 81,770 100.0 67,915 236.90
- ------------------------------------------------------------------------------
EXPENSES
Rooms* 11,391 22.3 9,461 33.00
Food & Beverage* 15,579 59.0 12,940 45.14
Telephone* 824 33.7 684 2.39
Minor Operating Dept.* 0 0.0 0 0.00
Administrative & General 5,418 6.6 4,500 15.70
Management Fee 2,453 3.0 2,037 7.11
Marketing 4,515 5.5 3,750 13.08
Property Oper. & Maint. 3,130 3.8 2,600 9.07
Energy 2,491 3.0 2,069 7.22
Property and Sewer Taxes 7,743 9.5 6,431 22.43
Insurance 75 0.1 62 0.22
Reserve for Replacement 3,271 4.0 2,717 9.48
Ground Rent 2,617 3.2 2,174 7.58
Leases 378 0.5 314 1.09
Total 59,884 73.2 49,738 173.49
- ------------------------------------------------------------------------------
NET INCOME $21,885 26.8% $18,177 $63.40
==============================================================================
*Departmental expense ratios are expressed
as a percentage of departmental revenues
- --------------------------------------------------------------------------------
Inflation The base revenue and expense amounts are inflated to
Assumptions reflect current dollars for each projection year.
Although line items can be affected by different
factors, we must establish a general rate of inflation
that will be applied to most revenue and expense
categories. The following table shows inflation
estimates made by analysts at some noted institutions
and corporations.
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HVS International, Mineola, New York Income Capitalization Approach 106
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================================================================================
Table 10-5 Inflation Estimates
- --------------------------------------------------------------------------------
Projected Increase in Consumer Price Index
(Annualized Rate Versus 12 Months Earlier)
------------------------------------------
June Dec.
Source of 1998 of 1998
- --------------------------------------------------------------------------------
Maureen Allyn, Scudder Stevens & Clark 2.4% 2.4%
Wayne Angell, Bear Stearns 1.5 1.6
Richard Berner, Mellon Bank 1.9 2.3
David Berson, Fannie Mae 2.4 2.5
David Blitzer, S&P 2.5 2.0
Paul Boltz, T. Rowe Price 2.2 2.6
David Bostian, Herzog, Heine, Geduld 1.9 2.1
Philip Braverman, DKB Securities 1.8 1.5
William Brown, J.P. Morgan 1.8 2.7
W. Van Bussmann, Chrysler Corp. 2.0 2.0
Rosanne Cahn, CS First Boston 2.3 2.3
James Coons, Huntington National Bank 2.3 2.4
Michael Cosgrove, The Econoclast 2.6 2.8
Dewey Daane, Vanderbilt University 2.3 2.0
W.Dudley, Goldman Sachs 1.9 2.1
Theodore Eck, Amoco Corp. 2.4 2.2
Michael Englund, MMS Intl 2.2 2.6
Gail Fosler, Conference Board 2.1 3.0
Maury Harris, Paine Webber, Inc. 1.5 2.0
Michael J. Held, Salomon Smith Barney 2.0 2.4
Tracy Herrick, Jefferies 2.1 2.4
Stuart Hoffman, PNC Bank 2.3 2.4
William Hummer, Wayne Hummer 2.4 2.3
Edward Hyman, ISI Group 1.5 2.0
Saul Hymans, University of Michigan 2.0 2.1
Mieczyslaw Karczmar, Deutsche Bank 2.0 2.2
K.Karl/A.Sinai, WEFA/PDE 2.2 2.4
D. Laufenberg, American Express
Financial Advisors 2.6 2.9
Carol Leisenring, CoreStates Financial 2.0 2.2
Mickey Levy, NationsBank Capital Markets 2.3 2.2
David Littmann, Comerica 1.8 2.2
John Lonski, Moody's Investors Service 2.3 2.8
Paul McCulley, UBS Securities 2.0 2.0
John McDevitt, 3M 2.2 2.9
Arnold Moskowitz, Moskowitz Capital 1.7 1.4
John Mueller, LBMC, Inc. 3.2 3.2
Nicholas Perna, Fleet Financial Group 2.4 2.5
Elliott Platt, Donaldson Lufkin Jenrette 2.2 2.4
Maria F. Ramirez, MFR, Inc. 2.4 2.4
Donald Ratajczak, Georgia State University 2.0 2.3
David Resler, Nomura Securities
International 2.3 2.2
Allan Reynolds, Hudson Institute 1.8 2.6
Richard Rippe, Prudential Securities 2.4 2.4
A. Gary Shilling, Shilling & Co. 1.8 1.6
James Smith, University of North Carolina 1.7 1.4
Sung Won Sohn, Norwest Corp. 2.5 2.7
Bruce Steinberg, Merrill Lynch 1.8 1.8
Susan Sterne, Economic Analysis 1.0 1.8
Thomas Synott III, U.S. Trust Company 2.3 2.6
John Walter, Dow-Corning 2.0 1.7
John Williams, Bankers Trust 2.6 2.9
Raymond Worseck, A.G. Edwards 2.5 2.9
David Wyss, DRI/McGraw-Hill 1.7 2.1
Edward Yardeni, Deutsche Morgan Grenfell 1.7 1.3
Mark Zandi, Regional Financial Associates 2.4 2.8
---- ----
Averages 2.1% 2.3%
Source: Wall Street Journal, January 2, 1998
- --------------------------------------------------------------------------------
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HVS International, Mineola, New York Income Capitalization Approach 107
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As the preceding table indicates, the financial analysts
who were surveyed anticipate inflation rates ranging
from 1.0% to 3.2% (on an annualized basis) during the
first half of 1998. A majority of the respondents
estimate rates of 2.4% to 2.8%; the average is 2.1%. For
the 12 months ending in December of 1998, the inflation
forecasts range from 1.3% to 3.2%; most fall between
2.0% and 2.6%, and the average is 2.3%.
As a further check on these inflation projections, we
have reviewed historical increases in the Consumer Price
Index (CPI-U). Because the value of real estate is
predicated on cash flows over a relatively long period,
inflation should be considered from a long-term
perspective. Between 1987 and 1997, the national CPI
increased at an average annual compounded rate of 3.5%.
During the more recent period of 1992 through 1997, a
lower increase of 2.7% annually is indicated. In
consideration of these historical trends, the
projections set forth above, and our assessment of
probable property appreciation levels, we have selected
a stabilized inflation rate of 3.0% annually.
Exceptions to this general inflation assumption include
the projected growth in average rate and the increase in
property taxes. As noted earlier, increases in the
subject property's room rate are projected as follows.
================================================================================
Table 10-6 Projected Growth in Average Rate
- --------------------------------------------------------------------------------
Increase From
Year Previous Year
--------------------------------
1998 8.0%
1999 6.0
2000 4.0
Thereafter 3.0
- --------------------------------------------------------------------------------
As outlined in a previous section of this report, we
have used a 2.5% inflation factor to project the subject
property's 1998 real estate taxes, using the 1996
assessment as a basis. Thereafter, we assume an
underlying inflation rate of 3.0%.
Using these assumptions, the base-year income and
expense statement (which is expressed in 1997 dollars)
is inflated to arrive at projections. Each revenue and
expense category will be projected using the inflated
base statement to determine the relationship between the
fixed and variable components.
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Rooms Revenue Rooms revenue is determined by two variables: occupancy
and average rate. Earlier in this report, we estimated
the subject property's occupancy and average rate as
follows.
================================================================================
Table 10-7 Projected Occupancy and Average Rate
- --------------------------------------------------------------------------------
1998 1999 Stabilized
------- ------- -------
Projected Occupancy Percentage 79.0% 77.0% 76.0%
Projected Average Rate $160.09 $160.70 $176.49
- --------------------------------------------------------------------------------
Rooms revenue is calculated as follows.
================================================================================
Table 10-8 Forecast of Rooms Revenue
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Rooms
No. of Days Revenue
Year Occupancy Average Rate Units in Year (+000)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 79% x $160.09 x 1,204 x 365 = $55,580
1999 77 x 169.70 x 1,204 x 365 = 57,424
Stabilized 76 x 176.49 x 1,204 x 365 = 58,945
- ---------------------------------------------------------------------------------------
</TABLE>
Food and Food and beverage revenue is generated by a hotel's
Beverage Revenue restaurants, lounges, coffee shops, snack bars, banquet
rooms, and room service. In addition to providing a
source of revenue, these outlets serve as an amenity
that assists in the sale of guestrooms. With the
exception of properties with active lounges or banquet
facilities that draw local residents, in-house guests
generally represent a substantial percentage of a
hotel's food and beverage patrons.
The Uniform System of Accounts for Hotels defines food
revenue as "revenue derived from the sale of food,
including coffee, milk, tea and soft drinks. Food sales
do not include meals charged on employees' (staff)
checks." Beverage revenues are "derived from the sale of
beverages." In addition to the revenue generated by the
sale of food and beverages, hotels often produce other
income that is related to this department, such as
meeting room rentals, cover charges, service charges,
and miscellaneous banquet revenue. We note that although
food revenue varies directly with changes in occupancy,
the small portion generated by banquet sales and outside
capture is relatively fixed. The following table sets
forth our projection of food revenue
<PAGE>
HVS International, Mineola, New York Income Capitalization Approach 109
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and several units of comparison that can be used to
check the reasonableness of the forecast.
================================================================================
Table 10-9 Forecast of Food Revenue
- --------------------------------------------------------------------------------
1998 1999 Stabilized
- --------------------------------------------------------------------------------
Projected Food Revenue (+000) $22,496 $22,730 $23,185
Percent of Total Revenue 25.8% 25.4% 25.3%
Amount per Available Room $18,684 $18,879 $19,257
Amount per Occupied Room $64.80 $67.17 $69.42
- --------------------------------------------------------------------------------
Based on these units of comparison, the projected food
revenue appears reasonable when compared with industry
standards.
Beverage Revenue Beverage revenue is generated by the sale of alcoholic
beverages in a hotel's restaurants and banquet rooms and
the sale of alcoholic and nonalcoholic beverages in the
bars and lounges. Based on an analysis of comparable
lodging facilities, beverage revenue is estimated to
average approximately 21.0% of food revenue. The
following table illustrates the forecast of beverage
revenue.
================================================================================
Table 10-10 Forecast of Beverage Revenue
- --------------------------------------------------------------------------------
1998 1999 Stabilized
- --------------------------------------------------------------------------------
Projected Beverage Revenue (+000) $4,821 $4,871 $4,968
- --------------------------------------------------------------------------------
Telephone Revenue Telephone revenue is generated by hotel guests who
charge local and long-distance calls to their rooms, and
by individuals who use the property's public telephones.
Prior to the deregulation of the telephone industry in
the early 1980s, hotels were limited to a 15% commission
on long-distance calls, a mark-up that allowed few
profits. Deregulation and the development of
sophisticated call-accounting equipment have resulted in
profitable telephone departments. State-of-the-art
equipment is capable of least-cost routing, automatic
price billing, and posting telephone charges to guest
folios. Hotels can select among various long-distance
services, and can also work with any one of a number of
Alternative Operator Services (AOS). These systems route
and price calls, and may provide additional services.
<PAGE>
HVS International, Mineola, New York Income Capitalization Approach 110
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In recent years, the hospitality industry has
experienced diverging trends with respect to telephone
revenue. Prices per call have increased, in some cases
dramatically, yielding departmental profits as high as
50% to 55%; however, the number of long-distance calls
billed per occupied room has declined as a result of the
extensive use of long-distance carrier services that can
be accessed locally or through a toll-free number. When
guests charge long-distance calls to their personal or
business accounts in this manner, the hotel loses the
revenue associated with long-distance tariffs and
mark-ups, and only receives an access fee.
Most telephone revenue varies directly with changes in
occupancy; however, there is a small fixed component
consisting of public telephone revenue, which is
primarily generated by individuals who are using the
hotel's food, beverage, and meeting facilities. Using
this fixed and variable relationship, the subject
property's telephone revenue is projected as follows.
================================================================================
Table 10-11 Forecast of Telephone Revenue
- --------------------------------------------------------------------------------
1998 1999 Stabilized
- --------------------------------------------------------------------------------
Projected Telephone Revenue (+000) $2,532 $2,548 $2,594
Percent of Total Revenue 2.9% 2.8% 2.8%
Amount per Available Room $2,103 $2,116 $2,155
Amount per Occupied Room $7.29 $7.53 $7.77
- --------------------------------------------------------------------------------
Minor Operating The minor operating departments category is a composite
Departments of several small revenue sources, including guest
laundry, the business center, the parking garage, movie
rentals, and the fitness center. Although these
departments also generate expenses, the revenues are
expressed as a net amount on the income and expense
statement.
================================================================================
Table 10-12 Forecast of Minor Operating Department Income
- --------------------------------------------------------------------------------
1998 1999 Stabilized
- --------------------------------------------------------------------------------
Projected Minor Operating Dept. Income (+000) $1,034 $1,057 $1,085
Percent of Total Revenue 1.2% 1.2% 1.2%
Amount per Available Room $859 $878 $901
Amount per Occupied Room $2.98 $3.12 $3.25
- --------------------------------------------------------------------------------
<PAGE>
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Rents and Other income is derived from sources other than
Other Income guestrooms, food and beverages, and telephone services,
and minor operating departments. Depending on the type
of hotel and the facilities and amenities offered,
income from minor operating departments may include the
following items.
o Rentals - stores, office space, concession space,
showcases, clubs, and storage.
o Commissions from auto rentals, photography,
telegrams, and vending services.
o Concessions - revenue derived from charges for the
privilege of operating departments that could be
operated by the hotel. Gift shops, barber shops,
and beauty salons are often operated as
concessions.
o Cash discounts earned - discounts from creditors'
accounts for payment within the discount period.
This item does not include trade discounts, which
are a deduction from the cost of goods sold.
o Electronic games and pinball machines.
o Forfeited advance deposits and guaranteed
no-shows.
o Service charges - service charges that are added
to a customer's account but are not paid to
service personnel.
o Interest income - interest from house accounts.
o Salvage - revenue from the sale of old or obsolete
items.
Rents and other income are highly correlated to
occupancy and slightly sensitive to food and beverage
volume. The following table sets forth our forecast of
rents and other income. These amounts appear reasonable,
and are comparable to those achieved by similar lodging
facilities.
================================================================================
Table 10-13 Forecast of Rents and Other Income
- --------------------------------------------------------------------------------
1998 1999 Stabilized
- --------------------------------------------------------------------------------
Projected Rent & Other Income (+000) $775 $788 $806
Percent of Total Revenue 0.9% 0.9% 0.9%
Amount per Available Room $644 $655 $670
Amount per Occupied Room $2.23 $2.33 $2.41
- --------------------------------------------------------------------------------
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HVS International, Mineola, New York Income Capitalization Approach 112
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Rooms Expense Rooms expense consists of items related to the sale and
upkeep of guestrooms and public space. Salaries, wages,
and employee benefits account for a substantial portion
of this category. Although payroll varies somewhat with
occupancy (because managers can schedule maids, bell
personnel, and house cleaners to work when demand
requires), much of a hotel's payroll is fixed. Front
desk personnel, public area cleaners, the housekeeper,
and other supervisors must be maintained at all times.
As a result, salaries, wages, and employee benefits are
only moderately sensitive to changes in occupancy.
Commissions represent remuneration to travel agents for
booking rooms. Because these fees are based on a
percentage of rooms revenue, they are highly dependent
on occupancy and rate. Reservations is a similar expense
that reflects the cost of a franchise reservation system
that typically bills as a percentage of rooms revenue.
China, glassware, and linen; operating supplies; other
operating expenses; and uniforms are only slightly
affected by changes in volume. In light of these
considerations, we project the subject property's rooms
expense as follows.
================================================================================
Table 10-14 Forecast of Rooms Expense
- --------------------------------------------------------------------------------
1998 1999 Stabilized
- --------------------------------------------------------------------------------
Projected Rooms Expense (+000) $11,760 $11,989 $12,286
Percent of Rooms Revenue 21.2% 20.9% 20.8%
Amount per Available Room $9,767 $9,958 $10,204
Amount per Occupied Room $33.87 $35.43 $36.79
- --------------------------------------------------------------------------------
Food and Food and beverage expenses consist of items necessary
Beverage Expense for the operation of a hotel's food, beverage, and
banquet facilities. Although food and beverage revenues
are projected separately and occupy separate categories
on a hotel's income and expense statement, the
corresponding expenses are combined into a single
category.
The costs associated with food and beverage sales and
payroll are moderately to highly correlated to food and
beverage revenues, and comprise a substantial portion of
this category. China, glassware, and linen; operating
supplies; other operating expenses; and uniforms are
very slightly dependent on volume. Although the other
expense items are basically fixed, they represent a
relatively insignificant factor. Overall, we estimate
that approximately 55% of food and beverage expense is
fixed and 45% varies with food
<PAGE>
HVS International, Mineola, New York Income Capitalization Approach 113
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=============
and beverage revenue. We note that the Sheraton has been
increasingly successful in controlling the costs
associated with this department, and food and beverage
expense declined from 71.9% of food and beverage
revenues in 1994 to 58.5% in 1997. This greater
operating efficiency can be attributed to improved
management and a greater proportion of banquet and other
revenues (as opposed to outlet revenues). We note that
the projected food and beverage expense ratios set forth
above are at the low end of industry norms; however,
given the Sheraton's historical volume of food,
beverage, and banquet revenues, it is our opinion that
the subject property's highly efficient food and
beverage operations and low expense ratios are
sustainable. We forecast the subject property's food and
beverage expense as follows.
================================================================================
Table 10-15 Forecast of Food and Beverage Expense
- --------------------------------------------------------------------------------
1998 1999 Stabilized
- --------------------------------------------------------------------------------
Projected Food & Beverage Expense (+000) $16,078 $16,418 $16,838
Percent of Food and Beverage Revenue 58.9% 59.5% 59.8%
Amount per Available Room $13,354 $13,637 $13,985
Amount per Occupied Room $46.31 $48.52 $50.41
- --------------------------------------------------------------------------------
Telephone Expense Telephone expense consists of all costs associated with
this department. In the case of small hotels with
automated systems, the operation of telephones may be an
additional responsibility of front desk personnel;
however, most large properties employ full-time
operators.
The bulk of the telephone expense consists of the cost
of local and long-distance calls billed by the telephone
companies that provide these services. Because most
calls are made by in-house guests, these costs are
moderately correlated to occupancy. Unless a particular
hotel department incurs high expenses, use of telephone
services by hotel employees is charged to this account.
The remaining costs, which include salaries, wages,
printing, and other expenses, are moderately fixed. The
following table illustrates our forecast of telephone
expense.
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================================================================================
Table 10-16 Forecast of Telephone Expense
- --------------------------------------------------------------------------------
1998 1999 Stabilized
- --------------------------------------------------------------------------------
Projected Telephone Expense (+000) $850 $868 $890
Percent of Telephone Revenue 33.6% 24.1% 34.3%
Amount per Available Room $706 $721 $739
Amount per Occupied Room $2.45 $2.57 $2.66
- --------------------------------------------------------------------------------
Administrative and Administrative and general expense includes the salaries
General Expense and wages of all administrative personnel who are not
directly associated with a particular department.
Expense items related to the management and operation of
the property are also allocated to this category.
Most administrative and general expenses are relatively
fixed. The exceptions are cash overages and shortages;
commissions on credit card charges; provision for
doubtful accounts, which are moderately affected by the
number of transactions or total revenue; and salaries,
wages, and benefits, which are very slightly influenced
by volume.
In recent years, several new items have been added to
the administrative and general expense category. Human
resources includes the cost of recruiting, relocating,
and training personnel. Security consists of the cost of
contract security for the property and related expenses.
The general insurance category includes premiums for
liability, fidelity, life, theft coverage, and business
interruption insurance. Fire and extended-coverage
insurance on the building and contents is a separate
insurance expense category. Liability insurance covers
third-party actions involving bodily injury and personal
property, and is typically based on rooms receipts,
meeting and banquet income, and food and beverage
revenue. Factors that may have an impact on a hotel's
liability expense include the size of the meeting,
banquet, and restaurant facilities; the ratio between
the amount of alcohol served and total food and beverage
sales; the presence of a dance floor; a high-rise
structure; a swimming pool; life safety support systems;
and the guest transportation services provided by the
hotel. The following table illustrates our forecast of
administrative and general expense.
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================================================================================
Table 10-17 Forecast of Administrative and General Expense
- --------------------------------------------------------------------------------
1998 1999 Stabilized
- --------------------------------------------------------------------------------
Projected Admin. & General Expense (+000) $5,640 $5,801 $5,965
Percentage of Total Revenue 6.5% 6.5% 6.5%
Amount per Available Room $4,684 $4,818 $4,954
Amount per Occupied Room $16.25 $17.14 $17.86
- --------------------------------------------------------------------------------
Management Fee Management expense consists of the basic fee paid to the
type of company that is anticipated to operate the
subject property. Some companies provide management
services alone, while others also provide a brand name
affiliation. When a management company has no brand
identification, the property owner often acquires a
franchise that provides the necessary image and
recognition. Although most hotel management companies
employ a fee schedule that includes a basic fee (usually
a percentage of total revenue) and an incentive fee
(usually a percentage of defined profit), the incentive
portion is often subordinated to debt service and does
not appear in a forecast of net income before debt
service. Basic hotel management fees are almost always
based on a percentage of total revenue, which means they
have no fixed component.
Although the incentive fee does not decrease the cash
flow available for debt service, it does reduce the
potential cash flow to equity, and must be accounted for
in the valuation process. Generally, the most
appropriate procedure for handling the impact of the
incentive fee on the equity component is to use the
projected net income before debt service and incentive
fee, but adjust the equity dividend or yield rate upward
to reflect this added management cost. The adjusted
equity dividend and yield rates will be described later
in this section.
The subject property is managed by the Sheraton
Operating Corporation, a well-known, first-tier company
with experience operating hotels of this type. The
management contract requires a fee of 3.0% of gross
revenues. Applying this percentage to the projection of
total revenue yields the following forecast of the
subject property's management fee.
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================================================================================
Table 10-18 Forecast of Management Fee
- --------------------------------------------------------------------------------
1998 1999 Stabilized
- --------------------------------------------------------------------------------
Projected Management Fee (+000) $2,617 $2,683 $2,747
- --------------------------------------------------------------------------------
Marketing Expense Marketing expense consists of all costs associated with
advertising, sales, and promotion; these activities are
intended to attract and retain customers. Marketing can
be used to create an image, develop customer awareness,
and stimulate patronage of a property's various
facilities.
The marketing category is unique in that all expense
items, with the exception of fees and commissions, are
totally controlled by management. Most hotel operators
establish an annual marketing budget that sets forth all
planned expenditures. If the budget is followed, total
marketing expenses can be projected accurately.
Marketing expenditures are unusual because although
there is a lag period before results are realized, the
benefits are often extended over a long period.
Depending on the type and scope of the advertising and
promotion program implemented, the lag time can be as
short as a few weeks or as long as several years;
however, the favorable results of an effective marketing
campaign tend to linger, and a property often enjoys the
benefits of concentrated sales efforts for many months.
Marketing expense can be divided into five categories:
sales, reservations, advertising and merchandising,
other marketing activities, and fees and commissions.
Together, these categories include all marketing efforts
made by hotel personnel and outside parties. Marketing
expenses are fixed with the exception of reservations,
fees, and commissions, which are calculated as a
percentage of rooms revenue. Based on the location of
the subject property, the local market for transient
accommodations, the competitive environment, and the
hotel's anticipated market segmentation, we have
developed the following marketing forecast using a fixed
and variable component model.
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================================================================================
Table 10-19 Forecast of Marketing Expense
- --------------------------------------------------------------------------------
1998 1999 Stabilized
- --------------------------------------------------------------------------------
Projected Marketing Expense (+000) $4,700 $4,834 $4,971
Percentage of Total Revenue 5.4% 5.4% 5.4%
Amount per Available Room $3,904 $4,015 $4,128
Amount per Occupied Room $13.54 $14.29 $14.88
- --------------------------------------------------------------------------------
Property Operations Property operations and maintenance expense is another
and Maintenance expense category that is largely controlled by
management. Except for repairs that are necessary to
keep the facility open and prevent damage (e.g.,
plumbing, heating, and electrical items), most
maintenance can be deferred for varying lengths of time.
Maintenance is an accumulating expense. If management
elects to postpone performing a required repair, they
have not eliminated or saved the expenditure; they have
only deferred payment until a later date. A lodging
facility that operates with a lower-than-normal
maintenance budget is likely to accumulate a
considerable amount of deferred maintenance.
The age of a lodging facility has a strong influence on
the required level of maintenance. A new or thoroughly
renovated property is protected for several years by
modern equipment and manufacturers' warranties; however,
as a hostelry grows older, maintenance expenses
escalate. A well-organized preventive maintenance system
often helps delay deterioration, but most facilities
face higher property operations and maintenance costs
each year, regardless of the occupancy trend. The
quality of initial construction can also have a direct
impact on future maintenance requirements. The use of
high-quality building materials and construction methods
generally reduces the need for maintenance expenditures
over the long term.
Property operations and maintenance is considered an
operating expense; as such, it includes only those
components that can be expensed, rather than
capitalized, under Internal Revenue Service regulations.
For example, if a table leg is broken, the repair of
that leg is considered an expense and is chargeable to
property operations and maintenance. If the table is
replaced, it becomes a capital expenditure and does not
appear under the property operations and maintenance
category. Appraisers account for capital replacement of
items such as furniture and equipment in the reserve for
replacement account, which is discussed later in this
section. Property
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operations and maintenance costs are relatively fixed,
and are projected as follows.
================================================================================
Table 10-20 Forecast of Property Operations and Maintenance Expense
- --------------------------------------------------------------------------------
1998 1999 Stabilized
- --------------------------------------------------------------------------------
Projected Prop. Oper. & Maint. Expense (+000) $3,259 $3,352 $3,446
Percentage of Total Revenue 3.7% 3.7% 3.8%
Amount per Available Room $2,707 $2,784 $2,862
Amount per Occupied Room $9.39 $9.90 $10.32
- --------------------------------------------------------------------------------
Energy Expense The energy consumption of a lodging facility takes
several forms, including water and space heating, air
conditioning, lighting, cooking fuel, and other
miscellaneous power requirements. The most common
sources of hotel energy are electricity, natural gas,
fuel oil, and steam. This category also includes the
cost of water service.
Total energy cost depends on the source and quantity of
fuel used. Electricity tends to be the most expensive
source, followed by oil and gas. Although all hotels
consume a sizable amount of electricity, many properties
supplement their energy requirements with less expensive
sources, such as gas and oil, for heating and cooking.
A large portion of a hostelry's energy consumption is
relatively fixed. Restaurants, kitchens, public areas,
and corridors must be continually lighted and
climate-controlled, regardless of occupancy. The energy
cost of an additional occupied room (i.e., a few hours
of light, television, heat, or air conditioning) is
minimal. The following table presents our forecast of
the subject property's energy expense.
================================================================================
Table 10-21 Forecast of Energy Expense
- --------------------------------------------------------------------------------
1998 1999 Stabilized
- --------------------------------------------------------------------------------
Projected Energy Expense (+000) $2,575 $2,651 $2,728
Percentage of Total Revenue 3.0% 3.0% 3.0%
Amount per Available Room $2,138 $2,201 $2,266
Amount per Occupied Room $7.42 $7.83 $8.17
- --------------------------------------------------------------------------------
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Property Taxes The estimate of property taxes was detailed in a
previous section of this report. The following table
summarizes these projections.
================================================================================
Table 10-22 Forecast of Property Taxes
- --------------------------------------------------------------------------------
1998 1999 Stabilized
- --------------------------------------------------------------------------------
Projected Property Taxes (+000) $7,975 $8,214 $8,461
- --------------------------------------------------------------------------------
Insurance Expense The insurance expense category consists of the cost of
insuring the hotel and its contents against damage or
destruction by fire, weather, sprinkler leakage, boiler
explosion, plate glass breakage, and so forth. It does
not include liability coverage, which is a component of
administrative and general expense.
Insurance rates are based on many factors, including
building design and construction, fire detection and
extinguishing equipment, fire district, distance from
the firehouse, and the area's fire experience. Insurance
expenses do not vary with occupancy.
Based on historical levels, we project the subject
property's insurance expense at approximately $77,000 in
1998 (the first projection period). In subsequent years,
this amount is assumed to increase in tandem with
inflation. The following table outlines our projection
of insurance expense.
================================================================================
Table 10-23 Forecast of Insurance Expense
- --------------------------------------------------------------------------------
1998 1999 Stabilized
- --------------------------------------------------------------------------------
Projected Insurance Expense (+000) $77 $80 $82
- --------------------------------------------------------------------------------
Reserve for Furniture, fixtures, and equipment are essential to the
Replacement operation of a lodging facility, and their quality often
influences a property's class. This category includes
all non-real estate items that are capitalized, rather
than expensed. The furniture, fixtures, and equipment of
a hotel are exposed to heavy use and must be replaced at
regular intervals. The useful life of these items is
determined by their quality, durability, and the amount
of guest traffic and use.
Periodic replacement of furniture, fixtures, and
equipment is essential to maintain the quality, image,
and income-producing potential of a lodging
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facility. Because capitalized expenditures are not
included in the operating statement but nevertheless
affect an owner's cash flow, an appraisal should reflect
these expenses in the form of an appropriate reserve for
replacement.
Our industry experience indicates that a reserve for
replacement of 3% to 5% of total revenue is generally
sufficient to provide for the timely replacement of
furniture, fixtures, and equipment. Because the reserve
for replacement is based on a percentage of total
revenue, it has no fixed component.
Based on an analysis of comparable lodging facilities,
we believe that a reserve for replacement of 4.0% of
total revenue is sufficient to provide for the periodic
replacement of the subject property's furniture,
fixtures, and equipment. The following table summarizes
the projected reserve amounts.
================================================================================
Table 10-24 Forecast of Reserve for Replacement
- --------------------------------------------------------------------------------
1998 1999 Stabilized
- --------------------------------------------------------------------------------
Projected Replacement Reserves (+000) $3,490 $3,577 $3,663
- --------------------------------------------------------------------------------
Ground Rent The following is an outline of the ground rent terms set
forth in the October 1, 1988 agreement between the
Chicago Dock and Canal Trust and the subject property's
owners.
o Base Land Rent - Base ground rent is payable
monthly (in arrears beginning November 1, 1991)
per the following schedule.
================================================================================
Table 10-25 Annual Base Land Rent
- --------------------------------------------------------------------------------
Year Base Ground Rent
--------------------------------------------------------
1989 - 1994 $150,000
1995 $975,000
1996 $2,100,000
1997 and beyond $2,100,000 plus CPI
(minimum of 5%, maximum of 10%)
- --------------------------------------------------------------------------------
In 1997 and beyond, the annual base rent increases in
conjunction with the Consumer Price Index, with a
minimum annual increase of 5% and a maximum annual
increase of 10%.
<PAGE>
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Percentage Land Rent - Percentage land rent is payable
on a quarterly basis, and is equal to the amount by
which the sum of the following percentages of gross
revenues exceed the base rental for the indicated
operating years.
================================================================================
Table 10-26 Percentage Land Rent
- --------------------------------------------------------------------------------
Percentages
-----------------------------------------
Year Rooms Food Beverages Other
-----------------------------------------------------
1993 -- -- -- --
1994 -- -- -- --
1995 -- -- -- --
1996 3.50% 2.00 3.00% 3.00%
1997 3.50 2.00 3.00 3.00
1998 3.50 2.00 3.00 3.00
1999 3.50 2.00 3.00 3.00
2000 3.75 2.50 3.25 3.50
2001 3.75 2.50 3.25 3.50
2002 4.00 3.00 3.50 4.00
2003 4.00 3.00 3.50 4.00
2004 4.50 4.50 4.50 4.50
2005 4.50 4.50 4.50 4.50
Therafter 5.00 5.00 5.00 5.00
- --------------------------------------------------------------------------------
The following table sets forth the subject property's
estimated ground rent throughout the stabilized year.
================================================================================
Table 10-27 Percentage Land Rent
- --------------------------------------------------------------------------------
1998 1999 Stabilized
- --------------------------------------------------------------------------------
Projected Ground Rent (+000) $2,647 $2,719 $3,080
- --------------------------------------------------------------------------------
Leases Equipment lease expense includes the cost of items
leased in conjunction with the operation of the hotel,
which may include vehicles, computer equipment, and so
forth. Because the payments are stipulated in each
lease, this expense does not vary with occupancy;
however, equipment must be replaced or upgraded over
time, and thus lease payments tend to increase from year
to year. Based on historical information, we forecast
the subject property's equipment lease expense at
$389,000 in 1998, increasing by 3.0% annually in
subsequent years.
<PAGE>
HVS International, Mineola, New York Income Capitalization Approach 122
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Summary of Based on the preceding analysis, we have formulated a
Projections forecast of income and expense. The table on the
following page presents a detailed forecast through the
stabilized year, including amounts per available room
(PAR) and per occupied room (POR). For the purpose of
comparison, this table also presents the subject
property's most recent full year of operating history.
The second table illustrates our ten-year forecast of
income and expense in less detail. The forecasts pertain
to calendar operating years, and are expressed in
inflated dollars for each year.
<PAGE>
HVS International, Mineola, New York Income Capitalization Approach 123
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================================================================================
Table 10-28 Detailed Forecast of Income and Expense through the Stabilized Year
and Most Recent Operating History, Sheraton Chicago Hotel & Towers,
Chicago, Illinois
<TABLE>
<CAPTION>
1997 Operating History 1998
----------------------------------------------- -------------------------------------------
No. of Rooms: 1,204 1,204
Occupancy: 78.5% 79.0%
Average Rate: $148.24 $160.09
No. of Days Open: 365 Percent 365 Percent
No. of Occupied Rooms: 345,169 of 347,173 of
(+000) Gross PAR POR (+000) Gross PAR POR
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE
Rooms $51,166 63.2% $42,497 $148.24 $55,580 63.7% $46,163 $160.09
Food 20,969 25.9 17,416 60.75 22,496 25.8 18,684 64.80
Beverage 4,610 5.7 3,829 13.36 4,821 5.5 4,004 13.89
Telephone 2,445 3.0 2,031 7.08 2,532 2.9 2,103 7.29
Minor Operating Dept. 1,013 1.3 841 2.93 1,034 1.2 859 2.98
Rent & Other Income 750 0.9 623 2.17 775 0.9 644 2.23
Total 80,953 100.0 67,237 234.53 87,238 100.0 72,457 251.28
- ------------------------------------------------------------------------------------------------------------------------------
DEPARTMENTAL EXPENSES*
Rooms 10,948 21.4 9,093 31.72 11,760 21.2 9,767 33.87
Food & Beverage 14,957 58.5 12,423 43.33 16,078 58.9 13,354 46.31
Telephone 824 33.7 684 2.39 850 33.6 706 2.45
Total 26,729 33.0 22,200 77.44 28,688 32.9 23,827 82.63
- ------------------------------------------------------------------------------------------------------------------------------
DEPARTMENTAL INCOME 54,224 67.0 45,036 157.09 58,550 67.1 48,630 168.65
- ------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Administrative & General 5,280 6.5 4,386 15.30 5,640 6.5 4,684 16.25
Management Fee 2,775 3.4 2,305 8.04 2,617 3.0 2,174 7.54
Marketing 4,347 5.4 3,610 12.59 4,700 5.4 3,904 13.54
Property Oper. & Maint. 3,045 3.8 2,529 8.82 3,259 3.7 2,707 9.39
Energy 2,481 3.1 2,060 7.19 2,575 3.0 2,139 7.42
Total 17,928 22.2 14,891 51.94 18,791 21.6 15,607 54.13
- ------------------------------------------------------------------------------------------------------------------------------
HOUSE PROFIT 36,295 44.8 30,146 105.15 39,759 45.5 33,022 114.52
- ------------------------------------------------------------------------------------------------------------------------------
FIXED EXPENSES
Property and Sewer Taxes 7,064 8.7 5,867 20.46 7,975 9.1 6,624 22.97
Insurance 75 0.1 62 0.22 77 0.1 64 0.22
Reserve for Replacement 2,434 3.0 2,021 7.05 3,490 4.0 2,899 10.05
Ground Rent 2,617 3.2 2,174 7.58 2,647 3.0 2,198 7.62
Leases 378 0.5 314 1.09 389 0.4 323 1.12
Total 12,567 15.5 10,438 36.41 14,578 16.7 12,108 41.99
- ------------------------------------------------------------------------------------------------------------------------------
NET INCOME $23,728 29.3% $19,708 $68.74 $25,181 28.9% $20,915 $72.53
==============================================================================================================================
*Departmental expense ratios are expressed as a percentage of departmental revenues
Food/Rooms 41.0% 40.5%
Beverage/Food 22.0% 21.4%
Telephone/Rooms 4.8% 4.6%
<CAPTION>
1999 Stabilized
-------------------------------------------- -------------------------------------------
No. of Rooms: 1,204 1,204
Occupancy: 77.0% 76.0%
Average Rate: $169.70 $176.49
No. of Days Open: 365 Percent 365 Percent
No. of Occupied Rooms: 338,384 of 333,990 of
(+000) Gross PAR POR (+000) Gross PAR POR
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE
Rooms $57,424 64.3 % $47,694 $169.70 $58,945 64.4% $48,958 $176.49
Food 22,730 25.4 18,879 67.17 23,185 25.3 19,257 69.42
Beverage 4,871 5.4 4,046 14.39 4,968 5.4 4,126 14.87
Telephone 2,548 2.8 2,116 7.53 2,594 2.8 2,154 7.77
Minor Operating Dept. 1,057 1.2 878 3.12 1,085 1.2 901 3.25
Rent & Other Income 788 0.9 654 2.33 806 0.9 669 2.41
Total 89,418 100.0 74,267 264.25 91,583 100.0 76,066 274.21
- ---------------------------------------------------------------------------------------------------------------------------
DEPARTMENTAL EXPENSES*
Rooms 11,989 20.9 9,958 35.43 12,286 20.8 10,204 36.79
Food & Beverage 16,418 59.5 13,636 48.52 16,838 59.8 13,985 50.41
Telephone 868 34.1 721 2.57 890 34.3 739 2.66
Total 29,275 32.7 24,315 86.51 30,014 32.8 24,929 89.87
- ---------------------------------------------------------------------------------------------------------------------------
DEPARTMENTAL INCOME 60,143 67.3 49,953 177.74 61,569 67.2 51,137 184.34
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Administrative & General 5,801 6.5 4,818 17.14 5,965 6.5 4,954 17.86
Management Fee 2,683 3.0 2,228 7.93 2,747 3.0 2,282 8.22
Marketing 4,834 5.4 4,015 14.29 4,971 5.4 4,129 14.88
Property Oper. & Maint. 3,352 3.7 2,784 9.91 3,446 3.8 2,862 10.32
Energy 2,651 3.0 2,202 7.83 2,728 3.0 2,266 8.17
Total 19,321 21.6 16,047 57.10 19,857 21.7 16,493 59.45
- ---------------------------------------------------------------------------------------------------------------------------
HOUSE PROFIT 40,822 45.7 33,905 120.64 41,712 45.5 34,645 124.89
- ---------------------------------------------------------------------------------------------------------------------------
FIXED EXPENSES
Property and Sewer Taxes 8,214 9.2 6,822 24.27 8,461 9.2 7,027 25.33
Insurance 80 0.1 66 0.24 82 0.1 68 0.25
Reserve for Replacement 3,577 4.0 2,971 10.57 3,663 4.0 3,042 10.97
Ground Rent 2,719 3.0 2,258 8.03 3,080 3.4 2,558 9.22
Leases 401 0.4 333 1.19 413 0.5 343 1.24
Total 14,991 16.8 12,451 44.30 15,699 17.1 13,039 47.01
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME $25,831 28.9 % $21,455 $76.34 $26,013 28.4% $21,605 $77.88
===========================================================================================================================
*Departmental expense ratios are expressed as a percentage of departmental revenues
Food/Rooms 39.6% 39.3%
Beverage/Food 21.4% 21.4%
Telephone/Rooms 4.4% 4.4%
</TABLE>
<PAGE>
HVS International, Mineola, New York Income Capitalization Approach 124
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Table 10-29 Ten-Year Forecast of Income and Expense, Sheraton Chicago Hotel &
Towers, Chicago, Illinois
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1998 1999 2000 2001 2002
---------------- --------------- --------------- --------------- ---------------
No. of Rooms: 1204 1204 1204 1204 1204
No. of Occupied Rooms: 347,173 338,384 333,990 333,990 333,990
Occupancy: 79.0% % of 77.0% % of 76.0% % of 76.0% % of 76.0% % of
Average Rate: $160.09 Gross $169.70 Gross $176.49 Gross $181.78 Gross $187.24 Gross
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE
Rooms $55,580 63.7% $57,424 64.3% $58,945 64.4% $60,714 64.4% $62,535 64.4%
Food 22,496 25.8 22,730 25.4 23,185 25.3 23,880 25.3 24,597 25.3
Beverage 4,821 5.5 4,871 5.4 4,968 5.4 5,117 5.4 5,271 5.4
Telephone 2,532 2.9 2,548 2.8 2,594 2.8 2,672 2.8 2,752 2.8
Minor Operating Dept. 1,034 1.2 1,057 1.2 1,085 1.2 1,117 1.2 1,151 1.2
Rent & Other Income 775 0.9 788 0.9 806 0.9 831 0.9 856 0.9
Total 87,238 100.0 89,418 100.0 91,583 100.0 94,331 100.0 97,162 100.0
- ---------------------------------------------------------------------------------------------------------------------------
DEPARTMENTAL EXPENSES*
Rooms 11,760 21.2 11,989 20.9 12,286 20.8 12,654 20.8 13,034 20.8
Food & Beverage 16,078 58.9 16,418 59.5 16,838 59.8 17,343 59.8 17,863 59.8
Telephone 850 33.6 868 34.1 890 34.3 916 34.3 944 34.3
Total 28,688 32.9 29,275 32.7 30,014 32.8 30,913 32.8 31,841 32.8
- ---------------------------------------------------------------------------------------------------------------------------
DEPARTMENTAL INCOME 58,550 67.1 60,143 67.3 61,569 67.2 63,418 67.2 65,321 67.2
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Administrative & General 5,640 6.5 5,801 6.5 5,965 6.5 6,144 6.5 6,328 6.5
Management Fee 2,617 3.0 2,683 3.0 2,747 3.0 2,830 3.0 2,915 3.0
Marketing 4,700 5.4 4,834 5.4 4,971 5.4 5,120 5.4 5,273 5.4
Property Oper. & Maint. 3,259 3.7 3,352 3.7 3,446 3.8 3,550 3.8 3,656 3.8
Energy 2,575 3.0 2,651 3.0 2,728 3.0 2,810 3.0 2,895 3.0
Total 18,791 21.6 19,321 21.6 19,857 21.7 20,454 21.7 21,067 21.7
- ---------------------------------------------------------------------------------------------------------------------------
HOUSE PROFIT 39,759 45.5 40,822 45.7 41,712 45.5 42,964 45.5 44,254 45.5
- ---------------------------------------------------------------------------------------------------------------------------
FIXED EXPENSES
Property and Sewer Taxes 7,975 9.1 8,214 9.2 8,461 9.2 8,714 9.2 8,976 9.2
Insurance 77 0.1 80 0.1 82 0.1 84 0.1 87 0.1
Reserve for Replacement 3,490 4.0 3,577 4.0 3,663 4.0 3,773 4.0 3,886 4.0
Ground Rent 2,647 3.0 2,719 3.0 3,080 3.4 3,173 3.4 3,580 3.7
Leases 389 0.4 401 0.4 413 0.5 425 0.5 438 0.5
Total 14,578 16.7 14,991 16.8 15,699 17.1 16,169 17.1 16,967 17.5
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME $25,181% 28.9% $25,831 28.9% $26,013 28.4% $26,795 28.4% $27,287 28.1%
===========================================================================================================================
<CAPTION>
2003 2004 2005 2006 2007
--------------- --------------- --------------- --------------- ----------------
No. of Rooms: 1204 1204 1204 1204 1204
No. of Occupied Rooms: 333,990 333,990 333,990 333,990 333,990
Occupancy: 76.0% % of 76.0% % of 76.0% % of 76.0% % of 76.0% % of
Average Rate: $192.85 Gross $198.64 Gross $204.60 Gross $210.74 Gross $217.06 Gross
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE
Rooms $64,411 64.4% $66,343 64.4% $68,334 64.4% $70,384 64.4% $72,495 64.4%
Food 25,335 25.3 26,095 25.3 26,878 25.3 27,684 25.3 28,514 25.3
Beverage 5,429 5.4 5,592 5.4 5,760 5.4 5,932 5.4 6,110 5.4
Telephone 2,835 2.8 2,920 2.8 3,007 2.8 3,097 2.8 3,190 2.8
Minor Operating Dept 1,185 1.2 1,221 1.2 1,258 1.2 1,295 1.2 1,334 1.2
Rent & Other Income 881 0.9 908 0.9 935 0.9 963 0.9 992 0.9
Total 100,076 100.0 103,079 100.0 106,172 100.0 109,355 100.0 112,635 100.0
- -----------------------------------------------------------------------------------------------------------------------------
DEPARTMENTAL EXPENSES*
Rooms 13,425 20.8 13,827 20.8 14,242 20.8 14,670 20.8 15,110 20.8
Food & Beverage 18,399 59.8 18,951 59.8 19,520 59.8 20,105 59.8 20,708 59.8
Telephone 972 34.3 1,001 34.3 1,031 34.3 1,062 34.3 1,094 34.3
Total 32,796 32.8 33,779 32.8 34,793 32.8 35,837 32.8 36,912 32.8
- -----------------------------------------------------------------------------------------------------------------------------
DEPARTMENTAL INCOME 67,280 67.2 69,300 67.2 71,379 67.2 73,518 67.2 75,723 67.2
- -----------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Administrative & General 6,518 6.5 6,713 6.5 6,915 6.5 7,122 6.5 7,336 6.5
Management Fee 3,002 3.0 3,092 3.0 3,185 3.0 3,281 3.0 3,379 3.0
Marketing 5,432 5.4 5,595 5.4 5,762 5.4 5,935 5.4 6,113 5.4
Property Oper. & Maint 3,766 3.8 3,879 3.8 3,995 3.8 4,115 3.8 4,239 3.8
Energy 2,981 3.0 3,071 3.0 3,163 3.0 3,258 3.0 3,356 3.0
Total 21,699 21.7 22,350 21.7 23,020 21.7 23,711 21.7 24,423 21.7
- -----------------------------------------------------------------------------------------------------------------------------
HOUSE PROFIT 45,581 45.5 46,950 45.5 48,359 45.5 49,807 45.5 51,300 45.5
- -----------------------------------------------------------------------------------------------------------------------------
FIXED EXPENSES
Property and Sewer Taxes 9,245 9.2 9,522 9.2 9,808 9.2 10,102 9.2 10,405 9.2
Insurance 90 0.1 92 0.1 95 0.1 98 0.1 101 0.1
Reserve for Replacement 4,003 4.0 4,123 4.0 4,247 4.0 4,374 4.0 4,505 4.0
Ground Rent 3,687 3.7 4,598 4.5 4,736 4.5 5,420 5.0 5,582 5.0
Leases 451 0.5 465 0.5 478 0.5 493 0.5 508 0.5
Total 17,476 17.5 18,800 18.2 19,364 18.2 20,487 18.7 21,101 18.7
- -----------------------------------------------------------------------------------------------------------------------------
NET INCOME $28,105 28.1% $28,105 27.3% $28,995 27.3% $29,320 26.8% $30,199 26.8
=============================================================================================================================
*Departmental expense ratios are expressed as a percentage of departmental revenues
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
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HVS International, Mineola, New York Income Capitalization Approach 125
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The conversion of a property's projected net income into
an estimate of value is based on the premise that
investors typically purchase real estate with a small
amount of equity cash (25% to 40%) and a large amount of
mortgage financing (60% to 75%). The amounts and terms
of available mortgage financing and the rates of return
that are required to attract sufficient equity capital
form the basis for allocating the net income between the
mortgage and equity components and deriving a value
estimate.
Mortgage Component Data for the mortgage component may be developed from
statistics of actual hotel mortgages made by long-term
lenders. The American Council of Life Insurance, which
represents 20 large life insurance companies, publishes
quarterly information pertaining to the hotel mortgages
issued by its member companies. The following table
summarizes the average mortgage interest rates of the
hotel loans made by these lenders. In addition, the
average A corporate bond yield (as reported by Moody's
Bond Record) is shown for the purpose of comparison.
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HVS International, Mineola, New York Income Capitalization Approach 126
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================================================================================
Table 10-30 Average Mortgage Interest Rates and A Corporate Bond Yields
- --------------------------------------------------------------------------------
Average A
Average Corporate
Period Interest Rate Bond Yield
- --------------------------------------------------------------------------------
2nd Quarter 1997 8.85% 7.84%
1st Quarter 1997 8.25 7.71
4th Quarter 1996 9.49 7.54
3rd Quarter 1996 8.96 7.90
2nd Quarter 1996 8.82 7.93
1st Quarter 1996 7.79 7.37
4th Quarter 1995 8.44 7.28
3rd Quarter 1995 8.61 7.67
2nd Quarter 1995 9.25 7.87
1st Quarter 1995 9.14 8.50
3rd Quarter 1994 9.64 8.48
2nd Quarter 1994 9.38 8.28
4th Quarter 1993 9.38 7.80
3rd Quarter 1993 8.41 7.28
2nd Quarter 1993 10.53 9.65
4th Quarter 1992 9.43 8.48
3rd Quarter 1992 9.99 8.38
2nd Quarter 1992 9.47 8.79
1st Quarter 1992 10.02 8.81
4th Quarter 1991 10.49 8.97
3rd Quarter 1991 10.03 9.29
2nd Quarter 1991 10.75 9.45
3rd Quarter 1990 10.47 9.89
2nd Quarter 1990 10.58 9.83
4th Quarter 1989 9.96 9.42
3rd Quarter 1989 9.55 9.46
2nd Quarter 1989 10.54 9.93
1st Quarter 1989 10.39 10.16
4th Quarter 1988 10.07 10.03
3rd Quarter 1988 10.66 10.51
2nd Quarter 1988 10.09 10.33
4th Quarter 1987 10.41 10.45
3rd Quarter 1987 10.00 9.95
2nd Quarter 1987 9.81 9.46
1st Quarter 1987 9.43 9.19
4th Quarter 1986 9.44 9.55
3rd Quarter 1986 9.56 9.71
2nd Quarter 1986 9.80 9.91
1st Quarter 1986 10.99 10.62
Sources: American Council of Life Insurance; Moody's Bond Record
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HVS International, Mineola, New York Income Capitalization Approach 127
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Because of the six- to nine-month lag time in reporting
and publishing hotel mortgage statistics, it is
necessary to update this information to reflect current
lending practices. Research by HVS International
indicates that there is a close mathematical
relationship between the average interest rate of a
hotel mortgage and the concurrent yield on an average A
corporate bond. Through a regression analysis, this
relationship is expressed as follows.
Y = 2.773274 + 0.781144 X
Where: Y = Estimated Hotel/Motel Mortgage
Interest Rate
X = Current Average A Corporate Bond
Yield
(Coefficient of correlation is 96%)
The March 6, 1998 yield on average A bonds, as reported
by Moody's Bond Record, was 7.12%. Using a factor of
7.12% in the equation presented above produces an
estimated hotel/motel interest rate of 8.33%.
In addition to the mortgage interest rate estimate
derived from this regression analysis, HVS International
constantly monitors the terms of hotel mortgage loans
made by our institutional lending clients. In the past
year, we have noted an increase in the availability of
debt financing, and many lenders have returned to the
market. The current level of lending activity represents
a significant increase from the restricted environment
of the early 1990s. Nonetheless, the market for hotel
mortgage loans remains somewhat tight, particularly when
compared to the conditions that prevailed in the mid-to
late 1980s. In the current lending climate, strong hotel
projects that are structured on an economic basis can
secure mortgage financing at interest rates ranging from
8% to 11%, depending on the property, location,
affiliation, and operator.
In the 1980s, when hotel mortgages were widely
available, loan-to-value ratios typically ranged from
75% to 80%. Amortization schedules were generally based
on 30 years, although the term of the loan was more
likely to be seven to ten years. The few loans that were
underwritten in the early 1990s were based on far more
stringent parameters: loan-to-value ratios declined to a
range of 50% to 65%, and amortization periods of 20 to
25 years were most common.
With the recent reemergence of hotel financing,
loan-to-value requirements and amortization schedules
have loosened somewhat. At present, we find that lenders
who are active in the market are using loan-to-value
ratios of
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HVS International, Mineola, New York Income Capitalization Approach 128
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65% to 75%, and amortization periods of 25 to 30 years.
The exact terms offered depend on specific factors such
as the property's location, the age and quality of the
physical facility, local hostelry market conditions, and
(perhaps more significantly) the profile of the
borrower. The strongest projects typically command the
highest loan-to-value ratios.
Information pertaining to transactions that involved the
Hotel & Motel Brokers of America, an association of
active hotel sales agents, is summarized in a
publication entitled TransActions. The following table
presents HMBA data regarding first-mortgage hotel
financing.
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
Average First-Year
Interest 9.8% 9.1% 8.4% 9.0% 9.7%
Loan-to-Value Ratio 74 73 76 73 73
Based on the preceding analysis of the current lodging
industry mortgage market and adjustments for specific
factors such as the property's location and conditions
in the local hotel market, it is our opinion that a
25-year amortization mortgage with a 8.5% interest rate
and a 0.096627 constant is appropriate for the subject
property. We believe that a mortgage lender will lend up
to 70% of the hotel's market value as determined by this
appraisal.
Equity Component The remaining capital required for a hotel investment
generally comes from the equity investor. The rate of
return that an equity investor expects over a ten-year
holding period is known as the equity yield. Unlike the
equity dividend, which is a short-term rate of return,
the equity yield specifically considers a long-term
holding period (generally ten years), annual inflation-
adjusted cash flows, property appreciation, mortgage
amortization, and proceeds from a sale at the end of the
holding period.
It is difficult to quantify the rate of return required
by equity investors who are seeking to purchase hotel
properties. To establish an appropriate equity yield
rate, HVS International uses two sources of data: past
appraisals and investor interviews.
Past Appraisals - During the past 12 months, HVS
International has appraised more than 400 hotels,
including properties located in most major national
markets. Each appraisal used a similar mortgage-equity
approach in which income is projected and then
discounted to a current value at rates reflecting the
cost of debt and equity capital. In the case of hotels
that were sold subsequent to our valuations, we are able
to determine an appropriate
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HVS International, Mineola, New York Income Capitalization Approach 129
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equity yield rate by excluding incentive management fees
from the projection of income and expense, inserting the
projection into a valuation model, and adjusting the
appraised value to reflect the actual sales price by
modifying the return assumptions. The following table
shows a representative sample of hotels that were sold
shortly after we appraised them, along with the imputed
equity return based on our valuation approach.
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HVS International, Mineola, New York Income Capitalization Approach 130
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================================================================================
Table 10-31 Sample of Hotels Sold
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Overall Rate Based on
Net Operating Income
----------------------------
Total Stabil- Histor- Pro-
No. of Date Property Equity ized ical jected
Hotel City and State Rooms of Sale Sale Price Yield Year Year Year Year One
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Holiday Inn Binghamton, NY 250 12/85 $13,050,000 14.6% 20.3% 10.4% 5.1% 8.1%
La Costa Carlsbad, CA 482 7/87 250,000,000 8.7 5.6 7.9 -- 3.3
Beverly Wilshire Hotel Beverly Hills, CA 470 12/87 125,000,000 19.7 32.0 14.9 -- --
Ramada Kingston, NY 147 4/88 9,082,000 14.8 22.9 10.7 10.6 10.1
Mark Twain Hotel San Francisco, CA 116 4/88 6,500,000 17.3 28.9 12.2 -- 12.3
Holiday Inn Milford, CT 108 6/88 6,500,000 14.3 20.0 10.8 5.8 11.0
Holiday Inn - Civic Center San Francisco, CA 389 6/88 17,000,000 10.5 12.8 8.7 -- 7.9
Logan Hilton Boston, MA 557 7/88 29,000,000 15.3 21.8 10.8 -- 7.9
Raffles Hotel Denver, CO 486 7/88 25,000,000 14.3 19.4 11.9 15.2 9.8
Holiday Inn Airport Philadelphia, PA 307 7/88 15,034,000 14.5 21.5 9.8 -- 11.4
Hyatt Regency Chicago, IL 2,019 9/88 251,837,000 12.3 16.5 9.0 7.2 8.7
Wilmington Hilton Wilmington, DE 193 9/88 17,100,000 19.9 34.5 14.1 -- 13.6
Copley Plaza Boston, MA 397 12/88 56,000,000 13.2 17.7 10.1 4.0 5.8
J. W. Marriott Hotel Los Angeles, CA 375 1/89 85,000,000 19.5 36.2 14.7 -- 12.1
Stanford Court Hotel San Francisco, CA 402 1/89 92,000,000 15.7 19.7 10.3 -- --
New Orleans Marriott New Orleans, LA 1,329 3/89 129,000,000 17.1 28.9 11.9 10.8 11.9
Corning Hilton Corning, NY 174 4/89 6,000,000 20.9 37.1 14.5 14.2 13.8
Marriott Hotel Mission Valley, CA 350 7/89 46,891,000 16.0 24.6 11.4 -- 8.5
Marriott Hotel Annapolis, MD 132 11/89 16,000,000 17.6 31.4 15.5 -- 13.4
Back Bay Hilton Boston, MA 337 11/89 34,500,000 16.0 25.2 12.0 3.6 7.8
Hilton Concord, CA 333 11/89 20,000,000 20.2 35.5 16.5 -- 12.5
Parkside Plaza Hotel Walnut Creek, CA 329 12/89 16,200,000 15.0 20.3 12.1 -- 4.6
Cartwright Hotel San Francisco, CA 114 1/90 12,000,000 14.7 22.5 10.1 -- 9.5
Mariner Inn Easton, MD 80 2/90 2,200,000 21.2 38.4 14.5 18.1 14.5
Holiday Inn Foster City, CA 238 2/90 17,900,000 9.8 8.4 8.5 neg. 15.0
Hyatt Grand Champions Palm Springs, CA 344 3/90 65,760,000 19.6 33.7 14.0 -- 9.5
Westin Lennox Buckhead, GA 371 5/90 27,500,000 13.8 19.6 10.2 0.0 5.3
Sheraton Newport Beach, CA 338 7/90 30,000,000 17.0 28.0 12.0 -- 10.2
Henry VIII Hotel Bridgeton, MO 387 6/91 5,500,000 16.1 20.4 15.7 -- 0.0
Mt. Washington Hotel Bretton Woods, NH 157 8/91 3,150,000 22.7 27.6 31.7 -- 0.0
Hilton Hotel Breckenridge, CO 208 1/92 9,726,000 14.2 23.8 11.3 0.4 5.8
Guest Quarters Bethesda, MD 187 4/92 19,001,000 14.9 21.6 10.3 3.4 10.9
Omni Berkshire New York, NY 415 4/92 83,500,000 13.7 18.3 9.0 -- 6.7
Hampton Inn Bow, NH 114 6/92 3,850,000 17.3 25.5 10.8 10.5 10.7
Parc 51 New York, NY 178 6/92 42,000,000 11.8 14.1 8.0 neg. 4.0
Concourse Hotel Madison, WI 362 6/92 12,900,000 18.4 28.0 13.1 -- --
Mulberry Inn Savannah, GA 120 7/92 4,192,000 15.2 21.3 8.7 2.8 3.6
Omni Parker House Boston, MA 535 11/92 17,471,000 14.6 21.2 11.5 -- --
Radisson Lord Baltimore Baltimore, MD 440 12/92 8,490,000 18.0 27.2 12.9 neg. neg.
Westin Resort Vail, CO 290 12/92 21,200,000 12.9 17.3 8.3 -- 8.3
L'Ermitage Hotel Beverly Hills, CA 129 1/93 12,502,000 36.0 70.8 38.0 36.9 22.3
Marriott Hotel Stamford, CT 508 3/93 19,500,000 21.2 35.7 14.1 14.4 14.3
Hyatt Hotel Airport Atlanta, GA 400 4/93 19,994,000 10.7 11.7 8.0 neg. 3.8
Omni Hotel Norfolk, VA 442 4/93 9,994,000 30.0 63.5 26.4 -- 23.3
Radisson Pan American Miami, FL 146 5/93 7,000,000 12.0 17.1 8.3 7.3 9.4
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</TABLE>
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HVS International, Mineola, New York Income Capitalization Approach 131
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Table 10-31 Sample of Hotels Sold (continued)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Overall Rate Based on
Net Operating Income
----------------------------
Total Stabil- Histor- Pro-
No. of Date Property Equity ized ical jected
Hotel City and State Rooms of Sale Sale Price Yield Year Year Year Year One
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Airport Marriott Long Beach, CA 290 7/93 $10,500,000 18.5% 30.1% 14.7% -- 16.2%
Doubletree Hotel Salt Lake City, UT 381 7/93 25,060,000 16.5 26.5 10.4 7.9 7.1
Seven Peaks Excelsior Provo, UT 232 8/93 6,448,000 15.3 20.7 8.7 -- 8.7
Omni Chicago Chicago, IL 347 9/93 31,250,000 14.3 20.4 8.5 4.4 6.0
Hyatt Regency Waikoloa, HI 1,241 11/93 52,004,000 36.0 64.8 32.0 -- 10.7
Sir Francis Drake San Francisco, CA 417 12/93 28,107,000 16.9 25.6 7.7 -- 8.8
Ritz-Carlton Phoenix, AZ 281 2/94 23,000,000 14.6 21.7 11.0 6.2 10.2
Marriott Marina Fort Lauderdale, FL 580 2/94 40,000,000 16.4 26.7 12.2 -- 12.2
Holiday Inn Edison, NJ 274 3/94 11,803,000 17.0 26.3 7.8 4.1 9.3
Crescent Hotel Phoenix, AZ 342 3/94 26,000,000 7.2 2.2 6.5 0.0 6.1
Checkers Hotel Kempinski Los Angeles, CA 173 4/94 12,750,000 18.3 27.0 3.0 -- 4.0
Best Western Fireside Inn Cambria, CA 46 4/94 3,377,000 15.8 24.3 11.7 -- 12.7
Phoenician Resort Phoenix, AZ 580 4/94 224,000,000 9.3 8.9 6.6 1.3 5.2
Newark-Fremont Hilton Newark, CA 300 5/94 8,950,000 14.9 20.7 8.8 8.4 9.9
Radisson Inn Orlando, FL 299 5/94 11,150,000 18.0 28.2 12.9 8.3 9.8
Westin Kauai Lihue, Kauai, HI 840 6/94 97,400,000 8.1 7.2 (1.9) -- 0.0
Residence Inn Binghamton, NY 72 6/94 6,325,000 13.9 21.9 10.8 11.3 11.0
Hotel Millenium New York, NY 561 6/94 75,000,000 14.1 23.0 9.5 7.3 9.2
Best Western Otay Valley Chula Vista, CA 120 7/94 2,350,000 21.1 31.8 13.2 -- 13.2
Hampton Inn Islandia, NY 121 7/94 6,572,000 16.6 28.2 12.6 10.1 12.2
Hampton Inn Willow Grove, PA 150 7/94 10,220,000 14.3 23.0 11.0 10.3 11.6
Hampton Inn West Palm Beach, FL 136 7/94 4,220,000 10.8 14.3 10.8 -- 9.9
Hampton Inn Naples, FL 107 7/94 5,700,000 11.5 24.9 11.4 -- 12.3
Hampton Inn Albany, NY 126 7/94 9,204,000 11.5 15.8 9.3 -- --
Marriott Hotel South Bend, IN 299 7/94 11,500,000 13.2 18.9 10.5 6.5 10.8
Marriott SFO Burlingame, CA 684 8/94 61,700,000 13.2 19.0 10.2 -- --
Westfields Conference Center Chantilly, VA 340 8/94 46,000,000 15.9 25.3 12.3 8.0 10.2
Radisson Mark Resort Vail, CO 349 9/94 25,200,000 15.8 24.1 8.9 -- --
Marriott East Side New York, NY 664 10/94 55,000,000 9.7 11.1 8.5 6.5 6.4
Marriott Resort Vail, CO 349 10/94 25,200,000 18.9 30.5 14.2 -- 8.4
Marriott Quorum Addison, TX 547 10/94 29,815,000 18.2 31.8 13.5 12.9 14.2
Sheraton Hotel Hasbrouck Heights, NJ 338 11/94 10,450,000 21.1 30.7 18.3 0.3 4.2
Sheraton Inn Napa, CA 191 12/94 9,968,000 13.7 19.8 8.9 -- 7.8
Marriott Fisherman's Wharf San Francisco, CA 255 12/94 27,755,000 13.4 19.4 10.8 -- --
Marriott Hotel Portland, OR 503 12/94 45,000,000 17.4 30.0 12.9 0.8 14.2
Radisson Inn Springfield, MO 199 12/94 5,800,000 10.1 11.3 8.2 6.5 9.5
Williamsburg Hilton Williamsburg, VA 291 12/94 15,000,000 19.0 32.0 15.4 9.8 9.9
Marriott Tech Center Denver, CO 625 12/94 36,000,000 16.4 27.1 13.7 -- 10.1
Holiday Inn Sunspree Singer Island, FL 222 12/94 11,900,000 10.6 12.4 8.6 -- 7.7
Le Meridien Hotel Chicago, IL 246 2/95 41,000,000 12.3 17.2 8.9 2.1 5.3
Holiday Inn Crowne Plaza Rockville, MD 315 3/95 26,750,000 12.2 16.5 9.2 5.6 6.5
Savoy Hotel San Francisco, CA 83 3/95 5,100,000 14.4 19.6 -- -- 5.8
Fullerton Suites Fullerton, CA 96 5/95 5,000,000 18.7 28.5 12.9 -- --
Hyatt Regency Beaver Creek Avon, CO 295 5/95 40,000,000 16.4 26.0 12.5 -- 11.4
Walnut Creek Marriott Walnut Creek, CA 338 5/95 15,000,000 21.5 35.5 15.7 -- 15.4
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</TABLE>
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HVS International, Mineola, New York Income Capitalization Approach 132
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Table 10-31 Sample of Hotels Sold (continued)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Overall Rate Based on
Net Operating Income
----------------------------
Total Stabil- Histor- Pro-
No. of Date Property Equity ized ical jected
Hotel City and State Rooms of Sale Sale Price Yield Year Year Year Year One
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sheraton Denver Tech Center Denver, CO 625 5/95 $40,000,000 16.2% 25.6% 12.3% -- 9.1%
The Plaza New York, NY 805 6/95 325,000,000 11.0 14.0 7.0 -- --
Holiday Inn - Airport East Phoenix, AZ 301 6/95 17,000,000 18.1 28.8 13.8 -- 14.6
Residence Inn Baton Rouge, LA 80 6/95 6,518,000 14.8 21.2 12.7 -- --
Residence Inn Overland Park, KS 112 6/95 8,500,000 14.7 20.8 8.9 -- --
Residence Inn Des Moines, IA 112 6/95 7,660,000 14.1 19.6 9.8 -- --
Residence Inn Hunt Valley, MD 96 6/95 6,580,000 13.6 18.3 12.3 -- --
Residence Inn Kansas City, MO 112 6/95 6,560,000 13.2 19.8 10.4 -- --
Residence Inn Lincoln, NE 120 6/95 7,100,000 13.7 18.5 10.0 -- --
DFW Marriott Irving, TX 491 7/95 44,000,000 15.3 24.6 11.3 12.1 12.6
High Mesa Inn Sante Fe, NM 211 9/95 11,200,000 17.7 30.4 13.1 -- 13.6
Radisson Hotel Agoura Hills Agoura Hills, CA 281 9/95 12,100,000 8.1 6.2 8.0 4.0 9.6
Residence Inn - Perimeter West Atlanta, GA 120 10/95 11,650,000 10.0 10.2 8.6 -- 9.6
Terrace Garden Inn Atlanta, GA 368 10/95 27,900,000 16.0 26.1 12.2 8.5 11.2
Holiday Inn - Northwest Plaza Austin, TX 193 10/95 13,170,000 15.8 26.0 12.0 13.9 13.6
Holiday Inn San Angelo, TX 148 10/95 6,500,000 17.4 29.0 13.6 11.2 11.7
Radisson Hotel and Suites Dallas, TX 198 10/95 11,350,000 16.0 25.8 12.5 5.1 8.2
Radisson Hotel New Orleans, LA 759 10/95 49,500,000 14.8 23.1 10.9 10.6 10.1
Bourbon Orleans New Orleans, LA 211 10/95 30,000,000 15.8 25.5 11.7 9.2 11.8
Holiday Inn Select Farmer's Branch, TX 374 10/95 21,500,000 16.9 27.4 13.4 9.8 10.3
Peachtree Exec. Conf. Ctr Peachtree City, GA 250 10/95 37,500,000 17.2 28.2 13.6 10.8 12.4
Hampton Inn Rochester, NY 113 10/95 8,160,300 14.5 22.5 11.4 11.0 11.3
Radisson Suite Hotel Houston, TX 173 10/95 13,350,000 11.8 15.9 9.7 8.8 9.0
Embassy Suites Hunt Valley Hunt Valley, MD 223 11/95 15,650,000 15.4 24.5 11.9 10.96 11.7
Westin Bonaventure Los Angeles, CA 1368 12/95 50,000,000 17.8 24.2 -- -- 1.9
Embassy Suites Schaumburg, IL 209 12/95 17,800,000 13.5 18.9 10.0 -- --
Marriott Hotel Andover, MA 293 12/95 24,000,000 13.5 19.2 9.7 7.4 10.2
Doubletree Suites Valley Forge, PA 229 12/95 28,500,000 15.5 10.7 14.2 7.7 10.4
Marriott Hotel Tysons Corner, VA 390 12/95 41,100,000 13.1 18.0 10.7 8.2 8.9
Marriott Hotel Warner Center, CA 461 12/95 57,900,000 11.6 14.2 6.2 -- --
Hilton at the Club Pleasanton, CA 294 12/95 22,000,000 10.5 17.0 10.5 -- --
Ft. Lauderdale Airport Hilton Dania, FL 388 12/95 14,792,000 22.2 36.8 16.7 -- 14.5
Crowne Plaza Ravina Atlanta, GA 495 12/95 44,000,000 17.1 29.2 13.4 17.4 14.4
Embassy Suites Lompoc, CA 156 2/96 7,700,000 16.7 25.8 -- -- 12.8
Hilton Hotel Del Mar, CA 245 3/96 14,450,000 18.4 31.7 -- -- 12.6
Holiday Inn Lenox Atlanta, GA 297 3/96 11,188,000 18.9 31.6 13.9 24.3 11.9
Hyatt Newporter Newport Beach, CA 410 4/96 17,450,000 19.4 33.6 -- -- 17.0
Park Plaza Suites Seattle, WA 194 4/96 26,000,000 14.6 22.6 11.4 9.9 10.4
Westcoast Gateway Hotel Sea-Tac, WA 145 4/96 11,218,164 13.8 20.8 10.9 8.1 9.1
Westcoast Wenatchee Ctr. Hotel Wenatchee, WA 147 4/96 7,680,000 11.2 14.1 9.7 5.7 4.7
Westcoast Roosevelt Hotel Seattle, WA 151 4/96 15,900,000 14.6 22.9 11.2 10.8 12.2
West Coast Hotel Long Beach, CA 192 4/96 3,300,000 13.4 18.6 -- -- 1.8
Hyatt Regency Lexington Lexington, KY 365 5/96 14,000,000 17.2 28.9 13.4 11.8 12.8
Los Angeles Biltmore Los Anglels, CA 683 6/96 61,000,000 13.4 17.4 -- -- 4.9
The Copley Plaza Boston, MA 373 6/96 65,000,000 9.9 11.7 8.5 6.6 8.3
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Table 10-31 Sample of Hotels Sold (continued)
<TABLE>
<CAPTION>
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Overall Rate Based on
Net Operating Income
---------------------------
Total Stabil- Histor- Pro-
No. of Date Property Equity ized ical jected
Hotel City and State Rooms of Sale Sale Price Yield Year Year Year Year One
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Doubletree Hotel Denver/Boulder Westminster, CO 180 6/96 $12,039,000 14.5% 22.5% 11.2% 9.0% neg.
Wyndham Midtown Atlanta Atlanta, GA 191 7/96 65,000,000 9.9 11.7 8.5 6.6 8.3%
Wyndham Greenspoint Houston, TX 472 7/96 44,000,000 14.4 22.2 11.3 9.1 10.8
Doubletree Horton Plaza San Diego, CA 450 8/96 46,500,000 12.1 18.5 -- -- 9.5
Doubletree LAX Los Angeles, CA 720 8/96 34,000,000 16.4 29.8 -- -- 10.5
Arlington Park Hilton Arlington Heights, IL 421 8/96 13,000,000 15.2 28.9 10.8 0.0 15.0
Radisson Marque Winston-Salem, NC 293 8/96 7,500,000 13.5 20.4 11.9 5.3 5.5
Ritz-Carlton Kansas City, MO 373 8/96 42,500,000 10.9 14.9 8.7 7.1 8.2
Ritz-Carlton Philadelphia, PA 290 8/96 34,000,000 13.8 22.8 10.0 5.1 9.7
Hotel Park Tucson Tucson, AZ 216 8/96 11,000,000 12.3 18.3 10.2 5.4 7.0
Embassy Suites Hotel Palm Desert, CA 198 8/96 14,000,000 13.8 22.8 10.7 7.2 10.1
Sheraton Ft. Lauderdale Airport Dania, FL 250 8/96 22,000,000 9.0 9.1 7.8 4.7 7.3
Doubletree Hotel Atlanta, GA 370 8/96 52,000,000 10.6 14.2 9.1 7.0 8.8
The Marque of Atlanta Atlanta, GA 274 8/96 23,000,000 14.8 25.7 11.5 9.6 10.9
Doubletree Grand Hotel Bloomington, MN 321 8/96 37,000,000 13.3 22.0 10.3 9.9 11.3
Sheraton Minneapolis Metrodome Minneapolis, MN 252 8/96 18,000,000 13.1 21.5 10.2 8.9 11.2
Sheraton Needham Needham, MA 247 8/96 20,000,000 15.0 26.8 11.4 8.4 12.5
Westin Hotel Waltham, MA 346 8/96 41,000,000 13.5 20.8 10.2 6.4 10.8
Embassy Suites St. Louis, MO 297 8/96 20,000,000 14.7 25.3 11.4 7.7 10.2
Valley River Inn Eugene, OR 257 8/96 18,750,000 14.5 21.8 11.3 9.2 10.0
Marriott Wind Watch Islip, NY 360 9/96 30,200,000 13.4 20.4 10.6 7.8 11.3
Allentown Hilton Allentown, PA 224 10/96 7,500,000 12.2 18.9 9.7 8.5 10.0
Summer House Inn La Jolla, CA 90 10/96 8,600,000 13.5 19.3 -- -- 8.8
Mayfair Suites St. Louis, MO 184 10/96 8,600,000 17.7 28.7 15.1 0.5 8.5
Howard Johnson Pickwick San Francisco, CA 189 10/96 14,750,000 10.9 12.5 -- -- 7.3
Doubletree at Allen Center Houston, TX 341 11/96 27,550,000 13.0 18.8 10.3 5.9 7.0
Tutwiler Birmingham, AL 147 11/96 11,000,000 19.1 33.0 14.8 11.0 12.6
Doubletree Downtown Tulsa, OK 417 12/96 22,405,000 13.6 20.1 10.8 7.5 10.0
Hollywood Palm Hollywood, CA 153 12/96 5,330,000 13.8 20.5 -- -- 5.0
Westwood Marquis Los Angeles, CA 257 1/97 35,000,000 12.2 15.1 -- -- 2.6
Grand Hyatt Hotel San Francisco, CA 687 1/97 126,000,000 11.2 15.0 -- -- 7.8
Hotel Inter-Continental Los Angeles, CA 433 1/97 38,000,000 13.4 18.3 -- -- 6.4
Marriott's Casa Marina Resort Key West, FL 311 1/97 62,800,000 12.6 18.3 9.7 9.8 9.2
Radisson Hotel & Conf. Center Northbrook, IL 310 1/97 15,250,000 13.9 20.7 11.1 9.0 9.1
The Boulders Carefree, AZ 160 1/97 83,353,416 17.8 30.5 12.9 9.6 11.9
Radisson Hotel Overland Park Overland Park, KS 190 1/97 7,650,000 16.8 26.2 14.2 8.4 7.2
Hotel Nikko Atlanta, GA 439 2/97 89,000,000 13.6 20.1 13.6 8.1 10.4
Union Station Hotel Nashville, TN 124 3/97 9,600,000 13.9 20.8 11.0 2.2 7.9
Doubletree Guest Suites Minneapolis, MN 230 3/97 18,500,000 18.0 29.2 13.5 7.4 9.0
Myrtle Beach Hilton Myrtle Beach, SC 385 4/97 35,000,000 13.7 20.6 11.5 7.6 8.3
Sheraton Park Place St. Louis Park, MN 297 4/97 17,000,000 18.3 30.4 14.5 7.6 8.3
Ambassador West Chicago, IL 219 7/97 15,750,000 13.4 20.1 10.7 7.2 9.5
Ramada Hotel SFO So. San Francisco 175 7/97 17,000,000 13.6 20.0 -- -- 7.7
Holiday Inn SFO So. San Francisco 224 7/97 19,500,000 14.2 22.8 -- -- 11.7
Source: HVS International
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Investor Interviews - HVS International is in constant
contact with numerous institutional and individual hotel
investors. This source of equity funds has definite
return requirements that can be expressed as an equity
yield rate based on a ten-year projection of net income
before incentive management fees but after debt service.
Based on our surveys and investor interviews, the
following table illustrates the range of equity yields
generally required by individual and institutional
investors.
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Table 10-32 Equity Yield Requirements
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Source Equity Yield Requirement
------ ------------------------
Individual 20% - 24%
Institution 18% - 22%
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Based on the assumed 70% loan-to-value ratio, the risk
inherent in achieving the projected income stream, and
the age, condition, and anticipated market position of
the subject property, it is our opinion that an equity
investor is likely to require an equity yield rate of
18.0% before payment of incentive management fees. This
estimate is well supported by the equity yield
requirements presented previously.
Terminal Inherent in this valuation process is the assumption of
Capitalization Rate a sale at the end of the ten-year holding period. The
estimated reversionary sales price as of that date is
calculated by capitalizing the projected 11th-year net
income by an overall terminal capitalization rate. A
percentage for the seller's brokerage and legal fees is
deducted from this sales price, and the net proceeds to
the equity interest (also known as the equity residual)
are calculated by deducting the outstanding mortgage
balance from the reversion.
The terminal capitalization rate, which is used to
reflect what a potential purchaser would be willing to
pay for the property at that point of time, should bear
some relationship to the going-in rate, which is the
rate that equates the stabilized year's net income to
the property's appraised value or purchase price. Based
on the sample of hotel sales presented earlier, the 1996
and 1997 transactions indicate that a majority of the
overall going-in rates (based on the net operating
income as of the stabilized year) ranged from 9% to 11%.
Because this overall rate will be used to capitalize net
income ten years from the date of value, an upward
adjustment is appropriate to reflect the uncertainty
inherent in this extended period. For the purpose of
this valuation, we will use a terminal capitalization
rate of 10.5%.
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Summary of The following table summarizes the variables that have
Valuation Variables been used to estimate the subject property's value via
the income capitalization approach.
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Table 10-33 Summary of Valuation Variables
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Annual Net Income NI See Forecast
Loan-to-Value Ratio M 70.0%
Interest Rate i 8.5%
Debt Service Constant f 0.096627
Equity Yield Ye 18.0%
Brokerage and Legal Fees b 2.0%
Annual Constant Required to
Amortize the Loan in Ten Years fp 0.148783
Terminal Capitalization Rate Rr 10.5%
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Valuation of the The valuation of the mortgage and equity components is
Mortgage and accomplished through use of an algebraic equation that
Equity Components calculates the exact amount of debt and equity that the
hotel will be able to support based on the anticipated
cash flow (as derived from the forecast of income and
expense) and the specific return requirements demanded
by the mortgage lender (interest) and the equity
investor (equity yield). The equation and the
calculations associated with this simultaneous valuation
formula are set forth in the addenda to this report.
Using the variables summarized above, we estimate the
value of the subject property at roundly $247,122,000
via the income capitalization approach.
Proof of Value The value is proven by calculating the yields to the
mortgage and equity components during the projection
period. If the mortgagee achieves an 8.5% yield and the
equity yield is 18.0%, then $247,122,000 is the correct
value by the income capitalization approach. Using the
assumed financial structure set forth in the previous
calculations, market value can be allocated between the
debt and equity as follows.
Mortgage Component (70%) $172,986,000
Equity Component (30%) 74,137,000
------------
Total $247,122,000
The annual debt service is calculated by multiplying the
mortgage component by the mortgage constant.
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Mortgage Component $172,986,000
Mortgage Constant 0.096627
------------
Annual Debt Service $16,715,161
The cash flow to equity is calculated by deducting the
debt service from the projected net income before debt
service.
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Table 10-34 Forecast of Net Income to Equity
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Net Income
Available for Net Income
Year Debt Service Debt Service to Equity
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1998 $25,181,000 - $16,715,000 = $8,466,000
1999 25,831,000 - 16,715,000 = 9,116,000
2000 26,013,000 - 16,715,000 = 9,298,000
2001 26,795,000 - 16,715,000 = 10,080,000
2002 27,287,000 - 16,715,000 = 10,572,000
2003 28,105,000 - 16,715,000 = 11,390,000
2004 28,150,000 - 16,715,000 = 11,435,000
2005 28,995,000 - 16,715,000 = 12,280,000
2006 29,320,000 - 16,715,000 = 12,605,000
2007 30,199,000 - 16,715,000 = 13,484,000
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The equity residual at the end of the tenth year is
calculated as follows.
Reversionary Value ($31,105,000 / 0.105) $296,238,000
Less: Brokerage and Legal Fees 5,925,000
Less: Mortgage Balance 141,451,000
------------
Net Sale Proceeds to Equity $148,862,000
The overall property yield (before debt service), the
yield to the lender, and the yield to the equity
position have been calculated by computer, with the
following results.
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Table 10-35 Overall Property Yields
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Projected Yield
(Internal Rate of Return)
Position Value Over 10-Year Holding Period
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Total Property $247,122,000 12.0%
Mortgage 172,986,000 8.5
Equity 74,137,000 18.0
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Note: Whereas the mortgage constant and value are calculated on the basis of
monthly mortgage payments, the mortgage yield in this proof assumes single
annual payments. As a result, the proof's derived yield may be slightly
less than that actually input.
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The following tables demonstrate that the property
receives its anticipated yields, proving that the
$247,122,000 value is correct based on the assumptions
used in this approach.
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Table 10-36 Total Property Yield
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Net Income Before Present Worth of $1 Discounted
Year Debt Service Factor at 12.0% Cash Flow
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1998 $25,181,000 x 0.893162 = $22,491,000
1999 25,831,000 x 0.797738 = 20,606,000
2000 26,013,000 x 0.712508 = 18,534,000
2001 26,795,000 x 0.636385 = 17,052,000
2002 27,287,000 x 0.568395 = 15,510,000
2003 28,105,000 x 0.507668 = 14,268,000
2004 28,150,000 x 0.453430 = 12,764,000
2005 28,995,000 x 0.404986 = 11,743,000
2006 29,320,000 x 0.361718 = 10,606,000
2007 320,512,000* x 0.323073 = 103,549,000
------------
Total Property Value $247,123,000
*Tenth-year net income of $30,199,000 plus sales proceeds of $290,313,000
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Table 10-37 Mortgage Component Yield
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Present Worth of $1 Discounted
Year Debt Service Factor at 8.5% Cash Flow
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1998 $16,715,000 x 0.922256 = $15,416,000
1999 16,715,000 x 0.850557 = 14,217,000
2000 16,715,000 x 0.784431 = 13,112,000
2001 16,715,000 x 0.723447 = 12,092,000
2002 16,715,000 x 0.667203 = 11,152,000
2003 16,715,000 x 0.615333 = 10,285,000
2004 16,715,000 x 0.567494 = 9,486,000
2005 16,715,000 x 0.523375 = 8,748,000
2006 16,715,000 x 0.482686 = 8,068,000
2007 158,166,000* x 0.445160 = 70,409,000
------------
Value of the Mortgage Component $172,985,000
*Tenth-year debt service of $16,715,000 plus
outstanding mortgage balance of $141,451,000
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Table 10-38 Equity Component Yield
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Net Income Present Worth of $1 Discounted
Year to Equity Factor at 18.0% Cash Flow
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1998 $8,466,000 x 0.847457 = $7,175,000
1999 9,116,000 x 0.718183 = 6,547,000
2000 9,298,000 x 0.608629 = 5,659,000
2001 10,080,000 x 0.515786 = 5,199,000
2002 10,572,000 x 0.437107 = 4,621,000
2003 11,390,000 x 0.370429 = 4,219,000
2004 11,435,000 x 0.313922 = 3,590,000
2005 12,280,000 x 0.266036 = 3,267,000
2006 12,605,000 x 0.225454 = 2,842,000
2007 162,346,000* x 0.191062 = 31,018,000
-----------
Value of the Equity Componet $74,137,000
*Tenth-year net income to equity of $13,484,000 plus
sales proceeds of $148,862,000
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Valuation Method Two: The total property yield derived from the previous
Discounted Cash Flow valuation method was 12.0%. After reviewing the total
property yields indicated by recent hotel sales, it is
our opinion that a 12.5% discount factor is appropriate
for the Sheraton Chicago Hotels & Towers. The following
table illustrates the discounted cash flow analysis
using this 12.5% factor.
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Table 10-39 Discounted Cash Flow Analysis
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Discount
Net Factor Discounted
Year Income at 12.5% Cash Flow
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1998 $25,181,000 x 0.888889 = $22,383,111
1999 25,831,000 x 0.790123 = 20,409,679
2000 26,013,000 x 0.702332 = 18,269,761
2001 26,795,000 x 0.624295 = 16,727,987
2002 27,287,000 x 0.554929 = 15,142,346
2003 28,105,000 x 0.493270 = 13,863,359
2004 28,150,000 x 0.438462 = 12,342,716
2005 28,995,000 x 0.389744 = 11,300,637
2006 29,320,000 x 0.346439 = 10,157,604
2007 320,512,333 * x 0.307946 = 98,700,538
-------------
Estimated Market Value $239,297,738
(Say) $239,300,000
Reversion Analysis
11th-Year Net Income $31,105,000
Capitalization Rate 10.5%
-------------
Total Sales Proceeds $296,238,095
Less: Brokerage & Legal Fees at 2.0% 5,924,762
-------------
Net Sales Proceeds $290,313,333
*Tenth-year net income of $30,199,000 plus net sales proceeds of $290,313,333
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Conclusion Based on our extensive experience in the hotel industry
and comprehensive support provided by literature
published by the Appraisal Institute, it is our opinion
that the valuation procedure embodied by Method One most
closely reflects the investment rationale of typical
hotel buyers. As stated in the textbook entitled Hotels
and Motels: A Guide to Market Analysis, Investment
Analysis and Valuations,(1) Method Two (which discounts
the projected net income and reversion using an overall
discount rate, or total property yield) "does not
consider the impact of mortgage debt, leverage and the
specific equity demands of typical hotel
investors...This technique is simple but less reliable
because the derivation of the discount rate has little
support." In light of this consideration, we have relied
on the $247,122,000 value conclusion indicated by Method
One.
(1) Hotels and Motels: A Guide to Market Analysis,
Investment Analysis, and Valuations, Stephen Rushmore,
Appraisal Institute, Chicago, IL, 1992, p. 236.
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11. Sales Comparison Approach
The sales comparison approach is based on the assumption
that an informed purchaser will pay no more for a
property than the cost to acquire an existing property
with equal utility. This approach estimates market value
by comparing the sales prices indicated by recent
transactions involving properties that are similar to
the property being appraised. Dissimilarities are
resolved with appropriate adjustments; these differences
may pertain to the date of sale, age, location,
construction, condition, layout, equipment, size, or
external economic factors. The reliability of the sales
comparison approach depends on three factors:
1. the availability of timely, comparable sales data;
2. an understanding of the true terms of the sales
and the motivation of the buyers and sellers;
3. the degree of comparability, or the extent of the
adjustments needed to reflect differences between
the subject property and the comparable property.
In appraising lodging facilities, it is often difficult
to find an adequate number of recent sales involving
hotels that are truly comparable to the subject
property. Consequently, it may be necessary to consider
transactions involving properties in different market
areas, and the required adjustments greatly diminish the
reliability of the conclusions. As a result of these
shortcomings, the use of the sales comparison approach
in valuing hotels is primarily as a check against the
value indicated by the income capitalization approach.
Comparable Sales Based on information provided by the Hospitality Market
Data Exchange and compiled by the six offices of HVS
International, the following local transactions involved
hotels that appear to have some degree of comparability
to the subject property. As a result of the subject
property's unique facilities, market segmentation, and
metropolitan location, we have also
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reviewed national sales that have some degree of
comparability; these are presented following the local
sales.
Local Sales Sale #1:
Property: Swissotel
Location: 323 East Wacker Drive,
Chicago, Illinois
Date of Sale: August, 1997
Sales Price: $113,000,000
Est. 1996 Occupancy: 66%
Est. 1996 Average Rate: $128.00
Grantor: American National Bank &
Trust
Grantee: BRE/Swiss LLC
Year Opened: 1986
Number of Rooms: 630
Price per Room: $179,365
Comments: This hotel was purchased as
part of a package that also
included Swissotels in
Atlanta, New York, and
Boston.
Sale #2:
Property: Raphael Hotel
Location: 201 East Delaware Place,
Chicago, Illinois
Date of Sale: May, 1997
Sales Price: $17,750,000
Grantor: Koar Raphael Group
(Pistilli)
Grantee: Starwood Lodging
Year Opened: 1925
Est. 1996 Occupancy: 66%
Est. 1996 Average Rate: $128.00
Number of Rooms: 172
Price per Room: $103,198
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Local Sales Sale #3:
Property: Tremont Hotel
Location: 100 Chestnut Street,
Chicago, Illinois
Date of Sale: April, 1997
Sales Price: $14,400,000
Grantor: Morgan Stanley
Grantee: Starwood Lodging
Year Opened: 1928
Est. 1996 Occupancy: 63%
Est. 1996 Average Rate: $140.00
Number of Rooms: 129
Price per Room: $111,628
Comments: This hotel was purchased in
1994 for $59,843 per room,
representing a 23% annual
appreciation from 1994 to
1997.
Sale #4:
Property: Embassy Suites
Location: 600 North State Street,
Chicago, Illinois
Date of Sale: February, 1997
Sales Price: $67,200,000
Grantor: Koar-Shaw Chicago Investment
Grantee: Interstate Hotels
Year Opened: 1991
Est. 1996 Occupancy: 82%
Est. 1996 Average Rate: $159.00
Number of Rooms: 358
Price per Room: $187,709
Sale #5:
Property: Days Inn
Location: Chicago, Illinois
Date of Sale: February, 1997
Sales Price: $48,000,000
Grantor: Unknown
Grantee: Starwood Lodging
Number of Rooms: 578
Price per Room: $83,045
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Sale #6:
Property: Allerton Hotel
Location: Chicago, Illinois
Date of Sale: January, 1997
Sales Price: $35,000,000
Grantor: Allerton Hotel Partnership
Grantee: Bristol Hotel Company
Number of Rooms: 383
Price per Room: $91,384
Comments: Following completion of a
major renovation, the hotel
will be converted to the
Chicago Crowne Plaza.
Sale #7:
Property: Drake Hotel
Location: Chicago, Illinois
Date of Sale: September, 1996
Sales Price: $40,000,000
Grantor: Jupiter Industries
Grantee: Ladbroke Group PLC
Number of Rooms: 535
Price per Room: $74,766
Sale #8:
Property: Oakbrook Hills Hotel and
Resort
Location: Oakbrook, Illinois
Date of Sale: July, 1996
Sales Price: $51,300,000
Grantor: Dial Corporation
Grantee: Lowe Enterprises
Number of Rooms: 382
Price per Room: $134,293
Comments: The resort includes an
18-hole golf course and
roughly 35,000 square feet
of meeting space. At the
time of sale, Lowe
Enterprises planned to
invest $13,000,000 over five
years in a capital
improvement plan.
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Sale #9:
Property: Embassy Suites
Location: Deerfield, Illinois
Date of Sale: June, 1996
Sales Price: $23,000,000
Grantor: Deerfield Hotel, LP
Grantee: Felcor Suite Hotels
Number of Rooms: 237
Price per Room: $97,046
Sale #10:
Property: Midland Hotel
Location: Chicago, Illinois
Date of Sale: May, 1996
Sales Price: $21,000,000
Grantor: Mrs. Pekow
Grantee: Starwood Lodging
Year Opened: 1929
Number of Rooms: 257
Price per Room: $81,712
Comments: This property is part of a
mixed-use building; the
hotel occupies the first
through 12th floors, and
office space is located on
the 14th through 22nd floors
(there is no 13th floor).
The total sales price
included 92,000 square feet
of commercial office space.
Sale #11:
Property: Regal Knickerbocker Hotel
Location: Chicago, Illinois
Date of Sale: December, 1995
Sales Price: $27,000,000
Grantor: KB Holdings Corp.
Grantee: Chicago Hotel Holdings, Inc.
Number of Rooms: 250
Price per Room: $108,000
Comments: This underwent a substantial
renovation in the early
1990s following its purchase
by KB
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Holdings, and its operating
results have improved since
that time.
Sale #12:
Property: Embassy Suites
Location: Schaumburg, Illinois
Date of Sale: December, 1995
Sales Price: $16,512,000
Grantor: Unknown
Grantee: Unknown
Number of Rooms: 209
Price per Room: $79,005
Sale #13:
Property: Le Meridian Hotel
Location: Chicago, Illinois
Date of Sale: February, 1995
Sales Price: $41,000,000
Grantor: Cassise Central (lender)
Grantee: Sutton Place/Grand Hotel
Company
Number of Rooms: 247
Price per Room: $165,992
Comments: Now known as the Sutton
Place Hotel.
National Sales Sale #1:
Property: Hyatt Regency New Orleans
Location: Poydras PLZ & Loyola Avenue,
New Orleans, Louisiana
Date of Sale: November, 1997
Sales Price: $259,177,600
Grantor: Prudential Insurance
Grantee: Strategic Hotel Capital
Number of Rooms: 1,184
Price per Room: $218,900
Confirmed by: Prudential Insurance
Comments: This sale was part of a
package of five hotels. The
price represents an
allocation based on room
count.
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HVS International, Mineola, New York Sales Comparison Approach 146
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Sale #2:
Property: Hotel Nikko
Location: Atlanta, Georgia
Date of Sale: February, 1997
Sales Price: $89,000,000
Grantor: JDC Group - Prudential Joint
Venture
Grantee: Hyatt Hotels Corporation
Number of Rooms: 439
Price per Room: $202,733
Est. 1996 Occupancy: 79%
Est. 1996 Average Rate: $149.00
Comments: Following the sale, this
hotel was converted to a
Hyatt Regency.
Sale #3:
Property: Grand Hyatt
Location: San Francisco, California
Date of Sale: January, 1997
Sales Price: $126,000,000
Grantor: Union Square Hotel Partners,
LP (Lehman Bros.)
Grantee: Hyatt Hotels Corporation
Number of Rooms: 687
Price per Room: $183,406
Comments: This property is located in
the Union Square district of
San Francisco, a popular
shopping destination. The
hotel opened in 1973, and
consists of a 36-story tower
with basement meeting space
and an adjoining low-rise
building housing food and
beverage outlets, retail
space, and an exercise
facility. The hotel
underwent a $20,000,000
renovation in 1990 and was
reported to be in good
condition at the time of
sale. The property is
encumbered by a long-term
management contract with
Hyatt Hotels.
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HVS International, Mineola, New York Sales Comparison Approach 147
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Sale #4
Property: Marriott Financial Center
Location: New York, New York
Date of Sale: December, 1996
Sales Price: $101,000,000
Grantor: Swiss Bank Corporation
Grantee: Host Marriott
Number of Rooms: 504
Price per Room: $200,397
Comments: Swiss Bank had reportedly
taken title to this asset in
lieu of foreclosure.
Marriott, which originally
had a minority equity
interest in the property and
continued to maintain a
long-term management
contract, purchased the fee
simple interest from Swiss
Bank. The existence of the
long-term management
contract reportedly limited
the number of potential
buyers, and the property was
not widely marketed. We
believe that the sale price
is slightly below market
levels as a result of this
consideration.
Sale #5:
Property: Vista Hotel
Location: New York, New York
Date of Sale: December, 1995
Sales Price: $141,500,000
Grantor: Port Authority of New York &
New Jersey
Grantee: HOST Marriott Corporation
Number of Rooms: 820
Price per Room: $172,561
Comments: This property reopened in
November of 1994 after
completion of a $65,000,000
renovation and repair
program following the
February, 1993 bombing of
the World Trade Center. The
property is situated on
leased land, and Marriott
officials indicate that
annual lease payments are
$1,000,000. The Port
Authority began marketing
the Vista actively during
the first quarter of 1995,
and received at least five
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qualified bids. The property
is in excellent condition
following the renovation. In
addition to guestrooms, the
Vista houses approximately
22,000 square feet of
meeting space, an extensive
health club, and three food
and beverage outlets. The
hotel operators also have
the right to use an
additional 25,000 square
feet of meeting space
located in the World Trade
Center.
Sale #6:
Property: Boston Park Plaza
Location: Boston, Massachusetts
Date of Sale: December, 1995
Sales Price: $100,000,000
Grantor: Saunders Real Estate
Grantee: Starwood Lodging Trust
Number of Rooms: 977
Price per Room: $102,354
Conclusion Although the sales comparison approach is sometimes
useful in providing a value range and reflecting certain
market characteristics, its applicability is limited by
the numerous possible points of difference between the
subject property and other hotels that have sold in
recent years. These factors can include location,
access, size, services and facilities offered, market
conditions, chain affiliation, market orientation,
management, rate structure, age, physical condition,
date of sale, the highest and best use of the land, and
the anticipated profitability of the operation.
Circumstances surrounding a sale, such as financing
terms, tax considerations, income guarantees, sales of
partial interests, duress on the part of the buyer or
seller, or a particular deal structure can cause a
disparity between the sales price and pure market value.
Moreover, it is often difficult to determine the
marketing periods that were necessary to consummate the
transactions. It is extremely difficult to quantify the
appropriate adjustment factors accurately because of
their number and complexity, as well as the difficulty
in obtaining specific, detailed information. Any attempt
to manipulate the necessary adjustments is insupportable
and purely speculative.
Because appraisers are expected to reflect the
analytical processes and the actions of typical buyers
and sellers rather than to create a highly subjective
valuation approach, the investment rationale of hotel
owners is an essential
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consideration. As specialists in the valuation of
hotels, we find that typical buyers purchase properties
based on a thorough analysis of the anticipated economic
benefits of property ownership rather than on historical
sales data.
In light of these factors, it is our opinion that the
sales comparison approach is unsuitable for indicating a
specific estimate of the market value of the Sheraton
Chicago Hotel & Towers; however, this approach may
indicate a range of values that is likely to be
appropriate for the subject property. We note that many
of the local sales outlined did not involve
convention-oriented hotels; consequently, we have relied
on the national sales in determining an appropriate
range. Furthermore, we deem the more recent national
sales to be most reflective of the current hotel market.
The national sales that took place in 1996 and 1997
indicate a price range from $183,406 to $218,900 per
room. We have adjusted this sales range to account for
the fact that the subject property represents a
leasehold interest. In the year 2000, when the hotel is
assumed to have reached a stabilized level of operation,
the ground lease accounts for roundly 13% of the subject
property's net income. After adjustment for this factor,
the prices indicated by the sales comparison approach
range from $159,563 to $190,443 per room, or
$192,000,000 to $229,000,000. The income capitalization
approach indicates a value of $247,122,000, which is
roughly 8% higher than the range indicated following the
adjustment for the leasehold interest. This reflects the
hotel's unique market orientation and above-average
operating performance.
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12. Cost Approach
The cost approach is founded on the principle of
substitution, which implies that no prudent person will
pay more for a property than the amount for which he or
she can acquire a site and construct a building of equal
desirability and utility without undue delay. The cost
approach typically estimates market value by first
calculating the current cost of replacing the
improvements, and then making appropriate deductions for
depreciation resulting from physical deterioration,
functional obsolescence, and external (economic)
obsolescence. Assuming the property is not a leasehold
interest, the value of the land is then added to the
depreciated replacement cost to provide an estimate of
market value. To illustrate the potential barriers to
new construction, we will consider the replacement cost
of the subject property.
Replacement cost is the current cost to construct a
building with the same utility as the subject property,
but using modern materials and current construction and
design standards. As of the effective date of this
appraisal, the subject property is approximately six
years old. Based on our discussion with management
representatives, the actual construction budget provides
the most reliable estimate of the hotel's replacement
cost. The following table illustrates the final
construction budget for the Sheraton Chicago Hotel &
Towers, as provided by the Tishman Hotel Corporation.
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Table 12-1 Total Development Cost
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Cost Per
Available
Use of Funds Total Cost Room
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Building Cost $112,485,112 $93,426
Furniture, Fixtures, and Equipment 30,857,813 25,629
Land Lease Payments 793,750 659
Indirect Cost 2,567,087 2,132
Indirect Fees 11,799,472 9,800
Financing 3,973,750 3,300
Administrative and General 2,137,143 1,775
Start-Up Costs 8,482,983 7,046
Construction Interest 6,484,501 5,386
Miscellaneous 1,142,889 949
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Total Development Cost $180,724,500 $150,103
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As illustrated by the preceding table, the subject
property's total construction budget was roundly
$180,700,000, or approximately $150,000 per available
guestroom. We have compared these figures to those
indicated by a hotel development cost survey conducted
by HVS International, and they appear to be reasonable.
We have analyzed the Sheraton's building improvement
costs using data provided by the Tishman Hotel
Corporation, but because the property is subject to a
ground lease, land value was not considered. According
to January, 1998 data provided by the Marshall Valuation
Service, the comparative cost multiplier for the City of
Chicago was 1.209 in January of 1992; multiplying the
subject property's 1992 budgeted cost by 1.209 produces
a cost estimate of roundly $218,500,000. Assuming an
average useful life of 60 years and an effective age of
six years (yielding a depreciation factor of roughly
10%), the depreciated replacement cost is estimated at
roundly $163,300 per room, or $197,000,000 for the
1,204-unit subject property. It should be noted that
there are few, if any, sites in downtown Chicago that
would be suitable for the construction of a hotel
similar to the subject property. For this reason, we
believe that an upward adjustment of the replacement
cost may be warranted.
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13. Reconciliation of Value Indications
The reconciliation, which is the last step in the
appraisal process, involves summarizing and correlating
the data and procedures employed throughout the
analysis. The final conclusion of value is arrived at
after reviewing the estimates indicated by the income
capitalization, sales comparison, and cost approaches.
The relative significance, applicability, and
defensibility of each indicated value is considered, and
the greatest weight is given to that approach deemed
most appropriate for the property being appraised.
The purpose of this report is to estimate the market
value of the leasehold interest in the subject property.
Our appraisal involves a careful analysis of the
property itself and the economic, demographic,
political, physical, and environmental factors that
influence real estate values. Based on the data set
forth in this report, the following value indications
were developed.
Approach Value Indication
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Income Capitalization $247,122,000
Sales Comparison $192,000,000 to $229,000,000
Cost $197,000,000
Income To estimate the subject property's value via the income
Capitalization capitalization approach, we analyzed the local market
Approach for transient accommodations, examined the competitive
environment, projected occupancy and average rate
levels, and developed a forecast of income and expense
that reflects anticipated income trends and cost
components through a stabilized year of operation. The
subject property's projected net income before debt
service was then allocated to the mortgage and equity
components based on market rates of return and
loan-to-value ratios. Through a discounted cash flow and
income capitalization procedure, the value of each
component was calculated; the total of the mortgage and
equity components equates to the value of the property.
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Our nationwide experience indicates that the procedures
used in estimating market value by the income
capitalization approach are comparable to those employed
by the hotel investors who constitute the marketplace.
For this reason, we believe that the income
capitalization approach produces the most supportable
value estimate, and it is given the greatest weight in
our final estimate of the subject property's market
value.
Sales The sales comparison approach uses actual sales of
Comparison similar properties to provide an indication of the
Approach subject property's value. The strength of this approach
is that it measures value based on the investment
decisions made by actual buyers and sellers. Although we
have investigated a number of sales in an attempt to
develop a range of value indications, several
adjustments are necessary to render the sales prices
applicable to the subject property. These adjustments,
which are numerous and highly subjective, diminish the
reliability of the sales comparison approach.
Furthermore, we find that typical hotel investors employ
a sales comparison procedure only to establish broad
value parameters.
The recent national hotel sales outlined earlier in this
report indicate a value range of $159,563 to $190,443
per available room after adjustment to reflect the
leasehold interest. The income capitalization approach
indicates a per-room value of approximately $205,250,
which is higher than the range indicated by the
comparable sales.
Cost Approach To estimate the subject property's value via the cost
approach, we estimated the current replacement cost of
the property. We give the cost approach limited weight
in arriving at a final value estimate, because
knowledgeable buyers of lodging facilities generally
base their purchase decisions on economic factors (such
as projected net income and return on investment) rather
than on a property's replacement cost.
Another factor that limits the applicability of the cost
approach is the difficulty in estimating and
substantiating a number of highly subjective variables,
such as effective age, accrued depreciation, and the
remaining economic life of the improvements. In terms of
the cost to construct a functional equivalent, the
replacement cost was inherently considered in the final
value estimate.
The replacement cost estimate developed via the cost
approach can help to corroborate the results of the
income capitalization and sales comparison approaches to
value. If the replacement cost is substantially higher
or lower
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HVS International, Mineola, New York Reconciliation of Value Indications 154
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than the value indicated by the income capitalization
approach, an upward or downward adjustment of the income
capitalization approach value may be necessary.
We note that the replacement cost of the subject
property is less than the value indicated by the income
capitalization approach. This is often the case in very
strong markets (such as Chicago), where occupancy and
average rates are favorably influenced by surging
demand. However, a replacement cost that is lower than
the value indicated by the income capitalization
approach suggests that there are no cost-related
barriers to entry into the market. Generally developers
are drawn by such an environment. As a result,
additional rooms supply is likely to enter the market at
some point. If demand growth does not continue to keep
pace with, or surpass, the increases in supply, the
subject property's capacity to generate net income at
the current levels may be affected.
Value Conclusion Careful consideration has been given to the strengths
and weaknesses of the three approaches to value
discussed above. In recognition of the purpose of this
appraisal, we have given primary weight to the value
indicated by the income capitalization approach and made
some subjective adjustments based on the sales
comparison approach, the replacement cost estimate, and
our extensive experience in the hospitality industry. It
is our opinion that the market value of the leasehold
interest in the Sheraton Chicago Hotel & Towers, as of
January 1, 1998, is:
$247,000,000
TWO HUNDRED FORTY SEVEN MILLION DOLLARS
The estimate of market value includes the land, the
improvements, and the furniture, fixtures, and
equipment. The appraisal assumes that the hotel is open
and operational.
This value estimate equates to roundly $205,150 per
room. The estimate of value assumes either the
availability of third-party financing or the willingness
and capability of the seller to take back purchase-money
financing so that a buyer can obtain the level of debt
set forth in the Income Capitalization Approach section
of this appraisal.
Marketing Period Our estimate of market value assumes a marketing period
of three to six months. Under normal economic
conditions, hotels are transferred within this time
frame.
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HVS International, Mineola, New York Reconciliation of Value Indications 155
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Personal Property In accordance with the appraisal standards set forth by
and Business Value the Office of the Comptroller of the Currency, it is
necessary for bank appraisals to identify and value any
personal property, fixtures, or intangible items that
are included in the appraisal and discuss their impact
on the overall estimate of market value. A hotel's
income-generating ability depends on a suitable
inventory of furniture, fixtures, and equipment. Removal
of these items can decrease the property value by as
much as the cost to replace the inventory plus the loss
of income incurred while the hotel cannot function.
A hotel's personal property consists of a wide variety
of components, including bedroom furnishings, bathroom
fixtures, restaurant and kitchen equipment, front office
and accounting computers, exterior signs, and similar
items. Our inspection of the Sheraton Chicago Hotel &
Towers indicates that the personal property and fixtures
are in good condition.
Based on construction costs submitted by the Tishman
Hotel Corporation, we estimate the total replacement
cost of the subject property's furniture, fixtures, and
equipment at roundly $31,000 per available room.
Assuming an average useful life of ten years and an
effective age of three years, the value of the
furniture, fixtures, and equipment currently in place is
approximately $21,700 per room, or a total of
$26,127,000. Because furniture, fixtures, and equipment
are essential to a hotel's income-generating ability and
are seldom removed from the property or sold separately,
we note that the separation of the personal property
component from the real property is not particularly
meaningful.
The Financial Institutions Reform, Recovery, and
Enforcement Act (FIRREA) stipulates that "...any
business interest or other intangible item should be
valued separately within the appraisal."(1) Hotels have
both business and real estate components; without the
business expertise necessary to operate the facility, a
hostelry would have little real estate value.
(1) Federal Register, Vol. 55, No. 143, July 25, 1990,
p. 30205.
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Statement of Assumptions
HVS International, Mineola, New York and Limiting Conditions 156
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14. Statement of Assumptions and Limiting Conditions
1. This report is to be used in whole and not in
part.
2. No responsibility is assumed for matters of a
legal nature, nor do we render any opinion as to
title, which is assumed to be marketable and free
of any deed restrictions and easements. The
property is valued as though free and clear unless
otherwise stated.
3. We assume that there are no hidden or unapparent
conditions of the sub-soil or structures, such as
underground storage tanks, that would render the
property more or less valuable. No responsibility
is assumed for these conditions or for any
engineering that may be required to discover them.
4. We have not considered the presence of potentially
hazardous materials such as asbestos, urea
formaldehyde foam insulation, PCBs, any form of
toxic waste, polychlorinated biphengyls,
pesticides, or lead-based paints. The appraisers
are not qualified to detect hazardous substances,
and we urge the client to retain an expert in this
field if desired.
5. The Americans with Disabilities Act (ADA) became
effective on January 26, 1992. We have conducted
no specific compliance survey to determine whether
the subject property is operating in accordance
with the various detailed requirements of the ADA.
It is possible that the property does not conform
to the requirements of the act, and this could
have an unfavorable effect on value. Because we
have no direct evidence regarding this issue, our
estimate of value does not consider possible
non-compliance with the ADA.
6. We have made no survey of the property, and we
assume no responsibility in connection with such
matters. Sketches, photographs, maps, and other
exhibits are included to assist the reader in
visualizing the property. It is assumed that the
use of the land and improvements is
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Statement of Assumptions
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within the boundaries of the property described,
and that there is no encroachment or trespass
unless noted.
7. All information, financial operating statements,
estimates, and opinions obtained from parties not
employed by HVS International are assumed to be
true and correct. We can assume no liability
resulting from misinformation.
8. Unless noted, we assume that there are no
encroachments, zoning violations, or building
violations encumbering the subject property.
9. The property is assumed to be in full compliance
with all applicable federal, state, local, and
private codes, laws, consents, licenses, and
regulations (including a liquor license where
appropriate), and that all licenses, permits,
certificates, franchises, and so forth can be
freely renewed or transferred to a purchaser.
10. All mortgages, liens, encumbrances, leases, and
servitudes have been disregarded unless specified
otherwise.
11. None of this material may be reproduced in any
form without our written permission, and the
report cannot be disseminated to the public
through advertising, public relations, news,
sales, or other media.
12. We are not required to testify or appear in court
by reason of this analysis without previous
arrangements, and only when our standard per diem
fees and travel costs are paid prior to the
appearance.
13. If the reader is making a fiduciary or individual
investment decision and has any questions
concerning the material presented in this report,
it is recommended that the reader contact us.
14. We take no responsibility for any events or
circumstances that take place subsequent to either
the date of value or the date of our field
inspection, whichever occurs first.
15. The quality of a lodging facility's on-site
management has a direct effect on a property's
economic viability and value. The financial
forecasts presented in this analysis assume
responsible ownership and competent management.
Any departure from this assumption may have a
significant impact on the projected operating
results and the value estimate.
16. The estimated operating results presented in this
report are based on an evaluation of the overall
economy, and neither take into account nor
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Statement of Assumptions
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make provision for the effect of any sharp rise or
decline in local or national economic conditions.
To the extent that wages and other operating
expenses may advance during the economic life of
the property, we expect that the prices of rooms,
food, beverages, and services will be adjusted to
at least offset those advances. We do not warrant
that the estimates will be attained, but they have
been prepared on the basis of information obtained
during the course of this study and are intended
to reflect the expectations of a typical hotel
buyer.
17. This analysis assumes continuation of all Internal
Revenue Service tax code provisions as stated or
interpreted on either the date of value or the
date of our field inspection, whichever occurs
first.
18. Many of the figures presented in this report were
generated using sophisticated computer models that
make calculations based on numbers carried out to
three or more decimal places. In the interest of
simplicity, most numbers have been rounded to the
nearest tenth of a percent. Thus, these figures
may be subject to small rounding errors.
19. It is agreed that our liability to the client is
limited to the amount of the fee paid as
liquidated damages. Our responsibility is limited
to the client, and use of this report by third
parties shall be solely at the risk of the client
and/or third parties. The use of this report is
also subject to the terms and conditions set forth
in our engagement letter with the client.
20. Appraising hotels is both a science and an art.
Although this analysis employs various
mathematical calculations to provide value
indications, the final estimate is subjective and
may be influenced by our experience and other
factors not specifically set forth in this report.
21. Any distribution of the total value between the
land and improvements or between partial ownership
interests applies only under the stated use.
Moreover, separate allocations between components
are not valid if this report is used in
conjunction with any other analysis.
22. This study was prepared by Hospitality Valuation
Services, a division of Hotel Consulting Services,
Inc. All opinions, recommendations, and
conclusions expressed during the course of this
assignment are rendered by the staff of Hotel
Consulting Services, Inc. as employees, rather
than as individuals.
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HVS International, Mineola, New York Certification 159
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15. Certification
We, the undersigned appraisers, hereby certify:
1. that the statements and opinions presented in this
report, subject to the limiting conditions set
forth, are correct to the best of our knowledge
and belief;
2. that Anjali Poorswani and Sabena Arora personally
inspected the property described in this report;
Stephen Rushmore participated in the analysis and
reviewed the findings, but did not personally
inspect the property;
3. that we have no current or contemplated interests
in the real estate that is the subject of this
report;
4. that we have no personal interest or bias with
respect to the subject matter of this report or
the parties involved;
5. that this report sets forth all of the limiting
conditions (imposed by the terms of this
assignment) affecting the analyses, opinions, and
conclusions presented herein;
6. that the fee paid for the preparation of this
report is not contingent upon our conclusions;
7. that this report has been prepared in accordance
with, and is subject to, the requirements of the
Code of Professional Ethics and Standards of
Professional Appraisal Practice of the Appraisal
Institute;
8. that the use of this report is subject to the
requirements of the Appraisal Institute relating
to review by its duly authorized representatives;
9. that this report has been prepared in accordance
with the Uniform Standards of Professional
Appraisal Practice (as adopted by the Appraisal
Foundation);
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HVS International, Mineola, New York Certification 160
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10. that no one other than the undersigned prepared
the analyses, conclusions, and opinions concerning
real estate that are set forth in this appraisal
report;
11. that as of the date of this report, Stephen
Rushmore has completed the requirements of the
continuing education program of the Appraisal
Institute;
12. that this appraisal is not based on a requested
minimum value, a specific value, or the approval
of a loan.
/s/ Anjali Poorswani
Anjali Poorswani
Consulting and Valuation Analyst
Hotel Consulting Services, Inc.
/s/ Sabena Arora
Sabena Arora
Senior Associate
Hotel Consulting Services, Inc.
/s/ Stephen Rushmore
Stephen Rushmore, CRE, MAI, CHA
President
Hotel Consulting Services, Inc.
AP: SA: SR: nnw
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HVS International, Mineola, New York Photographs of the Subject Property
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[PHOTO OMITTED]
Exterior view of Subject Property
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HVS International, Mineola, New York Photographs of the Subject Property
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[PHOTO OMITTED]
Lobby
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HVS International, Mineola, New York Photographs of the Subject Property
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[PHOTO OMITTED]
Junior suite
[PHOTO OMITTED]
View of a typical guestroom
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[PHOTO OMITTED]
Typical bathroom
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HVS International, Mineola, New York Photographs of the Competitors
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[PHOTO OMITTED]
Chicago Marriott
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[PHOTO OMITTED]
Hyatt Regency Chicago
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[PHOTO OMITTED]
Chicago Hilton & Towers
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[PHOTO OMITTED]
Palmer House
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[PHOTO OMITTED]
Hyatt Regency McCormick Place
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EXHIBIT A
BLOCK 12 IN CITYFRONT CENTER, BEING A RESUBDIVISION IN THE NORTH FRACTION OF
SECTION 10, TOWNSHIP 39 NORTH, RANGE 14 EAST OF THE THIRD PRINCIPAL MERIDIAN, IN
COOK COUNTY, ILLINOIS, BOUNDED AND DESCRIBED AS FOLLOWS:
BEGINNING AT THE NORTH WEST CORNER OF BLOCK 12 AFORESAID, BEING THE INTERSECTION
OF THE EASTERLY LINE OF N. COLUMBUS DRIVE WITH 720 SOUTHERLY LINE OF E. NORTH
WATER STREET, AND RUNNING THENCE SOUTH 85 DEGREES 51 MINUTES 31 SECONDS EAST
ALONG THE NORTHERLY LINE OF SAID BLOCK 12, SAID NORTHERLY LINE BEING ALSO THE
SOUTHERLY LINE 0F E. NORTH WATER STREET, A DISTANCE OF 417.846 FEET TO THE NORTH
EAST CORNER OF SAID BLOCK 12; THENCE SOUTH 00 DEGREES 16 MINUTES 30 SECONDS EAST
ALONG THE EASTERLY LINE OF SAID BLOCK 12, A DISTANCE OF 246.399 FEET, TO THE
SOUTH EAST CORNER THEREOF; THENCE NORTH 83 DEGREES 20 MINUTES 31 SECONDS WEST
ALONG THE SOUTHERLY LINE OF SAID BLOCK 12, SAID SOUTHERLY LINE BEING ALSO THE
NORTHERLY DOCK LINE OF THE CHICAGO RIVER, A DISTANCE OF 346.159 FEET; THENCE
NORTH 82 DEGREES 19 MINUTES 05 SECONDS WEST, CONTINUING ALONG SAID SOUTHERLY
LINE OF BLOCK 12, A DISTANCE OF 78.382 FEET, TO THE SOUTH WEST CORNER OF SAID
BLOCK 12; THENCE NORTH 7 DEGREES 53 MINUTES 38 SECONDS EAST ALONG THE WESTERLY
LINE OF SAID BLOCK 12, SAID WESTERLY LINE BEING ALSO THE EASTERLY LINE OF N.
COLUMBUS DRIVE, A DISTANCE OF 74.628 FEET TO A CORNER IN SAID LINE; THENCE NORTH
82 DEGREES 06 MINUTES 22 SECONDS WEST, A DISTANCE OF 27.50 FEET, AND THENCE
NORTH 7 DEGREES 53 MINUTES 38 SECONDS EAST CONTINUING ALONG SAID WESTERLY LINE
OF BLOCK 12, A DISTANCE OF 149.683 FEET TO THE POINT OF BEGINNING, IN COOK
COUNTY, ILLINOIS.
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MANAGEMENT AGREEMENT
This Agreement made this 18th day of December, 1989 between CITYFRONT
HOTEL ASSOCIATES LIMITED PARTNERSHIP, an Illinois limited partnership, having an
office at 666 Fifth Avenue, New York, New York 10103, ("Owner") and SHERATON
OPERATING CORPORATION, a Delaware corporation, having an office at 60 State
Street, Boston, Mass., ("Operator").
W I T N E S S E T H:
WHEREAS, Owner is the lessee of the land located in Chicago, Illinois,
described in Exhibit "A" hereto ("Premises"), pursuant to a certain ground lease
dated October 1, 1988, as amended by that certain First Amendment to Lease dated
as of December 18, 1989 by and between The Chicago Dock and Canal Trust, as
Landlord, and Tishman Realty Corporation of Cook County ("Tishman-Cook"), as
Tenant, the Tenant's interest therein being assigned by Tishman-Cook to Owner by
Assignment of Lease and Purchase Option dated December 18, 1989 (the "Ground
Lease", a copy of which has been initialed by Owner and Operator), and
WHEREAS, Owner independently is constructing or proposes to construct,
furnish and equip at its own expense a first-class convention hotel on the
Premises in accordance with plans and specifications hereinafter referred to;
and
WHEREAS, Operator is a wholly-owned subsidiary of The Sheraton Corporation
("Sheraton"), a Delaware corporation having its principal office at Sixty State
Street, Boston, Massachusetts 02109, which is experienced in the planning,
decorating, furnishing, equipping and promoting, as well as the ownership,
management and operation, through subsidiary companies, of hotels and inns
throughout the world; and
WHEREAS, Owner desires Operator to furnish to Owner and Operator desires
to furnish Owner with assistance in the planning, decorating, furnishing and
equipping of the said hotel; and
WHEREAS, Owner wishes, when the hotel is fully constructed, furnished and
equipped, to obtain the benefits of Sheraton expertise in the foregoing areas by
authorizing Operator to operate, direct, manage and supervise it, subject to the
rights and obligations of Owner as hereinafter set forth, and Operator, for a
fee, wishes to assume said responsibility;
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WHEREAS, Sheraton will guaranty the obligations of Operator pursuant to a
guaranty, a copy of which is annexed hereto as Exhibit "F" ("Guaranty")
NOW, THEREFORE, Owner and Operator covenant and agree as follows:
ARTICLE I
CONSTRUCTION OF HOTEL AND INSTALLATIONS BY OWNER
A. Owner Obligations to Construct
Owner shall, in accordance with final plans and specifications approved by
Operator as hereinafter provided and in conformity with all applicable laws,
ordinances and governmental regulations, at its own expense and with all
reasonable diligence, construct, furnish and equip on the Premises a first-class
convention hotel.
The hotel shall consist of a building containing approximately 1200 guest
rooms (each with private bath), restaurants, lobbies, lounges, banquet rooms,
meeting rooms, commercial space for the sale of merchandise, goods or services,
back of the house and parking areas for approximately 425 valet parking spaces,
swimming pool, appropriate landscaping, and other related facilities necessary
or desirable for a first-class convention hotel, together with all
installations necessary for the operation of the building for first-class hotel
purposes (including, without limitation, heating, lighting, sanitary equipment,
air conditioning, laundry, refrigerating, built-in kitchen equipment and
elevators) (all of which shall hereinafter be referred to as "Building and
Appurtenances"). Owner and Operator agree that additional parking may be
necessary at the hotel for certain special occasions. Owner and Operator agree
to cooperate in identifying and securing additional parking spaces to meet such
demand. Owner shall furnish and install therein all necessary furniture,
furnishings, wall coverings, fixtures and hotel equipment, which shall include
all equipment required for the operation of kitchens, bars, laundries, and dry
cleaning facilities, office equipment, dining room wagons, material handling
equipment, cleaning and engineering equipment and vehicles (all of which shall
hereinafter be referred to as "Furniture and Equipment") and all necessary
chinaware, glassware, linens, silverware, uniforms, utensils and other items of
a similar nature, including such items bearing the "Sheraton" name or
identifying characteristics as Operator shall consider appropriate (all of which
shall hereinafter be referred to as "Operating Equipment"), which are to be of a
class or grade not less in quality or relative scope than that generally used at
present in other newly constructed Sheraton hotels of similar type. The
Premises, the Building and Appurtenances, all Furniture and Equipment and all
Operating Equipment and Operating Supplies (as defined in Article III) therein
shall be hereinafter referred to
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collectively as "the Hotel". The Hotel shall be constructed and furnished in
accordance with Sheraton's Design Guide, Sheraton's Fire and Life Safety Guide,
and Sheraton's Approved Design Program.
For the foregoing purposes, Owner shall engage at its own expense and
subject to Operator's approval such reputable and first-class architects,
contractors, engineers, decorators and other specialists and consultants as may
be necessary or desirable. The plans and specifications for the building and
facilities shall be prepared at Owner's sole expense by such licensed architect.
Operator hereby acknowledges its approval of Solomon, Cordwell & Buenz as the
Hotel's architect, Tishman Construction Company of Illinois as the Hotel's
Construction Manager, Chris P. Stefanos Associates, Inc. as the Hotel's
structural consultants, and Cosentini Associates as the Hotel's mechanical
consultants.
Owner shall:
(1) Submit to Operator for approval conceptual plans and
specifications showing general layout and design, receipt and
approval of which is acknowledged by Operator.
(2) Submit to Operator for approval preliminary plans and
specifications, receipt and approval of which is hereby
acknowledged.
(3) Commence the submission to Operator for approval final plans
and specifications by April 15, 1990 and complete such
submission as such plans and specifications are available;
provided that no construction shall commence until final plans
therefor have been submitted to and approved by Operator.
Operator acknowledges that Owner intends to employ the "fast
track" method of construction and in connection therewith
plans will be submitted to Operator for approval in stages
affecting various areas of construction.
(4) Commence construction of the Hotel by November 30, 1990.
(5) Complete the Building and Appurtenances and the installation
of the Furniture and Equipment and Operating Equipment by
April 1, 1993.
(6) Submit to Operator for prior approval plans, specifications,
renderings and working drawings relating to the interior
design and decoration, and other matters affecting the
operating efficiency of the Hotel and the selection of all
Furniture and Equipment and all Operating Equipment at various
stages as requested by Operator.
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(7) Provide Operator, within 6 months after the Opening Date, with
a full inventory of all Furniture and Equipment and with a
full-costed inventory of all Operating Equipment supplied by
Owner in accordance with this Article I.
It is understood that in making its review and approval of conceptual,
preliminary or final plans and specifications, Operator will not undertake to
review or approve foundation plans or plans and specifications relating to
structural matters, foundation and structural soundness of the Hotel not being
the responsibility of Sheraton or Operator.
Matters required to be submitted for approval to Operator shall be sent
care of The Sheraton Corporation, Sixty State Street, Boston, Massachusetts,
02109, Attention: Project Coordination.
Within five (5) business days after receipt by Operator under
subparagraphs (3), (6), and B(ii) below, Operator shall either give its written
approval thereof or give written comments of correction to Owner for resubmittal
within a reasonable time set forth in such comments. If Operator does not so
respond within said five (5) business day period, the said submittal shall be
deemed approved. The dates set forth in subparagraphs (3), (4), (5), and (7)
above are subject to reasonable extension for delays due to causes reasonably
beyond the control of Owner; provided, however, that, there shall be no such
extension for any delay which has commenced more than twenty-one (21) days
before Operator is notified thereof in writing.
Operator will furnish Owner with assistance in connection with the items
specified in the Technical Service Agreement annexed hereto as Exhibit "B" in
the manner and on the terms specified in Article II of this Agreement. Owner
will cause its architect to cooperate with Operator in carrying out Operator's
responsibilities under the said Technical Services Agreement. In addition, after
construction of the Hotel commences, Owner will cause its architect to furnish
Operator monthly until construction is completed with a copy of the
certification provided to the Owner's construction lender that the construction
completed to date has been completed in accordance with the final plans and
specifications. The conceptual, preliminary (schematic) and final plans and
specifications, after approval by Operator, shall not be changed in any material
manner without Operator's consent. In making its approvals Operator will not
make changes in design concepts previously approved. Operator may recommend,
subject to Owner's approval, such further changes in the final plans and
specifications as are necessary to meet problems that may arise during the
period of constructing, furnishing and equipping the Hotel. Operator shall have
the right periodically to inspect the construction to determine if such
construction is in conformity with the final plans and specifications.
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Without diminishing its approval rights as hereinabove set forth Operator
agrees not to exercise its approval rights or make recommendations hereunder in
a manner so as to (i) cause substantial delay in the construction of the Hotel,
(ii) materially increase the cost of such construction, (iii) be inconsistent
with the specific requirements of the construction lender for the Hotel; nor
shall Operator's rights of approval pertain to changes required by law or by the
Ground Lease.
It is understood that all matter to be submitted to Operator for review
hereunder will have been competently prepared by Owner's architect, interior
designer, and other consultants. Operator's review of such matter will be for
the limited purposes of enabling Operator to make suggestions to Owner for
improving the Hotel from a functional and aesthetic point of view or for making
changes which may result in cost savings in respect of the construction and/or
operation of the Hotel and assuring that if the Hotel is constructed in
accordance with such suggestions, it will be acceptable to Operator for
management under this Agreement. In making such suggestions Operator will take
into consideration local legal requirements applicable to the design,
construction or operation of the Hotel which are designated and furnished to it
by Owner. Owner recognizes, however, that Operator does not undertake to advise
Owner of any such local requirements, and shall not be responsible for
compliance therewith.
B. Construction Period Approval Rights and Procedures
The preliminary (schematic) and final plans and specifications, after
approval by Operator and/or Sheraton in accordance with Section (A) of this
Article I, shall not be changed in any material manner without the further
consent of the approving party. Operator and Sheraton have the right
periodically to inspect the construction of the Improvements to determine if
such construction is in conformity with the final plans and specifications which
they have approved. Operator and Sheraton may recommend such further changes in
the final plans and specifications as are necessary to meet problems that may
arise during the period of constructing, furnishing and equipping the Hotel.
During the period of construction, Operator shall implement its rights of
approval under this Section (B) through the following procedures:
(i) If construction is to proceed in phases, Operator shall, together
with Owner and lenders, approve the plans and specifications prior
to commencement of the work;
(ii) The prior written approval of Operator shall be required with
respect to the following (a) change orders which depart from
Sheraton's Fire and Life Safety Guide regardless of the amount of
any such change order, and (b) change orders which modify final
plans and specifications previously approved by Operator which
exceed $100,000 in amount, and (c)
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change orders which modify final plans and specifications previously
approved by Operator where such change orders aggregate in amount
more than $300,000 in any one (1) calendar month.
(iii) During construction of the Hotel Operator or its designee shall have
the right to attend all project and/or construction review meetings,
and shall be notified not later than five (5) business days in
advance thereof. Operator shall receive copies of minutes of all
such meetings;
(iv) Operator recognizes and agrees to at all times respect the
confidentiality of the financial records of Owner, and Owner hereby
grants to Operator the right, at reasonable times and upon
reasonable notice, to inspect (whether on or off the construction
site) such documents as will provide Operator with information
regarding the status of the construction of the Hotel.
The provisions of this Article I shall in no way be construed as a
guaranty of completion of the Hotel by the Owner. Owner shall have the right in
its sole discretion at any time prior to the Opening Date (as said term is
defined below) to terminate the construction, furnishing and equipping of the
Hotel. Owner shall notify Operator of its decision to so terminate such work and
such termination shall not be a default hereunder. This agreement shall be
deemed cancelled by such termination, the rights of the parties hereto in such
case to be as provided for in the last paragraph of subparagraph A of Article
XXIV, and neither party shall have any further rights against the other
hereunder.
Notwithstanding the provisions of the preceding paragraph hereof, if at
any time within eighteen (18) months after such work is terminated, Owner
commences completion of the work as a convention hotel, Operator may within
sixty (60) days of such commencement or of Operator's first notice thereof or of
written notice from Owner of its intention to commence such work, reinstate this
Agreement by written notice to Owner.
ARTICLE II
TECHNICAL SERVICES
Operator shall provide Owner and Owner shall receive from Operator the
services ("Technical Services") set forth in the Technical Services Agreement
annexed hereto as Exhibit "B" and made a part hereof. Said services may be
performed by Operator, Sheraton or any of their affiliated or subsidiary
companies or by third parties pursuant to contracts with any of the foregoing
entities.
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Owner shall reimburse Operator for its reasonable out-of-pocket expenses
for such services: provided, however, that the total amount of reimbursement for
the salaries of all employees providing such services shall not exceed $200,000.
Such expenses shall be reimbursed to Operator by Owner on a monthly basis based
on invoices submitted to Owner by Operator and coordinated with the construction
draws.
Payments shall be made to Operator at Sixty State Street, Boston, Massachusetts
02109, Attention: Director of General Accounting.
ARTICLE III
PRE-OPENING SERVICES BY OPERATOR
Prior to the Opening Date (as hereafter defined in this Article III),
Operator, as agent and for the account of Owner, shall be responsible for
performing the following activities ("Pre-Opening Services") which shall
commence not earlier than the commencement of construction of the Hotel, and
shall use reasonable efforts to achieve the following results, provided that
funds are advanced therefor as hereinafter required:
1. Recruit, train, direct and employ an initial staff for the Hotel.
2. Create, initiate and pursue a marketing program consisting of sales,
advertising, promotion, publicity and public relations, designed to attract
guests to the Hotel on and after the Opening Date (based on a pre-opening
marketing plan subject to Owner's approval) and contract for the rental of rooms
at the Hotel to be occupied either before or after the Opening Date.
3. In cooperation with Owner negotiate leases, licenses and concession
agreements for stores, office space and lobby space at the Hotel, subject to
Owner's approval and signature.
4. In cooperation with Owner apply for, process and take all necessary
steps to procure (in Operator's name or Owner's name or both as may be required
by the issuing authority) all licenses and permits required for the operation of
the Hotel and its related facilities, provided that it will be Owner's
obligation to obtain liquor licenses for the sale of alcoholic beverages at all
restaurants and bars in the Hotel and to all guest rooms, but Operator agrees to
render Owner all reasonable assistance in connection with its efforts to obtain
such liquor licenses.
5. Purchase all initial inventories of paper supplies, cleaning materials
and similar consumable items ("Operating Supplies"), with funds therefor
furnished by Owner from Owner's Furniture, Fixture and Equipment budget. Initial
inventories of
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food and beverages shall be purchased by Operator and paid for out of the
working capital furnished by Owner under Article XI of this Agreement. All such
purchases may be made in accordance with the provisions of Article X.
6. In cooperation with Owner arrange for suitable inaugural ceremonies
(the cost of which ceremonies shall be a Pre-Opening Expense).
7. Do all other things necessary for the proper opening of the Hotel,
within the confines of the budget for Pre-Opening Services referred to below.
Moreover, Operator may incorporate the Hotel in the Sheraton Reservations
System at such time prior to the Opening Date as Operator deems reasonably
advisable after consultation with Owner. Provision of the reservation service to
Owner will be considered a Pre-Opening Service and Owner will pay Sheraton or
such affiliate or subsidiary of Sheraton as shall render the reservation service
the normal fees therefor in accordance with Article X hereof or such reduced fee
therefor as Operator shall specify in writing, from the time of the
incorporation of the Hotel into the system.
All expenses incurred by Operator or by Sheraton or any of Operator or
Sheraton's affiliated or subsidiary companies in performing the foregoing
Pre-Opening Services shall be referred to as "Pre-Opening Expenses," and shall
include, without limitation: travel expenses; the costs of moving executive
level Hotel personnel, their families and their belongings to the area in which
the Hotel is located at the commencement of their employment at the Hotel, in
accordance with Sheraton's then current practice; and expenses of business
entertainment; salary (including payroll taxes and cost of employee benefits) of
specialists and non-specialist executives for time actually spent in the
performance of Pre-Opening Services (including travel time); pre-opening salary
as defined in Article XIV (2) hereof, for the manager and other Hotel personnel;
all expenses incurred in conducting partial operations of the Hotel prior to the
Opening Date; the cost of pre-opening sales, marketing, advertising, promotion
and publicity; the cost of obtaining all necessary licenses and permits,
including the fees of lawyers and other consultants incident thereto; the Basic
Fee payable in accordance with the provisions of Article XIII in relation to
partial operations prior to the acceptance of the Hotel by Operator; and the
fees payable for participation in the Sheraton Reservations System, as specified
in this Article III. All Pre-Opening Expenses shall be paid for by Owner.
The estimated cost of Pre-Opening Services shall be $7,489,900 exclusive,
however, of [1] all costs in connection with obtaining all licenses and permits,
including attorneys' and consultants' fees, and [2] the fee payable to Operator
in accordance with the provisions of Article XIII in relation to
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partial operations prior to the Opening Date. Operator shall provide Owner with
a three months rolling forecast of pre-opening expenses and Owner shall provide
Operator with funds required to fund such expenses for the next succeeding
thirty (30) day period.
The estimated cost of all Pre-Opening Services is based on the pre-opening
budget prepared by Operator and approved by Owner, a copy of which is hereto
annexed as Exhibit "C". It is agreed that the funds for Pre-Opening Services
shall be expended in accordance with said budget. However, Operator may exercise
its judgment to make changes in the individual line by line budget allocations
without increasing the total based on changes in circumstances or for other
reasons which in Operator's judgment warrant a reallocation of the budgeted
funds to the extent of ten (10%) percent of such allocation. Any adjustments in
individual line by line budget allocations in excess of the aforesaid ten
percent shall require Owner's consent.
Operator will incur no costs in excess of the estimated cost of all
pre-opening services described in the pre-opening budget without the prior
consent of Owner, provided, however, that in the event Operator anticipates a
delay such that the Hotel will not be formally opened to the public on or before
March 1, 1992, (the "Estimated Opening Date") and such delay has not been caused
by any act or omission of Operator, Owner shall, at the request of Operator at
any time and from time to time, deposit with Operator such additional amounts as
Operator and Owner shall reasonably estimate to represent the additional
Pre-Opening Expenses occasioned by the anticipated delay, which shall include,
without limitation, wages and other expenses relating to Hotel personnel already
employed; provided that such additional Pre-Opening expenses for each 30 day
period of delay shall not exceed the amount budgeted for the 30 day period
immediately preceding the Estimated Opening Date. It is expressly agreed that
Operator's Pre-Opening Budget (Exhibit "C" hereto) has been prepared in function
of the Estimated Opening Date.
Within one hundred twenty (120) days after the Opening Date, (as defined
in Article IV hereof) Operator shall account to Owner in detail with appropriate
documentation for all expenditures made under this Article III. If any balance
remains of the funds deposited by Owner with Operator or paid by Owner to
Operator hereunder, they shall be placed in the Agency Account provided for in
Article XI to the extent that there is insufficient working capital therein, and
any surplus shall be, repaid to Owner forthwith. If Operator at any time expends
funds in excess of the amount deposited with it under this Article III, with the
consent of Owner, or by reason of Owner's not depositing additional funds with
Operator in the event of anticipated or actual delay, such excess shall be
refunded to Operator forthwith upon demand.
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ARTICLE IV
OPENING DATE
The Opening Date is agreed to be the date on which the first revenue
paying guest is admitted to room accommodations at the Hotel. Operator may,
without accepting the Hotel and with Owner's consent, conduct partial operations
of the Hotel. Final acceptance of the Hotel by Operator shall occur on a date to
be specified by Operator with the approval of Owner after Operator deems the
Hotel to be substantially completed and the Furniture and Equipment and
Operating Equipment have been substantially installed therein, all in accordance
with the provisions of Article I, after all licenses and permits required for
the operation of the Hotel (including a certificate of occupancy, liquor and
restaurant licenses) have been obtained, adequate working capital has been
furnished by Owner in accordance with Article XI, and the Hotel in the opinion
of Operator is ready to render first-class service to guests on a fully
operational basis. Notwithstanding Operator's conditional and/or final
acceptance of the Hotel, Owner shall proceed diligently thereafter to fulfill
all of its obligations hereunder regarding the construction, furnishing and
equipping of the Hotel.
ARTICLE V
OPERATING TERM OF AGREEMENT
1. The "Initial Operating Term" of this Agreement shall be a period
commencing on the Opening Date and terminating at midnight on December 31 of the
twentieth full fiscal year following the Opening Date. For purposes of this
Agreement, the words "fiscal year" shall mean the calendar year, and "full
fiscal year" shall mean a fiscal year containing not less than 365 days. The
words "Operating Term" when used herein shall mean the Initial Operating Term
and any extension thereof.
2. Operator shall have the right to extend the Operating Term for two
successive periods of ten (10) years each, provided that:
A. Owner at such time is not entitled to terminate this Agreement
pursuant to Article XXIV by reason of Operator's default;
B. The Operating Term shall have been extended for all prior
periods (if any); and
C. Operator shall have given notice to Owner of its election to
extend the Operating Term on or before the first day of
January of the last full calendar year of the Initial
Operating Term, or any extension thereof then in force.
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ARTICLE VI
OPERATION OF THE HOTEL ON AND AFTER OPENING DATE
Operator hereby represents that it and Sheraton are experienced and
capable and will remain experienced and capable in the planning, decorating,
furnishing, equipping and promoting, as well as the ownership, management and
operation through subsidiary companies, of hotels, including first-class
convention hotels, and motor inns throughout the United States of America. In
reliance on the foregoing, Owner hereby engages Operator as the Operator of the
Hotel during the Operating Term. Operator shall have sole authority in respect
of and be responsible for, the operation, direction, management and supervision
of the Hotel, subject to the terms of this Agreement including the limitations
on Operator's authority set forth herein, and the approvals and consents of
Owner set forth herein. Such authority of Operator shall include, subject to the
terms of this Agreement, without limitation, determination of labor policies
(including the hiring, transfer and discharge of all employees and entering into
a contract or contracts with an applicable union or unions in Owner's name),
credit policies (including entering into agreements with credit card
organizations), terms of admittance, charges for rooms, entertainment and
amusement policies, food and beverage policies (including the right to conduct
catering operations outside of the Hotel), the institution of such legal
proceedings in the name of Owner or Operator as Operator shall deem appropriate
in connection with the operation of the Hotel, and all phases of sales,
marketing, advertising, promotion and publicity relating to the Hotel. In
exercising such authority, Operator may enter into such contracts, leases,
concession agreements and other undertakings on behalf of Owner as Operator
shall from time to time consider appropriate, (but not having terms expiring
after the term of this Agreement) in Owner's name, or Owner (if Owner is an
individual) or officers of Owner (if Owner is a corporation or other legal
entity) will execute any or all of same at Operator's request. As the Operator
of the Hotel, Operator shall perform all those duties as are necessary to
operate the Hotel as a first-class convention hotel, and as are customary and
usual in the industry for such a facility.
Notwithstanding the foregoing:
1. It is understood that if there is negotiation of a labor contract
with a union or unions representing Hotel employees and this
negotiation is conducted in the city or local area of the Hotel on
an association basis, the Hotel may, in Operator's discretion, with
Owner's approval, seek to be a member of the association. Moreover,
if the negotiation of such a labor contract with such a union or
unions was conducted on an association basis and is in existence at
the time it first becomes necessary for labor negotiations to take
place with respect to Hotel employees, Operator may in its
discretion become a party to any such labor contract
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with Owner's approval if Owner participates in such negotiations,
and without Owner's approval if Owner does not participate in such
negotiations. To the extent that such negotiations for such contract
for the Hotel are not handled through such an association, Owner
shall have the right to participate in such negotiations and, if
Owner participates therein, Operator will not enter into the
contract based on negotiations so conducted with any labor
organization in Owner's name or on Owner's behalf without Owner's
prior written approval of such contract. Such approval will not be
withheld in any case if such contract is substantially consistent
with similar agreements commonly in effect in the area of the Hotel.
If Owner does not participate in such negotiations, Operator may
enter into such contract in Owner's name or on Owner's behalf
without Owner's approval.
2. Legal proceedings of a non-extraordinary nature relating to the
operation of the Hotel, such as collections, enforcement of
contracts and proceedings against guests and/or Hotel tenants, may
be instituted by Operator in Owner's name without Owner's consent
and by counsel designated by Operator. Legal proceedings of other
types and of an unusual nature or involving a significant monetary
claim brought on behalf of Owner in respect of the operation of the
Hotel shall require Owner's approval of the action and designated
counsel. In addition, Operator shall have the right to defend
through counsel designated by Operator legal proceedings of a
non-extraordinary nature against Owner or Operator resulting from
the operation of the Hotel such as guest claims for loss of property
or injury to persons and claims relating to employment or
application for employment at the Hotel. The institution of action
against or in defense of the Hotel of a more significant nature
(including, without limitation, any aspect of any negligence claim
against Owner or Operator arising out of the operation of the Hotel
and involving in excess of $25,000 as to which the insurance company
denies coverage or "reserves rights" as to coverage) shall be
reported to Owner and designated counsel shall be subject to Owner's
approval. All claims against Owner and/or Operator arising out of
the operation of the Hotel which are covered in whole or in part by
insurance shall be forwarded by Operator or an affiliate of Operator
to the appropriate insurer.
3. Not later than 60 days prior to the commencement of each fiscal year
Operator shall submit to Owner an annual forecast for the operation
of the Hotel for the forthcoming fiscal year specifying the
beginning and ending dates of each Accounting Period in such fiscal
year and containing detailed revenue projections and budgets of
expenses. Such forecasts shall be
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substantially in the form of the schedules attached hereto as
Exhibit D, as the form of such schedules may be revised or replaced
from time to time in accordance with Sheraton policy relating to
managed hotels in the Sheraton system (provided that such revisions,
replacements or substitutions may only reasonably rearrange the line
items into which particular projected revenues and particular
budgeted expenses are placed, but the aggregate of projected
revenues and particular budgeted expenses may not be changed
thereby) and the assumptions on the basis of which such schedules
were prepared in narrative form as well as separate budget items for
(a) all projected capital expenditures and (b) all projected
expenditures for replacements, substitutions and additions to
Furniture and Equipment, (c) a complete marketing plan, for such
fiscal year (the "Business Plan"). Operator shall provide Owner on
request reasonable additional detail, information and assumptions
used in preparation of the Business Plan. Operator shall review the
Business Plan with Owner, and subject to Owner's approval Operator
shall implement such Business Plan for the successive fiscal year
(during which it shall, if approved by Owner, be referred to as the
"Approved Budget"). In the event Owner declines to approve a
specific item or items of the Business Plan and provides Operator
written notice thereof prior to commencement of the fiscal year in
question, Operator may request that the dispute be submitted to
arbitration pursuant to Article XXVII if such dispute pertains to an
item or items constituting Operating Expense. If such dispute
pertains to an item or items constituting capital expenditures other
than capital expenditures to be made from the Reserve Fund pursuant
to Article XV hereof or pursuant to Article XVI hereof, Owner shall
have the absolute right to disapprove such expenditures. Pending
resolution of any such dispute, the specific disputed items of the
Business Plan shall be suspended and respective item(s) of actual
expense in effect for the current year shall continue in effect for
the fiscal year in question, subject to escalation per item by the
percentage increase in the Producer Price Index over the 12-month
period immediately preceding the start of the fiscal year in
question. Operator makes no assurances that the actual performance
of the Hotel shall correspond to such estimates. However, Operator
agrees to use its best efforts to operate the Hotel within the
Approved Budget. Notwithstanding the foregoing, if required to do so
after Operator's exercise of its best efforts to operate the Hotel
within the Approved Budget, Operator may expend, in the normal
day-to-day operation of the Hotel, and without specific prior
approval of Owner, funds in excess of those set forth in the
Approved
<PAGE>
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Budget for any given fiscal year; provided however, that such excess
expenditure, except for items otherwise specifically limited in this
Agreement shall not exceed in the aggregate in such fiscal year 10%
of the total of all expense categories set forth in the Approved
Budget, and provided further that (i) if departmental revenue in any
operating department exceeds projected departmental revenue in the
Approved Budget for any given Full Fiscal Year then Operator may 1)
increase the level of expenditures for departmental operating
expenses in that department by an amount equal to the Applicable
Fraction (as hereinafter defined) multiplied by the amount by which
actual revenue for that operating department exceeds the projected
revenue for that operating department in the Approved Budget and 2)
increase total undistributed operating expenses (except marketing)
by an amount equal to the amount by which actual revenue for any
operating department exceeds the projected revenue for such
operating department in the Approved Budget multiplied by a fraction
the numerator of which is total undistributed operating expenses
(except marketing) in the Approved Budget and the denominator of
which is projected Total Revenue in the Approved Budget. The
"Applicable Fraction" is a fraction the numerator of which is the
projected departmental operating expenses for that operating
department in the Approved Budget and the denominator of which is
projected revenue for that operating department in the Approved
Budget, and (ii) there shall be no reduction in the level of excess
expenditures permitted hereby in any given fiscal year solely by
virtue of the fact that actual Total Revenue is less than projected
Total Revenue set forth in the Approved Budget for such fiscal year.
4. The number of Hotel employees whose salaries are properly accounted
for under the following categories in accordance with the Uniform
System (as defined in Article XII):
Administrative and General-Manager's Office
Administrative and General-Accounting Office
Advertising and Sales Promotion
Repair and Maintenance (exclusive of special projects)
Heat, Light and Power
will be indicated to Owner prior to the commencement of the first
fiscal year of the Operating Term and will not be increased
thereafter without Owner's approval.
5. No Hotel employee shall receive a salary (excluding benefits, as
described in item (2) of Article XIV and amounts payable under bonus
programs) in excess of $150,000 per year (exclusive of the value of
food and lodging and the use of Hotel facilities and, in the case of
the Hotel General Manager and/or Resident Manager, if
<PAGE>
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either of them do not live in the Hotel, any payment made to defer
the expenses of living outside of the Hotel) without Owner's prior
approval of the pay rate. The foregoing amount may be redetermined
by agreement from time to time to reflect increases in industry
standards and in the cost of living, said maximum rate to be
determined conclusively by the Independent Certified Public
Accountant at the request of either party in the event the parties
fail to agree to any suggested increase. Operator, in its
discretion, may enroll the Hotel employees in the pension, medical
and health, life insurance and similar employee benefit plans,
including multi-employer plans described in Exhibit "E", and Owner
shall adopt resolutions and execute participation elections and
adoption agreements substantially in the form of those attached
hereto as Exhibit "E" giving full force and effect to such Operator
action. The said plans may be joint plans for the benefit of
employees at more than one hotel or motor inn owned, leased or
managed by Sheraton or any of its subsidiaries. Employer
contributions to such plans, reasonable administrative fees which
Operator may expend in connection therewith, and any liabilities
relating to multi-employer pension or welfare plans will be
Operating Expenses hereunder. The administrative expenses of any
joint plans will be equitably apportioned by Sheraton among
properties covered. Sheraton shall receive no fee or other
compensation or make any profit as a result of enrolling Hotel
employees in any such plans.
6. Not later than thirty (30) days prior to the commencement of each
fiscal year, normally as part of the Business Plan, Operator will
submit to Owner for its approval the rates to be published and
charged to members of the general public for normal transient
occupancy of the various categories of rooms and suites in the Hotel
("Rack Rates") during such fiscal year. The Rack Rates, as approved
by Owner, may not be changed without Owner's further approval.
However, it is understood that the said rates will not apply to
group business or other categories of business to which Operator may
afford a lower rate and that in its discretion Operator may from
time to time permit individuals to occupy rooms or suites at the
Hotel at rates lower than the said published rates. The provisions
of this item (6) will be inapplicable if Owner engages in the
operation of or exercises any control or right of approval of the
rates charged at any other hotel in competition with the Hotel.
7. No lease, license or concession agreement for stores, office space
or the parking garage at the Hotel shall be entered into by Operator
without Owner's prior written approval.
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8. Except as herein otherwise provided per contract, no aggregate,
annual expenditure in excess of $50,000 per contract shall be made
by Operator without Owner's approval, under any contract for
services required in the ordinary course of business in operating
the Hotel, such as maintenance, detective agency protection, vermin
extermination and services of like nature, but exclusive of (i)
Centralized Services (as defined in Article X), (ii) utilities and
(iii) the services of entertainers and other like services;
provided, however, that the foregoing amount may be redetermined by
agreement from time to time to reflect increases in the cost of
living, said maximum amount to be determined conclusively by the
Independent Certified Public Account at the request of either party
made any time in the event the parties fail to agree to any
suggested increase. Expenses related to employee benefit items,
provided for under sub-paragraph (5) of this Article VI, shall not
be included in this subparagraph (8).
9. Owner shall have the right of prior approval with respect to (i) the
Hotel's local advertising agency and public relations firm and (ii)
all press releases issued from Operator's home or regional office or
the Hotel making reference to Owner, the Tishman Organization, or
their related organizations and affiliates. In addition, so long as
the Tishman Organization or its related organization or affiliates
is a general partner of Owner, Operator, (except in emergency
situations) shall use reasonable efforts to furnish Owner with a
copy of any proposed press release issued from and pertaining
primarily to the Hotel not less than twenty-four (24) hours prior to
the issuance of any such press release. Operator will give due
consideration to Owner's comments and suggestions with respect to
any such press release, it being understood that Owner will have no
right of approval with respect thereto. Owner acknowledges that
failure to furnish Owner with a copy of any such press release shall
not be deemed a default under this Agreement.
Operator, in its discretion and as is customary and usual in Sheraton
hotels, may provide food and lodging for Hotel employees and allow them the use
of Hotel facilities and may allow the General Manager of the Hotel or another
Hotel employee suitable living quarters within the Hotel and the use of all
Hotel facilities, including food, without charge to the said Hotel employee or
to the General Manager or Operator.
Operator shall operate the Hotel and all of its facilities and activities
in the same manner as is customary and usual in the operation of other similar
Sheraton hotels consistent with the Hotel's facilities and in accordance with
the criteria of first class Sheraton convention hotels.
<PAGE>
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Operator will be available to consult with and advise Owner, at Owner's
reasonable request, concerning all policies and procedures affecting all phases
of the conduct of business at the Hotel and will give consideration to
suggestions made by Owner. To the extent possible, such consultation and advice
shall take place prior to effectuating any major policies and procedures. Owner
shall direct all contacts and communications (other than required notices,
statements and demands, which shall be given pursuant to Article XXVI hereof)
concerning operation of the Hotel after the Opening Date to the General Manager
of the Hotel and his Sheraton Area or Regional Manager. Owner shall also have
access to other Sheraton Senior Executives. Prior to Opening Date Owner and
Operator shall schedule quarterly meetings and after the Opening Date monthly
meetings at mutually convenient times and places.
In its operation of the Hotel, Operator shall
(a) furnish to Owner, upon receipt by Operator, any and all notices from
any mortgagees or lessors or taxing or other governmental authority and notices
of violation of law or municipal ordinances issued by any governmental authority
or by any Board of Underwriters or other similar body;
(b) provide and furnish those management services provided by Sheraton for
hotels of similar type as the Hotel;
(c) put into effect at the Hotel Sheraton policies and procedures with
respect to administration, operation, sales, personnel, purchasing and other
areas affecting the operation of the Hotel;
(d) prior to appointing a general manager and director of marketing of the
Hotel, who shall be a qualified and experienced general manager and director of
marketing, Operator shall consult with an individual designated by Owner and
shall supply Owner's designee with information with respect to its selections
and give Owner's designee the opportunity to meet the selected candidates prior
to the appointments. Operator agrees to give due consideration to the
suggestions of Owner's designee with respect to the selection of the general
manager and director of marketing, but the selection of the general manager and
director of marketing shall be made by Operator in Operator's discretion after
consultation with Owner's designee as provided herein. The provisions of this
subparagraph (d) shall also pertain to any replacements of the general manager
and director of marketing of the Hotel. Two weeks prior to discussing their
transfers with the incumbent general manager or director of marketing to another
Sheraton hotel, Operator will notify Owner of its intentions to make such
transfers, and Operator will use its best efforts to notify Owner in advance of
termination or dismissal of the general manager or director of marketing.
<PAGE>
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(e) establish, implement and supervise for the Hotel the accounting,
inventory and cost control systems utilized by Sheraton from time to time. Also,
Operator shall maintain adequate control of the records of the Hotel and where
requested by Owner of the acquisition and disposition of all Furniture and
Equipment used in the operation of the hotel;
(f) on behalf of Owner, collect and remit promptly to the proper
governmental authorities all applicable excise, sales and use taxes or similar
governmental charges collected by the Hotel directly from patrons or guests, or
as part of the sales price of any goods, services, or displays such as gross
receipts, admission, cabaret or similar or equivalent taxes;
(g) subject to the provisions of Article X hereof, make available to the
Hotel substantially all operational, departmental, supervisory, and other group
services furnished to other hotels operated by Operator or owned, leased or
managed by Sheraton or any subsidiary of Sheraton;
(h) Prepare on behalf of Owner and file punctually when due all forms,
reports and returns required by law relating to the employment of personnel of
the Hotel or the operations of the Hotel;
(i) develop, implement and coordinate a sales, advertising and marketing
program for the Hotel. Operator shall, on behalf of Owner, sell and promote the
Hotel through the sales offices of Sheraton and accept reservations for the
Hotel at the reservation offices of Sheraton and its affiliates. Operator will
list the Hotel in printings of general tariff bulletins for Sheraton hotels and
in Sheraton's directory of hotels; and
(j) not enter into any agreement or commitment except in the ordinary
course of business or as permitted in this Agreement (including, without
limitation, the purchase of supplies and services) either utilizing the credit
of Owner or borrowing money in the name of Owner.
ARTICLE VII
OPERATOR TO ACT SOLELY AS AGENT OF OWNER
In the performance of its duties as Operator of the Hotel, Operator shall
act solely as agent of Owner. Nothing herein shall constitute or be construed to
be or create a partnership or joint venture between Owner and Operator. Owner
acknowledges that this Agreement is a management service contract which is
irrevocable by Owner and Operator except as herein set forth. Owner and Operator
also acknowledge that they have significant and substantial duties, powers and
obligations under the terms hereof relating to the ultimate success of the
Hotel.
<PAGE>
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All debts and liabilities, including employment related expenses and
liabilities, to third persons incurred by Operator in the course of its
operation and management of the Hotel shall be the debts and liabilities of
Owner only and Operator shall not be liable for any such obligations by reason
of its management, supervision, direction and operation of the Hotel for Owner
in accordance with the terms of this Agreement. All income derived from the
operation of the Hotel shall be for the account of Owner. Upon termination of
this Agreement for any reason, all such Owner debts and liabilities, and any
which may specifically arise by virtue of such termination, are expressly
acknowledged to be the debts and liabilities of Owner alone. Operator may so
inform third parties with whom it deals on behalf of Owner and may take any
other reasonable steps to carry out the intent of this paragraph.
Each Hotel employee shall be the employee of Owner and not of Operator and
every person performing services in connection with this Agreement, including
any agent or employee of Operator, Sheraton or their affiliates or any agent or
employee of Owner hired by Operator, shall be acting as the agent of Owner.
Nonetheless, the Hotel manager and other executive personnel of the Hotel may be
on the payroll of Sheraton or any of its subsidiaries or affiliates and their
salaries and other related expenses (including, but not limited to, payroll
taxes and the cost of employee benefits) shall be Operating Expenses (as defined
in Article XIV). To the extent that Operator deems advisable and in Owner's best
interest, Operator may delegate to one or more persons in its general employ or
to the manager of the Hotel the responsibility of employing, paying, supervising
and discharging Hotel employees. Each person to whom any such duty is delegated
shall be the agent of Owner and not of Operator for such purposes.
ARTICLE VIII
OWNER TO BEAR ALL OPERATING EXPENSES
In performing its duties hereunder during the Operating Term, Operator
shall act solely for the account of Owner. All expenses and liabilities incurred
by Operator in performing its said duties shall be borne exclusively by Owner.
To the extent the funds necessary therefor are not generated by the operation of
the Hotel, they shall be supplied by Owner to Operator in the manner provided in
Article XI. If Operator deems such action necessary five (5) days after Owner
has failed to provide funds requested by Operator, it may use the funds in the
Reserve for Replacements, Substitutions and Additions to Furniture and Equipment
(provided for in Article XV) to defray Operating Expenses (as defined in Article
XIV) of the Hotel other than the expenses for which the said reserve was
created, and Owner shall replace all such funds on demand.
<PAGE>
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Operator shall in no event be required to advance any of its funds for the
operation of the Hotel, nor to incur any liability in connection therewith
unless Owner shall have furnished Operator with funds necessary for the
discharge thereof. However, if Operator shall at any time advance any funds in
payment of Operating Expenses, which Operator shall have the right but not the
obligation to do, Owner shall repay Operator on demand all or any part thereof,
with interest at the prevailing prime rate at The First National Bank of Boston
("Prime Rate"), provided that Operator shall have made written demand on Owner
for funds prior to making any such advance.
ARTICLE IX
ADVERTISING
Operator shall arrange and contract for all advertising which Operator may
deem necessary for the operation of the Hotel. The Hotel generally shall be
advertised by Operator as a "Sheraton" hotel.
Not later than sixty (60) days prior to the commencement of each fiscal
year, as part of the Business Plan, Operator shall deliver to Owner a budget of
the estimated advertising costs of the Hotel for such year, including a complete
marketing plan for the hotel for such year. The aggregate advertising costs
provided for in the said budget shall require Owner's approval if they exceed,
in the aggregate, a sum equal to 2% of the Total Revenue of the Hotel for the
previous fiscal year, (or, for the first full and any initial, partial fiscal
year, a sum equal to 3% of the projected Total Revenue for such periods), which
approval may be granted or denied in Owner's sole discretion. The foregoing sum,
as it may be increased with Owner's approval as specified herein, shall be an
Operating Expense of the Hotel to the extent it is actually expended for
advertising the Hotel either exclusively or in conjunction with the advertising
of other named Sheraton hotels or inns, as part of so-called "cluster"
advertising. In the latter event, the Hotel will bear such proportionate share
of the cost as is reasonably allocated to it by Operator and Sheraton. No
expense for advertising in excess of the budget for any fiscal year shall be
incurred or contracted for by Operator without Owner's approval.
As part of the annual budget of estimated advertising costs referred to
above, Operator shall submit to Owner for Owner's approval an Advertising
Program for the ensuing fiscal year containing a detailed itemization of the
proposed advertising expenditures for such fiscal year by category. Operator
will make reasonable revisions to the Advertising Program if Owner does not
approve same as originally submitted, but it is understood that an Advertising
Program will be approved by Owner prior to the Commencement of each fiscal year
of the Operating Term for such fiscal year. Owner's disapproval of the
<PAGE>
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Advertising Program may not be based on the fact that it provides for excessive
expenditures for advertising if the aggregate of the proposed advertising
expenditures does not exceed the amount Qperator is permitted to expend for
advertising without Owner's approval hereunder. Once Owner has approved the
Advertising Program, Operator will not expend during the fiscal year involved
more than 110% of the amount specified for any category of advertising
expenditures without Owner's approval, nor will Operator expend any amount in
excess of the total expenditures provided for in the Advertising Program without
Owner's approval.
In addition, the Hotel will obtain the benefits of Sheraton's
institutional marketing program for Sheraton owned and managed hotels and inns,
at no additional cost to Owner.
ARTICLE X
CENTRALIZED SERVICES AND PURCHASING
A. Centralized Services. Operator shall cause Sheraton or any of
Sheraton's affiliates to provide for the Hotel and its guests the full benefit
of the Sheraton Reservation System, the Sheraton Club International Program, the
Sheraton Guest Satisfaction Program and the Sheraton SAME Program. Owner shall
pay to Sheraton or the Sheraton Affiliate designated by Operator, a reasonable
participation payment as its share of the total costs of operation of the
Reservations System, the Sheraton Club International Program, the Sheraton Guest
Satisfaction Program and the Sheraton SAME Program. On or prior to the Opening
Date and as often as any change in rates hereinafter described may be notified
to Owner, Operator shall provide Owner such data and other information as is
reasonable to substantiate the calculation of Owner's share of the costs.
Subject to change from time to time so that such fee shall reflect Owner's
proper share of the estimated cost of the Reservations System (which changes
shall be effective upon notification thereof in writing to Owner), the monthly
payment for participation therein after the Opening Date is, as of January 1,
1988, .8% of gross room revenue, plus $8.65 per Available Room per month, plus
actual lease or purchase costs of the NCR tower equipment in the Hotel and plus
$3.50 per reservation made through the Reservations System by any other third
party reservation system. "Available Room" shall be defined for purposes of this
Section as any guest room in the Hotel which is available for occupancy during
the month in question. During the six month period immediately preceding the
Opening Date, the monthly payment for participation in the Reservation System
shall be a flat rate per Available Room equal to $5.00 during the fifth and
sixth months, $6.00 during the third and fourth months, $7.00 during the second
month, and $8.00 during the first month prior to the Opening Date. Owner hereby
agrees that the Hotel shall participate in the Sheraton Reservation System and
all such other Centralized Services which now exist or may become available in
the future on the terms and
<PAGE>
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conditions hereinafter specified, provided, that seventy-five (75%) percent of
other Sheraton hotels managed (but not owned or leased) by Operator or an
affiliate of Operator or of Sheraton to whom such Centralized Services are made
available so participates.
Sheraton or such of Sheraton's affiliated or subsidiary companies as
provide Centralized Services shall be entitled to be reimbursed for the Hotel's
share of the total costs that they reasonably estimate will be incurred in
providing same on a system-wide basis to Sheraton hotels, which estimate of
costs may include, without limitation, salaries (including payroll taxes and
employee benefits) of employees and officers of Sheraton, its affiliated and
subsidiary companies, and costs of all equipment employed in the rendition of
such services. The Hotel's share of said costs shall be determined in an
equitable manner by Sheraton and shall be an Operating Expense.
In addition, if Equipment is installed and maintained at the Hotel in
connection with the rendition of any Centralized Services, all costs thereof
will be paid by Owner and charged to the operation of the Hotel either as
current expenses or over a period of years, as determined by the certified
public accountant who audits Sheraton's books.
B. Purchasing. In its management of the Hotel hereunder, Operator may
purchase goods, supplies and services from or through Sheraton or any of its
affiliated or subsidiary companies so long as the the prices and terms thereof
are competitive with the prices and terms of goods and services of equal quality
available from others, provided, however, that any such purchase contract for
goods, supplies and services in excess of $50,000 or having a term of more than
one year shall require Owner's prior written approval. Moreover, Operator may
pay to any of same a fee for the negotiation of contracts for the direct
purchase by Operator from independent suppliers of goods, supplies and services
so long as the prices and terms thereof when added to the said fee are
competitive with the prices and terms of goods and services of equal quality
available from others, said fee to be charged to the operation of the Hotel on
the same basis as it is charged to the operation of hotels owned by Sheraton
subsidiaries. In addition, subject to Owner's prior written approval, Operator
may retain a Sheraton subsidiary, affiliate or division as a consultant and to
perform technical services in connection with any substantial remodeling,
repairs, construction or other capital improvement to the Hotel and said
subsidiary, affiliate or division shall be reasonably compensated for its
services.
<PAGE>
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ARTICLE XI
WORKING CAPITAL AND BANK ACCOUNTS
Owner shall provide Operator with initial working capital in the sum of
$713,500 which shall be provided to Operator in installments within 30 days
after requests therefor are made. Upon the close of each Accounting Period, if
and as requested by Operator upon 30 days prior written notice, accompanied by a
detailed cash flow projection for the next ninety (90) days or the remainder of
the Fiscal Year, whichever is longer, Owner shall provide to Operator operating
funds sufficient in amount (after taking into account funds in the Agency
Account (as defined below) from the operation of the Hotel) to constitute normal
working capital for the uninterrupted and efficient operation of the Hotel,
including payment of all Operating Expenses. Any dispute as to the amount of
such working capital required for the operation of the Hotel shall be resolved
by the Independent Certified Public Accountant who shall take into account in
each instance all foreseeable future financial needs of the Hotel.
All funds received by Operator in the operation of the Hotel, including
working capital furnished by Owner, shall be deposited in a special account or
accounts bearing the name of the Hotel ("Agency Account") in a bank or trust
company selected by Owner after consultation with Operator. Such funds shall not
be mingled with Operator's or Owner's other funds. Out of said Agency Account,
Operator shall pay all Operating Expenses (as defined in Article XIV) as well as
Operator's Incentive Fee (as provided in Article XIII).
In addition to the Agency Account, a cash fund shall be established for
the Reserve for Replacements, Substitutions and Additions to Furniture and
Equipment ("Reserve Fund") provided for an Article XV.
The foregoing accounts shall be opened and maintained at all times solely
by Operator. Checks or other documents of withdrawal shall be signed only by
representatives of Operator, provided such representatives shall be bonded or
otherwise insured. Operator shall supply Owner with such bonds or other
insurance unless said bonds or other insurance shall have been placed by Owner
and delivered directly by the bonding or insurance company to Owner. The
premiums thereon shall be an Operating Expense. Further, Operator shall
institute and maintain reasonab1e and prudent procedures with respect to the
safeguarding and handling of all funds of Owner or the Hotel over which it has
access or control. Owner shall receive from the foregoing accounts the payments
to be made by Operator to Owner under the provisions of this Agreement.
<PAGE>
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Notwithstanding the foregoing, Owner will bear all losses occasioned by the
failure or insolvency of the bank or trust company in which the Agency Account
or the Reserve Account is maintained. Upon the expiration or termination of this
Agreement, subject to the provisions of Article XXV hereof, all remaining
amounts in the foregoing accounts shall be transferred forthwith to Owner.
ARTICLE XII
BOOKS, RECORDS AND STATEMENTS
Operator shall, for the account of Owner, keep full and adequate books of
accounts and other records reflecting the results of operation of the Hotel on
an accrual basis, all in accordance with the "Uniform System of Accounts For
Hotels" (8th Revised Edition, 1986) as adopted by the American Hotel and Motel
Association of the United States and Canada ("Uniform System") with such
exceptions as may be required by the provisions of this Agreement, which
exceptions shall include without limitation the definitions of Total Revenue,
Gross Operating Profit (the term and definition of "Total income before fixed
charges" as set forth in the Uniform System is not applicable herein) and
Operating Expenses; provided however, that Operator may make such modifications
in its books of accounts as are consistent with Sheraton's standard practice in
accounting for its operations under management contracts generally, so long as
such modifications do not affect the determination of Total Revenue, Adjusted
Gross Operating Profit, Gross Operating Profit, the Basic Fee or the Incentive
Fee as defined in this Agreement. Except for the books and records which may be
kept in Sheraton's home office or other suitable location pursuant to the
adoption of a central billing system or other centralized service, the books of
account and all other records relating to or reflecting the operation of the
Hotel shall be kept at the Hotel and shall be available to Owner and its
representatives at all reasonable times for examination, audit, inspection and
transcription. All of such books and records pertaining to the Hotel, including
without limitation, books of account, guest records and front office records, at
all times shall be the property of Owner, and except as herein otherwise
provided, shall not be removed from the Hotel by Operator without Owner's
approval and consent. Upon any termination of this Agreement, all of such books
and records forthwith shall be turned over to Owner so as to insure the orderly
continuance of the operation of the Hotel, but such books and records shall
thereafter be available to Operator at all reasonable times for inspection,
audit, examination and transcription for a period of ten (10) years.
<PAGE>
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Operator shall deliver to Owner at or prior to the twentieth day of each
month or other accounting period used by Operator in accounting for the
operations of the Hotel containing not less than three nor more than six full
weeks, which month or other accounting period will be referred to herein as an
"accounting period", a profit and loss statement showing the results of the
operation of the Hotel for the immediately preceding accounting period and for
the fiscal year to date. Such statement (a) shall be in the form customarily
prepared by Operator or other Sheraton subsidiaries for other hotels managed by
them, (b) shall be taken from the books and records maintained by Operator in
the manner hereinabove specified, (c) shall follow the general form set forth in
the Uniform System, (d) shall show Total Revenue, Gross Operating Profit,
Adjusted Gross Operating Profit, the Basic Fee and the Incentive Fee, all as
defined herein, for the period in question, and for the year to date, (e) shall
show all information in a comparative form to the corresponding periods and year
to date for the period year, and (f) shall show all information in a comparative
form to the approved Budget for the accounting period. A copy of the Sheraton
form for providing this information is annexed hereto as Exhibit D. Operator
shall also provide Owner with all financial reports Owner is required to file
under the Ground Lease no later than fifteen (15) days prior to the date Owner
is required to file such reports pursuant to the Ground Lease. Within ninety
(90) days after the end of each fiscal year, Operator shall deliver to Owner a
profit and loss statement, certified by the Independent Certified Public
Accountant, and in a form sufficient to be filed under the Ground Lease, showing
the results of operations of the Hotel during such fiscal year, including the
Gross Operating Profit, Total Revenue, Adjusted Gross Operating Profit, the
Basic Fee, the Incentive Fee, if any, for such fiscal year and a balance sheet
as of the end of the year. Owner shall be deemed to have waived any objections
to said certified statements not specified to Operator in writing within two (2)
years and ninety (90) days of receipt thereof, except for issues raised by the
Internal Revenue Service as a result of examination or audit of Owner's tax
returns, in which cases the applicable statute of limitations shall apply. Any
disputes as to the contents of any such statement or any accounting matter
hereunder shall be determined by the Independent Certified Public Accountant,
whose decisions shall be final and conclusive on Operator and Owner.
ARTICLE XIII
OPERATOR'S MANAGEMENT FEE AND PAYMENT
TO OPERATOR AND OWNER
During each fiscal year of the Operating Term (and proportionately for a
fraction of a fiscal year) Owner shall pay to Operator for services rendered
under this Agreement, the following amounts:
<PAGE>
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A. A "Basic Fee" equal to the following percentages of Total Revenue, as
defined in Article XIV, for each such fiscal year;
1. Two (2%) percent of Total Revenue for the first and second fiscal
year;
2. Two and one-half (2.5%) percent of Total Revenue for the third
fiscal year;
3. Two and three-fourths (2.75%) percent of Total Revenue for the
fourth fiscal year;
4. Three (3%) percent of Total Revenue for the fifth fiscal year and
every fiscal year thereafter during the Operating Term; plus
B. An "Incentive Fee" of Twenty (20%) percent of Adjusted Gross Operating
Profit, as defined in Article XIV, for such fiscal year; payable as follows:
On or before the fifth day of each accounting period (as defined in
Article XII) during the Operating Term, Operator shall be paid out of the Agency
Account referred to in Article XI its Basic Fee for the preceding accounting
period, and on the fifth day of the first, fourth, seventh and tenth accounting
periods Operator shall either:
(a) be paid out of said Agency Account its Incentive Fee to date
based on the cumulative Adjusted Gross Operating Profit for that portion of the
fiscal year which ended on the last day of the preceding three accounting
periods (minus any Incentive Fee for the fiscal year which has already been paid
to Operator) : or
(b) return to the Agency Account any excess Incentive Fee Operator
may have already received for the fiscal year to date, based on the cumulative
Adjusted Gross Operating Profit for that portion of the fiscal year which ended
on the last day of the preceding three accounting periods.
To the extent that there may be insufficient funds in the Agency
Account for such payments, Owner shall pay to the Operator forthwith on demand
the said Basic Fee and Incentive Fee. Notwithstanding anything contained above,
in no event shall Operator receive, in the course of each six month period of a
fiscal year, Incentive Fee payments in excess of the estimated Incentive Fee as
projected for each such six month period in the Annual Budget for such fiscal
year. Any Incentive Fee payments due to Operator in excess of such projected
amount in the Annual Budget for each such six month period shall be payable to
Operator in each fiscal year as follows: (i) on each June 30th (after
appropriate adjustments), and (ii) within thirty (30) days of the completion of
each annual audit as described below.
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On or before the twentieth day of (i) each accounting period during the
Operating Term, after payment of Operator's Basic Fee for the preceding
accounting period and retention of working capital sufficient to assure the
uninterrupted and efficient operation of the Hotel for the foreseeable future
and (ii) the first, fourth, seventh and tenth accounting periods after payment
of Operator's Incentive Fee all remaining funds in the Agency Account shall be
retained in the Agency Account to the end of the fiscal year and remitted to
Owner subject to the adjustments described in section 4.1(c) of the Credit
Agreement dated December 18, 1989, between Sheraton and Owner ("Credit
Agreement").
At the end of each fiscal year and following receipt by Owner of the
annual audit, an adjustment will be made based on said audit, if necessary, so
that Operator shall have received its proper Basic Fee and Incentive Fee as
hereinabove specified for the said fiscal year and Owner shall have received all
sums due to it hereunder. Within thirty (30) days of receipt by Owner of such
audit Operator shall either (a) place in the Agency Account or remit to Owner,
as appropriate, any excess amounts it may have received as fees during such
fiscal year, or (b) be paid out of the Agency Account or by Owner, as
appropriate, any deficiency in the amounts it shall have received as such fees,
whichever the case may be.
In the event there is an operating loss in any fiscal year, it will be
borne exclusively by Owner and the amount thereof will not be applied against
either the Adjusted or Gross Operating Profit of any other fiscal year for the
purpose of determining Operator's Incentive Fee.
ARTICLE XIV
TOTAL REVENUE AND GROSS OPERATING PROFIT
The term "Total Revenue" as used in this Agreement shall mean all income and
proceeds of sales of every kind (whether in cash or on credit) resulting from
the operation of the Hotel and all of the facilities therein including, without
limitation, all income received from tenants, transient guests, lessees,
licensees and concessionaires and other persons occupying space at the Hotel
and/or rendering services to the Hotel guests, all income from catering
operations conducted outside of the Hotel, and the proceeds of use and occupancy
insurance actually received by Operator or Owner with respect to the operation
of the Hotel (after deduction from said proceeds of all necessary expenses
incurred in the adjustment or collection thereof). The term Total Revenue shall
not include either (i) gross receipts of any lessee, licensee, concessionaire or
other person occupying space in the Hotel, (ii) all consideration received at
the Hotel for hotel accommodations, goods or services to be provided at other
hotels, although arranged by, for or on behalf of Operator; (iii) applicable
excise, sales and use taxes or similar government charges collected directly
from patrons or guests, or as part of the sales price of any goods, services or
<PAGE>
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displays, such as gross receipts, admission, cabaret or similar or equivalent
taxes; (iv) refunds, rebates, discounts and credits given, paid, returned or
received by Owner or Operator; receipts from condemnation awards or sales in
lieu of and under the threat of condemnation; (vi) proceeds of hazard or other
insurance (other than business interruption insurance); (vii) gains arising or
revenues derived from the sale or other disposition of capital assets, Furniture
and Equipment, Operating Equipment, the Premises (or any part thereof), or the
Building and Appurtenances; (viii) interest received on any funds held in any
accounts pursuant to this Agreement or otherwise; or (ix) proceeds from
financing or refinancing the Hotel or any portion thereof.
The words "Gross Operating Profit" as used in this Agreement shall mean the
excess of Total Revenue over all costs and expenses of maintaining, conducting
and supervising the operation of the Hotel incurred by Operator directly or at
its request pursuant to this Agreement or as otherwise specifically provided
herein ("Operating Expenses"), which are properly attributable to the period
under consideration under Operator's system of accounting, including without
limitation:
(1) The cost of all food and beverages sold or consummed and of all
Operating Equipment and Operating Supplies placed in use (other than
reserve stock thereof in storerooms), with the exception of the
Operating Equipment initially supplied by Owner pursuant to Article
I hereof. For purposes of this provision, Operating Equipment and
Operating Supplies shall be considered to have been placed in use
when they are transferred from the storerooms of the Hotel to the
appropriate operating departments.
(2) Salaries and wages of Hotel personnel, including costs of payroll
taxes and employee benefits (which benefits may include, without
limitation, a pension plan, medical insurance, life insurance,
travel accident insurance and bonus and service award programs) and
the costs of moving executive level Hotel personnel, their families
and their belongings to the area in which the Hotel is located at
the commencement of their employment at the Hotel and all other
expenses not otherwise specifically referred to in this Article XIV
which are referred to as "Administrative and General Expenses" in
the Uniform System. If the General Manager of the Hotel and other
Hotel executive personnel are on the payroll of Sheraton or any
affiliated company, the cost of their salaries, payroll taxes and
employee benefits (which benefits, in the case of employees who are
not United States citizens or in the case of employees of hotels
located outside of the continental United States, may include,
without limitation, (but subject to Owner's approval which shall not
be unreasonably withheld) in addition to the foregoing benefits,
reasonable home leave transportation
<PAGE>
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expenses) consistent with Sheraton policies shall be billed by said
company to and be reimbursed monthly from the Agency Account and
such reimbursement shall be an Operating Expense. Except as herein
otherwise expressly provided, the salaries or wages of other
employees or executives of Operator, Sheraton or any of their
affiliated companies shall in no event be Operating Expenses, but
they shall be entitled to free room and board and the free use of
all Hotel facilities at such times as they visit the Hotel
substantially in connection with the management thereof hereunder.
Notwithstanding the foregoing, if it becomes necessary for a
Sheraton employee or an employee or executive of a company
affiliated with Sheraton to temporarily perform services at the
Hotel of a nature normally performed by Hotel personnel, his salary
(including payroll taxes and employee benefits) as well as his
traveling expenses will be Operating Expenses and he will be
entitled to free room, board and use of hotel facilities, as
aforesaid, while performing such services.
(3) The cost of all other goods and services obtained by Operator in
connection with its operation of the Hotel including, without
limitation, heat and utilities, office supplies and all services
performed by third parties.
(4) The cost of repairs to and maintenance of the Hotel.
(5) Insurance premiums for public liability insurance, Workmen's
Compensation Insurance or insurance required by similar employee
benefits acts and such business interruption, crime or other
insurance as may be provided for protection against claims,
liabilities and losses arising from the operation of the Hotel (as
distinguished from any property damage insurance on the Hotel
building or its contents, the cost of which will be borne by Owner
and will not be considered an Operating Expense) and losses incurred
on any self-insured risks of the foregoing types, provided that
Operator has approved in advance such self-insurance or insurance is
unavailable to cover such risks. Premiums on policies for more than
one year will be pro-rated over the period of insurance and premiums
under blanket policies will be allocated among properties covered.
(6) All taxes, assessments and other charges (other than income taxes)
payable by or assessed against Operator with respect to the
operation of the Hotel, and water and sewer charges. Specifically
excluded from this deduction are all taxes levied or imposed against
the Hotel or its contents, such as real and personal property taxes.
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(7) Legal fees and fees of any Independent Certified Public Accountant
for services (including in the latter case fees for the Hotel annual
audit) directly related to the operation of the Hotel and its
facilities.
(8) The costs and expenses, including salaries and reasonable fees, of
technical consultants and specialized operational experts for
specialized services in connection with non-recurring work on
operational, functional, decorating, design or construction problems
and activities. Such costs and expenses may include the reasonable
fees of Sheraton or any Sheraton subsidiary or division in
connection therewith, provided that such fees have either been
included in the Approved Budget or do not exceed $5,000 in any one
instance, failing which the same shall be subject to approval by
Owner. Within five (5) business days after receipt by Owner of
Operator's request for approval, Owner shall either grant or
withhold such approval, in writing, and if approval is withheld,
Owner shall provide Operator with its reasons therefor. If Owner
does not respond within said five (5) business day period the
request shall be deemed approved.
(9) All expenses incident to the marketing program, consisting of sales,
advertising, promotion, publicity and public relations expenses of
the Hotel.
(10) All out-of--pocket expenses and disbursements determined by the
Independent Certified Public Accountant to have been reasonably,
properly and specifically incurred by Operator, Sheraton or any of
their affiliated or subsidiary companies pursuant to, in the course
of and directly related to, the management and operation of the
Hotel under this Agreement. Without limiting the generality of the
foregoing, such charges may include all reasonable travel,
telephone, telegram, radiogram, cablegram, air express and other
incidental expenses, but, except as herein otherwise expressly
provided, shall not include any of the regular expenses of the
offices maintained by Operator, Sheraton, or any of their affiliated
or subsidiary companies other than offices maintained at the Hotel
for the management of the Hotel.
(11) The cost of Centralized Services, as provided in Article X.
Operating Expenses shall not include, (i) depreciation and amortization, (ii)
interest on Owner's indebtedness and any rent payable by Owner either in respect
of the Premises, the Building and Appurtenances, the Furniture and Equipment,
the Operating Equipment, the Operating Supplies, or any part of any of the
foregoing, (iii) real and personal property taxes and property damage insurance
premiums, and (iv) the costs, required to be
<PAGE>
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paid by Owner at its sole expense under Article XVI, of structural additions or
modifications, extraordinary repairs, extraordinary maintenance and capital
improvements and any other things specified herein to be done or provided at
Owner's sole expense.
The words "Adjusted Gross Operating Profit" as used in this Agreement shall mean
the excess of Gross Operating Profit over the sum total of that portion of each
of the following items which is properly attributable to the period under
consideration under the Operator's system of accounting:
(i) Amounts provided for the Reserve for Replacements, Substitutions and
Additions to Furniture and Equipment in accordance with Article XV
of this Agreement (exclusive of any interest which may accrue
thereto from time to time);
(ii) Operator's Basic Fee (but not Operator's Incentive Fee) provided for
in Article XIII of this Agreement;
(iii) Real and personal property taxes currently assessed on the Hotel and
its contents; and
In the event Owner exercises its option to purchase the land pursuant to
the terms of the Ground Lease the following provision shall be substituted for
subparagraph (v) above, from and after the date of such purchase.
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(a) for the first fiscal year after the purchase (and any partial year)
the rent in effect for the fiscal year prior to the purchase plus 20% of the
difference between the rent in effect for the fiscal year prior to the purchase
and 12.5% of the purchase price of the land.
(b) for the second fiscal year after the purchase the rent in effect for
the fiscal year prior to the purchase plus 40% of the difference between the
rent in effect for the fiscal year prior to the purchase and 12.5% of the
purchase price of the land.
(c) for the third fiscal year after the purchase the rent in effect for
the fiscal year prior to the purchase plus 60% of the difference between the
rent in effect for the fiscal year prior to the purchase and 12.5% of the
purchase price of the land.
(d) for the fourth fiscal year after the purchase the rent in effect for
the fiscal year prior to the purchase plus 80% of the difference between the
rent in effect for the fiscal year prior to the purchase and 12.5% of the
purchase price of the land.
(e) for the fifth fiscal year after the purchase and every year thereafter
during the Operating Term the rent in effect for the fiscal year prior to the
purchase plus 100% of the difference between the rent in effect for the fiscal
year prior to the purchase and 12.5% of the purchase price of the land.
ARTICLE XV
RESERVE FOR REPLACEMENTS, SUBSTITUTIONS AND ADDITIONS
TO FURNITURE AND EQUIPMENT
During each fiscal year (and proportionately for any fraction thereof) there
shall be deducted in monthly installments from Gross Operating Profit, in
computing Adjusted Gross Operating Profit, the following stated amounts:
1. During the first full fiscal year (including any initial, partial
fiscal year), one (1%) percent of Total Revenue.
2. During the second fiscal year of the Operating Term, one and
one-half (1.5%) percent of Total Revenue.
3. During the third fiscal year of the Operating Term, two (2%) percent
of Total Revenue.
4. During the remainder of the Operating Term, three (3%) percent of
Total Revenue.
A cash fund of the amounts so deducted shall be created in an interest bearing
account for the purpose of making replacements, substitutions and additions to
said Furniture and Equipment.
<PAGE>
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Such fund ("Reserve Fund") shall be recorded on the books of account maintained
for the Hotel as "Reserve for Replacements, Substitutions and Additions to
Furniture and Equipment." Interest on such account shall be credited to the
Reserve Fund.
Except as otherwise specified in this Agreement, the Reserve Fund shall be used
solely for the purposes specified in this Article. Any proposed expenditures in
any fiscal year from the Reserve Fund in excess of the amount provided for in
the Approved Budget shall be subject to Owner's approval. All purchase orders in
excess of $5,000 for capital items in the Approved Budget shall be subject to
Owner's approval, except for capital items which were contained in a project
release (in form attached hereto as Exhibit G or as such form may be reasonably
modified from time to time) previously approved by Owner, in which case Owner
will be provided with confirmation of the purchase of the capital items
contained in such project release. Owner shall either give its written approval
or reasons for its denial to requests for approval within one (1) business day
after receipt of requests for approval of a purchase order and within five (5)
business days after receipt of requests for approval of a project release. If
Owner does not so respond within the applicable time periods as aforesaid, said
requests shall be deemed approved. All proceeds from the sale of Furniture and
Equipment no longer needed for the operation of the Hotel shall be credited to
the Reserve Fund. All amounts remaining in the Reserve Fund at the close of each
fiscal year shall be carried forward and retained until fully used as herein
provided. Any expenditure in excess of the Reserve Fund which Operator may
propose or consent to shall be subject to Owner's approval and shall be charged
as an Operating Expense over a period of years in the manner determined by the
Independent Certified Public Accountant, based on the useful life of the assets
purchased.
ARTICLE XVI
REPAIRS AND MAINTENANCE AND CAPITAL IMPROVEMENTS
Subject to Owner's providing the necessary working capital therefor, as required
under Article XI hereof, Operator shall from time to time make such expenditures
for repairs and maintenance as it deems necessary to keep the Hotel in good
operating condition (excluding structural repairs and changes and extraordinary
repairs to or replacement of equipment included in the definition of Building
and Appurtenances). If any such repairs or maintenance shall be made necessary
by any condition against the occurrence of which Owner has received the guaranty
or warranty of the builder of the Hotel or of any supplier of labor or materials
for the construction of the Hotel, then Operator may invoke said guarantees or
warranties in Owner's or Operator's name and Owner will cooperate fully with
Operator in the enforcement thereof.
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Operator, at Owner's sole expense, in emergency situations, may also make
expenditures for capital improvements to the Hotel having an estimated cost not
in excess of $50,000 in the aggregate in any year, which expenditures shall be
reported to Owner within one (1) business day after being made.
Owner may from time to time at its sole expense make such further alterations,
additions or improvements in or to the Hotel as Operator and Owner shall
mutually approve, all of which will be made with as little hindrance to the
operation of the Hotel as possible. Owner shall seriously consider any
alterations, additions or improvements recommended by Operator.
If structural repairs or changes in the Hotel or extraordinary repairs to or
replacements of any equipment included in the definition of Building and
Appurtenances shall be required at any time during the term of this Agreement to
maintain the Hotel in good operating condition or by reason of any laws,
ordinances, rules or regulations now or hereafter in force, or by order of any
governmental or municipal power, department, agency, authority or officer, or
otherwise, or because Operator and Owner jointly agree upon the desirability
thereof, then in such event all such repairs, changes or replacements shall be
made by Owner and at Owner's sole expense, and shall be made with as little
hindrance to the operation of the Hotel as possible. Notwithstanding the
foregoing, Owner shall have the right to contest the need for any such repairs,
changes or replacements required by any law, ordinance, regulation or order of
governmental authority and may postpone compliance therewith, if so permitted by
law, but in each such event Owner shall protect Operator from any loss, cost,
damage or expense which may result therefrom, such protection to be in a form
reasonably satisfactory to Operator.
The provisions of this Article XVI are without prejudice to any of Operator's
rights or remedies arising out of any breach by Owner of its obligation under
Article I.
ARTICLE XVII
CASINO
In the event applicable law shall permit the operation of a casino at the Hotel,
and Owner elects to have a casino in the Hotel, the casino shall be operated by
Operator on terms consistent with terms governing the operation of casinos at
first-class convention hotels in accordance with an agreement to be negotiated
by Owner and Operator. In the event Owner and Operator fail to reach agreement
on such terms, the issue shall be submitted to arbitration in accordance with
Article XXVII hereof.
<PAGE>
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ARTICLE XVIII
INSURANCE
Owner shall provide and maintain at Owner's sole expense, all risk insurance
(including flood and earthquake to the extent available at reasonable rates)
during the period of construction covering the Hotel, Furniture and Equipment
including, without limitation, boiler and machinery insurance for all direct
loss or damage to property caused by explosion or breakdown of boilers, pressure
vessels and mechanical or electrical equipment, but excluding, at Owner's
discretion, damage resulting from war, nuclear energy, and wear, tear, or
inherent vice. Owner shall also during such period provide and maintain at
Owner's sole expense adequate public liability and property damage insurance
fully protecting Owner, Operator, Sheraton, and their respective subsidiaries,
ITT Corporation and its subsidiaries performing services under this Agreement
against loss or damage arising in connection with the construction, furnishing
and equipping and preparation for opening of the Hotel. Such public liability
insurance shall specifically include such of the coverages and limits specified
in the third paragraph of this Article XVIII as Operator may request.
Thereafter, throughout the Operating Term of this Agreement, Owner shall
maintain all risk insurance (including without limitation flood and earthquake
if available at reasonable rates) and boiler and machinery insurance (including
use and occupancy/loss of income, for all direct loss or damage to property
caused by explosion or breakdown of boilers, pressure vessels and mechanical or
electrical equipment, in minimum limits of $5,000,000, but excluding, at Owner's
discretion, damage resulting from war, nuclear energy, and wear, tear and
inherent vice) in aggregate amounts which shall be not less than eighty (80%)
percent of the full replacement cost of the Hotel. Owner shall carry such other
or additional insurance in such amounts and against such risks as Operator or
Owner shall reasonably require with respect to the buildings, facilities and
contents of the Hotel, it being reasonable for Operator to require insurance of
the types and in the amounts generally carried on first-class convention hotels
owned or operated by Sheraton or its affiliates.
Owner shall also throughout the Operating Term provide and maintain:
1. Public liability insurance having a minimum per occurrence limit of
$100,000,000 against all claims which may be brought anywhere in the
world for personal injury (including bodily injury), death or damage
to property of third persons. Such coverage shall not exclude
liability for punitive or exemplary damages. Such insurance shall
further include coverage against liability arising out of the
ownership or operation of motor vehicles. Such coverages must
include, at a minimum, those coverages contained under the standard
<PAGE>
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broad form Comprehensive General Liability endorsement which
includes contractual liability, employees as an insured, personal
injury liability (including false arrest, libel, slander, and
defamation or violation of the right of privacy), incidental medical
malpractice, extended bodily injury coverage, and, to the extent
available, liquor law ("Dram Shop") liability coverages.
2. Workmen's compensation insurance or insurance required by similar
employee benefit acts as required by law. In addition, Employer's
Liability insurance against all claims which may be brought for
personal injury or death of Hotel employees but not less than
$1,000,000 per occurrence; and
3. Business interruption insurance covering loss of income to both
Owner and Operator (including Basic and Incentive Fees) for a
minimum period of one (1) year resulting from interruption of
business caused by the occurrence of any of the risks insured
against under the property damage insurance referred to in the
preceding paragraph of this Article XVIII.
4. Crime insurance, including bonds covering Hotel employees for a
minimum of $5,000,000 shall be purchased by Operator.
Operator may reasonably require Owner to increase the above limits of insurance
coverage and may reasonably require Owner to carry other or additional
insurance, it being reasonable for Operator to require insurance of the types
and in the amounts generally carried on hotels owned or operated by Sheraton.
Such additional insurance shall be subject to Owner's approval, which shall not
be unreasonably withheld. Owner shall pay all premiums on the insurance required
under subparagraphs 1, 2, 3, and 4, above, and hereunder, but the cost of
insurance required there and hereunder shall be an Operating Expense.
All insurance shall be in such form and with such companies as shall be
reasonably satisfactory to Operator. Such property damage policies shall provide
that all coverages thereunder shall be primary, and that the loss, if any,
payable thereunder shall be adjusted with and payable to Owner (or in the case
of Business Interruption coverage, to Owner and Operator as their interests may
appear). All insurance shall be in the name of Owner, Operator, Sheraton, ITT
Corporation ("ITT") and their respective subsidiaries as the insured, as their
interests may appear.
Certificates of all policies shall be delivered to Operator and/or Owner; (a)
prior to the period of construction, furnishing and equipping of the Hotel in
the case of insurance relating to the period of said construction, furnishing
and equipping; (b) not less than ten (10) days prior to the Opening Date in the
case of all insurance required to be maintained
<PAGE>
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during the Operating Term; and (c) not less than ten (10) days prior to the
expiration date of all policies of insurance that must be maintained subsequent
to such expiration dates under the terms of this Agreement. All such
certificates shall specify that the policies to which they relate cannot be
cancelled on less than thirty (30) days prior written notice to Operator.
Should Owner fail to supply Operator with such certificates within the foregoing
time limits, Operator may provide but only after fifteen (15) days prior notice
to Owner of such action any such insurance as to which such certificates are not
supplied or may enroll Owner in any "self-insurance" program maintained by
Operator, Sheraton or any of their affiliated or subsidiary companies, the
expenses of such provision of insurance or the losses under such
"self-insurance" program to be treated hereunder as if Owner had paid for the
said insurance as required hereunder, or elected the said enrollment. Any
advances for such insurance made by Operator shall be reimbursed by Owner on
demand.
Owner and Operator hereby waive their right of subrogation against the other and
shall have all policies of insurance provide that the insurance company will
have no right of subrogation against Operator, Sheraton, ITT or any of their
respective affiliated or subsidiary companies or the agents or employees
thereof. Owner assumes all risks in connection with the adequacy of any
insurance or self-insurance program required or permitted under this Article
XVIII, and waives any claim against Operator, Sheraton, ITT and all of their
respective subsidiaries and affiliates for any liability, cost or expense
arising out of any uninsured claim, in part or in full, of any nature
whatsoever. Nothing contained in this paragraph shall be construed as
authorizing any self-insurance program not approved by Operator. Owner
acknowledges that Operator, Sheraton, ITT or any of their respective affiliated
or subsidiary companies may at their sole expense, carry insurance coverages
separate and distinct from those required under this Article XVIII, including
any excess coverage protecting only their separate interests.
Operator shall make available to Owner, and Owner may, at its sole
election, purchase any of the insurance required hereunder under the "Master
Insurance Programs" maintained by Sheraton, or any of its affiliates or
subsidiaries. Sheraton agrees to promptly provide Owner with price quotes
regarding such programs for Owner's review and consideration.
ARTICLE XIX
OPERATOR, AS OWNER'S AGENT,
TO PAY REAL AND PERSONAL PROPERTY TAXES
Provided that funds therefor are available in the Agency Account, or are
otherwise made available by Owner, and provided that tax bills are furnished by
Owner, Operator, as agent of Owner, shall pay from the Agency Account or with
funds furnished by Owner not less than ten (10) days prior to the dates the same
become delinquent, with the right to pay the same in installments
<PAGE>
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to the extent permitted by law, all real estate taxes, all personal property
taxes and all betterment assessments levied against the Hotel or any of its
component parts. Operator shall furnish Owner, not less than ten (10) days prior
to the respective dates the foregoing taxes and assessments will become
delinquent, proof of payment thereof in form satisfactory to Owner. If there are
insufficient funds in the Agency Account to pay such taxes and Owner does not
make such funds available, Operator (1) may pay any such taxes or assessments on
Owner's behalf, (2) shall be reimbursed forthwith by Owner for all sums so
expended, and (3) may withdraw same from the Reserve Fund at any time, in which
event Owner shall at Operator's request replenish the funds so withdrawn.
Notwithstanding the foregoing, Owner may, at its sole expense, contest the
validity or the amount of any such tax or assessment, provided that such contest
in no way jeopardizes Operator's rights under this Agreement. Operator agrees to
cooperate with Owner and execute any documents or pleadings required for such
purpose, provided that Operator is satisfied that the facts set forth in such
documents or pleadings are accurate and that such execution or cooperation does
not impose any obligations or expenses on Operator, and Owner agrees to
reimburse Operator for all increased expenses occasioned to Operator by any such
contest.
Operator, as agent of Owner, shall pay all rent under the Ground Lease and all
debt service payments under all mortgages affecting the Hotel at least five (5)
days prior to the date (excluding any grace periods) on which such payments are
due and payable under the terms of said Ground Lease and mortgages; provided
there are funds therefor in the Agency Account or are otherwise made available
by Owner, and further provided that all necessary information and calculations
to make such payments in timely fashion is furnished to Operator.
Operator shall, as agent of Owner, subject to sufficient funds being made
available to Operator to meet its obligations under this Article XIX where
appropriate, perform such obligations and comply with such terms and provisions
of the Ground Lease and the mortgages as shall require Operator's performance
and compliance for the due performance of Owner's obligations and
responsibilities under said agreements; provided, however, that such performance
or compliance by Operator shall be within the scope of Operator's authority
under this Agreement; and further provided that copies of the Ground Lease and
mortgages have been furnished to Operator. Nothing herein contained shall create
any liability on the part of Operator to the Landlord under the Ground Lease or
the mortgagees under the mortgages.
Operator shall provide Owner with all estoppels or similar certificates Owner is
required to provide from Operator under the Ground Lease or any mortgage or
insurance policy affecting the Hotel within the time periods specified in such
documents.
<PAGE>
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ARTICLE XX
USE OF NAME SHERATON
During the term of this Agreement, the Hotel shall at all times be known and
designated as the "Sheraton Chicago Hotel & Towers", or by such other name as
from time to time may be agreed upon by Owner and Operator. During such term,
Owner shall not use or refer to the word "Sheraton" other than in connection
with the Hotel. Moreover, no press releases or other written matter prepared by
Owner for publication in which the name "Sheraton" is used shall be released
without Operator's prior written approval. Upon the termination of this
Agreement, such portion of the name as does not contain the word "Sheraton" and
the right to the use thereof shall continue to be the exclusive property of
Owner. However, thereafter neither Owner nor any other owner or operator of the
Hotel shall have the right to use the word "Sheraton" or any Sheraton
trademarks, emblems, insignia, slogans or distinguishing characteristics in
connection with the operation of the Hotel, except that Owner shall have the
right to use all of the then existing Operating Equipment and Operating Supplies
even though marked with the name "Sheraton," or with other Sheraton
characteristics, until fully consumed, and Operator shall have the right at
Owner's expense to remove from the Hotel any signs or other indicia of any
connection with the Sheraton hotel system. Notwithstanding the foregoing, if
within fifteen (15) days after termination Operator offers to buy any or all of
said Operating Equipment and Operating Supplies bearing the name Sheraton or
Sheraton trademarks, emblems, insignia or distinguishing characteristics, at
fair market value, Owner shall cease to use same and shall sell same to Operator
provided that Owner shall have a reasonable amount of time to replace such
Operating Equipment and Operating Supplies. In the event of any dispute as to
fair market value, the Independent Certified Public Accountant shall determine
said value. Operator shall have the right to seek injunctive or other relief in
a court of competent jurisdiction, to enforce the foregoing provisions,
notwithstanding the arbitration provisions contained in this Agreement. Owner
shall bear all of Operator's costs, including reasonable attorneys' fees, in
connection with the enforcement of Operator's rights under this Article XX. The
provisions of this Article XX shall survive termination of this Agreement for
any reason.
ARTICLE XXI
FINANCING AND REFINANCING
1. Original Financing. Owner shall obtain the majority of the funds to pay the
total cost of the Hotel pursuant to the financing plan as described in Article
XXXIV, Clause 1, (the "Original Financing"). Such financing shall be secured by
mortgages, deeds of trust and other security instruments.
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2. Refinancing. Owner may, in its discretion, from time to time, increase,
amend, replace or add to the Original Financing or otherwise refinance
("Refinancing") the Hotel and execute and deliver new financing agreements,
deeds of trust, mortgages and other security instruments to secure such
Refinancing. Operator will, from time to time, execute such documents as Owner
requests to subordinate its interest under this Agreement to such additional
financing or Refinancing.
3. Owner's Financing.
A. As used herein the term "Securities" shall mean any shares of capital
stock of Owner or units of Partnership interest, as the case may be, in Owner or
in any other legal entity under the direct or indirect control of Owner or any
other interest in Owner which, in connection with the Hotel, would be considered
a security under the Securities Act of 1933, as amended, or under any applicable
state securities law.
B. Owner shall not represent to any third party in connection with any
proposed financing arrangement or loan or any public or private offering of
Securities that Operator, Sheraton, or any of their respective Affiliates, are
in any way responsible for Owner's obligations under said financing arrangement
or loan, or shall be participating in any such private or public offering of
Securities. Owner shall not make use of the name "Sheraton" or the name of
Operator, Sheraton or any of their respective Affiliates in connection with any
proposed financing arrangement, loan or public or private offering of
Securities, other than to state (a) that the Hotel may bear the name "Sheraton",
will be managed by Operator subject to the terms of this Agreement, will be a
part of the "Sheraton Hotel System", and (b) Sheraton will make the loans to
Owner described and in accordance with the Credit Agreement referred to in
Article XXIV hereof. At least 30 days prior to the closing of any proposed
financing arrangement, loan or offering, Owner shall inform Operator of the
identity of the proposed lender, partner or partners or purchasers of Securities
(if known to Owner), and shall furnish to Operator copies of all material,
documents and instruments to be used in connection with the closing of the
financing arrangement, loan or offering and such other information and materials
as Operator may reasonably request (if and to the extent the same are reasonably
available to Owner). Operator shall have the right to notify the proposed
lender, partner or purchaser of the legal relationship between Operator,
Sheraton and their respective Affiliates and Owner. Operator may inform such
parties that neither Operator, Sheraton nor any of their respective Affiliates
makes any warranties as to, or represents in any way the accuracy of, any
information provided to such parties by Owner.
C. Owner shall not offer to sell or cause or consent to be so offered,
directly or indirectly through any intermediary or otherwise, any Securities
without furnishing Operator full particulars relating to such contemplated
offer, and shall not sell or offer to sell any Securities unless Owner shall
furnish
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a legal opinion of its counsel, for the benefit of Operator, Sheraton and their
respective Affiliates, to the effect (i) that either (x) such sale or offer of
sale is exempt from the registration requirements of the Securities Act of 1933
(the "Act") or (y) such sale or offer of sale will not violate the Act, and (ii)
in the case of (x), that to the knowledge of such counsel (no independent
investigation having been conducted for such purpose), the private placement or
offering memorandum, as amended, distributed in connection with such sale or
offer of sale, if any, contains no untrue statement of a material fact and does
not omit to state any material fact required to be stated therein or necessary
to make the statements therein not misleading (it being understood that such
counsel need express no opinion as to the financial statements and other
financial data contained therein). The foregoing restriction shall expressly not
apply to transfers of any presently outstanding shares of capital stock or
presently outstanding units of partnership interest, as the case may be, by any
holder of such shares or units, of his or its shares or units, to any entity
wholly owned and controlled by such holder or as permitted under Article XXIX
hereof ("Permitted Transfers").
D. Owner, for itself, each controlling person of Owner for itself, each
partner of Owner for itself and each controlling person of such partner for
itself, severally but not jointly hereby represents, warrants and covenants that
the Securities shall be sold in conformity with all applicable Securities Laws
(as hereinafter defined). Operator, its representatives and legal counsel, shall
have full access at all reasonable times to all offering memoranda, brochures,
advertising and promotional materials that may from time to time be used by
Owner, its representatives or sale agents in connection with the sale of the
Securities. Upon request, Owner shall permit Operator, its representatives or
legal counsel, upon reasonable prior notice, to examine such of its books,
records and documents and those of any representatives or sales agents of Owner
as will reasonably permit Operator or its representatives or legal counsel to
assure Operator that no violation or breach of any applicable Securities Law has
occurred. As used herein, the term "Securities Laws" means the Act, the
Securities Exchange Act of 1934, the Interstate Land Sales Full Disclosure Act,
the Federal Reserve Margin requirements, the New York State Real Estate
Syndication Act, any state securities laws or any other similar law or any rule
or regulation promulgated under any of the foregoing.
E. Notwithstanding anything to the contrary in the foregoing, Owner will
not file or deliver any registration statement, prospectus, notification under
regulation "A" of the Act, Blue Sky application, private offering memorandum or
brochure or any other document, or any amendment to any of the foregoing,
pursuant to any of the Securities Laws or in connection with the offer to sell
any Securities wherein Operator, Sheraton, or their respective Affiliates, or
this Agreement, directly or indirectly, in whole or in part, is described or
referred to, without submitting such matter in
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advance to Operator. Owner warrants that no such documents or materials shall
contain any untrue fact or shall omit to state any material fact which may be
required to be stated therein to comply with the requirements of any of the
Securities Laws or may be necessary to make statements therein not misleading.
F. In no event shall Operator, Sheraton, ITT Corporation ("ITT") or any of
their respective Affiliates be required (a) to file or sign any Registration
Statement under the Act or any applicable Securities Law pertaining to the sale
of any Securities, or (b) to include in any such registration statement or
related document any financial information or description of the business,
affairs, operation or management of Operator, Sheraton ITT or any Affiliate
thereof, or the "Sheraton" system of hotels and motor inns, which in the sole
opinion and belief of the management of Operator or Sheraton is deemed to be
confidential even if deemed necessary by the Securities and Exchange Commission
("SEC"), any state securities commissioner or in the opinion of Operator's
counsel in order to avoid a violation of the Act or applicable state law. Other
than as aforesaid, Operator shall furnish Owner all information Owner may
reasonably request for the inclusion in any offering brochure, memorandum or
prospectus of material descriptive of Operator, Sheraton and their respective
Affiliates, provided that such offering brochure, memorandum, prospectus and
material has previously been reviewed by Operator, and the preparation or use
thereof is permitted by this Section.
G. Reasonable counsel fees in connection with the rendering of any opinion
delivered pursuant to this Article XXI shall be paid by Owner and shall not be
an Operating Expense under this Agreement.
H. Owner, for itself, each controlling person of Owner for itself, each
partner of Owner for itself and each controlling person of such partner for
itself (each of which are referred to herein as "Indemnitor"), severally but not
jointly hereby agrees to indemnify, defend and hold harmless Operator, Sheraton
and each of their respective Affiliates as well as each director, officer, agent
or attorney of such corporation or corporations (the "Indemnitees"), against any
liability, obligation, claim, cause of action, suit, judgment or damage asserted
against any of them, based upon or arising out of any violation or breach by
such Indemnitor, or by any officer or director thereof, of any of the applicable
provisions of the Securities Laws (other than a claim for which any Indemnitor
is entitled to indemnification pursuant to paragraph I below). Such Indemnity
shall include all costs, expenses, damages, judgments, settlement amounts and
reasonable attorneys' fees incurred by any of the Indemnitees in connection with
the defense of any such matter. An Indemnitee shall give each Indemnitor from
which it seeks indemnity reasonable notice of the assertion of any such claim
against him or it upon the occurrence thereof. Upon notice of such claim such
Indemnitor or Indemnitors shall undertake the full defense thereof; provided,
however, that any defendant shall have the right to
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counsel of his own choice and at its own expense, which shall not in any way
reduce or limit any other obligation of such Indemnitor or Indemnitors to such
Indemnitee under the terms of this Agreement. The individual liability of any
Indemnitor liable under this paragraph shall be limited to its direct or
indirect interest in the Owner as the same is constituted.
I. Operator, Sheraton and each controlling person thereof ("Operator
Indemnitor") severally but not jointly agrees to indemnify, defend and hold
harmless Owner, each partner of Owner and each agent or attorney of Owner
("Owner Indemnitee") against any liability, obligation, claim, cause of action,
suit, judgment or damage aserted against any of them which is based upon or
arises out of the false or misleading nature of any material or information
supplied by such Operator Indemnitor or any of its Affiliates and included in
any offering memorandum or brochure or prospectus filed with or delivered to any
person or entity by or on behalf of Owner in compliance with this Article XXI.
Such indemnity shall include all costs, expenses, damages, judgments,
settlements amounts and reasonable attorneys' fees incurred by any Owner
Indemnitee in connection with the defense of any such matter. Each such Owner
Indemnitee shall give each Operator Indemnitor from which it seeks indemnity
reasonable notice of the assertion of any such claim against him or it upon the
occurrence thereof. Upon notice of such claim such Operator Indemnitor(s) may
undertake the full defense thereof; provided however, that any defendant shall
have the right to counsel of his own choice, and at his own expense, which shall
not in any way reduce or limit any other obligation of such Operator
Indemnitor(s) to such Owner Indemnitee under the terms of this Agreerment. The
individual liability of any Operator Indemnitor liable under this paragraph
shall be limited to an amount equal to the maximum liability that the Indemnitee
would have to Operator Indemnitor, in a situation in which liabilities were
reversed.
J. If any Indemnitor (except Operator Indemnitor) shall fail at any time
to comply with any part of the provisions of this Section and such failure shall
result in the consummation of a sale of Securities involving an act or omission
to act by an Indemnitor in violation of law which subjects Operator to any
liability under the Securities Laws, Operator shall have the unqualified right
immediately to terminate this Agreement by sending notice by cable, telegram,
telex or letter to Owner at its last known address; provided however, that such
right to terminate shall not arise where such Operator liability shall, in the
opinion of Operator's counsel, be wholly curable by rescission (judicially or
otherwise effected) of such sale and/or payment of damages, and action to effect
such rescission and payment shall be commenced promptly, diligently pursued and
effected within a reasonable time and without materially adversely affecting
Operator, Sheraton or any of their respective Affiliates resulting in any
additional liability to Operator, Sheraton or any Affiliate thereof, which
additional liability is not similarly cured or curable by rescission and/or
payment.
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K. No such termination shall affect any liability of Owner or such
Indemnitor to Operator, Sheraton or any of their respective Affiliates, or to
any officers or directors of such corporation under any applicable provisions of
this Article XXI which provide for continuing liability after the termination
hereof. Any obligations or liability arising by reason of this Article XXI shall
survive termination of this Agreement, subject to the provisions of Article XXI.
ARTICLE XXII
DAMAGE OR DESTRUCTION - CONDEMNATION
If the Hotel or any portion thereof shall be damaged or destroyed at any
time or times during the Operating Term by fire, casualty or any other cause,
Owner will, at its own cost and expense subject to the requirements of any
mortgage affecting the Hotel and the Ground Lease, and with due diligence,
repair, rebuild or replace the same so that after such repairing, rebuilding, or
replacing, the Hotel shall be substantially the same as prior to such damage or
destruction. If Owner fails to undertake such work within ninety (90) days after
the final adjustment of the loss from this fire or other casualty for insurance
purposes or one year after the damage or destruction whichever occurs first,
(Owner and Operator hereby agree that the commencement of design and planning
work for such rebuilding shall qualify as such an undertaking) or shall fail to
complete the same diligently, Operator may, at its option, terminate this
Agreement by written notice to Owner, effective as of the date sent.
Notwithstanding the foregoing, if the Hotel is damaged or destroyed to such an
extent that the cost of repairs or restoration as reasonably estimated by
Operator exceeds one-third of the replacement cost of the Hotel, Operator may
terminate this Agreement by written notice to Owner, or Owner may, if it
determines not to repair, rebuild or replace the Hotel, as aforesaid, terminate
this Agreement by such notice to Operator. If Owner fails to repair, rebuild or
replace the Hotel as required herein, or in the event Owner is not required to
do so under the terms hereof but nevertheless at any time within five (5) years
after such damage or destruction occurs, Owner does so repair, rebuild or
replace the Hotel, then Operator may within sixty (60) days of the commencement
of such repairing, rebuilding or restoring or of Operator's first notice thereof
or of written notice from Owner of its intention to repair, rebuild or replace
the Hotel, reinstate this Agreement by written notice to Owner. Subject to the
requirements of any mortgage affecting the Hotel or the Ground Lease all
casualty insurance proceeds shall belong to Owner.
If the whole of the Hotel shall be taken or condemned in any eminent
domain, condemnation, compulsory acquisition or like proceeding by any competent
authority or if such a portion thereof shall be taken or condemned as in Owner's
opinion as to make it imprudent or unreasonable to use the remaining portion as
a hotel of the type and class immediately preceding such taking or condemnation,
then the Operating Term shall terminate as of the date of such taking or
condemnation.
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If only a part of the Hotel shall be taken or condemned and the taking or
condemnation of such part does not in Owner's opinion make it unreasonable or
imprudent to operate the remainder as a hotel of the type and class immediately
preceding such taking or condemnation, this Agreement shall not terminate, and
subject to the requirements of any mortgage affecting the Hotel and the Ground
Lease, the entire award shall be paid to Owner and Owner shall make all
necessary alterations or modifications of the Hotel, or any part thereof, so as
to make it a satisfactory architectural unit as a hotel of similar type and
class as prior to the taking or condemnation; provided however, that Owner shall
in no event be required to spend more than the amount of the award in making
such alterations or modifications.
Notwithstanding the foregoing, Operator shall have the right, in the case
of either total or partial taking or condemnation, to institute any available
administrative proceeding or judicial action, intended to determine just
compensation for such taking, for the purpose of representing Operator's
compensable interest in any award thereof arising from this Agreement.
ARTICLE XXIII
FORCE MAJEURE
Performance by Owner or Operator of any of its obligations hereunder shall
expressly not be required but rather shall be suspended in any circumstance
reasonably attributable to force majeure, provided, however, that Operator shall
not without prior approval of Owner suspend Hotel operations in any material
degree except in circumstances of public emergency or where such action is
required by public authority. Owner and Operator shall notify the other in
writing within thirty (30) days after the occurrence of an event for which it
claims delay under this Article XXIII.
ARTICLE XXIV
TERMINATION
A. Termination For Owner's Failure to Meet Certain Pre-Opening Deadlines and
Basic Conditions
In the event that Owner shall fail to (1) submit final plans and specifications
to Operator, (2) commence construction of the Hotel, (3) complete the Building
and Appurtenances and the installation of the Furniture and Equipment and
Operating Equipment, and/or (4) submit a financing plan satisfactory to
Operator, by the dates specified for each of the said activities in Article I
hereof, as extended by any extensions thereof provided for in the said Article
I, Operator may, at its sole option, on thirty (30) days written notice to
Owner, terminate
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this Agreement and all its obligations hereunder unless Owner, within said
thirty (30) day period shall have commenced to cure and shall be diligently
proceeding to complete the curing of such failure.
Moreover, if the construction materially varies from the final plans and
specifications, and Owner shall not within thirty (30) days of being so advised
by Operator in writing in the case of a determination that the construction
materially varies from the final plans and specifications have arranged in a
manner satisfactory to Operator to cure such default and have commenced and
diligently proceeded with such cure, or if Operator should at any time
thereafter determine that Owner is not diligently proceeding with such cure,
then Operator may, on thirty (30) days prior written notice to Owner, terminate
this Agreement.
In the event Operator terminates this Agreement in the manner specified in
this Section A of Article XXIV, Owner shall. notwithstanding such termination,
be liable to Operator for the actual costs of all activities Operator, Sheraton,
any of their subsidiaries or affiliates or third parties pursuant to contracts
with any of the foregoing entities have performed pursuant to this Agreement
prior to such termination. Operator may withhold said actual costs (as estimated
by Operator) from any amounts paid by Owner to Operator hereunder prior to such
termination, subject to return of any excess of its estimate of such costs over
the actual amounts thereof. Other than as aforesaid, upon such termination
neither of the parties shall have any further rights against the other
hereunder.
B. Termination For Other Defaults
The following shall constitute events of default:
1. The failure of Operator to pay any amount to Owner provided for
herein when the same is payable, or the failure of Owner to pay or
furnish to Operator any amount Owner is required to pay or furnish
to Operator in accordance with the terms hereof (including, without
limitation, fees and working capital) when the same is payable or
required to be furnished or the failure of Owner to pay any amount
payable to Sheraton or any of its affiliated or subsidiary companies
for a period of thirty (30) days after such amount becomes payable.
2. The filing of a voluntary petition under 11 U.S.C. Section 101 et
seq (the "Bankruptcy Code") or any successor thereto or under any
other federal or state insolvency law for liquidation or
reorganization by either Owner or Operator, Sheraton or ITT
Corporation ("ITT").
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3. The consent to an involuntary petition under the Bankruptcy Code or
the failure to vacate within sixty (60) days from the date of entry
of an order for relief thereunder or any other order approving an
involuntary petition by either Owner or Operator, Sheraton or ITT.
4. The entry of an order for relief, judgment, or decree by any court
of competent jurisdiction, on the application of a creditor, under
the Bankruptcy Code against either Owner or Operator, Sheraton or
ITT as a bankrupt or insolvent or approving a petition seeking
reorganization, liquidation or appointment of a custodian, receiver,
trustee or liquidator of all or a substantial part of such party's
assets, and such order, judgment or decree shall continue unstayed
and in effect for a period of one hundred twenty (120) consecutive
days.
5. Failure of Owner or Operator to maintain at all times throughout the
term hereof all of the insurance required to be maintained by Owner
or Operator under Article XVIII, provided Operator has complied with
all of Operator's obligations with respect thereto and has paid in
timely fashion all premiums, unless failure so to pay is
attributable to failure by Owner to furnish Operator with necessary
funds.
6. The failure of either Owner or Operator to perform, keep or fulfill
any of the other material covenants, undertakings, obligations or
conditions set forth in this Agreement.
7. Sheraton's default under the Credit Agreement or the loan documents
("Loan Documents") as defined in the Credit Agreement.
With respect to the events of default referred to in items (2), (3), (4) and (7)
above, the non-defaulting party may give to the defaulting party notice of its
intention to terminate this Agreement after the expiration of a period of thirty
(30) days from the efffective date of such notice and, upon the expiration of
such period, the Operating Term shall expire. With respect to the events of
default referred to in items (1), (5) and (6) above, unless a different right of
termination or cure is specified elsewhere in this Agreement for the breach in
question the non-defaulting party may give to the defaulting party notice of
such default and upon receipt of such notice the defaulting party shall promptly
and with all due diligence cure the default within the thirty (30) day period
from the effective date of such notice provided always that with respect to any
default referred to in item (6) above, cure of which is not otherwise governed
as aforesaid, if such default is not susceptible of being cured within said
thirty (30) day period, the defaulting party shall take and continue action to
cure such default with
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all due diligence until the same is cured, such additional period of cure not in
any event to exceed ninety (90) days from such notice. If such cure has not been
effected as aforesaid the non-defaulting party may give to the defaulting party
notice of its intention to terminate this Agreement after the expiration of a
period of fifteen (15) days from the effective date of such notice and, upon the
expiration of such period, the Operating Term shall expire.
The rights granted above shall not be in substitution for, but shall be,
except as otherwise provided in this Agreement, in addition to any and all
rights and remedies for breach of contract (other than the right to terminate
this Agreement) granted by applicable provisions of law.
C. Owner's Option to Terminate If Hotel Fails To Produce Specified Gross
Operating Profit
In addition to the foregoing rights of termination for default, Owner
shall have the right to terminate this Agreement upon occurrence of both of the
events described in subparagraphs 1. and 2. hereof; provided that (a) a notice
of termination shall be given within one hundred twenty (120) days after receipt
by Owner of the certified profit and loss statement prepared in accordance with
Article XII hereof, and (b) the notice shall specify a termination date not less
than sixty (60) days nor more than ninety (90) days after the giving of such
notice: [l(a) and (b) below to be collectively known as the "Target GOP"]
1. The Gross Operating Profit for each of any two consecutive fiscal years
occurring after the first four full fiscal years shall be less than (a)
for the fifth full fiscal year $33,000,000 and (b) for the sixth full
fiscal year and for each full fiscal year thereafter $33,000,000 plus the
difference, if any, between the total cost of the following item for any
such full fiscal year and the total cost of said items for the fifth full
fiscal year:
(1) Rental under the Ground Lease, including any deferred rental
payments and interest payable thereon when paid.
(2) Real and personal property taxes assessed on the Hotel and its
contents, and
(3) Premiums on property damage insurance carried by Owner on the Hotel
and its contents;
provided that for purposes of this Article XXIV C in no event shall the
total of items (1), (2) and (3) in any fiscal year exceed the total of
said items for the fifth fiscal year by more than ten (10%) percent per
year. The ten (10%) percent restriction will, in the event that the
increased sum of the three items specified above exceed 10% in a year
after the fifth year, apply to all subsequent
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years as a maximum until the actual amount and the calculated amount for
this purpose coincide.
2. The net cumulative percentage increase or decrease in gross room sales for
the Hotel for such two consecutive fiscal years is less than the net
cumulative increase or greater than the net cumulative decrease, as the
case may be, for competitive convention hotels in the Chicago area
("Competitive Hotels").
3. Furthermore, for any year in which the Hotel is rendered totally or
partially inoperative or in which Gross Operating Profit and/or gross room
sales are otherwise materially and adversely affected by reason of strike,
fire, flood, pestilence, war, civil strife, embargo, act of God or other
circumstances beyond the control of Operator, or if the size of the hotel
shall be reduced by reason of partial destruction or governmental taking,
the amount of the aforesaid Target GOP and/or gross room sales shall be
reduced proportionately to reflect the effect of the foregoing enumerated
circumstances on the Gross Operating Profit and/or gross room sales of the
Hotel.
4. The parties acknowledge that the purpose of the formula set forth in this
Article XXIVC is to assess whether Operator, acting as an experienced
first-class hotel operator, has performed in accordance with the terms of
this Agreement and in a satisfactory manner to maintain the Hotel's pro
rata share of the market for Competitive Hotels. In recognition of such
purpose, Owner acknowledges that if the application of the formula
indicates that Operator has failed to maintain such pro rata share,
Operator shall be deemed to have failed the test incorporated in the
formula only if such failure is caused by Operator's management of the
Hotel and not caused by circumstances beyond Operator's control such as,
without limitation, substantial improvements or material modifications to
the facilities of Competitive Hotels, the impact of the addition of new
hotels to the Competitive Hotels, or failure of Owner to fund reasonably
required capital improvements,
5. Any dispute in determining the gross room sales for the Hotel and the
Competitive Hotels, any dispute as to which hotels are to be included in
the Competitive Hotels, and any dispute as to whether or not the purpose
for determining the Hotel's pro-rata share of the market for Competitive
Hotels has been achieved will be resolved by Pannell, Kerr, Forster and
Company and the cost of retaining Pannell, Kerr, Forster and Company for
this purpose will be shared equally by the Owner and the Operator.
6. The provisions of this Article XXIV C to the contrary notwithstanding, if
Owner shall have the right to terminate this Agreement pursuant to this
Article XXIV C, and shall send a notice of such termination in accordance
with said
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Article, within thirty (30) days after receipt by Operator of such notice
Operator shall have the right, but not the obligation to loan Owner the
difference between the actual Gross Operating Profit for each of the two
consecutive fiscal years giving rise to Owner's right to terminate on
which Owner's said notice was based and the Target GOP for such fiscal
years, or such amount to which it may have been reduced in accordance with
the provision of subparagraph 1 hereof, (said loan being hereinafter
referred to as the "Gap Loan"), in which event Owner's notice of
termination shall be deemed withdrawn and Owner shall not have the right
to send another notice of termination unless the conditions of this
Paragraph XXIV C are met for each of any two consecutive years thereafter.
Such Gap Loans, if made by Operator, shall be subordinate to any first mortgage
on the Hotel, shall not bear interest and shall be repayable from time to time
from Adjusted Gross Operating Profit, but only after Operator Incentive Fee due
hereunder and any amounts due and payable to Owner or Sheraton under the Credit
Agreement or Loan Documents, and after Owner's Preferred Return (as defined in
Article XIV hereof). The Gap Loans, if not so paid in full, shall be paid in
full by Owner in the event of a sale of all or a portion of the assets of Owner
or upon expiration or termination of this Agreement for any reason. In the event
the Owner is terminating this Agreement pursuant to the terms of this Article
XXIV B or C such payment shall be a condition precedent to Owner's right to
terminate.
ARTICLE XXV
LIMITATION ON OWNER'S LIABILITY
In any action brought to enforce the obligations of the Owner hereunder, the
judgment or decree shall be enforceable against the Owner only to the extent of
its interest in the Hotel and Owner's partnership or corporate assets, and the
partnership or corporate assets of any corporation or partnership to which Owner
may assign this Agreement, and any such judgment shall not be subject to
execution on, nor be a lien on, assets of the Owner, other than its interest in
the Hotel. Further, neither the Owner, nor any subsequent owner of the Hotel,
nor any partner, shareholder, employee, director, agent or principal (either
known or unknown or disclosed or undisclosed) of Owner or any subsequent Owner
shall have any personal liability for the payment of any judgment or decree
hereunder. For purposes of this Article the Hotel shall include the 2 acre site
comprising the Premises (as defined in Article I hereof), including the Building
and Appurtenances, all Furniture and Equipment and Operating Supplies. In its
management of the Hotel, Operator shall insert in each and every contract or
lease it enters into on behalf of Owner (except contracts for the rental of
rooms in the normal course of business), a clause
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exculpating the Owner or any entity which may from time to time be the Owner
hereunder, from personal liability under such contract or lease, such
exculpation to be substantially in the form of this paragraph.
ARTICLE XXVI
NOTICES
Any notice, statement or demand required to be given under this Agreement
shall, except as herein otherwise provided, be in writing, sent by certified
mail, return receipt requested, addressed, if to Owner, c/o Tishman Realty
Company of Cook County 321 Clark Street, Suite 2800, Chicago, Illinois 60610
and, if to Operator, to Sixty State Street, Boston, Massachusetts 02109 c/o
Legal Department, with copy to the General Manager at the Hotel, or to such
other addresses as Operator or Owner shall designate in the manner herein
provided, and shall be deemed to have been given and shall be effective on the
day three (3) days after it shall have been mailed, as aforesaid, in any post
office or branch post office regularly maintained by the United States
Government.
ARTICLE XXVII
ARBITRATION
Any dispute between the parties hereto for which arbitration is specifically
provided for herein shall be settled by final and binding arbitration in
accordance with the rules, then obtaining, of the American Arbitration
Association or any successor organization. Owner and Operator shall each select
an arbitrator, and the arbitrators so selected shall together select a third
arbitrator and the panel decisions shall be rendered by a majority. Such
arbitration shall be conducted in Chicago, Illinois. The decision or award
rendered may be entered in a court of competent jurisdiction. The allocation of
the cost of the arbitration shall be determined by the arbitrators. The
arbitrators will be reasonably compensated, such reasonable compensation to be
established by agreement of the parties, or if the parties should fail to agree,
to be conclusively established by the American Arbitration Association. If the
arbitrators selected by the parties hereto are unable to agree upon a third
panel member within thirty (30) days after either party has given the other
party written notice of its desire to arbitrate any matter, then either party
may apply to any judge of the highest court of competent jurisdiction in
Chicago, Illinois for the appointment of a single arbitrator to hear the parties
and settle the matter in dispute. At any time when the Hotel is encumbered by
one or more mortgages, the holder of the first mortgage (i) shall be given
copies of any notice or demand for arbitration by Operator and of all notices
served on either Owner or Operator in any arbitration, and (ii) shall, if Owner
fails to designate an
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arbitrator within the time period allowed, receive notice of such failure and be
given an additional ten (10) days in which to designate the arbitration on
behalf of Owner.
ARTICLE XXVIII
CONSENT
Except as herein otherwise provided to the contrary, whenever in this
Agreement the consent or approval of Operator or Owner is required, Owner and
Operator each agree to act reasonably and without undue delay with respect to
requests for such consent or approval. Such consent or approval shall also be in
writing only and shall be duly executed by an authorized officer or agent of the
party granting such consent or approval.
ARTICLE XXIX
OWNER'S RIGHT OF SALE
A. Owner may sell, lease or otherwise dispose of all or any part of the
Hotel to any constituent partner of Owner, and any such constituent partner may
transfer all or any part of its interest in Owner to an Affiliate (herein
defined as an affiliate, subsidiary or controlling person) of such constituent
partner; provided that Tishman Realty Corporation of Cook County shall retain
all of its interest in Owner until Opening Date of the Hotel. Further, any
constituent partner of Owner may transfer its interest in Owner to any
transferee who meets the standards set forth and described in the second
paragraph of Article XXIX(B) of this Agreement, provided that Tishman Realty
Corporation of Cook County shall retain all of its interest in Owner until
Opening Date of the Hotel.
B. Any party desiring to effect a transfer not permitted by Paragraph A of
this Article shall give Operator not less than 30 days advance written notice of
such intention. Such notice shall identify in reasonable detail the owners of
the proposed transferee or lessee of the Hotel and shall be accompanied by the
last available audited and unaudited financial statements of the proposed
transferee or lessee. Operator shall then have the option, exercisable in
writing within 30 days of Operator's receipt of such notice either to (1)
terminate this Agreement or (2) to require the proposed transferee or lessee to
accept the assignment of this Agreement from the Owner and assume the
obligations of Owner hereunder subject to the limitations on Owner's liability
herein contained. If Operator elects the former option, this Agreement shall
terminate when and only if such sale, lease or other disposition of the Hotel is
consummated. If Operator elects the latter option, the assumption of this
Agreement by the proposed transferee or lessee of the Hotel shall be a condition
of this sale, lease or other disposition and Operator shall have the right to
enjoin said sale, lease or other disposition in the event that an agreement of
such assumption in form reasonably satisfactory to
<PAGE>
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Operator's counsel and executed by the proposed transferee shall not have been
delivered to Operator at least ten days prior to said sale or disposition or
five days after Operator notifies the Owner of its election, whichever occurs
later. If Operator has not elected either option by the delivery of written
notice of such election to the Owner within the foregoing 30 day period, then
the Operator shall be deemed to have elected the latter option. Upon any
permitted sale, lease or other disposition, this Agreement shall be assigned to
the successor entity.
The foregoing provisions of this Article XXIX to the contrary notwithstanding,
Operator shall not have the option to terminate this Agreement in the case of a
purchaser (a) having a net worth (determined by generally accepted accounting
principles consistently applied) at the time of the proposed sale of not less
than $10,000,000 or who can demonstrate in a manner reasonably satisfactory to
Operator sufficient financial capacity to perform Owner's obligations under this
Agreement, and (b) having a reputation of sound moral character in the business
community with known business affiliations (disputes between Owner and Operator
over whether a proposed purchaser meets the above criteria shall be subject to
arbitration hereunder) and (c) who is not engaged as a primary business in the
operation or franchising of hotels.
ARTICLE XXX
ASSIGNMENT
Operator shall have the right to assign all its right, title and interest under
this Agreement to a subsidiary company of it or Sheraton, provided that
Operator, Sheraton or a subsidiary of Sheraton shall at all times own at least
fifty-one (51%) percent of all classes of capital stock of said subsidiary, and
provided further that said subsidiary enjoys the benefits of the Sheraton
organization to the same degree as Operator and provided that Sheraton reaffirms
to Owner its guaranty of Operator's obligations under this Agreement and states
in writing that it guarantees said subsidiary's obligations hereunder, and
provided further that said subsidiary assumes all of Operator's obligations
hereunder. Operator shall also have the right to assign this Agreement to any
successor or assignee of Operator or Sheraton which may result from any merger,
consolidation or reorganization, or to another corporation which acquires all or
substantially all of the business and assets of Sheraton, provided in any event
that Sheraton or its successors or assigns reaffirms to Owner its guaranty of
Operator's obligations hereunder, and provided further that said successor or
assigns assumes all of Operator's obligations hereunder and enjoys the benefits
of the Sheraton organization to the same degree as Operator, including, without
limitation, the right to continued use of the Sheraton name in the operation of
the Hotel as set
<PAGE>
-54-
forth in this Agreement. Except as set forth above, Operator shall have no right
to assign its right, title and interest under this Agreement,
Except as expressly permitted under Article XXIX, and under this Article XXX
Owner shall not assign this Agreement without first having obtained Operator's
written consent to such assignment, which consent may be granted or withheld by
Operator in Operator's absolute discretion. Operator's assent to an assignment
on any occasion shall not be deemed an assent to any other assignment on any
future occasion. Owner shall have the right to assign this Agreement to any
lender as collateral security if so required pursuant to the terms of any
mortgage covering the Hotel now or in the future.
Upon any assignment permitted by this Article and Article XXIX and upon
assumption of this Agreement by the assignee, the assignor shall be relieved of
any obligation or liability under this Agreement incurred subsequent to the date
of such assignment.
ARTICLE XXXI
INDEMNIFICATION
If Operator, Sheraton, ITT or any of their respective affiliates or subsidiaries
who perform services on behalf of Operator hereunder or under Technical Services
Agreement annexed hereto as Exhibit "B" shall, in the performance of this
Agreement or the Technical Services Agreement, become liable or be alleged to be
liable to any person or entity other than Owner for any act, omission or error
of judgment (whether the same is determined or alleged to be negligent, tortious
or otherwise) of Owner or of Operator, Sheraton, ITT or any of their respective
affiliates or subsidiaries, or any officer, agent or employee of any of them,
whether such liability or allegation thereof is based on the sole negligence of
any such entity or individual, or the concurrent negligence of two or more such
entities or individuals (one or more of which may be Owner or any of its
officers, agents or employees), or on any other theory, except where such act or
omission is found to have been due to the gross negligence or wilful misconduct
of any executive employees of Operator, Sheraton or their respective affiliates
or subsidiaries or to any breach of the duties of Operator, Sheraton or their
respective affiliates or subsidiaries under this Agreement or to a breach by
Sheraton of its guaranty of Operator's obligations hereunder then Operator,
Sheraton, ITT and their respective affiliates and subsidiaries shall be entitled
to be indemnified and saved harmless by Owner from all loss, damage, cost and
expense (including reasonable attorney's fees) by reason of any of the foregoing
acts, omissions, errors of judgment, and in respect of any of the foregoing
liabilities subject to the aforesaid limitation with respect to acts or
omissions constituting gross negligence or wilful misconduct or
<PAGE>
-55-
breach of duties or covenants as aforesaid, (such acts, omissions, errors of
judgment or breach of duties being hereinafter collectively referred to as the
"Excluded Liabilities"). Moreover, Owner will reasonably, at Operator's request,
assume the defense (with counsel satisfactory to Operator) of any proceeding
brought by any third party to establish any such liability, the costs of any
such defense being an Operating Expense hereunder. Any liability resulting from
or settlement amount relating to any of the foregoing acts, omissions, errors of
judgment or allegations thereof which is not covered by insurance will be an
Operating Expense under this Article XXXI, and will, in any event, be required
to be indemnified pursuant hereto.
Operator, Sheraton, and their respective affiliates and subsidiaries under
this Agreement shall indemnify and save harmless Owner and Owner's affiliates
and subsidiaries from all loss, damage, cost and expense (including reasonable
attorneys' fees) incurred by Owner and Owner's affiliates and subsidiaries by
reason of the Excluded Liabilities to the extent that such Excluded Liability is
not covered by insurance. Any liability resulting from or settlement amount
relating to any of the Excluded Liabilities (including reasonable attorneys
fees) not covered by insurance will be borne by Operator and not be an Operating
Expense herender and will, in any event, be required to be indemnified pursuant
hereto unless Operator, Sheraton or their affiliates have been shown to have
acted or omitted to act under the circumstances in good faith and in the
reasonable belief that such act or omission was in accordance with Operator's
obligations under this Agreement. Operator will bear the burden of proof with
respect to the aforesaid good faith and reasonable belief criteria.
ARTICLE XXXII
NON-COMPETITION AREA
Neither Owner, (or any general partner of Owner), Operator, Sheraton, nor any of
their subsidiaries shall either own, lease, manage or franchise a hotel, motor
inn or similar facility (collectively, a "Facility") within a two mile radius of
the Hotel or a Facility of 750 guest rooms or greater within a 15 mile radius of
the Hotel. Any such ownership, leasing, management or franchising outside of
said areas shall be totally unrestricted.
The foregoing restriction, however, shall not apply to or prohibit the
following:
a) The ownership, leasing or management by Sheraton or its subsidiaries
of a luxury hotel having 300 guest rooms or less any place within
said areas, provided that said luxury hotel shall not be open to the
public prior to the expiration of five years from the Opening Date;
<PAGE>
-56-
b) Any Facility, owned, leased, managed or franchised under the
Sheraton name or by Owner on the date hereof, within said areas, or
any substitution or replacement thereof, expansion or replacement of
expansion of any of the foregoing, anywhere within said areas;
c) To any Facility owned by an institutional investor not engaged, as a
primary business, in the ownership or operation of hotels, which
institutional investor becomes a general partner of Owner in the
ownership of the Hotel.
ARTICLE XXXIII
PARTIAL INVALIDITY
In the event that any one or more of the phrases, sentences, clauses or
paragraphs contained in this Agreement shall be declared invalid by the final
and unappealable order, decree or judgment of any court, this Agreement shall be
construed as if such phrases, sentences, clauses or paragraphs had not been
inserted; provided that if any portion of Articles VII, VIII, XIII, or XXXI be
so declared invalid, Operator shall have the option to terminate this Agreement
within thirty (30) days thereafter on written notice to Owner.
ARTICLE XXXIV
SPECIAL CONDITIONS
Operator may terminate this Agreement on notice to Owner in the event that
any of the following conditions shall not be satisfied. The consequences of such
termination shall be the same as the consequences of the termination of this
Agreement by Operator in accordance with Section A of Article XXIV hereof,
except that if the said termination occurs after Operator has become entitled to
fees hereunder (including Technical Services fees, as provided in Article II
hereof) Operator shall be entitled to such fees. The conditions are the
following:
1. Owner shall, prior to commencement of construction if construction
has not commenced prior to the date hereof, and in any event within
a reasonable time, not exceeding one year from the date of this
Agreement, have developed a financing plan which in Operator's
reasonable opinion is satisfactory and will assure the fulfillment
of Owner's obligations under this Agreement, and shall have received
written commitments for all financing under said plan. Copies of all
such written commitments shall be forwarded to Operator (Attention:
Legal Department, with a copy to North America Development
Department) immediately upon receipt by Owner. The aforesaid
financing plan and Operator's approval thereof is expressly agreed
to refer to the original financing
<PAGE>
-57-
of the Hotel only. Owner shall have the right if it is unable to
obtain a financing plan acceptable to Operator and to it, within
such time period, to terminate this Agreement upon ten (10) days
prior written notice. In such case the rights of Owner and Operator
shall be as provided for in the last paragraph of subparagraph A of
Article XXIV. Owner shall use reasonable efforts to obtain an
acceptable financing plan by said date.
2. Owner shall have obtained all necessary decrees, acts, orders,
consents, licenses and permits to enable Owner to construct the
Hotel.
ARTICLE XXXV
OWNER'S SOLE BUSINESS
Owner hereby warrants that the ownership of the Hotel and Owner's
activities in compliance with this Agreement are the sole business and
activities of Owner, and Owner hereby agrees not to engage in any other activity
or business during the Operating Term. This Article is not intended in any way
to limit the activities of any of Owner's stockholders, partners or affiliates.
ARTICLE XXXVI
MISCELLANEOUS
1. Wherever reference is made in this Agreement to the Independent
Certified Public Accountant, it shall mean the firm of Arthur Andersen & Co., or
any successor firm thereto. However, if during the term of this Agreement Arthur
Andersen & Co. shall no longer be in existence and has no successor, or if
Operator shall desire to substitute another firm of certified public
accountants, the name of any reputable national firm of certified public
accountants having hotel experience, selected by Operator and approved by Owner,
shall be deemed substituted in its place. Owner and Operator agree that the
Independent Certified Public Accountant shall be subject to Ground Lessor's
prior approval.
2. Owner and Operator shall execute and deliver all other appropriate
supplemental agreements and other instruments, and take any other action
necessary to make this Agreement fully and legally effective, binding, and
enforceable as between them and as against third parties, including Owner's
filing in appropriate governmental offices pursuant to any statute, ordinance,
rule or regulation requiring such filing by persons or entities doing business
in a name other than their own, of a certificate or similar document indicating
that Owner is engaging in the hotel business at the Hotel under the name of the
Hotel. Any fees or expenses incurred in connection therewith shall be borne by
Owner.
<PAGE>
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3. The headings of the titles to the several articles of this Agreement
are inserted for convenience only and are not intended to affect the meaning of
any of the provisions hereof.
4. The waiver of any of the terms and conditions of this Agreement on any
occasion or occasions shall not be deemed a waiver of such terms and conditions
on any future occasion.
5. This Agreement shall be binding upon and inure to the benefit of Owner,
its successors and/or permitted assigns, and shall be binding upon and inure to
the benefit of Operator and its permitted assigns.
6. This Agreement shall be construed, both as to its validity and as to
the performance of the parties, in accordance with the laws of the State of
Illinois other than principals of conflict of law.
7. Until Owner shall advise Operator to the contrary in writing, Operator
may rely on Ronald E. Materick being authorized to take any action required or
permitted to be taken by Owner, including, without limitation, the giving of all
approvals hereunder. Until Operator shall advise Owner to the contrary, Owner
may rely on Ronald Wackrow being authorized to take action required or permitted
to be taken by Operator, including, without limitation, the giving of all
approvals hereunder.
8. In the event that the Consumer Price Index is discontinued or changed,
all references to the said index shall be deemed to refer to any comparable
index or statistics published by an agency of the United States government or by
a responsible financial periodical of recognized authority then to be selected
by the parties.
ARTICLE XXXVII
ENTIRE AGREEMENT:
OWNER HAS NOT RELIED ON REPRESENTATIONS
This Agreement constitutes the entire agreement between the parties
relating to the subject matter hereof, superseding all prior agreements or
undertakings, oral or written. Owner and Operator have not relied on any
projection of earnings, statements as to the possibility of future success or
other similar matter which may have been prepared by Operator, Sheraton, or
Owner, or any of their respective affiliates or subsidiaries, and understand
that no guaranty is made or implied by Operator, Sheraton, or Owner or any of
their affiliated or subsidiary companies as to the cost or the future financial
success of the Hotel.
<PAGE>
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IN WITNESS WHEREOF, Operator and Owner have duly [ILLEGIBLE] this
Agreement the day and year first above written.
CITYFRONT HOTEL ASSOCIATES LIMITED
By: Tishman/C-H-A Limited Par [ILLEGIBLE]
the General Partner
By: Tishman Realty [ILLEGIBLE]
of Cook County
The general
By: /s/ John Vick
--------------------------------
Name: John Vick
Title: First Vice [ILLEGIBLE]
SHERATON OPERATING CORPORATION
By: /s/ Richard Braverman
--------------------------------------
Name: Richard Braverman
Title: Vice President
<PAGE>
HVS International, Mineola, New York Simultaneous Valuation Formula 2
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NI = Net income available for debt service
V = Value
M = Loan-to-value ratio
f = Annual debt service constant
n = Number of years in the projection period
d(e) = Annual cash available to equity
d(r) = Residual equity value
b = Brokerage and legal cost percentage
P = Fraction of the loan paid off during the
projection period
f(p) = Annual constant required to amortize the entire
loan during the projection period
R(r) = Overall terminal capitalization rate applied to
net income to calculate the total property
reversion (sales price at the end of the
projection period)
1/S^n = Present worth of a $1 factor (discount factor)
at the equity yield rate
Using these symbols, the following formulas can be used
to express some of the components of this mortgage and
equity valuation process.
Debt Service - A property's debt service is calculated
by first determining the mortgage amount that equals the
total value (V) multiplied by the loan-to-value ratio
(M). Debt service is derived by multiplying the mortgage
amount by the annual debt service constant (f). The
following formula represents debt service.
f x M x V = Debt Service
Net Income to Equity (Equity Dividend) - The net income
to equity (de) is the property's net income before debt
service (NI) less debt service. The following formula
represents the net income to equity.
NI - (f x M x V) = d(e)
Reversionary Value - The value of the hotel at the end
of the tenth year is calculated by dividing the
11th-year net income before debt service (NI^11) by
<PAGE>
HVS International, Mineola, New York Simultaneous Valuation Formula 3
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the terminal capitalization rate (R(r)). The following
formula represents the property's tenth-year
reversionary value.
(NI^11/R(r)) = Reversionary Value
Brokerage and Legal Costs - When a hotel is sold,
certain costs are associated with the transaction.
Normally, the broker is paid a commission and the
attorney collects legal fees. In the case of hotel
transactions, brokerage and legal costs typically range
from 1% to 4% of the sales price. Because these expenses
reduce the proceeds to the seller, they are usually
deducted from the reversionary value in the mortgage and
equity valuation process. Brokerage and legal costs (b)
expressed as a percentage of reversionary value
(NI^11/R(r)) is calculated by application of the
following formula.
b (NI^11/R(r)) = Brokerage and Legal Costs
Ending Mortgage Balance - The mortgage balance at the
end of the tenth year must be deducted from the total
reversionary value (debt and equity) in order to
determine the equity residual. The formula used to
determine the fraction of the loan remaining (expressed
as a percentage of the original loan balance) at any
point in time (P) takes the annual debt service constant
of the loan over the entire amortization period (f) less
the mortgage interest rate (i) and divides it by the
annual constant required to amortize the entire loan
during the ten-year projection period (f(p)) less the
mortgage interest rate. The following formula represents
the fraction of the loan paid off (P).
(f - i)/(f(p) - i) = P
If the fraction of the loan paid off (expressed as a
percentage of the initial loan balance) is P, then the
remaining loan percentage is expressed as 1 - P. The
ending mortgage balance is the fraction of the remaining
loan (1 - P) multiplied by the initial loan amount (M x
V). The following formula represents the ending mortgage
balance.
(1 - P) x M x V
Equity Residual Value - The value of the equity upon the
sale at the end of the projection period (d(r)) is the
reversionary value less the brokerage and legal costs
and the ending mortgage balance. The following formula
represents the equity residual value.
(NI^11/R(r)) - (b(NI^11/R(r)) - ((1 - P) x M x V) = d(r)
<PAGE>
HVS International, Mineola, New York Simultaneous Valuation Formula 4
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Annual Cash Flow to Equity - The annual cash flow to
equity consists of the equity dividend for each
projection year plus the equity residual at the end of
the tenth year. The following formula represents the
annual cash flow to equity.
NI^1 - (f x M x V) = d(e)^1
NI^2 - (f x M x V) = d(e)^2
NI^10 - (f x M x V) = d(e)^10
(NI^11/R(r)) - (b(NI^11/R(r)) - ((1 - P) x M x V) = d(r)
Value of the Equity - If the initial mortgage amount is
calculated by multiplying the loan-to-value ratio (M) by
the property value (V), then the equity value is one
minus the loan-to-value ratio multiplied by the property
value. The following formula represents the value of the
equity.
(1 - M) V
Discounting the Cash Flow to Equity to the Present Value
- The cash flow to equity in each projection year is
discounted to the present value at the equity yield rate
(1/S^n). The sum of these cash flows is the value of the
equity (1 - M) V. The following formula represents the
calculation of equity as the sum of the discounted cash
flows.
(d(e)^1 x 1/S^1) + (d(e)^2 x 1/S^2) + . . .
+ (d(e)^10 x 1/S^10) + (d(r) x 1/S^10) = (1 - M) V
Combining the Equations: Annual Cash Flow to Equity and
Discounting the Cash Flow to Equity to the Present Value
- The last step is to arrive at one overall equation
that shows that the annual cash flow to equity plus the
yearly discounting to the present value equals the value
of the equity.
((NI^1 - (f x M x V)) 1/S^1) + ((NI^2 - (f x M x V)) 1/S^2) + . . .
((NI^10 - (f x M x V)) 1/S^10) +
(((NI^11/R(r)) - (b(NI^11/R(r))) - ((1 - P) x M x V)) 1/S^10) = (1 -M) V
Because the only unknown in this equation is the
property's value (V), it can be solved readily.
<PAGE>
HVS International, Mineola, New York Simultaneous Valuation Formula 5
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Ten-Year Projection of Income and Expense - Because the
fixed and variable forecast of income and expense is
carried out only to the stabilized year, it is necessary
to continue the projection to the 11th year. In most
instances, net income before debt service beyond the
stabilized year is projected at an assumed inflation
rate. By increasing a property's revenue and expenses at
the same rate of inflation, net income remains constant
as a percentage of total revenue and the dollar amount
escalates at the annual inflation rate. Investors are
currently using inflation rates of approximately 3.0%
annually. The ten-year forecast of income and expense
illustrates the subject property's net income, which is
assumed to increase by 3.0% annually subsequent to the
property's stabilized year of operation.
Solving for Value Using the Simultaneous Valuation
Formula - In the case of the subject property, the
following known variables have been determined.
========================================================
Table 1: Summary of Known Variables
--------------------------------------------------------
Annual Net Income NI See Forecast
Loan-to-Value Ratio M 70.0%
Interest Rate i 8.5%
Debt Service Constant f 0.096627
Equity Yield Ye 18.0%
Brokerage and Legal Fees b 2.0%
Annual Constant Required
to Amortize the Loan in
Ten Years fp 0.148783
Terminal Capitalization
Rate Rr 10.5%
--------------------------------------------------------
The following table illustrates the present worth of a
$1 factor at the 18.0% equity yield rate.
<PAGE>
HVS International, Mineola, New York Simultaneous Valuation Formula 6
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Table 2: Present Worth of a $1 Factor at the Equity
Yield Rate
--------------------------------------------------------
Present Worth of $1
Year Factor at 18.0%
--------------------------------------------
1998 0.847457
1999 0.718183
2000 0.608629
2001 0.515786
2002 0.437107
2003 0.370429
2004 0.313922
2005 0.266036
2006 0.225454
2007 0.191062
--------------------------------------------------------
Using these known variables, the following intermediary
calculations must be made before applying the
simultaneous valuation formula. The fraction of the loan
paid off during the projection period is calculated as
follows.
P = ( 0.096627 - 0.085 ) / ( 0.148783 - 0.085 ) = 0.182294
The annual debt service is calculated as f x M x V.
( f x M x V ) = 0.096627 x 0.70 x V = 0.067639 V
Inserting the known variables into the hotel valuation
formula produces the following.
( 25,181,000 - 0.067639 V ) x 0.847457 +
( 25,831,000 - 0.067639 V ) x 0.718183 +
( 26,013,000 - 0.067639 V ) x 0.608629 +
( 26,795,000 - 0.067639 V ) x 0.515786 +
( 27,287,000 - 0.067639 V ) x 0.437107 +
( 28,105,000 - 0.067639 V ) x 0.370429 +
( 28,150,000 - 0.067639 V ) x 0.313922 +
( 28,995,000 - 0.067639 V ) x 0.266036 +
( 29,320,000 - 0.067639 V ) x 0.225454 +
( 30,199,000 - 0.067639 V ) x 0.191062 +
((( 31,105,000 / 0.105 ) - ( 0.02 X ( 31,105,000 / 0.105 )) -
(( 1 - 0.182294 ) x 0.70 x V )) x 0.191064 ) = ( 1 - 0.70 ) V
<PAGE>
HVS International, Mineola, New York Simultaneous Valuation Formula 7
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Like terms are combined as follows.
$176,282,164 - 0.413340 V = (1 - .070) V
$176,282,164 = 0.71334 V
V = $176,282,164 / 0.71334
V = $247,122,225
Value Indicated by the
Income Capitalization
Approach (Say) $247,122,000
<PAGE>
HVS International, Mineola, New York Qualifications of Anjali S. Poorswani
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Anjali S. Poorswani
Employment
1998 to present HVS INTERNATIONAL
Mineola, New York
(Hotel Valuations, Market Studies, Feasibility Reports,
and Investment Counseling)
1995 to 1997 THE TAJ GROUP OF HOTELS
Bombay, India
Education MS - School of Hotel, Restaurant and Travel Administration
University of Massachusetts at Amherst
BS - School of Business Administration
European University, Geneva, Switzerland
Diploma of Hotel Management
Hotel Institute for Management, Montreux, Switzerland
<PAGE>
HVS International, Mineola, New York Qualifications of Sabena Arora
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Sabena Arora
Employment
1995 to present HVS INTERNATIONAL
Mineola, New York
(Hotel Valuations, Market Studies, Feasibility Reports,
and Investment Counseling)
1993, 1994 MANHATTAN EAST SUITES
New York, New York
1991, 1993 DARSHI ENTERPRISES
(Summers) Syosset, New York
1992 RADIUM HOT SPRINGS RESORT
Radium, British Columbia
Education BS - School of Hotel Administration, Cornell University
Hertford College, Oxford University
- Study of International and Applied Economics
Examples Of Bank One
Corporate and Bear Stearns
Institutional Best Western
Clients Served Chase Commercial Mortgage Banking Corp.
Column Financial, Inc.
Credit Lyonnais
Goldman Sachs
Hotels of Distinction
Hudson Hotels
Kensico Properties
Morgan Stanley Mortgage Capital, Inc.
Parallel Capital Corporation
Remington Hotel Corporation
Riker, Danzig, Scherer, Hyland & Penetti
Societe Generale
Starwood Lodging
Winegardner & Hammons
<PAGE>
HVS International, Mineola, New York Qualifications of Sabena Arora
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Examples of Hotels Arizona
Appraised or Evaluated - Sheraton San Marcos Golf Resort
& Conference Center, Chandler
- Hampton Inn, Phoenix
California
- L'Ermitage Hotel, Beverly Hills
Connecticut
- The Sheraton Hotel at Bradley International
Airport, Windsor Locks
Delaware
- Comfort Inn, Seaford
Florida
- Hampton Inn, Orlando
Georgia
- Comfort Inn, Atlanta
- Comfort Suites, Atlanta
- Doubletree Hotel, Atlanta
- The Marque of Atlanta, Atlanta
- Ramada Inn, Richmond Hills
Indiana
- Embassy Suites - Claypool Center, Indianapolis
- Radisson Hotel, Indianapolis
- Ramada Indianapolis Airport, Indianapolis
- Ramada Plaza Hotel, Indianapolis
Maryland
- Comfort Inn, Kent Narrows
- Econolodge, Waldorf
Massachusetts
- Westin Hotel, Waltham
New Jersey
- Proposed Hotel, Hoboken
- Marriott Hotel, Somerset
- Quality Inn/Easterner Motor Inn, Bordentown
New York
- Best Western, Monticello
- Best Western Manhattan, New York
North Carolina
- Fairfield Inn, Cary
- Cricket Inn
- Duke, Durham
- Durham Hilton, Durham
- Fairfield Inn, Durham
- Omni Durham, Durham
- Cricket Inn, Raleigh
- Fairfield Inn, Statesville
- Fairfield Inn, Wilmington
- Radisson Marque, Winston-Salem
Ohio
- Holiday Inn, Cleveland
- Proposed Marriott, Columbus
Pennsylvania
- Best Western Center, Philadelphia
- Sheraton Berkshire Inn, Reading
South Carolina
- Hampton Inn, Columbia
- Comfort Inn, Greenville
Tennessee
- Union Station Hotel, Nashville
Texas
- Arlington Hilton, Arlington
- Ramada Inn, Conroe
Virginia
- Proposed Hotel, Centerville
Wisconsin
- Holiday Inn Select, Madison
<PAGE>
Qualifications of Stephen
HVS International, Mineola, New York Rushmore, CRE, MAI, CHA
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Stephen Rushmore, CRE, MAI, CHA
Employment
1980 to present HVS INTERNATIONAL
(Division of Hotel Consulting Services, Inc.)
Mineola, New York
President and Founder
(Hotel/Motel Market Studies, Feasibility Reports,
Valuations, and Investment Counseling)
1977 - 1980 HELMSLEY-SPEAR HOSPITALITY SERVICES, INC.
1971 - 1974 New York, New York
(Real Estate)
1974 - 1977 JAMES E. GIBBONS ASSOCIATES
Garden City, New York
(Mortgage Banking, Appraisals, Hotel Operations)
Affiliated HVS INTERNATIONAL (SAN FRANCISCO, CALIFORNIA)
Ownership Interests West coast office for hotel/motel counseling and appraisals
HVS INTERNATIONAL (MIAMI, FLORIDA)
Southeast office for hotel/motel counseling and appraisals
HVS INTERNATIONAL (BOULDER, COLORADO)
Midwest office for hotel/motel counseling and appraisals
HVS INTERNATIONAL (VANCOUVER, CANADA)
Canadian office for hotel/motel counseling and appraisals
HVS INTERNATIONAL (LONDON, ENGLAND)
European office for hotel/motel counseling, appraisals, and
brokerage
HVS - EXECUTIVE SEARCH
Hotel/motel executive search and human resource consulting
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Affiliated HVS - ECO SERVICES
Ownership Interests Environmental consulting for hotels and motels;
(continued) waste management; recycling; green product selection;
administrator of the ECOTEL Certification
HVS FOOD & BEVERAGE SERVICES
Specialized consulting services for restaurants and other
food service facilities
HVS ASSET MANAGEMENT & OPERATIONAL ADVISORY SERVICES
Consulting services focused on enhancing hotel
profitability and asset value
HVS GAMING SERVICES
Specialized consulting and valuation services for casinos
and other types of gaming activities
HVS INVESTMENT SERVICES
Agency and brokerage services covering Europe, Asia, and
Africa
HOSPITALITY VALUATION SOFTWARE, INC.
Founder of software company that develops and distributes
hotel financial analysis software
Professional Counselors of Real Estate - Member (CRE)
Affiliations
Appraisal Institute - Member (MAI) (SREA)
- Developer and Instructor, Hotel Investment and Valuation
Seminar
- Developer and Instructor, Hotel Computer Valuation
Seminar
American Hotel and Motel Association
- Certified Hotel Administrator (CHA)
- Industry Real Estate Financing Advisory Council (IREFAC)
International Society of Hospitality Consultants - Member
(ISHC)
New York University - Adjunct Assistant Professor of
Nutrition, Food and Hotel Management
Michigan State University - Honorary Faculty, Honorary
Alumnus
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Qualifications of Stephen
HVS International, Mineola, New York Rushmore, CRE, MAI, CHA
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Professional Certified General Appraiser - Arizona, Connecticut,
Affiliations Delaware, District of Columbia, Georgia, Massachusetts,
(Continued) Michigan, Minnesota, New Jersey, New York, Oregon,
Pennsylvania, South Carolina,
Licensed Real Estate Broker - New York, Pennsylvania
Board of Advisers
- Real Estate Finance Journal
- Real Estate Workouts & Asset Management
American Arbitration Association - National Real Estate
Valuation Council
Cornell Society of Hotelmen
New York University Masters in Hospitality Management -
Advisory Board
New York University Hospitality Investment Conference -
Executive Committee, Board of Advisors, Patron
Board of Directors - Winthrop-University Hospital
Beta Gamma Sigma - National Honor Society in Business and
Management
Significant Founder of HVS International - a global hotel consulting
Accomplishments firm with six offices and 75 professionals
Founder of Microtel - a national hard-budget lodging chain
Founder of HEI Hotels - a hotel ownership and management
company consiting of 20 full service hotels. HEI was sold
to Starwood Lodging Trust in 1997 for $330 million.
Endowment Hospitality Valuation Services Professor of Hotel Finance
and Real Estate
- School of Hotel Administration, Cornell University
(currently held by Professor James J. Eyster)
Education BS - School of Hotel Administration, Cornell University
MBA - Graduate School of Business Administration (Finance),
University of Buffalo
<PAGE>
Qualifications of Stephen
HVS International, Mineola, New York Rushmore, CRE, MAI, CHA
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Partial List of Cornell University - Computer Valuation Techniques
Teaching and Michigan State University - Hotel Management Contracts
Lecture Assignments University of North Carolina - Hotel Market Studies
University of Virginia - Assessing Hotels
American Arbitration Association - Real Estate Arbitration
American Hotel and Motel Association - Hotel Obsolescence
Appraisal Institute - Hotel Valuation (over 50 seminars)
International Association of Assessing Officers - Hotel
Valuation
Montreal Appraisal Society - Total Project Analysis
Society of Real Estate Appraisers - Lease Seminar
Lodging Hospitality - Lodging Summit
Published Books
and Seminars
Textbooks The Valuation of Hotels and Motels,
Appraisal Institute, Chicago, Illinois, 1978
Hotels, Motels and Restaurants: Valuations and Market
Studies,
Appraisal Institute, Chicago, Illinois, 1983
How to Perform an Economic Feasibility Study of a Proposed
Hotel/Motel,
American Society of Real Estate Counselors, Chicago,
Illinois, 1986
Hotel Investments: A Guide for Owners and Lenders,
Warren, Gorham and Lamont, Inc., New York, New York, 1990
The Computerized Income Approach to Hotel Market Studies
and Valuations,
Appraisal Institute, Chicago, Illinois, 1990
Hotel Investments: A Guide for Owners and Lenders, 1992
Supplement,
Warren, Gorham and Lamont, Inc., New York, New York, 1992
Hotel Investments: A Guide for Owners and Lenders, 1993
Supplement,
Warren, Gorham and Lamont, Inc., New York, New York, 1992
Hotels and Motels: A Guide to Market Analysis, Investment
Analysis, and Valuations,
Appraisal Institute, Chicago, Illinois, 1992
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HVS International, Mineola, New York Rushmore, CRE, MAI, CHA
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Published Books and Seminars (continued)
Textbooks Hotel Investments Handbook,
(continued) Warren, Gorham and Lamont, Inc., New York, New York, 1997
Student Manuals The Valuation of Lease Interests,
Society of Real Estate Appraisers, Chicago, Illinois, 1976
Hotel-Motel Valuation Seminar,
Appraisal Institute, Chicago, Illinois, 1981, 1988, 1990,
1994
The Computerized Approach to Hotel Market Studies and
Valuations Seminar,
Appraisal Institute, Chicago, Illinois, 1991
Demonstration Demonstration Appraisal of a Proposed Hotel, Spring Valley,
Appraisal New York, Hospitality Valuation Services, Mineola,
New York, 1983, 1990, 1996
Chapters The Real Estate Handbook-Second Edition, Dow Jones-Irwin,
1989, "Hotels and Motels"
Arbitration of Real Estate Valuation Principles, American
Arbitration Association, 1987, "Arbitration in the
Hospitality Industry"
Ethics in Hospitality Management: A Book of Readings,
Educational Institute of the American Hotel and Motel
Association, 1992, "Ethics in Hotel Appraising"
The Lodging and Food Service Industry, Educational
Institute of the American Hotel and Motel Association,
1993, "Insider's Insights"
Published Articles
The Appraisal "Using Total Project Analysis to Compete for Investment
Journal Capital," October, 1975
"The Appraisal of Food Service Facilities," July, 1980
"Publish and Prosper," October, 1980
"Valuation of Hotels and Motels for Assessment Purposes,"
April, 1984
"Adjusting Comparable Sales for Hotel Assessment Appeals,"
July, 1986
"Hotel Business Value and Working Capital: A
Clarification," January, 1987
"Ethics in Hotel Appraising," July, 1993
<PAGE>
Qualifications of Stephen
HVS International, Mineola, New York Rushmore, CRE, MAI, CHA
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Published Articles (continued)
The Appraiser "Hotel-Motel Appraisal Misconceptions Set Straight,"
January, 1979
"No Conventional Financing Available for Hotels: Rushmore,"
December, 1979
"Estimating Hotel Land Values Using Comparable Ground
Leases," April, 1980
Bulletin of the
Cornell Society of "Employment Philosophy for a Consulting Practice," July,
Hotelmen 1984
Business Travel
News "A Snapshot of a Classic Recovery," July, 1995
The Canadian
Appraiser "Hotel/Motel Market Sales Update," Summer, 1987
Capital Sources for "Stephen Rushmore Discusses the Future of the Lodging
Real Estate Industry," December, 1994
Cayuga Advisor "Secrets to Success in Consulting," October, 1992
Chapter News and "Quantifying a Hotel's Business Value," November, 1979
Notes
Cornell Hotel & "A Preliminary Market Study," November, 1974
Restaurant "How Much is Your Place Worth Today? A Case Study in
Administration Hotel - Motel Valuation," May, 1975
Quarterly "What Can Be Done About Your Hotel's Real Estate Taxes?"
May, 1977
"The Appraisal of Lodging Facilities," August, 1978
"The Appraisal of Food Service Facilities," February,
1979
"The Appraisal of Lodging Facilities - Update," November,
1984
"Hotel Sales Prices Down More Than 12%," May, 1991
"Seven Current Hotel Valuation Techniques," August, 1992
"The Valuation of Distressed Hotels," October, 1992
<PAGE>
Qualifications of Stephen
HVS International, Mineola, New York Rushmore, CRE, MAI, CHA
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Published Articles
(continued)
Cornell Hotel & "Hotel Lending in the 1990's: Amateurs Beware,"
Restaurant December, 1994
Administration "Investment Values of Lodging Property: Modeling the
Quarterly Effects of Income Taxes and Alternative Lender Criteria,"
(continued) December, 1995
"Investment Values of Lodging Property: Proof of Value
for Selected Models," February, 1996
FCI Spec Sheet "Employment Philosophy for a Consulting Practice,"
September, 1984
Florida Hotel & "Rushmore Reports Rising Hotel Prices," February, 1995
Motel Journal
Hotel and Motel "Average Rate vs. Project Cost," May 1, 1974
Management "How to Increase the Marketability of Your Motel," April,
1981
"Tougher Lending, Lower Room Rate Hikes On Way?" June, 1981
"What is That Mortgage Loan Going to Cost You?" August,
1981
"How to Perform a Study of Your Property's Market,"
October, 1981
"How do High Interest Rates Affect Your Motel's Value?"
December, 1981
"How to Buy a Feasibility Study That Works for You,"
February, 1982
"Settling Lease Conflicts Quickly Through Arbitration,"
April, 1982
"Are Casino Hotels Really Worth $500,000 Per Room?" June,
1982
"Discount Rates and Internal Rate of Return," August,
1982
"Determining a Property's Extended Life Cycle,"
November, 1982
"Using Microcomputers for Forecasting," December, 1982
"Update on Hotel Development Costs," January, 1983
"Estimating a Site's Worth by Finding Its Profit Value,"
June, 1983
"Hotel Construction May Be Slowing Down a Little Bit,"
April, 1983
"The Investor's Risk Sways to Prevailing Economic Winds,"
August, 1983
"Is Your Property Tax at as Low a Level as it Should Be?"
October, 1983
"The Ultimate Guest Room: Could it Ever Exist Anywhere?"
December, 1983
<PAGE>
Qualifications of Stephen
HVS International, Mineola, New York Rushmore, CRE, MAI, CHA
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Published Articles (continued)
Hotel-Motor Inn A Preventive Maintenance System for Motels," March, 1975
Journal
Hotel Valuation "Hotel Valuation Index Peaks During 1989," Fall, 1990
Journal "Hotel Development Costs," Winter, 1991
"Hotel Valuation Index for 1990," Spring, 1991
"Bad Year for Hotel Sales Prices Confirmed," Spring, 1992
"Hotel Sales Prices on the Rise," Fall, 1994
"United States Hotel Values Climb," Spring/Summer, 1995
"It's Time for Franchise Reform," Fall, 1995
Institutions/ "Greater Risk/Greater Profit Potential: Hotel Management
Volume Feeding Contract," May, 1973
Lodging Hospitality "How to Finance Renovation Projects," January, 1974
"Controlling Your Real Estate Taxes," July, 1978
"Putting Together a Sound Financial Package," December,
1978
"Favorable Outlook for Lodging Values," December, 1983
"Are Your Property Taxes Too High? (Part I and II)," May
and June, 1984
"Hotel Development Costs," July, 1984
"The Right Management Contract for You," September, 1984
"Selecting the Firm to Prepare Your Feasibility
Study," October, 1984
"A Quick How-To In Hotel Valuation," November, 1984
"Updating Lodging Interest Rates," December, 1984
"Is Your Guest Experience Up to Par?" January, 1985
"How to Perform a Breakeven Analysis," May, 1985
"Evaluating Operating Performance," June, 1985
"Hotel Lenders Toughen Underwriting Requirements," July,
1985
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Qualifications of Stephen
HVS International, Mineola, New York Rushmore, CRE, MAI, CHA
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Published Articles (continued)
Lodging Hospitality "Don't Forget the Pre-Opening Agreement," August, 1985
(continued) "Management Companies Should Participate in Financing,"
October, 1985
"Current Techniques for Valuing Hotel Land," November, 1985
"Hotel Development Costs," December, 1985
"Sourcing Debt Into the 1990's," January, 1986
"Hotel Valuation Thumb Rule," February, 1986
"Value in Use Versus Value in Exchange," March, 1986
"Stretching Feasibility," April, 1986
"The Management Question," May, 1986
"How to Commission a Feasibility Study," June, 1986
"Macro Trends Affecting Property Values," July, 1986
"Hotel-Motel Market Sales Update," August, 1986
"Financing Alternatives: Zero Coupon Mortgages," September,
1986
"Forecasting Lodging Energy Costs," October, 1986
"Portfolio Financing a Better Way," November, 1986
"Profit by Looking at History," December, 1986
"Why New York Isn't Overbuilt," February, 1987
"How to Discourage Hotel Overbuilding: A Case Study,"
April, 1987
"Structuring an Incentive Management Fee," June, 1987
"Franchising Questions and Answers," July, 1987
"Comparing Hotel Development Costs," August, 1987
"Understanding Economic Life," September, 1987
"Prices Rise for Lodging Properties," October, 1987
"Management Companies Are Key to Success," November, 1987
"Evaluating a Management Contract Fee Structure,"
December, 1987
"Check Profits Before Selecting Hotel Operator," January,
1988
"It's a Good Time to Review Your Taxes," February, 1988
"How to Use a Management Company Rating System," March,
1988
<PAGE>
Qualifications of Stephen
HVS International, Mineola, New York Rushmore, CRE, MAI, CHA
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Published Articles (continued)
Lodging Hospitality "Make Sure Management Contracts Contain These Terms,"
(continued) April, 1988
"Hotel Access and Visibility," May, 1988
"Chain Sale Strategies," July, 1988
"Evaluating a Hotel Franchise," August, 1988
"Evaluating Franchise Fees," September, 1988
"Opportunities in Economy Lodging," October, 1988
"How to Obtain a Hotel Mortgage," November, 1988
"Arbitration in the Hospitality Industry," December, 1988
"Lodging Development Cost Update," January, 1989
"Amenities as Profit Builders," February, 1989
"Hotel Values Mirror the Times," March, 1989
"Forecasting Revenue and Expenses," April, 1989
"Real Estate Jargon Made Simple," May, 1989
"Pricing a Management Contract," June, 1989
"Trends in Valuation," July, 1989
"Rescuing the Distressed Hotel," August, 1989
"Shielding Against Incompetence," September, 1989
"Hotel Valuation Revisited," October, 1989
"New Breed of Hard Budgets," November, 1989
"Figuring Cap Rates," December, 1989
"A Glance Backward," January, 1990
"Costs Creeping Up," February, 1990
"Valuing Distressed Properties," March, 1990
"Cap and Discount Rates," April, 1990
"An Open Letter," May, 1990
"Misconceptions About Appraisals," June, 1990
"Hotel Values Still Growing," July, 1990
"Hotel Renovation is Key to `90s," August, 1990
<PAGE>
Qualifications of Stephen
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Published Articles (continued)
Lodging Hospitality "Time Right for Hotel Leases," September, 1990
(continued) "Getting a Fix on Rates," October, 1990
"The Wrinkles of Class," November, 1990
"A Glance Backward," December, 1990
"The Price Dropoff," January, 1991
"The Cost Washout," February, 1991
"Survival of the Fittest," March, 1991
"Looking Out and Up," April, 1991
"The Bottom is in Sight," May, 1991
"The Pitfalls of Liquidation," June, 1991
"Extra! Extra! Hospitality News," July, 1991
"The Art of Hotel Renovation," August, 1991
"No Better Time for a Tax Review," September, 1991
"No Time for Passivity," October, 1991
"What a Franchise Really Costs," November, 1991
"In Case You Hadn't Heard," January, 1992
"Negotiation - The Name of the Game," February, 1992
"Now Could be the Time to Build," March, 1992
"The Well May Stay Dry," April, 1992
"Hotel Life Expectancy," May, 1992
"Hotel Values - What a Downer," June, 1992
"How to Make Money Now," July, 1992
"Hotel Chain Class Survey," August, 1992
"Budget Dining with Rushmore," September, 1992
"Bookings Up, Rates Will Follow," October, 1992
"Hospitality Master's Good Preparation," November,
1992
"What's New on the Job Front?" January, 1993
<PAGE>
Qualifications of Stephen
HVS International, Mineola, New York Rushmore, CRE, MAI, CHA
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Published Articles (continued)
Lodging Hospitality "Where Have All the Hotels Gone?" February, 1993
(continued) "Hotel Building Costs Continue to Fall," March, 1993
"Hotel Values Head Upward," April, 1993
"The Rise and Fall of Trophy Hotels," May, 1993
"Hotel Sales and Prices Rebound," June, 1993
"Third Parties Loosening Purse Strings," July, 1993
"Beyond Recycling: The Ecotel," August, 1993
"Time to Reduce Property Taxes," September, 1993
"Lodging: The Way I See It," October, 1993
"Choosing an Appraiser," November, 1993
"Who Needs an Asset Manager?" January, 1994
"Investing by the Numbers," February, 1994
"Fire Your Staff and Lease Them Back," March, 1994
"Published Rates Hint at Recovery," April, 1994
"Now is the Time to Start Building," May, 1994
"Hotel Values Heading Up," June, 1994
"Farewell, Friend," July, 1994
"Sales Prices Creeping Up," August, 1994
"Selecting Green Hotel Supplies," September, 1994
"Don't Write Off Full-Service Hotels," October,
1994
"Lodging REIT's Are on the Rise," November, 1994
"Going Back to the Future," January, 1995
"How much do Managers Make?" March, 1995
"Lodging Transactions Soared in '94," April, 1995
"Hotel Development Costs on the Rise," May, 1995
"Hotel Values up Significantly," June, 1995
"What a Franchise Costs over the Long Term," July,
1995
<PAGE>
Qualifications of Stephen
HVS International, Mineola, New York Rushmore, CRE, MAI, CHA
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Published Articles (continued)
Lodging Hospitality "Road Food Part II," August, 1995
(continued) "It's Time for Franchise Reform," September, 1995
"Extended Stay May Not Extend Your Profits," October, 1995
"The Year as I See It," November, 1995
"Cap Rate 101," January, 1996
"Best Investment Best for '96," February, 1996
"Large Hotels Starting to Sell," March, 1996
"It's Time to Build," May, 1996
"Hotel Values Confirm a Strong Recovery," June, 1996
"The Truth About Extended Stay," July, 1996
"Management Contracts Evolve," August, 1996
"How Much Should That Loan Cost You?" September, 1996
"Feasibility Studies: Fact or Fiction," October, 1996
"REITs: The Tenant's Perspective," November, 1996
"The Ups and Downs of Operating Leverage," January, 1997
"The Anatomy of a UFOC," February, 1997
"Road Food, Part 3," March, 1997
"Record Year for Hotel Sales," April, 1997
"How Much Does that Franchise Really Cost?" May, 1997
Michigan Lodging "Hotel Development Costs," January, 1988
The Mortgage and "Atlantic City Building Game Involves High Stakes,"
Real Estate August, 1979
Executives Report "How Interest Rates Affect Real Estate Values,"
June, 1982
"Update on Hotel Development Costs," May 1, 1983
<PAGE>
Qualifications of Stephen
HVS International, Mineola, New York Rushmore, CRE, MAI, CHA
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Published Articles (continued)
Motel-Hotel Insider "The $100,000 Plus Hotel Room Has Become a
Reality," November 19, 1979
"Update on Hotel Development Costs," April 4, 1983
NAIFA - The "Hotel Valuation Techniques," Vol. 44, 1991
Appraisal Review
Real Estate Digest "Why Should the Management Team be Important to
Hotel Lenders," Fall, 1988
Real Estate "What is a Typical Fee for a Hotel Management Contract?"
Finance Journal Fall, 1988
"Hotel Franchise Fees," Winter 1989
"Why the Management Team Should be Important to Hotel
Lenders," Spring, 1989
"Hotel Values and Costs," Summer, 1989
"Structuring a Hotel Investment," Fall, 1989
"A Guide for Lenders Holding Distressed Hotel Loans,"
Winter, 1990
"Estimating Current Interest Rates for Hotel Financing,"
Spring, 1990
"Hotel Valuation Techniques," Summer, 1990
"Now is the Time to Review Your Hotel's Property Taxes,"
Fall, 1990
"Property Tax Assessments for Hotels and Motels," Winter,
1991
"Putting Together Hotel Management Agreements - Part I,"
Spring 1991
"Putting Together Hotel Management Agreements - Part II,"
Summer, 1991
"The 1980s - The Decade of Change," Fall, 1991
"An Overview of the Hotel Industry: Past, Present, and
Future," Spring, 1994
"Recent Trands in Hotel Management Contracts," Summer, 1996
"Invest with Success: Where are the Future Investment
Opportunities in the U.S. Lodging Industry?" Fall, 1996
"Estimating the Current Cost of Hotel Financing," Winter,
1997
"The Broker vs. the Appraiser: How to Value a Hotel,"
Spring, 1997
"Hotel Franchising: How to be a Successful Franchisee,"
Summer, 1997
<PAGE>
Qualifications of Stephen
HVS International, Mineola, New York Rushmore, CRE, MAI, CHA
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Published Articles (continued)
Real Estate Forum "Casino Hotels Raise Valuation Questions,"
November, 1981
Real Estate "How Fuel and Energy Shortages Should Affect Investment
Investment Ideas Decisions in the Hospitality Industry," March, 1974
"Upward Trend Continues for Sales Price of Hotel-Motel
Properties," May, 1988
"High Prices Paid for Hotel-Motel Properties," February,
1990
Real Estate Issues "Employee Compensation for a Consulting Practice,"
Fall/Winter, 1985
"Hotel/Motel Market Sales Update," Spring/Summer,
1987
Real Estate
Newsletter "Computers in Hotel Appraising," May 15, 1989
Real Estate
Investment Ideas "Hotel-Sales Update," Winter, 1986
Real Estate Review "Valuing Motels and Hotel in the Current Market,"
Fall, 1972
"Dealing With Distressed Hostelry Loans," Fall, 1975
"The Mortgage Underwriting Consultant Comes of
Age," Fall, 1977
"Real Estate Compensation," Winter, 1987
Real Estate
Workouts and "Stephen Rushmore on Directions in the Hospitality
Asset Management Industry," September, 1992
Real Values "Hotel Construction Cost Update," April, 1986
Restaurant and "How Much Should the Renovation Be?" March, 1986
Hotel Design "14 Notable Hotel Development Firms," December, 1987
Rushmore on Hotel "Mortgage - Equity," Winter, 1979
Valuation "Atlantic City - From Bust to Boom," Winter, 1979
"Mortgage - Equity," Spring, 1979
"Developing Mortgage Data," Spring 1979
<PAGE>
Qualifications of Stephen
HVS International, Mineola, New York Rushmore, CRE, MAI, CHA
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Published Articles (continued)
Rushmore on Hotel "Gasoline and Market Values, " Spring, 1979
Valuation "Mortgage - Equity," Fall, 1979
(continued) "Quantifying a Hotel's Business Value," Fall, 1979
"What Has Happened to Typical Hotel-Motel
Development Costs?," Fall, 1979
"Mortgage-Equity," Winter, 1980
"Extending Hotel Economic Life Through Renovation,"
Winter, 1980
"Estimating Hotel Land Values Using Comparable
Ground Leases," Winter, 1980
"Quantifying the Value of Personal Property to a
Going Hotel," Spring, 1980
"Recent Changes in New York City's Hotel Market,"
Spring, 1980
"Hotel-Motel Economic Lives," Fall, 1980
"Mortgage - Equity," Fall, 1980
"Mortgage - Equity," Winter, 1981
"Developing Mortgage Data," Winter, 1981
"Statistical Support for Food and Beverage
Projections," Winter, 1981
"Mortgage - Equity," Spring/Summer, 1981
"Quantifying a Hotel's Demand," Spring/Summer, 1981
"A Five-Year Overview of Typical Hotel-Motel
Development Costs," Spring/Summer, 1981
"Mortgage - Equity," Winter/Spring, 1982
"Update on Hotel Capitalization Rates,"
Winter/Spring, 1982
"Mortgage - Equity," Summer/Fall, 1982
"Are Casino Hotels Really Worth $500,000 Per Room?"
Summer/Fall, 1982
"The Hotel-Motel Life Cycle, Summer/Fall, 1982
"Mortgage - Equity," Winter/Spring, 1983
"Update on Hotel Development Costs," Winter/Spring, 1983
"The Valuation of Hotels and Motels for Assessment
Purposes," Winter, 1984
"Hotel Capitalization Rates," Summer, 1984
<PAGE>
Qualifications of Stephen
HVS International, Mineola, New York Rushmore, CRE, MAI, CHA
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Published Articles (continued)
Rushmore on Hotel "Hotel Development Cost Survey," Summer, 1984
Valuation "Selecting a Hotel Management Company," Fall, 1984
(continued) "Hotel Capitalization Rates," Spring, 1985
"How to Perform a Breakeven Analysis," Spring, 1985
"Hotel Capitalization Rates," Winter, 1986
"Hotel Development Costs," Winter, 1986
"Hotel Valuation Survey," Winter, 1987
"Impact of New Tax Laws on Hotel Values," Winter, 1987
"Hotel-Motel Market Sales Update," Winter, 1987
"Structuring an Incentive Management Fee," Fall, 1987
"Understanding Your Hotel's Economic Life," Fall, 1987
"Hotel Development Costs," Fall, 1987
"Hotel, Motel Market Sales Update," Winter, 1988
"Amenity Creep," Winter, 1989
"Hotel Franchise Fees," Winter, 1989
"Hotel Valuation Index," Fall, 1989
"Latest Trends in Hotel Values," Fall, 1989
Tri-State Real "Across the Nation: Hotel Sale Prices Escalate on Average,"
Estate Journal December 23, 1994
U.S. Real Estate
Week "All-Suites Market Entering Second Phase," May 4, 1987
Valuation "Hotel-Motel Market Sales Update," February, 1987
Valuation Insights
and Perspectives "Hotels and Motels," Fall, 1996
<PAGE>
Qualifications of Stephen
HVS International, Mineola, New York Rushmore, CRE, MAI, CHA
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Quarterly Newsletter
HVS International
Journal Professional newsletter with a circulation of 10,000
Real Estate Column
Lodging Hospitality Real estate editor for a major monthly hospitality
periodical
Hospitality Column
Real Estate Finance
Journal Contributing hospitality editor
Computer Software
Hospitality Hotel financial software for room night analyses,
Valuation Software income and expense forecasts, and valuation
calculations - developed and distributed for the
Appraisal Institute
Hotel-Motel Data
Hospitality Market National clearinghouse for information pertaining
Data Exchange to hotel and motel transactions
Hotel Valuation National index of hotel value trends for 24
Index individual market areas
Hospitality Seminar Intensive short courses for hotel and restaurant
Series professionals
Hotel Franchise
Fees Analysis
Guide Analysis of hotel franchise fees and costs
Hospitality Comprehensive literature index of hotel and
Bibliography restaurant books and articles
Awards
Robert H. Armstrong For the most significant contribution to The Appraisal
Award Journal in 1975
Activities Commercial pilot, instrument, multi-engine; sailing;
skiing; authority on road food
<PAGE>
Qualifications of Stephen
HVS International, Mineola, New York Rushmore, CRE, MAI, CHA
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HVS
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INTERNATIONAL
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Corporate and Institutional Clients Served
Aetna Life Insurance
AIG Real Estate Investment
Aldrich Eastman and Waltch
Allstate
American Airlines
America's Best Inns
Arthur Anderson & Company
Bankers Trust Company
Bank of America
Bank of Boston
Bank of Montreal
Bank of New York
Bank of Nova Scotia
Bank of Tokyo
Bank One-Columbus
Banque Indosuez
Barclay's Bank
The Beacon Companies
Bear, Stearns & Company, Inc.
Best Inns
Best Western International
Boykin Management Co.
Bradbury Suites
C. Itoh
Caesar's World
California Dept. of Transportation
Chase Lincoln First Bank, N.A.
Chase Manhattan Bank
Chemical Bank
Chrysler Capital Corporation
CIGNA
Citibank
Citicorp Real Estate
City of Boston
City of Detroit
City of Grand Rapids
City of Kalamazoo
City of Orlando
City of Philadelphia
City of Santa Monica
City of Toronto
Columbia Sussex Corporation
Copley Real Estate Advisors
Corporex Development
CRI, Inc.
Cushman and Wakefield
Days Inns
Edward J. DeBartolo Corp.
Deer Valley Ski Corporation
Doubletree Hotels
Drury Inns
Econo Lodge
Economic Development Admin.
Embassy Suites
Equitable Life Assurance
Equitable Real Estate Investment
European American Bank
Fairmont Hotels
Federal Deposit Insurance Corp.
First Boston
<PAGE>
Qualifications of Stephen
HVS International, Mineola, New York Rushmore, CRE, MAI, CHA
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HVS
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INTERNATIONAL
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================================================================================
Corporate and Institutional Clients Served (continued)
First California Savings
First Interstate Bank
First National Bank of Chicago
Four Seasons Hotels
Goldman, Sachs
Greater Orlando Aviation Authority
Great Western Bank
Great Western Savings
Guest Quarters
Hampton Inns
Hilton Hotels, Corp.
Hilton International
Holiday Corporation
Holiday Inns
Home Savings of America
Howard Johnson's
Hudson Hotels Corporation
Hyatt Hotels
Industrial Bank of Japan
Interstate Hotels
The Irvine Company
ITT Commercial Finance Corp.
Japan Airlines
JDC (America) Corporation
John Q. Hammons
John Hancock Life Insurance
Johnson & Wales College
Kenneth Leventhal & Assoc.
Kidder Peabody & Company, Inc.
La Quinta
Larken, Inc.
Lexington Companies
Loews Hotels
Harry Macklowe Real Estate
Marine Midland Bank, N.A.
Marriott Corporation
MA Bay Transit Authority
Massachusetts Mutual Life
Mellon Bank
Meridien Hotels
Merrill Lynch
Merrill Lynch Capital Markets
Metropolitan Life Insurance
Microtel
Midlantic Bank
Mitsubishi
Morgan Guaranty Bank & Trust Co.
J.P. Morgan Investment Management
Morgan Stanley
Motel 6, Inc.
Mutual Benefit Co.
National Westminster Bank
New York Life Insurance
Nippon Credit Bank
Nomura Securities Int'l
North American Taisei Corporation
Northwestern Mutual Life
Omni Hotels
Parabas Bank
Prime Motor Inns
<PAGE>
Qualifications of Stephen
HVS International, Mineola, New York Rushmore, CRE, MAI, CHA
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HVS
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INTERNATIONAL
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================================================================================
Corporate and Institutional Clients Served (continued)
Property Capital Trust
Prudential Life Insurance
Radisson Hotels
Ramada Inns
Red Lion Inns
Regent International
Registry Hotels
Residence Inns
Rhode Island Hospital Trust
Ritz-Carlton Hotels
Rodeway Inns
Rose Associates
Salomon Brothers
San Antonio Hotel/Motel Assoc.
Sanwa Bank
Security Pacific Bank
Servico Management Corp.
Sheraton Hotels
Sonesta Hotels
Sonnenblick-Goldman
Steamboat Ski Corporation
Stouffer Hotels
Stratton Corporation
Sumitomo Bank
Summerfield Hotel Corporation
Super 8 Hotels
Swiss Bank Corporation
Taisei
Texas Commerce Bancshares, Inc.
Tishman Realty Corporation
Trans World Airlines
Travelers Insurance
TraveLodge
Trusthouse Forte
UBS Securities
Union Labor Life
United Bank of Switzerland
United Inns, Inc.
United States Steel
Universal Hotels
U.S. Air Force
U.S. Department of Justice
U.S. Department of the Army
U.S. Department of the Interior
U.S. Economic Development Authority
U.S. Trust Company
Walt Disney Productions
Westin Hotels
Williams Hospitality Corporation
Winegardner & Hammons
Winthrop Financial Associates
Wyndham Hotels
Zeckendorf Company
<PAGE>
Qualifications of Stephen
HVS International, Mineola, New York Rushmore, CRE, MAI, CHA
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HVS
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INTERNATIONAL
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Appearance as
an Expert Witness
Administrative Law Court - SEC, Washington, DC
Appellate Tax Board, Boston, Massachusetts
Arbitration, Wayne, New Jersey
Assessment Appeals Board, Los Angeles County, Los Angeles, California
Board of Equalization and Review, Washington, District of Columbia (2)
Board of Taxation, Atlantic City, New Jersey
Bureau de Revision Evaluation Fonciere du Quebec, Montreal, Canada
Circuit Court, Orange County, Orlando, Florida
Condemnation Review Board, Minneapolis, Minnesota
Corporation Committee, Rhode Island State Senate
Court of Common Pleas, Allegheny County, Pennsylvania
Court of Common Pleas, Franklin County, Ohio
Court of Common Pleas, Montgomery, Pennsylvania
Court of Common Pleas, Pittsburgh, Pennsylvania
Court of Common Pleas, Philadelphia, Pennsylvania
Court of Queen's Bench of Alberta, Canada
District Court, Arapahoe County, Colorado
District Court, Dallas County, Texas
District Court, Harris County, Texas
District Court, Tarrant County, Texas
District Court, Hennepin County, Minneapolis, Minnesota
District Court, Knoxville, Tennessee
Federal Bankruptcy Court, Oakland, California
Federal Bankruptcy Court, Los Angeles, California
Federal Bankruptcy Court, San Diego, California
Federal Bankruptcy Court, Denver, Colorado
Federal Bankruptcy Court, District of Columbia
Federal Bankruptcy Court, Miami, Florida (2)
<PAGE>
Qualifications of Stephen
HVS International, Mineola, New York Rushmore, CRE, MAI, CHA
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HVS
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INTERNATIONAL
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Appearance as
an Expert Witness
(continued)
Federal Bankruptcy Court, Chicago, Illinois
Federal Bankruptcy Court, New Orleans, Louisiana
Federal Bankruptcy Court, Greenbelt, Maryland
Federal Bankruptcy Court, Baltimore, Maryland
Federal Bankruptcy Court, Rockville, Maryland
Federal Bankruptcy Court, Boston, Massachusetts
Federal Bankruptcy Court, Grand Rapids, Michigan
Federal Bankruptcy Court, Las Vegas, Nevada
Federal Bankruptcy Court, Newark, New Jersey (2)
Federal Bankruptcy Court, Manhattan, New York (2)
Federal Bankruptcy Court, Westbury, New York
Federal Bankruptcy Court, Philadelphia, Pennsylvania
Federal Bankruptcy Court, Reading, Pennsylvania
Federal Bankruptcy Court, Salt Lake City, Utah
Federal Bankruptcy Court, Madison, Wisconsin (2)
Federal District Court, Rochester, New York
Federal District Court, Philadelphia, Pennsylvania (2)
Judicial Arbitration and Mediation Services, Dallas, Texas
Michigan Tax Tribunal, Detroit, Michigan
New Jersey Tax Court, Newark, New Jersey (2)
Superior Court, District of Columbia
Superior Court, Clayton County, Georgia (2)
Superior Court, Mount Holly, New Jersey
Superior Court of North Carolina
Superior Court, Nashua, New Hampshire
Supreme Court, New York State, Buffalo, New York
Supreme Court, New York State, Manhattan, New York
Supreme Court, New York State, Riverhead, New York
Tax Review Board, San Joaquin County, Stockton, California
Tax Review Board, Bangor, Maine
<PAGE>
Qualifications of Stephen
HVS International, Mineola, New York Rushmore, CRE, MAI, CHA
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HVS
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INTERNATIONAL
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================================================================================
Appearance as
an Expert Witness
(continued)
Tax Review Board, Schenectady, New York
Tax Review Board, Yorktown, New York
Tax Review Board, North Carolina
Tax Review Board, Philadelphia, Pennsylvania (2)
U.S. District Court, Wilmington, Delaware
U.S. District Court, Madison, Wisconsin
<PAGE>
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Partial List of Hotels/Motels, Appraised or Reviewed Internationally
North America
Canada
- Delta Hotel, Calgary
- Econo Lodge, Hull
- Hotel Lord Berri, Montreal
- Hotel Vogue, Montreal
- Hyatt Regency, Montreal
- Le Ragence Hyatt, Montreal
- Holiday Inn, Oshawa, Ontario
- Hotel Le Chantecler, Quebec
- Bond Place Hotel, Toronto
- Carlton Hotel, Toronto
- Chelsea Hotel, Toronto
- Delta Chelsea Hotel, Toronto
- Four Seasons on the Park, Toronto
- Inn on the Park, Toronto
- Novotel Missisauga, Toronto
- Ramada Inn, Toronto
- Sutton Hotel, Toronto
- Toronto Marriott East, Toronto
- Westbury Hotel, Toronto
- Burnaby Villa Inn, Vancouver
- Four Seasons Hotel, Vancouver
- Sheraton Land Mark, Vancouver
- Sheraton Plaza 500, Vancouver
- Four Seasons Yorkville Hotel, Yorkville
United States
Alabama
- MEI - Birmingham West, Bessemer
- Comfort Inn, Birmingham
- Courtyard by Marriott, Birmingham
- Courtyard by Marriott-Hoover, Birmingham
- Courtyard By Marriott/Homewood, Birmingham
- Crown Sterling Suites, Birmingham
- Fairfield Inn, Birmingham
- Holiday Inn, Birmingham
- Howard Johnson, Birmingham
- Knights Inn, Birmingham
- Ramada Inn, Birmingham
- Residence Inn by Marriott, Birmingham
- Still Waters Resort, Dadeville
- Ramada Inn, Gadsden
- Sheraton Hotel, Gulf Shores
- Courtyard by Marriott, Huntsville
- Knights Inn, Huntsville
- Marriott Hotel-Proposed, Huntsville
- La Quinta Inn, Huntsville University
- Days Inn, Mobile
- Hotel - Proposed, Mobile
- Inn-Proposed, Mobile
- Stouffer Riverview, Mobile
- Courtyard by Marriott, Montgomery
- Fairfield Inn, Montgomery
- Holiday Inn-Downtown, Montgomery
- Holiday Inn-East, Montgomery
- Howard Johnson, Montgomery
- La Quinta Inn, Montgomery
- Residence Inn, Montgomery
- Marriott's Grand Hotel, Point Clear
- Holiday Inn, Sheffield
- La Quinta, Tuscaloosa
- Masters Economy Inn, Tuscaloosa
- Proposed Extended Stay, West Mobile
Alaska
- Barratt Inn, Anchorage
- Clarion Hotel, Anchorage
- Holiday Inn, Anchorage
- Hotel Captain Hook, Anchorage
- International Airport Inn, Anchorage
- Sheraton Anchorage Hotel, Anchorage
Arizona
- Holiday Inn, Bullhead City
- Embassy Suites, Camelback
- Compri Hotel-Proposed, Chandler
- Quality Inn, Chandler
- Ramada Inn, Chandler
- AmeriSuite Hotel-Proposed, Flagstaff
- Holiday Inn, Flagstaff
- Motel 6, Flagstaff
- Rodeway Inn, Flagstaff
- Bright Angel Lodge, Grand Canyon
- El Tovar Hotel, Grand Canyon
- Grand Canyon National Park, Grand Canyon
- Kachina Lodge, Grand Canyon
- Maswik Lodge, Grand Canyon
- Moqui Lodge, Grand Canyon
- Phantom Ranch, Grand Canyon
- Thunderbird Lodge, Grand Canyon
- Yavapai Lodge, Grand Canyon
- Hampton Inn-Proposed, Holbrook
- Moqui Lodge, Kaibab National Forest
- Rodeway Inn, Kingman
- Nautical Inn Resort, Lake Havasu City
- Lexington Hotel Suites, Mesa
- Biosphere II Conference Center, Oracle
- Best Western-Per Diem, Phoenix
- Bobby McGee's, Phoenix
- Caravan Inn, Phoenix
- Compri Hotel-Proposed, Phoenix
- Courtyard by Marriott-Black Canyon, Phoenix
- Courtyard by Marriott-Mesa, Phoenix
- Crescent Phoenix Hotel, Phoenix
- Crown Sterling Suites, Phoenix
- Days Inn, Phoenix
- Doubletree Inn at Park Central, Phoenix
- Embassy Suites, Phoenix
- Embassy Suites-Biltmore, Phoenix
- Executive Park Hotel, Phoenix
- Fountain Suites Hotel, Phoenix
- Granada Royale-Camelhead, Phoenix
- Hilton Hotel, Phoenix
- Holiday Inn, Phoenix
- Hyatt Regency, Phoenix
- La Quinta Hotel, Phoenix
- Lexington Hotel Suites, Phoenix
- Newton's Sands, Phoenix
- Phoenician Golf & Tennis Resort, Phoenix
- Pointe Hilton at Tapatio Cliffs, Phoenix
- Quality Inn, Phoenix
- Ramada Inn-Airport, Phoenix
- Ramada Inn-East, Phoenix
- Ritz Carlton, Phoenix
- Sunburst Resort Hotel, Phoenix
- Hassayampa Inn, Prescott
- Clarion Inn at McCormick Ranch, Scottsdale
- Conference Center, Scottsdale
- Courtyard by Marriott-Mayo, Scottsdale
- Doubletree Inn at Scottsdale Mall, Scottsdale
- Fairfield Inn, Scottsdale
- Fashion Square Hotel, Scottsdale
- Loews Paradise Resort, Scottsdale
- Marriott Camelback Inn, Scottsdale
- Marriott Mountain Shadows, Scottsdale
- Mountain Shadows Resort, Scottsdale
- Orange Tree Resort, Scottsdale
- Ramada-Valley Ho, Scottsdale
- Red Lion's La Posada Resort, Scottsdale
- Registry Resort, Scottsdale
<PAGE>
- Rodeway Inn, Scottsdale
- Scottsdale Princess, Scottsdale
- Sheraton Scottsdale Resort, Scottsdale
- The Phoenician, Scottsdale
- Valley Ho, Scottsdale
- John Gardiner's Enchantment, Sedona
- L'Auberege de Sedona, Sedona
- Los Abrigados, Sedona
- Orchards Inn, Sedona
- Hotel-Proposed, Sierra Vista
- Motel 6, Sierra Vista
- Temple Bar Resort, Temple Bar
- Coachman Inn - Proposed, Tolleson/Phoenix
- Tubac Resort, Tubac
- Canyon Ranch, Tucson
- Coachman Inn-Proposed, Tucson
- Courtyard by Marriott, Tucson
- Doubletree Inn, Tucson
- Embassy Suites, Tucson
- Granada Royale Hometel-E. Broadway, Tucson
- Hotel Park Tucson-Proposed, Tucson
- Lexington Suites Hotel, Tucson
- Loews Hotel, Tucson
- Resort Hotel-Proposed, Tucson
- Rodeway Inn, Tucson
- Sunbelt Commerce Center Hotel, Tucson
- La Quinta Inn, Tucson East
- Bobby McGee's, Tuscon
- Radisson Suite Hotel, Tuscon
- Ventana Canyon Golf and Racquet, Tuscon
- Ramada Inn, Union Hill
Arkansas
- Sheraton Inn, Fort Smith
- Hilton, Hot Springs
- Holiday Inn-Lake Hamilton, Hot Springs
- Courtyard by Marriott, Little Rock
- Holiday Inn, Little Rock
- Legacy Hotel, Little Rock
- Little Rock Hilton, Little Rock
- Masters Economy Inn, Little Rock
- Red Carpet Inn, Little Rock
- Super 8, Little Rock
- Masters Economy Inn, North Little Rock
- Masters Economy Inn, Protho-Junction
- Holiday Inn, Texarkana
California
- Hampton Inn, Agoura Hills
- Ramada Inn, Agoura Hills
- Residence Inn-Proposed, Agoura Hills
- Island Motel, Almeda
- Anaheim Hilton & Towers, Anaheim
- Anaheim Park Motor Inn, Anaheim
- Anaheim Plaza Hotel, Anaheim
- Best Western Pavillions, Anaheim
- Carousel Inn, Anaheim
- Conestoga Hotel, Anaheim
- Courtyard by Marriott, Anaheim
- Crown Sterling Suites, Anaheim
- Disneyland Hotel, Anaheim
- Golden Forest Motel, Anaheim
- Hampton Inn, Anaheim
- Hilton, Anaheim
- Holiday Inn Anaheim Center, Anaheim
- Hotel-Proposed, Anaheim
- Marriott Hotel, Anaheim
- Pan Pacific Hotel, Anaheim
- Pitcairn Motel, Anaheim
- Raffles Inn, Anaheim
- Ramada Maingate/Disneyland Hotel, Anaheim
- Roger Morris Inn, Anaheim
- Stovall's Inn, Anaheim
- The Station Inn, Anaheim
- Travelodge Inn at the Park, Anaheim
- AmeriSuite, Anaheim Hills
- Comfort Inn, Anahiem
- Mansouri Hotel, Antioch
- Red Lion, Apple Valley
- Hampton Inn, Arcadia
- Residence Inn, Arcadia
- Hilton Lodge, Arrowhead Lake
- Auburn Inn, Auburn
- Sleep Inn, Auburn
- Allstar Inn, Bakersfield
- Clarion Hotel, Bakersfield
- Courtyard by Marriott, Bakersfield
- Economy Inn, Bakersfield
- Ramada Inn, Bakersfield
- Red Lion Hotel, Bakersfield
- Residence Inn, Bakersfield
- Rodeway Inn, Bakersfield
- Hilton Hotel, Baldwin Park
- San Gabriel Valley Hotel, Baldwin Park
- The Hilton Hotel, Baldwin Park
- Allstar Inn, Barstow
- Economy Inn, Barstow
- Marriott Berkeley Marina, Berkeley
- Shattuck Hotel, Berkeley
- Beverly Hills Hotel, Beverly Hills
- Beverly Rodeo Hotel, Beverly Hills
- Beverly Wilshire Hotel, Beverly Hills
- Hilton Hotel-Cresthil, Beverly Hills
- L'Ermitage, Beverly Hills
- Peninsula Hotel, Beverly Hills
- Best Western, Big Bear Lake
- Big Bear Hotel, Big Bear Lake
- Big Bear Lake Resort, Big Bear Lake
- Big Bear Towering Pines, Big Bear Lake
- Motel 6, Big Bear Lake
- Post Ranch, Big Sur
- Ventana Inn, Big Sur
- Rodeway Inn, Blythe
- Courtyard by Marriott, Brea
- Holiday Inn, Brentwood
- Courtyard by Marriott, Buena Park
- Fairfield Inn, Buena Park
- Hampton Inn, Buena Park
- Holiday Inn, Buena Park
- Crowne Sterling Suites, Burlingame
- Hyatt Regency, Burlingame
- Mariott Hotel - SFO, Burlingame
- Marriott, Burlingame
- Marriott-San Francisco Airport, Burlingame
- Radisson Hotel-Proposed, Burlingame
- Sheraton Hotel, Burlingame
- Courtyard by Marriott, Camarillo
- Best Western Fireside Inn, Cambria
- Cambria Pines Lodge, Cambria
- Residence Inn, Campbell
- Hotel-Proposed, Capitola
- Resort Hotel, Spa & Conference Ctr., Capitola
- Allstar Inn, Carlsbad
- Carlsbad Inn, Carlsbad
- Inn of America, Carlsbad
- La Costa Hotel and Spa, Carlsbad
- Olympic Resort Hotel, Carlsbad
- Tickle Pink Inn, Carmel
- Allstar Inn, Carpinteria
- Desert Princess Country Club, Cathedral City
- Royce Suites Hotel, Cathedral City
- Digger Bay, Central Valley
- Marriott Hotel-Proposed, Century City
- Westin Century Plaza Hotel, Century City
- Neighborhood Inn-Proposed, Chatsworth
- Red Lion Hotel, Chico
- Otay Valley Inn, Chula Vista
- Travelodge-Otay Valley, Chula Vista
- Ramada Inn, City of Commerce
- Sheraton Hotel, City of Industry
- Allstar Inn, Coalinga
- Harris Ranch Restaurant/Inn, Coalinga
- Howard Johnson, Colton
- Best Western Willow Tree Inn, Compton
- Concord Hotel, Concord
- Hilton Hotel, Concord
- The Trees Inn, Concord
- Motel 6, Corona
- Hotel del Coronado, Coronado
- Loews Coronado Bay Resort, Coronado
- Madera Village Inn, Corte Madera
- Ha' Penny Inn, Costa Mesa
- La Quinta Hotel, Costa Mesa
- Marriott Suites, Costa Mesa
- Red Lion Hotel, Costa Mesa
- Residence Inn, Costa Mesa
- Pacifica Hotel, Culver City
- Ramada Inn, Culver City
- Courtyard by Marriott, Cupertino
- Doubletree Hotel, Cupertino
- Doubletree Hotel, Dana Point
<PAGE>
- Spa-Proposed, Danville
- El Rancho, Davis
- Furnace Creek Resort, Death Valley
- Stovepipe Wells Village, Death Valley
- Hilton, Del Mar
- Days Inn, Diamond Bar
- Compri Hotel, El Segundo
- Proposed Summerfield, El Segundo
- Days Inn, Emeryville
- Holiday Inn-Bay Bridge, Emeryville
- Lyons Restaurant, Emeryville
- Budget Motel, Encinitis
- Marriott Tenaya Lodge-Proposed, Fishcamp
- Holiday Inn, Fort Myers Beach
- All Suites Hotel/Athletic Club, Foster City
- Clubtel-Proposed, Foster City
- Courtyard by Marriott, Foster City
- Holiday Inn, Foster City
- Courtyard by Marriott, Fremont
- Fremont Hotel, Fremont
- Motel 6, Fremont
- Residence Inn, Fremont
- Allstar Inn, Fresno
- AmeriSuite, Fresno
- Chateau Inn, Fresno
- Courtyard by Marriott, Fresno
- Economy Inn, Fresno
- Hacienda, Fresno
- Holiday Inn, Fresno
- Holiday Inn-Fresno Airport, Fresno
- Howard Johnson Motel, Fresno
- Piccadilly Inn, Fresno
- Travelers Inn, Fresno
- Travelers Lodge, Fresno
- Griswold's Hotel, Fullerton
- Holiday Inn, Fullerton
- Marriott Hotel, Fullerton
- Hotel-Proposed, Garden Grove
- Hyatt Regency Alicante, Garden Grove
- Princess Hotel, Garden Grove
- Motel 6, Gilroy
- Hyatt Regency-Proposed, Goleta
- Allstar Inn, Hacienda Heights
- Courtyard by Marriott, Hacienda Heights
- Half Moon Bay Lodge, Half Moon Bay
- Courtyard by Marriott, Harbor Boulevard
- Grosvenor, Harborside-Pt. Loma
- Inn at Foss Creek, Healdsburg
- Chateau Marmont, Hollywood
- Hollywood Palm Hotel, Hollywood
- Sunset Towers Hotel, Hollywood
- Waterfront Hilton Hotel, Huntington Beach
- Compri Hotel, Hutton Centre
- Grand Champions Resort, Indian Wells
- Stouffer Esmerelda Resort, Indian Wells
- Courtyard By Marriott, Irvine
- Courtyard by Marriott - Proposed, Irvine
- Embassy Suites, Irvine
- Hilton Hotel, Irvine
- Holiday Inn, Irvine
- Hyatt Hotel, Irvine
- La Quinta-Proposed, Irvine
- Marriott Hotel, Irvine
- Marriott-Proposed, Irvine
- Registry Hotel, Irvine
- Residence Inn-Proposed, Irvine
- Amador Inn, Jackson
- Embassy Suites, La Jolla
- Hotel-Proposed, La Jolla
- La Jolla Property, La Jolla
- La Jolla Village Inn, La Jolla
- Marriott Hotel, La Jolla
- Residence Inn, La Jolla
- Days Inn-Proposed, La Palma
- PGA West Resort - Proposed, La Quinta
- Lafayette Park Hotel, Lafayette
- Laguna Shores, Laguna Beach
- Holiday Inn, Laguna Hills
- Ryokan Hotel-Proposed, Laguna Hills
- Villa Valencia, Laguna Hills
- Ritz Carlton, Laguna Niguel
- Lake Mohave Resort, Lake Mohave
- Resort at Squaw Creek, Lake Tahoe
- Courtyard by Marriott, Larkspur Landing
- Hilton, Las Cruces
- Surf and Sand Hotel, Leguna Beach
- Holiday Inn, Lido Beach
- Motel-Proposed, Little Lake
- Residence Inn, Livermore
- Residence Inn-Proposed, Livermore
- Breakers Hotel, Long Beach
- Holiday Inn, Long Beach
- Holiday Inn Airport, Long Beach
- Marriott Hotel-Long Beach Airport, Long Beach
- Marriott Hotel-Proposed, Long Beach
- Ramada Renaissance Hotel, Long Beach
- Residence Inn, Long Beach
- Sheraton Long Beach & Office Tower, Long Beach
- Airport Park Hotel, Los Angeles
- Bel Age, Los Angeles
- Biltmore Hotel, Los Angeles
- Century Inn, Los Angeles
- Checkers Hotel, Los Angeles
- Courtyard by Marriott-Irvine Main, Los Angeles
- Courtyard by Marriott-LAX Airport, Los Angeles
- Crown Sterling Suites, Los Angeles
- Days Inn, Los Angeles
- Econo Lodge-Proposed, Los Angeles
- Embassy Suites, Los Angeles
- Embassy Suites-LAX-Proposed, Los Angeles
- Four Seasons, Los Angeles
- Hampton Inn-LAX, Los Angeles
- Herrick and Campbell, Los Angeles
- Hilton & Towers-LAX, Los Angeles
- Hilton Hotel, Los Angeles
- Holiday Inn Crowne Plaza-LAX, Los Angeles
- Le Montrose Hotel, Los Angeles
- Ma Maison Sofitel, Los Angeles
- Macklowe Hotel, Los Angeles
- Marriott Century City, Los Angeles
- MCA Hotel-Proposed, Los Angeles
- New Otani Hotel, Los Angeles
- Playa Vista Development, Los Angeles
- Stouffer Concourse Hotel, Los Angeles
- Westin Bonaventure, Los Angeles
- Westwood Marquis Hotel, Los Angeles
- Los Gatos Lodge, Los Gatos
- Macienda Inn, Los Gatos
- Toll House Inn, Los Gatos
- Residence Inn, Manhattan Beach
- All Suite Hotel, Marina Del Rey
- Marina Beach Hotel, Marina del Rey
- Marina del Rey Hotel and Marina, Marina del Rey
- Marina Suites Hotel, Marina Del Rey
- Marriott Marina Del Rey, Marina Del Rey
- Residence Inn, Meriden
- Quality Suites Hotel - Proposed, Millbrae
- Beverly Heritage Hotel, Milpitas
- Crown Sterling Suites, Milpitas
- Holiday Inn, Milpitas
- Courtyard by Marriott, Mira Mesa
- Grosvenor, Mission Bay
- Motel Orleans, Modesto
- Red Lion Hotel, Modesto
- Red Lion-Proposed, Modesto
- Carmel Mission Inn, Monterey
- Doubletree Inn, Monterey
- Former Monterey Hilton Hotel, Monterey
- Monterey Plaza, Monterey
- Plaza Hotel, Monterey
- Sheraton Hotel, Monterey
- Pebble Beach Company, Monterey County
- Inn at Morro Bay, Morro Bay
- Residence Inn, Mountain View
- Inn at Napa Valley, Napa
- Best Western Inn, Napa Valley
- Clarion Hotel-Napa Valley, Napa Valley
- Silverado, Napa Valley
- Ha'Penny Motel, National City
- Allstar Inn, Needles
- Hilton-Newark/Fremont, Newark
- Four Seasons Hotel, Newport Beach
- Hotel Meridien, Newport Beach
- Hyatt Newporter, Newport Beach
- Newporter Resort, Newport Beach
- Sheraton, Newport Beach
- Days Inn-Proposed, North Hollywood
- Northstar, North Lake Tahoe
- Ramada Inn, Norwalk
- Impact Study - Proposed Hotel, Oakdale
- Hilton Inn, Oakland
<PAGE>
- Holiday Inn, Oakland
- Holiday Inn-Oakland Airport, Oakland
- Parc Oakland Hotel, Oakland
- Resort - Proposed, Olympic Valley
- Resort at Squaw Creek-Proposed, Olympic Valley
- Clarion Hotel, Ontario
- Compri Hotel, Ontario
- Fairfield Inn, Ontario
- Holiday Inn, Ontario
- Lexington Hotel Suites, Ontario
- Red Lion Hotel, Ontario
- Doubletree Hotel, Orange
- Woodfin Suites, Orange
- Embassy Suites, Palm Desert
- Marriott Desert Springs, Palm Desert
- Canyon Resort, Palm Springs
- Compri Hotel-Proposed, Palm Springs
- Courtyard by Marriott, Palm Springs
- Desert Princess, Palm Springs
- Grand Champions Resort, Palm Springs
- International Hotel and Resort, Palm Springs
- Ocotillo Lodge, Palm Springs
- Palm Canyon, Palm Springs
- PGA West Resort-Proposed, Palm Springs
- Spa Hotel at Mineral Springs, Palm Springs
- Westin Hotel, Palm Springs
- Grosvenor, Palmdale
- Super 8, Palmdale
- Cowper Square, Palo Alto
- Garden Court, Palo Alto
- Holiday Inn, Palo Alto
- Stanford Park, Palo Alto
- Marriott, Paradise Valley
- All Suite Hotel-Proposed, Pasadena
- Doubletree Hotel, Pasadena
- Holiday Inn, Pasadena
- Cascade Ranch Lodge, Pescadero
- Elk Lodge, Petaluma
- Hotel Petaluma, Petaluma
- Hilton-Proposed, Pismo Beach
- Hilton-Sea Point, Pismo Beach
- Holiday Inn, Pismo Beach
- Hotel-Proposed, Pismo Beach
- Pismo II, Pismo Beach
- Fairfield Inn, Placentia
- Residence Inn, Placentia
- Howard Hughes Center, Playa Vista
- Pleasant Hill Inn, Pleasant Hill
- Residence Inn, Pleasant Hill
- Club Hilton Hotel-Proposed, Pleasanton
- Compri Hotel, Pleasanton
- Courtyard by Marriott, Pleasanton
- Hilton, Pleasanton
- Holiday Inn, Pleasanton
- Pleasanton Creek, Pleasanton
- Shilo Inn - Hilltop, Pomona
- Compri Hotel, Rancho Bernardo
- Radisson Suites, Rancho Bernardo
- Comfort Inn Motel, Rancho Cordova
- Courtyard by Marriott, Rancho Cordova
- Economy Inn, Rancho Cordova
- El Rancho, Rancho Cordova
- Quality Suites-Proposed, Rancho Cordova
- Sheraton Sunrise, Rancho Cordova
- Marriott Rancho Las Palmas, Rancho Mirage
- Mission Hills Hotel, Rancho Mirage
- Resort Hotel-Proposed, Rancho Mirage
- Westin Mission Hills Resort, Rancho Mirage
- Bridge Bay Resort, Redding
- Grand Manor Inn, Redding
- La Quinta Inn, Redding
- Motel 6, Redding
- Motel Orleans, Redding
- Red Lion Inn, Redding
- Shasta Inn, Redding
- Portofino Hotel & Yacht Club, Redondo Beach
- Sheraton, Redondo Beach
- Sofitel Redwood Shores, Redwood
- Days Inn, Richmond
- Best Western Carraige Inn, Ridgecrest
- Days Inn, Riverside
- Mission Inn-Proposed, Riverside
- Omni Mission Inn, Riverside
- Sheraton Hotel, Riverside
- Red Lion Inn, Rohnert Park
- Crown Sterling Suites, S.San Fransicso
- Allstar Inn, Sacramento
- Arco Arena II-Proposed, Sacramento
- Arco Park, Sacramento
- Catering Center - Proposed, Sacramento
- Clarion Hotel, Sacramento
- Compri Hotel-Proposed, Sacramento
- Courtyard by Marriott, Sacramento
- Courtyard by Marriott-S. Natomas, Sacramento
- Hilton Hotel, Sacramento
- Holiday Inn-Capital Plaza, Sacramento
- Hotel-Proposed, Sacramento
- Hyatt Arbitrat, Sacramento
- Hyatt Regency, Sacramento
- La Quinta Hotel, Sacramento
- Motel Orleans, Sacramento
- Radisson Hotel, Sacramento
- Red Lion Inn, Sacramento
- Residence Inn, Sacramento
- Sacramento Inn, Sacramento
- Sierra Inn, Sacramento
- Sterling Hotel, Sacramento
- Travelers Inn, Sacramento
- Woodlake Inn, Sacramento
- Harvest Inn, Saint Helena
- Courtyard by Marriott, San Bruno
- San Carlos Motel Development, San Carlos
- Atlas Hotels/Mission Valley Inn, San Diego
- Best Western Seven Seas Motor Lodge, San Diego
- Budget Motel of America, San Diego
- Catamaran Resort Hotel, San Diego
- Center Pointe Development, San Diego
- Comfort Inn, San Diego
- Courtyard by Marriott-Mira Mesa, San Diego
- Doubletree Hotel, San Diego
- Embassy Suites, San Diego
- Executive Lodge, San Diego
- Hanalei Hotel, San Diego
- Harbor Island Hotel-Proposed, San Diego
- Harborside Inn-Point Loma, San Diego
- Harbortown Marina Resort, San Diego
- Holiday Inn Montgomery Airport, San Diego
- Holiday Inn-Embarcadero, San Diego
- Holiday Inn-Harbor View, San Diego
- Horton Grand Saddlery, San Diego
- Horton Park Plaza Hotel, San Diego
- Howard Johnson Hotel, San Diego
- Inter-Continental Hotel & Marina, San Diego
- Kings Inn, San Diego
- La Jolla Village Inn, San Diego
- La Quinta Hotel, San Diego
- Marriott Hotel-Mission Valley, San Diego
- Marriott Twin Towers and Marina, San Diego
- Mission Valley Inn, San Diego
- Omni Hotel, San Diego
- Radisson Hotel, San Diego
- Ramada Inn, San Diego
- Ramada Limited Suites, San Diego
- Ramada Old Town, San Diego
- Ramada Rancho Penasquitos, San Diego
- Red Lion Inn, San Diego
- Regency Plaza Hotel, San Diego
- San Diego Marriott, San Diego
- Seven Seas Lodge, San Diego
- Sheraton Grand, San Diego
- Sheraton Harbor Island East, San Diego
- Super 8-Point Loma, San Diego
- Symphony Towers, San Diego
- Town and Country Hotel, San Diego
- Travelodge Hotel Plaza, San Diego
- U.S. Grant Hotel, San Diego
- Westin-Proposed, San Diego
- Abagail Inn, San Francisco
- Bellevue Hotel, San Francisco
- Cable Motor Inn, San Francisco
- California Cafe, San Francisco
- Campton Place, San Francisco
- Cartwright Hotel, San Francisco
- Chancellor Hotel, San Francisco
- Clarion Inn-San Francisco Airport, San Francisco
- Comfort Inn, San Francisco
- Courtyard by Marriott-Airport, San Francisco
- Embarcadero Inn, San Francisco
- Fairmont Hotel, San Francisco
- Grand Hyatt, San Francisco
- Grosvenor Clift Hotel, San Francisco
<PAGE>
- Harbor Court Hotel, San Francisco
- Hilton Hotel, San Francisco
- Holiday Inn - Union Square, San Francisco
- Holiday Inn Crowne Plaza, San Francisco
- Holiday Inn-Civic Center, San Francisco
- Holiday Inn-Fisherman's Wharf, San Francisco
- Holiday Inn-Golden Gateway, San Francisco
- Holiday Inn-South, San Francisco
- Holiday Lodge, San Francisco
- Hotel Diva, San Francisco
- Hotel Meridien, San Francisco
- Hotel Union Square, San Francisco
- Hotel-Proposed, San Francisco
- Hyatt Fisherman's Wharf, San Francisco
- Hyatt Regency Embarcadero, San Francisco
- Inn at Fisherman's Wharf, San Francisco
- Inn at the Opera, San Francisco
- Inn-Proposed, San Francisco
- Juliana Hotel, San Francisco
- King George Hotel, San Francisco
- La Quinta Inn, San Francisco
- La Quinta-Airport, San Francisco
- Lambourne Hotel, San Francisco
- Laurel Motor Inn, San Francisco
- Majestic Hotel, San Francisco
- Manx Hotel, San Francisco
- Mark Twain, San Francisco
- Marriott, San Francisco
- Marriott San Francisco-Proposed, San Francisco
- Marriott-Airport, San Francisco
- Orchard Hotel, San Francisco
- Pan Pacific Hotel, San Francisco
- Parc 55 Hotel, San Francisco
- Park Hyatt Hotel, San Francisco
- Portman Hotel, San Francisco
- Prescott Hotel, San Francisco
- Queen Anne Hotel, San Francisco
- Ramada Hotel, San Francisco
- Regis Hotel, San Francisco
- Ritz-Carlton Hotel, San Francisco
- San Franciscan, San Francisco
- San Francisco Hotel, San Francisco
- Savoy Hotel, San Francisco
- Sheraton Palace Hotel, San Francisco
- Sheraton-Fisherman's Wharf, San Francisco
- Sir Francis Drake Hotel, San Francisco
- Stanford Court, San Francisco
- Stouffer Stanford Court Hotel, San Francisco
- Super 8-Fisherman's Wharf, San Francisco
- Westin St. Francis, San Francisco
- Crowne Sterling Suites, San Francisco - South
- Olympic Club Golf Course, San Francisco/San Mateo
- Budget Inn, San Jose
- Courtyard by Marriott, San Jose
- Cozy 8 Arena Hotel, San Jose
- Fairmont Hotel, San Jose
- Holiday Inn, San Jose
- Ramada Renaissance, San Jose
- Red Lion Inn, San Jose
- Islander Motel, San Leandro
- Apple Farm Inn, San Luis Obispo
- Embassy Suites, San Luis Obispo
- Holiday Inn, San Luis Obispo
- Los Nomados Resort, San Luis Obispo
- Twin Oaks Golf Course, San Marcos
- Dunfey San Mateo Hotel, San Mateo
- Compri Hotel-Proposed, San Pedro
- Embassy Suites Hotel, San Rafael
- Marriott Hotel-Proposed, San Ramon
- Residence Inn, San Ramon
- AAA Inn, Santa Ana
- California Palms Hotel, Santa Ana
- Comfort Inn, Santa Ana
- Compri Hotel, Santa Ana
- Embassy Suites Santa Ana, Santa Ana
- Executive Lodge, Santa Ana
- Howard Johnson, Santa Ana
- Quality Inn, Santa Ana
- Ramada Inn-Orange County, Santa Ana
- El Encanto Hotel, Santa Barbara
- Fess Parker's Red Lion Resort, Santa Barbara
- Four Seasons Hotel, Santa Barbara
- Montecito Inn, Santa Barbara
- San Ysidro Ranch, Santa Barbara
- Santa Barbara Inn, Santa Barbara
- Biltmore Hotel & Suites, Santa Clara
- Days Inn, Santa Clara
- Doubletree Hotel, Santa Clara
- Embassy Suites, Santa Clara
- Inn At Saratoga, Santa Clara
- Marriott Hotel, Santa Clara
- Quality Suites Hotel, Santa Clara
- Dream Inn, Santa Cruz
- Hilton, Santa Maria
- Motel 6, Santa Maria
- Econo Lodge-Proposed, Santa Monica
- Holiday Inn, Santa Monica
- Holiday Inn at the Pier, Santa Monica
- Park Hyatt Hotel, Santa Monica
- Santa Monica Beach Hotel, Santa Monica
- Santa Monica/Slatkin, Santa Monica
- Allstar Inn, Santa Rosa
- Doubletree Hotel, Santa Rosa
- Fountaingrove Inn, Santa Rosa
- Holiday Inn, Santa Rosa
- Round Barn Inn-Proposed, Santa Rosa
- Sheraton Round Barn, Santa Rosa
- Days Inn, Seaside
- Embassy Suites, Seaside
- Seaside 8 Motel, Seaside
- Valley Radisson, Sherman Oaks
- Red Lion, Sonoma
- Sonoma Mission Inn, Sonoma
- Holiday Inn - Proposed, Sonora
- Timberwolf Lodge, South Lake Tahoe
- Holiday Inn, South San Francisco
- Hotel-Proposed, South San Francisco
- Meadowood Resort, St. Helena
- Hilton Hotel, Stockton
- Holiday Inn, Stockton
- La Quinta Hotel, Stockton
- Motel Orleans, Stockton
- Paradise Point Manna, Stockton
- Sheraton-Proposed, Stockton
- Hilton, Sunnyvale
- Holiday Inn, Sunnyvale
- Neighborhood Suites, Sunnyvale
- Ramada Inn, Sunnyvale
- Sunnyvale Hilton, Sunnyvale
- Temecula Creek Inn, Temecula Creek
- Westlake Plaza Hotel, Thousand Oaks
- Courtyard by Marriott, Torrance
- Holiday Inn, Torrance
- Marriott Hotel, Torrance
- Residence Inn, Torrance
- Holiday Inn, Union City
- MCA Hotel-Proposed, Universal City
- Comfort Inn, Vallejo
- Holiday Inn, Van Nuys
- La Quinta Hotel, Ventura
- Ocean Resorts, Ventura
- Sheraton, Ventura
- Greentree Inn, Victorville
- Doubletree Inn, Walnut Creek
- Parkside Hotel, Walnut Creek
- Ramada Renaissance Hotel, Walnut Creek
- Royce Hotel-Proposed, Walnut Creek
- Walnut Creek Project, Walnut Creek
- Hampton Inn, West Covina
- Le Bel Age, West Hollywood
- Le Dufy, West Hollywood
- Le Mondrian Hotel, West Hollywood
- Hilton, Whittler
- Hotel & Conference Center-Proposed, Woodland
- Marriott Hotel-Woodland Hills, Woodland Hills
- Skylonda Retreat, Woodside
- Compri Hotel-Proposed, Yorba Linda
- Marriott-Tenaya Lodge, Yosemite
- Motel Orleans, Yuba City
Colorado
- Days Inn, Arapahoe
- Continental Inn, Aspen
- Ritz-Carlton Hotel-Proposed, Aspen
- Hampton Inn, Aurora
- Holiday Inn, Aurora
- Radisson Hotel, Aurora
- Radisson Southeast, Aurora
- Raffles Hotel, Aurora
- Comfort Inn, Avon
- Boulder Hotel-Downtown, Boulder
<PAGE>
- Clarion Hotel, Boulder
- Courtyard by Marriott, Boulder
- Doubletree Hotel-Proposed, Boulder
- Hilton Harvest House, Boulder
- Holiday Inn, Boulder
- Interlocken Conference Resort-Prop., Boulder
- Proposed Golf Course, Boulder
- Residence Inn, Boulder
- Hilton, Breckenridge
- Ski Lodge-Proposed, Breckenridge
- Interlocken Conference Center, Broomfield
- Interlocken Conference Center-Prop., Broomfield
- Embassy Suites, Colorado Springs
- Hilton, Colorado Springs
- Howard Johnson, Colorado Springs
- Le Baron Hotel, Colorado Springs
- Marriott, Colorado Springs
- Quality Inn, Colorado Springs
- Red Lion Inn, Colorado Springs
- Sheraton Inn, Colorado Springs
- Grand Butte Hotel, Crested Butte
- Best Western Regency, Denver
- Brown Palace, Denver
- Clarion Hotel-Denver Airport, Denver
- Courtyard by Marriott-Airport, Denver
- Courtyard by Marriott-Southeast, Denver
- Days Inn, Denver
- Denver Airport Hilton Inn, Denver
- Doubletree Hotel, Denver
- Embassy Suites, Denver
- Embassy Suites-Airport, Denver
- Hilton-Technical Center, Denver
- Holiday Inn-Downtown, Denver
- Holiday Inn-West, Denver
- Jackson's Hole Sport, Denver
- Marriott-Southeast, Denver
- Marriott-West, Denver
- Radisson Hotel, Denver
- Red Lion Hotel, Denver
- Regency Inn, Denver
- La Quinta Inn, Denver - Airport
- La Quinta, Denver - South
- Red Lion Inn, Durango
- Hilton-Denver, Englewood
- Residence Inn, Englewood
- Scanticon Conference Center, Englewood
- Marriott Hotel-Proposed, Fort Collins
- Holiday Inn, Golden
- Marriott-Denver West, Golden
- Ramada Inn, Grand Junction
- Sheraton-Proposed, Keystone
- Compri Hotel, Lakewood
- Hampton Inn, Lakewood
- Sheraton Inn, Steamboat Springs
- Proposed Hotel, Telluride
- Days Inn, Vail
- Doubletree Hotel, Vail
- Lodge at Vail, Vail
- Marriott's Mark Resort, Vail
- Westin Vail Resort, Vail
- Ramada Hotel, Westminster
- Winter Park Resort, Winter Park
Connecticut
- Chester Inn-Chester, Chester
- Inn-Proposed, Chester
- Super 8-Proposed, Cromwell
- Danbury Hilton & Towers, Danbury
- Residence Inn, Danbury
- Holiday Inn, Darien
- Howard Johnson Lodge, Darien
- Ramada Inn, Darien
- Holiday Inn, East Hartford
- Howard Johnson Lodge, East Lyme
- Days Inn-Proposed, Enfield
- Greenwich Habor Inn, Greenwich
- Howard Johnson Lodge, Greenwich
- Showboat Inn, Greenwich
- Hotel-Proposed, Groton
- Hilton Hotel, Hartford
- Holiday Inn-Proposed, Hartford
- Motel 6, Hartford
- Ramada Inn, Hartford
- Sheraton Tobacco Valley Inn, Hartford
- Summit Hotel, Hartford
- Super 8 Motel, Hartford
- Susse Chalet, Hartford
- Residence Inn By Marriott, Meriden
- Holiday Inn, Milford
- Susse Chalet, Milford
- Howard Johnson Lodge, Mystic
- Mystic Ramada Inn, Mystic
- Holiday Inn, New Britain
- Ramada Inn, New Britain
- Colony Inn, New Haven
- Holiday Inn, New Haven
- Howard Johnson, New Haven
- Quality Inn, New Haven
- Residence Inn, New Haven
- Radisson Hotel, New London
- Best Western-Proposed, New Milford
- Courtyard by Marriott, Norwalk
- Holiday Inn, Norwalk
- Howard Johnson, Norwalk
- Ramada Inn, Norwalk
- Susse Chalet, Rocky Hill
- Ramada Hotel-Proposed, Shelton
- Residence Inn - Shelton, Shelton
- Heritage Village, Southbury
- Southbury Hotel, Southbury
- Susse Chalet, Southington
- Days Inn, Stamford
- Executive Hotel, Stamford
- Harley Hotel, Stamford
- Holiday Inn-Crowne Plaza, Stamford
- Inn at Mill River, Stamford
- Le Pavillon Hotel, Stamford
- Marriott, Stamford
- Radisson Tara Hotel, Stamford
- Sheraton, Stamford
- Best Western-Proposed, Stratford
- Stratford Motor Lodge, Stratford
- Marriott Hotel, Trumbull
- Courtyard by Marriott, Wallingford
- Susse Chalet, Wallingford
- Howard Johnson Plaza Hotel, Waterbury
- Super 8-Proposed, Waterbury
- Residence Inn-Proposed, Waterford
- Holiday Inn, Westbury
- The Island Inn, Westbury
- Courtyard by Marriott, Windsor
- Sheraton Tobacco Valley Inn, Windsor
- Holiday Inn-Proposed, Windsor Locks
Delaware
- Wilmington Hilton, Claymont
- Rusty Rudder, Dewey Beach
- Residence Inn-Proposed, Newark
- Hilton Hotel, Wilmington
- Hotel-Proposed, Wilmington
- Marriott Suites, Wilmington
- Residence Inn-Proposed, Wilmington
District of Columbia
- All Suite Hotel - Proposed, Washington
- Bellevue Hotel, Washington
- Canterbury Hotel, Washington
- Capital Hilton, Washington
- Capitol Hill Hotel, Washington
- Castleton Hotel, Washington
- Comfort Inn, Washington
- Convention Center Inn, Washington
- Dupont Plaza, Washington
- Embassy Row Hotel, Washington
- Fairfax Hotel, Washington
- Fairmont Hotel, Washington
- Four Seasons Hotel, Washington
- General Scott Inn, Washington
- Georgetown Hotel, Washington
- Grand Hotel, Washington
- Grand Hyatt, Washington
- Hampshire House, Washington
- Harambee House, Washington
- Hay Adams Hotel, Washington
- Holiday Inn Crowne Plaza, Washington
- Holiday Inn-Capitol, Washington
- Holiday Inn-Georgetown, Washington
- Holiday Inn-Governor House, Washington
- Hotel Washington, Washington
- Howard Johnson, Washington
<PAGE>
- Hyatt Regency-Capitol, Washington
- Hyatt-Convention Center, Washington
- International Inn, Washington
- Intrigue Hotel, Washington
- Jefferson Hotel, Washington
- Lombardy Tower Apartment Hotel, Washington
- Madison Hotel, Washington
- Manger Annapolis Hotel, Washington
- Manger Hamilton Hotel, Washington
- Manger Hay Adams Hotel, Washington
- Marriott-Key Bridge, Washington
- Mayflower Hotel, Washington
- Omni Georgetown Hotel, Washington
- Omni Shoreham Hotel, Washington
- Park Terrace Hotel, Washington
- Phoenix Park Hotel, Washington
- Plaza Hotel, Washington
- Potomac Hotel Group, Washington
- Quality Inn-Capitol Hill, Washington
- Quality Inn-Downtown, Washington
- Ramada Inn-Central, Washington
- Ramada Renaissance Hotel, Washington
- Ritz-Carlton, Washington
- River Inn, Washington
- Riverside Towers, Washington
- Sheraton City Centre, Washington
- Sheraton Grand Hotel, Washington
- Shoreham Hotel, Washington
- St. James, Washington
- State Plaza, Washington
- Statler Hilton Hotel, Washington
- Washington Hilton, Washington
- Washington Plaza, Washington
- Watergate Hotel, Washington
- Wyndham Bristol Hotel, Washington
Florida
- Holiday Inn, Altamonte Springs
- La Quinta, Altamonte Springs
- Turnberry Isle Resort, Aventura
- Boca Raton Hotel and Club, Boca Raton
- Boca West, Boca Raton
- Deerfield Beach Hilton, Boca Raton
- Embassy Suites, Boca Raton
- Park Place Suite Hotel, Boca Raton
- Petite Suites, Boca Raton
- Residence Inn, Boca Raton
- Days Inn, Brandenton
- South Seas Resort, Captive Island
- Days Inn, Clearwater
- Days Inn-Proposed, Clearwater
- Holiday Inn - Central/Clearwater, Clearwater
- La Quinta Inn, Clearwater
- Sheraton Sand Key Hotel, Clearwater
- Holiday Inn - Gulfview South, Clearwater Beach
- Holiday Inn - Surfside North, Clearwater Beach
- Howard Johnson, Clermont
- Econolodge, Cocoa Beach
- Hilton Hotel, Cocoa Beach
- Holiday Inn, Cocoa Beach
- Howard Johnson, Cocoa Beach
- Perkins Restaurant, Cocoa Beach
- Coconut Grove Hotel, Coconut Grove
- Mayfair House, Coconut Grove
- Proposed Hampton Inn, Coconut Grove
- Biltmore Hotel, Coral Gables
- Holiday Inn, Coral Gables
- Holiday Inn (Court), Coral Gables
- Plantation Hotel, Crystal River
- Sheraton Inn, Cypress Gardens
- Budget Inn, Davenport
- Daytona Beach Surfside Regency, Daytona Beach
- Howard Johnson, Daytona Beach
- La Quinta Inn, Daytona Beach
- Pirates Cove, Daytona Beach
- Sheraton Inn, Daytona Beach
- Crown Sterling Suites, Deerfield Beach
- Days Inn, Deerfield Beach
- Hilton Hotel, Deerfield Beach
- Horizon Club, Deerfield Beach
- Sheraton Inn, Deland
- Hilton Hotel, Disney World
- Holiday Inn, Edgewater
- Knights Inn, Florida City
- AmeriSuites Hotel-Proposed, Fort Lauderdale
- Bahia Mar Hotel, Fort Lauderdale
- Comfort Suites, Fort Lauderdale
- Compri Hotel-Proposed, Fort Lauderdale
- Costa Del Sol, Fort Lauderdale
- Crown Sterling Suites, Fort Lauderdale
- Days Inn, Fort Lauderdale
- Embassy Suites Hotel, Fort Lauderdale
- Executive House, Fort Lauderdale
- Hilton Hotel, Fort Lauderdale
- Hilton Inverrary, Fort Lauderdale
- Holiday Inn - Galleria, Fort Lauderdale
- Holiday Inn - North Beach, Fort Lauderdale
- Holiday Inn-Proposed, Fort Lauderdale
- Marriott Harbor Beach Hotel, Fort Lauderdale
- Marriott Hotel & Marina, Fort Lauderdale
- Marriott Hotel-Cypress Road, Fort Lauderdale
- Pier 66 Hotel and Marina, Fort Lauderdale
- Port Everglades Hotel, Fort Lauderdale
- Stouffer Hotel, Fort Lauderdale
- Days Inn, Fort Meyers
- Courtyard by Marriott, Fort Myers
- Holiday Inn, Fort Myers
- La Quinta Hotel, Fort Myers
- Sheraton Harbor Place-Proposed, Fort Myers
- Sheraton Motor Inn, Fort Myers
- Proposed Hotel, Fort Myers Beach
- American Way, Fort Pierce
- Days Inn, Fort Walton Beach
- Holiday Inn - Airport, Fort.Lauderdale
- Days Inn-University Center, Gainesville
- Fairfield Inn, Gainesville
- Howard Johnson Lodge-I-75, Gainesville
- La Quinta Hotel, Gainesville
- University Centre Hotel, Gainesville
- Holiday Inn, Hialeah
- Motel, Hillsboro Beach
- Days Inn, Hollywood
- Diplomat Hotel, Hollywood
- Holiday Inn, Hollywood
- Quality Suites - Oceanside, Indiatlantic
- Hilton Inn, Inverrary
- Best Inn, Jacksonville
- Bradbury Suites-Proposed, Jacksonville
- Compri Hotel-Proposed, Jacksonville
- Courtyard By Marriott, Jacksonville
- Days Inn, Jacksonville
- Doubletree Club Hotel, Jacksonville
- Hampton Inn, Jacksonville
- Hotel-Proposed, Jacksonville
- Jacksonville Hotel, Jacksonville
- Residence Inn, Jacksonville
- Sheraton Hotel, Jacksonville
- Wyndham Lakes Hotel, Jacksonville
- Sheraton Beach Hotel, Jensen Beach
- Howard Johnson, Juno Beach
- Hilton Hotel, Jupiter
- Key Biscayne, Key Biscayne
- Howard Johnson Lodge, Key Largo
- Casa Marina Marriott, Key West
- Fairfield Inn, Key West
- Hampton Inn-Roosevelt Rd., Key West
- Holiday Inn, Key West
- Hyatt Hotel, Key West
- La Concha Holiday Inn, Key West
- Pier House Inn and Beach Club, Key West
- Reach Hotel, Key West
- Santa Maria Hotel, Key West
- Timeshare Resort, Key West
- Best Western Vacation Lodge, Kissimmee
- Days Inn, Kissimmee
- Days Inn West, Kissimmee
- Days Lodge, Kissimmee
- Howard Johnson Plaza Hotel, Kissimmee
- Howard Johnson's, Kissimmee
- KOA Campground, Kissimmee
- Old Town Retail Complex, Kissimmee
- Quality Suites, Kissimmee
- Quality Suites-Maingate, Kissimmee
- Save Inn, Kissimmee
- Sheraton Lakeside, Kissimmee
- Suite Hotel-Proposed, Kissimmee
- Wynfield Inn, Kissimmee
- Days Inn, Lake Buena Vista
- Embassy Suites-Proposed, Lake Buena Vista
- Hilton Hotel-Disney World, Lake Buena Vista
- Marriott Orlando World Center, Lake Buena Vista
<PAGE>
- Days Inn, Lake City
- Flagship Inn, Lake County
- Travelodge Motel, Lake County
- Lake Park Inn, Lake Park
- Holiday Inn, Lake Placid
- Hampton Inn-Proposed, Lakeland
- Hotel-Proposed, Lakeland
- Howard Johnson, Lakeland
- Resort Hotel-Proposed, Lakeland
- Resort-Imperial Lake-Prpsd., Lakeland
- Proposed Hotel, Lee County
- Sonesta Sanibel Harbour, Lee County
- Holiday Inn, Lido Beach
- Holiday Inn, Longboat Kay
- Holiday Inn - Madiera Beach, Madiera
- Howard Johnson, Marathon
- Radisson Suite Resort, Marco Island
- Holiday Inn, Marianna
- Oceanfront Hotel, Melbourne
- Quality Suites, Melbourne
- Bahia Mar Hotel & Yachting Club, Miami
- Biscayne Bay Marriott, Miami
- Courtyard by Marriott, Miami
- Crown Sterling Suites, Miami
- Doral Ocean Beach Resort, Miami
- Fairfield Inn, Miami
- Hilton Hotel-Proposed, Miami
- Holiday Inn Civic Center, Miami
- Holiday Inn-Airport (Le Juene Rd.), Miami
- Holiday Inn-Calder, Miami
- Howard Johnson Hotel-Broad Causeway, Miami
- Howard Johnson Hotel-Port of Miami, Miami
- Howard Johnson Lodge-Golden Glades, Miami
- Howard Johnson Lodge-Int'l Airport, Miami
- Hyatt Regency Hotel, Miami
- Inter-Continental Hotel, Miami
- Jockey Club, Miami
- Marriott Hotel-Downtown, Miami
- Miami Airport Ramada, Miami
- Proposed AmeriSuites, Miami
- Propsed Hampton Inn, Miami
- Residence Inn-Proposed, Miami
- Sheraton River House, Miami
- Sofitel Miami, Miami
- Alexander Hotel, Miami Beach
- Art Deco Hotel, Miami Beach
- Cresent Timeshare, Miami Beach
- Delano Hotel, Miami Beach
- Doral Beach Hotel, Miami Beach
- Eden Roc Hotel, Miami Beach
- Fontainebleu Hotel, Miami Beach
- Holiday Inn, Miami Beach
- Holiday Inn-Central, Miami Beach
- Holiday Inn-North, Miami Beach
- Holiday Inn-Oceanside, Miami Beach
- Holiday Inn-South, Miami Beach
- Hotel-Proposed, Miami Beach
- Nautilus Club Hotel, Miami Beach
- Palm Resort on the Ocean, Miami Beach
- Pan American Radisson, Miami Beach
- Proposed Hotel, Miami Beach
- Shelborne Beach Hotel, Miami Beach
- Sheraton Beach, Miami Beach
- Solymar Hotel-Proposed, Miami Beach
- Quality Inn, Naples
- Quality Inn-Gulfcoast, Naples
- Registry Hotel at Pelican Bay, Naples
- Registry Resort-Proposed, Naples
- Super 8 Motel-Proposed, Naples
- World Tennis Resort, Naples
- Hyatt Newporter Hotel, Newport Beach
- Hilton Hotel, North Redington Beach
- Masters Economy Inn, North Seffner
- Amfac Hotel, Orlando
- Army lodging-Proposed, Orlando
- Comfort Suites Hotel, Orlando
- Compri Hotel-Airport-Proposed, Orlando
- Compri Hotel-Proposed, Orlando
- Courtyard - Orlando Airport, Orlando
- Days Inn, Orlando
- Days Inn and Lodge-Florida Mall, Orlando
- Days Inn Civic Center, Orlando
- Days Inn East of Universal Studios, Orlando
- Days Inn-E/O Magic Kingdom, Orlando
- Days Inn-Proposed, Orlando
- Days Inn-Sandlake Road, Orlando
- Days Suites-E/O Magic Kingdom, Orlando
- Dolphin Hotel-Proposed, Orlando
- Dutch Inn, Orlando
- Embassy Suites, Orlando
- Fairfield Inn, Orlando
- Fairfield Inn-Airport, Orlando
- Grand Cypress Resort, Orlando
- Hampton Inn - Proposed, Orlando
- Heritage Inn, Orlando
- Holiday Inn Central Park, Orlando
- Holiday Inn Crowne Plaza, Orlando
- Holiday Inn-Airport, Orlando
- Holiday Inn-International Drive, Orlando
- Holiday Inn-Lee Road, Orlando
- Holiday Inn-Maingate West, Orlando
- Holiday Inn-Orange Blossom Trail, Orlando
- Howard Johnson - Walt Disney World, Orlando
- Howard Johnson-Kirkman, Orlando
- Howard Johnson-Lake Holden, Orlando
- Howard Johnson-Maingate, Orlando
- Hyatt Grand Cypress, Orlando
- Hyatt Regency Grand Cypress, Orlando
- Hyatt-W. Irlo Bronson Mem. Hwy., Orlando
- International Inn, Orlando
- Kon Tiki Village, Orlando
- La Quinta Hotel-Airport, Orlando
- La Quinta Inn, Orlando
- Omni Orlando, Orlando
- Orlando Airport Hotel-Proposed, Orlando
- Orlando Hamiton, Orlando
- Orlando Plaza Hotel, Orlando
- Orlando Twin Towers Hotel, Orlando
- Park Suite Hotel-Proposed, Orlando
- Peabody Hotel, Orlando
- Princess Hotel and Spa, Orlando
- Proposed Wellesley Inn, Orlando
- Quality Inn, Orlando
- Radisson Hotel-Aquatic Center, Orlando
- Regency Inn, Orlando
- Residence Inn By Marriott, Orlando
- Rodeway Inn, Orlando
- Save Inn, Orlando
- Sheraton Jetport Inn, Orlando
- Sheraton Lakeside, Orlando
- Sheraton Twin Towers, Orlando
- Sonesta Village Resort, Orlando
- Stouffer Orlando Resort, Orlando
- Swan Hotel-Proposed, Orlando
- Thriftway Motel, Orlando
- Wynfield Inn, Orlando
- American Way, Osceola
- Sheraton Gateway Motel, Osceola
- Brazilian Court Hotel, Palm Beach
- Heart of Palm Beach Hotel, Palm Beach
- Hilton Inn, Palm Beach
- Palm Court, Palm Beach
- Holiday Inn, Palm Beach Garden
- Days Inn, Panama City
- Marriott's Bay Point, Panama City
- Super 8, Panama City
- Days Inn, Pensacola
- Hilton Hotel, Pensacola
- La Quinta Hotel, Pensacola
- Residence Inn, Pensacola
- Super 8, Pensacola
- Proposed Hampton Inn, Pensacola Beach
- Comfort Inn, Perdido Key
- La Quinta, Pinellas County
- Courtyard by Marriott, Plantation
- Holiday Inn Plantation, Plantation
- Sheraton Suites, Plantation
- Days Inn, Pompano Beach
- Palm-Aire Spa Resort, Pompano Beach
- Lodge & Bath Club, Ponte Verde
- Howard Johnson, Punta Gorda
- Days Inn, Riviera Beach
- Safety Harbor Spa, Safety Harbor
- Holiday Inn, Saint Augustine
- Howard Johnson, Saint Augustine
- Courtyard by Marriott, Saint Petersburg
- Don Ceahsar Beach Resort, Saint Petersburg
- Hilton Hotel, Saint Petersburg
- Howard Johnson, Saint Petersburg
- Ramada Inn, Saint Petersburg
- Residence Inn, Saint Petersburg
<PAGE>
- Saint Petersburg Motel, Saint Petersburg
- Sheraton Hotel and Marina, Saint Petersburg
- Vinoy Park Hotel, Saint Petersburg
- Countryside Inn, Sanford
- Days Inn, Sanford
- Holiday Inn, Sanford
- Azure Tides Resort-Proposed, Sarasota
- Days Inn, Sarasota
- Holiday Inn-Lido Beach, Sarasota
- Proposed Hotel, Sarasota
- Holiday Inn, Sebring
- Embassy Suites, Singer Island
- Hilton, Singer Island
- Econo Lodge, Starke
- Radisson Pan American Hotel, Sunny Isles
- Best Inn, Tallahassee
- Courtyard by Marriott, Tallahassee
- Days Inn-Tallahassee, Tallahassee
- American Way, Tampa
- Courtyard by Marriott, Tampa
- Days Inn, Tampa
- Embassy Suites-Airport, Tampa
- Hampton Inn-Airport, Tampa
- Hilton-Airport, Tampa
- Holiday Inn, Tampa
- Holiday Inn Sahal Park, Tampa
- Holiday Inn-Airport, Tampa
- Manger Motor Inn, Tampa
- Marriott Hotel, Tampa
- Omni Tampa Hotel at Westshore, Tampa
- Ramada Inn, Tampa
- Rodeway Inn, Tampa
- Saddlebrook Resort, Tampa
- Sheraton Grand West, Tampa
- Master Economy Inn, Tampa-East(Selfner)
- Master Economy Inn, Tampa-North(Zephyrhills)
- Days Inn, Vero Beach
- Holiday Inn-Countryside, Vero Beach
- Holiday Inn-Oceanside, Vero Beach
- Saddlebrook Resort, Wesley Chapel
- Courtyard by Marriott, West Melbourne
- Airport Centre, West Palm Beach
- Courtyard by Marriott, West Palm Beach
- Days Inn, West Palm Beach
- Field Palm Hotel, West Palm Beach
- Hilton-Airport, West Palm Beach
- Howard Johnson Lodge, West Palm Beach
- Hyatt Hotel of the Palm Beaches, West Palm Beach
- Royce Hotel, West Palm Beach
- Masters Economy Inn, Zephyrhills
Georgia
- Atlanta Radisson Hotel, Atlanta
- Atlanta Terrace Motel, Atlanta
- Comfort Inn, Atlanta
- Compri Hotel, Atlanta
- Courtyard By Marriott-Airport North, Atlanta
- Courtyard by Marriott-Airport South, Atlanta
- Courtyard by Marriott-Cumberland, Atlanta
- Courtyard by Marriott-Executive Pk., Atlanta
- Courtyard by Marriott-Gwinnett, Atlanta
- Courtyard by Marriott-Jimmy Carter, Atlanta
- Courtyard by Marriott-PeachtrDunwdy, Atlanta
- Courtyard by Marriott-Perimeter, Atlanta
- Courtyard by Marriott-Rosewell, Atlanta
- Courtyard by Marriott-Windy Hill, Atlanta
- Cresthil Inn-Proposed, Atlanta
- Days Inn, Atlanta
- Days Inn - Northlake, Atlanta
- Doubletree Hotel, Atlanta
- Embassy Suites-Atlanta Perimeter, Atlanta
- Embassy Suites-Buckhead, Atlanta
- Embassy Suites-Galleria, Atlanta
- F.W.W. Hotel, Atlanta
- Fairfield Inn-Airport, Atlanta
- Fairfield Inn-Gwinnett, Atlanta
- Fairfield Inn-North Lake, Atlanta
- Fairfield Inn-Northwest, Atlanta
- Fairfield Inn-Peachtree, Atlanta
- Fairfield Inn-South Lake, Atlanta
- Hampton Inn-Airport, Atlanta
- Hilton Inn, Atlanta
- Holiday Inn Crowne Plaza, Atlanta
- Holiday Inn-I-20 East, Atlanta
- Holiday Inn-I-85 Monroe Drive, Atlanta
- Holiday Inn-Perimeter Dunwooody, Atlanta
- Hotel-Downtown-Proposed, Atlanta
- Hotel-Proposed, Atlanta
- Howard Johnson Hotel-Hartsfield, Atlanta
- Howard Johnson-Airport, Atlanta
- Howard Johnson-Northeast, Atlanta
- Howard Johnson-Northwest, Atlanta
- Howard Johnson-South, Atlanta
- Hyatt Atlanta-Airport, Atlanta
- La Quinta - Stone Mountain, Atlanta
- La Quinta Hotel, Atlanta
- La Quinta Hotel-West, Atlanta
- Marriott Atlanta Airport, Atlanta
- Marriott Hotel, Atlanta
- Marriott Hotel-Downtown, Atlanta
- Marriott Marquis, Atlanta
- Marriott Suites Hotel-Proposed, Atlanta
- Marriott-Perimeter, Atlanta
- Master Economy Inn, Atlanta
- Motel 6, Atlanta
- Neighborhood Inn, Atlanta
- Omni International Hotel, Atlanta
- Perimeter North Inn, Atlanta
- Proposed AmeriSuites, Atlanta
- Quality Inn-Central, Atlanta
- Radisson Inn, Atlanta
- Ramada Inn-Perimeter, Atlanta
- Residence Inn by Marriott-Dunwoody, Atlanta
- Residence Inn-Airport, Atlanta
- Residence Inn-Buckhead, Atlanta
- Residence Inn-Northwest, Atlanta
- Sheraton Century Center, Atlanta
- Sheraton-Airport, Atlanta
- Sporting Club at the Concourse, Atlanta
- Stouffer Hotel-Proposed, Atlanta
- Swissotel, Atlanta
- Terrace Motel, Atlanta
- Waverly Hotel, Atlanta
- Westin Lenox Hotel, Atlanta
- Westin Peachtree Plaza, Atlanta
- Wyndham Garden Hotel, Atlanta
- Hyatt Hotel, Atlanta Airport
- Hampton Inn, Atlanta-Buckhead
- Courtyard by Marriott, Augusta
- Landmark Hotel, Augusta
- Masters Economy Inn - Gordon Hwy., Augusta
- Masters Economy Inn - Warner Robins, Augusta
- Masters Economy Inn - Washington Rd, Augusta
- Holiday Inn, Brunswick
- Super 8, Brunswick
- Days Inn, Calhoun
- Super 8, Cartersville
- Days Inn, Chamblee
- Comfort Inn-Proposed, College Park
- Holiday Inn Crowne Plaza, College Park
- Courtyard by Marriott, Columbus
- La Quinta Inn, Columbus
- Super 8, Columbus
- Best Inn, Dalton
- Days Inn, Dalton
- Holiday Inn-Proposed, Decatur
- Sheraton Hotel, Decatur
- Best Western-Perimeter-North, Doraville
- Days Inn - Gwinnett, Duluth
- Howard Johnson, Forsyth
- Holiday Inn-Proposed, Gwinnett County
- Holiday Inn, Jekyll Island
- Jekyll Island Inn-Proposed, Jekyll Island
- Hilton Hotel, Macon
- Master Economy Inn, Macon
- Best Inn, Marietta
- Courtyard by Marriott-Delk Road, Marietta
- Lafayette Hotel, Marietta
- Hampton Inn, Marrietta (Atlanta)
- Master Economy Inn, McDonough
- Courtyard by Marriott-Perimeter, Norcross
- Motel 6, Norcross
- Hilton Hotel, Peachtree Corners
- Super 8, Rome
- Best Western, Savannah
- Courtyard by Marriott, Savannah
- Days Inn, Savannah
- Days Inn-Bay Street, Savannah
- Days Inn-Mall Blvd., Savannah
- Fairfield Inn, Savannah
- Hotel-Proposed, Savannah
<PAGE>
- Mulberry Inn, Savannah
- Radisson Hotel-Proposed, Savannah
- Royal Savannah, Savannah
- Sheraton Savannah Resort & C.C., Savannah
- Town and Country Motel, Savannah
- Days Inn, Savannah Beach
- Howard Johnson, Smyrna
- Master Economy Inn, Tilton
- Courtyard by Marriott-Northlake, Tucker
- Master Economy Inn, Warner Robins
- Super 8, Warner Robins
Hawaii
- Hyatt Regency Waikoloa, Hawaii
- Mauna Kea Hotel, Hawaii
- Kahala Hilton, Honolulu
- Plaza Hotel, Honolulu
- Waikiki Beachcomber, Honolulu
- Waikiki Hobron, Honolulu
- Coco Palms Resort, Kauai
- Kauai Surf Hotel, Kauai
- Westin Kauai-Kauai Lagoons Resort, Kauai
- Westin Kauai-Proposed, Kauai
- Kona Village, Kona
- Royal Sea Cliff Resort, Kona
- Westin Kauai at Kauai Lagoon, Lihue
- Hyatt Regency, Maui
- Marriott Resort, Maui
- Maui Lu Hotel, Maui
- Maui Surf Hotel, Maui
- Westin Maui, Maui
- Hawaiian Regent Hotel-Waikiki Beach, Oahu
- Hotel-Proposed-Schofield Barracks, Oahu
- Hyatt Regency Waikiki, Oahu
- Kiahuna Plantation, Poipu Beach, Kauai
- Transient Lodging Facilities, Schofield Barracks
- Hilton Hawaiian Village, Waikiki
- Grand Hyatt Wailea, Wailea
Idaho
- Compri Hotel, Boise
- Holiday Inn, Boise
- Holiday Inn-Airport, Boise
- Red Lion Inn, Boise
- Super 8, Boise
- Motel 6, Coeur d'Alene
- Super 8, Coeur d'Alene
- Proposed Motel, Coure d'Alene
- Super 8, Lewiston
- Cotton Tree Inn, Pocatello
- Super 8, Sand Point
- Busterback Ranch, Sawtooth Valley
Illinois
- Arlington Park Hilton, Arlington Heights
- Church Creek, Arlington Heights
- Courtyard by Marriott, Arlington Heights
- La Quinta Hotel, Arlington Heights
- Hampton Inn-Proposed, Bedford Park
- Best Inn, Bloomington
- Fairfield Inn-Normal, Bloomington
- Holiday Inn, Bloomington
- Indian Lakes Resort, Bloomington
- Ramada Inn, Bloomington
- Super 8, Bloomington
- Cresthil-Proposed, Buffalo Grove
- Holiday Inn, Champaign
- La Quinta Inn, Champaign
- Radisson Suites - Champaign, Champaign
- Suite Hotel-Proposed, Champaign
- Super 8, Champaign
- Ambassador West Hotel, Chicago
- Americana Congress, Chicago
- Conrad Hilton Hotel, Chicago
- Courtyard by Marriott-Glenview, Chicago
- Courtyard by Marriott-Highland, Chicago
- Courtyard by Marriott-Lincoln, Chicago
- Courtyard by Marriott-O'Hare, Chicago
- Courtyard by Marriott-Waukegan, Chicago
- Courtyard by Marriott-Woodale, Chicago
- Days Inn, Chicago
- Executive House, Chicago
- Fairfield Inn-Lansing, Chicago
- Fairfield Inn-Willowbrook, Chicago
- Fairmont Hotel, Chicago
- Guest Quarters Hotel, Chicago
- Hilton and Towers, Chicago
- Hilton-O'Hare, Chicago
- Holiday Inn-Merchandise Mart, Chicago
- Howard Johnson-O'Hare Int'l Airport, Chicago
- Hyatt Regency, Chicago
- Hyatt Suites Hotel, Chicago
- Inter-Continental Hotel-Proposed, Chicago
- La Quinta Inn - Hoffman Est., Chicago
- Le Meridien, Chicago
- Lenox House, Chicago
- Lincoln Hotel, Chicago
- Mark Twain Hotel, Chicago
- Marriott-O'Hare, Chicago
- Mayfair Regent, Chicago
- McClurg Holiday Inn, Chicago
- McCormick Inn Hotel, Chicago
- Morton Hotel, Chicago
- Omni Ambassador East, Chicago
- Omni Morton Hotel, Chicago
- Palmer House Hotel, Chicago
- Ramada Inn - Lakeshore, Chicago
- Ramada O'Hare, Chicago
- Residence Inn-Deerfield, Chicago
- Residence Inn-Lombard, Chicago
- Sheraton Hotel-Downtown, Chicago
- Sheraton Hotel-Proposed, Chicago
- Sheraton O'Hare, Chicago
- Sheraton Plaza Hotel, Chicago
- Summerfield Suites Hotel, Chicago
- Swissotel, Chicago
- Tremont Hotel, Chicago
- Westin Hotel, Chicago
- Whitehall Hotel, Chicago
- Hilton Hotel, Collinsville
- Holiday Inn, Collinsville
- Super 8, Columbus
- Super 8, Crystal Lake
- Super 8, Decatur
- Courtyard by Marriott, Deerfield
- Embassy Suites, Deerfield
- Marriott Suites Hotel, Deerfield
- Holiday Inn-Chicago, Des Plaines
- Hotel-Proposed, Des Plaines
- Compri Hotel-Proposed, Downers Grove
- Radisson Suite Hotel, Downers Grove
- Best Inn, Effingham
- Ramada Inn, Elgin
- Hampton Inn, Elk Grove Village
- Marriott Suites, Elk Grove Village
- Holiday Inn, Elmhurst
- Orrington Hotel, Evanston
- Drury Inn, Fairview Heights
- Conference Center & Resort-Proposed, Fox Lake
- Holiday Inn, Freeport
- Hotel-Proposed, Gurnee
- La Quinta Hotel, Hoffman Estates
- Carson Inn, Itasca
- Hamilton Wyndham, Itasca
- Nordic Hills, Itasca
- Holiday Inn, Joliet
- Proposed Harrah's Riverboat, Joliet
- Days Inn, Kankakee
- Holiday Inn, LaSalle
- Marriott Hotel, Lincolnshire
- Hilton Inn, Lisle
- Holiday Inn Crowne Plaza, Lisle
- Embassy Suites, Lombard
- Holiday Inn, Macomb
- Best Inn, Marion
- Best Inn, Mount Vernon
- Holiday Inn, Mount Vernon
- Ramada Inn, Mount Vernon
- Courtyard by Marriott, Naperville
- Ramada Inn, Naperville
- Sheraton Naperville, Naperville
- O'Hareport Hotel, Northlake
- Courtyard by Marriott, Oakbrook Terrace
- Super 8, Okawville
- Fairfield Inn, Peoria
- Days Inn, Peru
- Super 8, Peru
- Courtyard by Marriott, Rockford
- Fairfield Inn, Rockford
- Hampton Inn, Rockford
- Embassy Suites, Rosemont
- Quality Inn/Clarion, Rosemont
<PAGE>
- Sheraton Int'l At O'Hare, Rosemont
- Holiday Inn, Salem
- Compri Hotel, Schaumburg
- Embassy Suites, Schaumburg
- Marriott Schaumburg, Schaumburg
- Holiday Inn, South Beloit
- Ramada Renaissance Hotel, Springfield
- Sheraton Inn, Springfield
- Super 8-East, Springfield
- Super 8-South, Springfield
- Jumer's Castle, Urbana
- Best Inn, Waukegan
- Super 8, Waukegan
Indiana
- Clarion Fourwinds Inn, Bloomington
- Holiday Inn, Bloomington
- Inn at the Four Winds, Bloomington
- Ramada Inn, Bloomington
- Harbor Point Resort, Brookville Lake
- Super 8, Columbus
- Best Inn, Fort Wayne
- Hilton, Fort Wayne
- Downtown Hotel, Gary
- Sheraton, Gary
- Holiday Inn, Goshen
- Howard Johnson, Hammond
- Quality Inn, Hammond
- Courtyard by Marriott-Airport, Indianapolis
- Courtyard by Marriott-Carmel, Indianapolis
- Courtyard by Marriott-Castleton, Indianapolis
- Embassy Suites-Claypool Center, Indianapolis
- Fairfield Inn-Castleton, Indianapolis
- Fairfield Inn-College Park, Indianapolis
- Hampton Inn-Proposed, Indianapolis
- Hilton Hotel-Airport, Indianapolis
- Hilton Inn-Downtown, Indianapolis
- Holiday Inn-South, Indianapolis
- Holiday Inn-Southeast, Indianapolis
- Knights Inn, Indianapolis
- Midway Motor Lodge, Indianapolis
- Mohawk Inn, Indianapolis
- Motel 6, Indianapolis
- Proposed Fairfield Inn, Indianapolis
- Proposed Residence Inn, Indianapolis
- Radisson, Indianapolis
- Ramada-Airport, Indianapolis
- Wyndham Garden Hotel, Indianapolis
- La Quinta Inn, Indianapolis Airport
- Hilton Inn, Jeffersonville
- Holiday Inn, La Porte
- Days Inn, Lafayette
- Holiday Inn, Lafayette
- Cotton Mill Inn-Proposed, Madison
- Hampton Inn, Merrillville
- Holiday Inn Express, Merrillville
- La Quinta Inn, Merrillville
- Hotel Roberts, Muncie
- Radisson Hotel, Muncie
- Brown County Inn, Nashville
- Holiday Inn, Portage
- Knights Inn, Richmond
- Holiday Inn, South Bend
- Howard Johnson, South Bend
- Signature Inn, Terre Haute
- Super 8, Terre Haute
- Courtyard Conversion, Valparaiso
- Holiday Inn, Vincennes
Iowa
- Holiday Inn-Gateway Center, Ames
- Holiday Inn, Cedar Falls
- Collins Plaza, Cedar Rapids
- Holiday Inn, Cedar Rapids
- Roosevelt Hotel, Cedar Rapids
- Super 8, Davenport
- Courtyard by Marriott, Des Moines
- Fairfield Inn, Des Moines
- Holiday Inn, Des Moines
- Holiday Inn - West, Des Moines
- Holiday Inn-Downtown, Des Moines
- Holiday Inn-North, Des Moines
- Ramada Inn, Des Moines
- Super 8-North, Des Moines
- Super 8-West, Des Moines
- Holiday Inn, Iowa City
Kansas
- Embassy Suites, Kansas City
- Fairfield Inn-Overland Park, Kansas City
- Holiday Inn-Mission Overland Park, Kansas City
- Fairfield Inn, Kansas City West
- Holiday Inn, Lawrence
- University Inn, Lawrence
- Holiday Inn, Manhattan
- Courtyard by Marriott, Overland Park
- Hampton Inn-Proposed, Overland Park
- Marriott Hotel, Overland Park
- Park Inn International, Topeka
- Super 8, Topeka
- Canterbury Inn, Wichita
- Former Sheraton Hotel, Wichita
- Hilton-East, Wichita
- Marriott Hotel, Wichita
- Comfort Inn, Winfield
Kentucky
- Conference Center-Proposed, Boone County
- Howard Johnson, Bowling Green
- Brown County Inn, Brown County
- Holiday Inn, Corbin
- Hotel-Proposed, Covington
- Thomas More Centre, Crestville Hill
- Comfort Inn, Elizabethtown
- Signature Inn, Elkhart
- Holiday Inn, Florence
- Signature Inn, Florence
- Drawbridge Inn, Fort Mitchell
- Days Inn, Georgetown
- Days Inn, Henderson
- Holiday Inn, Henderson
- Bluegrass Motor Inn, Lexington
- Courtyard by Marriott, Lexington
- Holiday Inn, Lexington
- Holiday Inn-East, Lexington
- Holiday Inn-North, Lexington
- Hyatt Hotel, Lexington
- Knights Inn, Lexington
- Super 8-Proposed, London
- Brown Hotel, Louisville
- Courtyard by Marriott-East, Louisville
- Holiday Inn, Louisville
- Holiday Inn South, Louisville
- Holiday Inn-Central, Louisville
- Holiday Inn-Northeast, Louisville
- Ramada Inn, Louisville
- Ramada Inn-East, Louisville
- Signature Inn, Louisville
- Days Inn, Madisonville
- Executive Inn, Owensboro
- Super 8-Proposed, Radcliff
- Holiday Inn, Richmond
Louisiana
- Howard Johnson, Alexandria
- Capital House, Baton Rouge
- Convention Center Hotel-Proposed, Baton Rouge
- Courtyard by Marriott, Baton Rouge
- Crown Sterling Suites, Baton Rouge
- Embassy Suites, Baton Rouge
- Hilton Hotel, Baton Rouge
- Holiday Inn-East, Baton Rouge
- Holiday Inn-South, Baton Rouge
- Holiday Inn-West, Baton Rouge
- La Quinta Inn, Baton Rouge
- Prince Murat Hotel, Baton Rouge
- Proposed Homewood Suites, Baton Rouge
- Quality Inn, Bossier City
- Ramada Inn, Hammond
- Ramada Inn, Houma
- Holiday Inn - New Orleans, Kenner
- Sheraton, Kenner
- Hilton Hotel, Lafayette
- La Quinta Hotel, Lafayette
- Gateway Hotel, Metairie
- Howard Johnson-Airport, Metairie
- Canal Street Hotels L.P., New Orleans
- Clarion Hotel, New Orleans
- Days Inn, New Orleans
- Fairmont Roosevelt Hotel, New Orleans
- Hampton Inn-Proposed, New Orleans
- Holiday Inn Crowne Plaza, New Orleans
<PAGE>
- Hostellerie de la Poste, New Orleans
- Hotel Meridien, New Orleans
- Hyatt Regency, New Orleans
- Iberville Hotel, New Orleans
- Inter-Continental Hotel, New Orleans
- La Quinta Inn, New Orleans
- Landmark Bourbon, New Orleans
- Le Meridien New Orleans, New Orleans
- Maison Dupuy, New Orleans
- Marriott Hotel, New Orleans
- Omni Royal Orleans, New Orleans
- Ramada Inn, New Orleans
- Saint Louis Hotel, New Orleans
- St. Ann/Marie Antoinette, New Orleans
- Warwick, New Orleans
- Westin Hotel, New Orleans
- Residence Inn, Shreveport
- Super 8, Shreveport
Maine
- Hilton Inn, Bangor
- Ramada Inn, Bangor
- Residence Inn by Marriott-Proposed, Bangor
- Inn By The Sea, Cape Elizabeth
- Hotel-Proposed, Orchard Beach
- Hotel-Proposed, Portland
- Portland Regency, Portland
- Ramada Inn, Portland
- Sheraton Tara Portland, Portland
- Susse Chalet, Portland
- Susse Chalet, Portland (In-town)
- Keddy's Motor Inn of Maine, Presque Isle
- Hampton Inn, South Portland
- Sheraton Inn, South Portland
Maryland
- Budget Hotel-Proposed, Aberdeen
- Chesapeake House, Aberdeen
- Holiday Inn, Aberdeen
- Motel-Proposed, Aberdeen
- Annapolis Hotel, Annapolis
- Courtyard by Marriott-Riva Road, Annapolis
- Governor Calvert House, Annapolis
- Historic Inns of Annapolis, Annapolis
- Hotel-Proposed, Annapolis
- Howard Johnson, Annapolis
- Marriott Hotel, Annapolis
- Maryland Inn, Annapolis
- Quality Royale Hotel, Annapolis
- Ramada Hotel, Annapolis
- Robert Johnson House, Annapolis
- Brookshire Hotel, Baltimore
- Courtyard by Marriott-BWI Airport, Baltimore
- Days Inn, Baltimore
- Harbor Court Hotel, Baltimore
- Harrison's at Pier 5, Baltimore
- Hilton Hotel, Baltimore
- Holiday Inn-Belmont Blvd., Baltimore
- Holiday Inn-Cromwell Bridge, Baltimore
- Holiday Inn-Glen Burnie, Baltimore
- Holiday Inn-Inner Harbor, Baltimore
- Holiday Inn-Int'l Airport, Baltimore
- Holiday Inn-Moravia Road, Baltimore
- Holiday Inn-Pikesville, Baltimore
- Holiday Inn-South Glen Burnie, Baltimore
- Hotel-Proposed, Baltimore
- Howard Johnson-Proposed, Baltimore
- Johns Hopkins Hotel-Proposed, Baltimore
- Lord Baltimore Hotel, Baltimore
- Omni International Hotel, Baltimore
- Ramada Inn-I-695 West, Baltimore
- Susse Chalet, Baltimore
- Susse Chalet Inn-BWI Airport, Baltimore
- Susse Chalet Inn-Golden Ring, Baltimore
- Bethesda Metro Center, Bethesda
- Guest Quarters, Bethesda
- Hyatt Regency Hotel, Bethesda
- Linden Hill Hotel, Bethesda
- Omni Linden Hotel, Bethesda
- Residence Inn, Bethesda
- Bethseda Metro Center, Bethseda
- Guest Quarters, Bethseda
- Residence Inn - Proposed, Bethseda
- Comfort Suites-Proposed, Bowie
- Days Inn, Capital Heights
- Residence Inn, Cockneysville
- Abbey, College Park
- Best Western Maryland, College Park
- Holiday Inn, College Park
- Sheraton Inn, Dorsey
- Days Inn, Easton
- Mariner Inn, Easton
- Holiday Inn, Frederick
- Compri Hotel, Gaithersburg
- Marriott Hotel, Gaithersburg
- Century XXI Resort, Germantown
- Comfort Inn, Germantown
- Hampton Inn, Glen Burnie
- Residence Inn-Proposed, Greenbelt
- Courtyard by Marriott, Hunt Valley
- Hunt Valley Embassy Suites, Hunt Valley
- Hunt Valley Marriott, Hunt Valley
- Susse Chalet Inn, Jessup
- Courtyard by Marriott, Landover
- Quality Inn-Proposed, Landover
- Days Inn, Lanham
- Best Western Maryland, Laurel
- Days Inn, Laurel
- Holiday Inn, Laurel
- Susse Chalet, Linthicum
- Howard Johnson Plaza Hotel, New Carrollton
- Carousel Hotel, Ocean City
- Days Inn, Ocean City
- Susse Chalet, Oxon Hill
- Hotel-Proposed, Prince Georges County
- Budget Hotel-Proposed, Rockville
- Comfort Inn, Rockville
- Courtyard by Marriott, Rockville
- Days Inn-Congressional Park, Rockville
- Holiday Inn Crowne Plaza, Rockville
- Quality Inn-Proposed, Rockville
- Ramada Inn, Rockville
- Salisbury Hotel, Salisbury
- Sheraton Hotel, Salisbury
- Courtyard by Marriott, Silver Spring
- Quality Inn-Proposed, Silver Spring
- Comfort Inn-Proposed, Solomons Island
- Holiday Inn, Towson
- Quality Inn-Proposed, Westminster
Massachusetts
- Susse Chalet, Amsbury
- Courtyard by Marriott, Andover
- Marriott Hotel, Andover
- Stouffer Bedford Glen Hotel, Bedford
- Anthony's Pier Four, Boston
- Battery Wharf Hotel-Proposed, Boston
- Boston Harbor Hotel, Boston
- Boston World Trade Center, Boston
- Bostonian Hotel, Boston
- Colonnade Hotel, Boston
- Commonwealth Center Hotel, Boston
- Compri Hotel-Proposed, Boston
- Copley Plaza Hotel, Boston
- Courtyard by Marriott-Foxborough, Boston
- Econo Lodge-Proposed, Boston
- Harborside Conf. Center-Proposed, Boston
- Hilton-Back Bay, Boston
- Hilton-Logan, Boston
- Holiday Inn-Government Center, Boston
- Hotel - Proposed, Boston
- Hyatt Fan Pier-Proposed, Boston
- Hyatt Harborside-Proposed, Boston
- Lafayette Hotel, Boston
- Lenox Hotel, Boston
- Marriott Copley Place, Boston
- Meridien Hotel, Boston
- Omni Parker House, Boston
- Residence Inn, Boston
- Ritz-Carlton, Boston
- Statler Hilton Hotel, Boston
- Tremont House Hotel, Boston
- World Trade Center Hotel - Proposed, Boston
- Marriott Hotel, Boston/Newton
- Sheraton Tara Hotel, Braintree
- Ocean Edge Inn & Conference Center, Brewster
- Holiday Inn, Brookline
- Days Inn, Burlington
- Charles Hotel, Cambridge
- Hyatt Hotel, Cambridge
- Royal Sonesta Hotel, Cambridge
<PAGE>
- The Charles Hotel, Cambridge
- Chatham Bars Inn, Chatham
- Chelmsford Radisson Hotel, Chelmsford
- Best Western Motor Lodge, Chicopee
- Cummington Farm Resort-Proposed, Cummington
- Appleton Inn, Danvers
- Howard Johnson Hotel, Danvers
- Radisson Ferncroft Hotel, Danvers
- Residence Inn - Proposed, Danvers
- Dedham Comfort Inn, Dedham
- Holiday Inn, Dedham
- Wequassett Inn, East Harwich
- Harbor View Hotel, Edgartown
- Kelley House, Edgartown
- Airport Inn, Fall River
- Sea Crest Hotel, Falmouth
- Sheraton Inn, Falmouth
- Radisson Hotel, Ferncroft
- Sheraton Tara Hotel, Framingham
- Hotel-Proposed, Franklin
- Hotel-Proposed, Haverhill
- Susse Chalet, Holyoke
- Dunfey Hyannis Hotel, Hyannis
- Heritage House Hotel, Hyannis
- Holiday Inn, Hyannis
- Sheraton Regal Inn, Hyannis
- Tara Hyannis, Hyannis
- Canyon Ranch-Berkshires, Lenox
- Cranwell Hotel and Conference Ctr., Lenox
- Spa/Resort-Proposed, Lenox
- Holiday Inn, Leominster
- Lexington Sheraton, Lexington
- Residence Inn-Proposed, Littleton
- Appleton Inn, Lowell
- Hilton Hotel, Lowell
- Town House Motor Inn, Lowell
- Holiday Inn, Marlboro
- Susse Chalet, Middleboro
- Sheraton Milford Hotel, Milford
- Holiday Inn, Natick
- Skipper's Inn, New Bedford
- Days Inn, Newton
- Howard Johnson, Newton
- Marriott Hotel, Newton
- Sheraton - Wayfarer, Newton
- Sheraton Tara, Newton
- Susse Chalet, Newton
- North Adams Inn, North Adams
- Hilton Inn, Northampton
- Hotel Northampton, Northampton
- Factory Mutual Hotel, Norwood
- University Inn, Oxford
- Holiday Inn, Peabody
- Berkshire Commons Hotel, Pittsfield
- Hotel-Proposed, Plymouth
- Hawthorne Hotel, Salem
- Days Inn, Saugus
- Susse Chalet, Seekonk
- Howard Johnson, Somerset
- Somerset Omni, Somerset
- Federal House Inn, South Lee
- Holiday Inn, Springfield
- Howard Johnson, Springfield
- Monarch Place, Springfield
- Treadway Inn, Springfield
- Publick House, Sturbridge
- Sheraton, Sturbridge
- Regency Inn of Taunton, Taunton
- Holiday Inn, Tewksbury
- Susse Chalet, Tewksbury
- Susse Chalet, Waltham
- Vista Waltham House, Waltham
- Hampton Inn, West Springfield
- Westford Regency Hotel, Westford
- The Westminster Village Inn, Westminster
- The Orchards, Williamstown
- Treadway Inn, Williamstown
- Days Inn, Woburn
- Howard Johnson, Woburn
- Radisson Hotel, Woburn
- Ramada Inn, Woburn
- Susse Chalet, Woburn
- Marriott Hotel, Worcester
- Alladin Motor Inn, Yarmouth
- Flagship Motor Inn, Yarmouth
- Gull Wing Suites Hotel, Yarmouth
Michigan
- Motel-Proposed, Adrian
- Ramada Inn, Allen Park
- Holiday Inn-Alpena, Alpena
- Compri Hotel-Proposed, Ann Arbor
- Hampton Inn-North, Ann Arbor
- Hampton Inn-South, Ann Arbor
- Hilton Hotel, Ann Arbor
- Holiday Inn-East, Ann Arbor
- Holiday Inn-West, Ann Arbor
- Residence Inn, Ann Arbor
- Sheraton Hotel, Ann Arbor
- AmeriSuites Hotel-Proposed, Auburn Hills
- Holiday Inn, Auburn Hills
- Knights Inn, Battle Creek
- Super 8, Battle Creek
- Bay Valley Inn, Bay City
- Howard Johnson, Belleville
- Fairfield Inn-Airport, Charlotte
- Courtyard by Marriott, Dearborn
- Courtyard by Marriott-Airport, Detroit
- Courtyard by Marriott-Auburn Hills, Detroit
- Courtyard by Marriott-Livonia, Detroit
- Days Inn, Detroit
- Downtown Hotel-Proposed, Detroit
- Fairfield Inn-Airport, Detroit
- Fairfield Inn-Auburn Hills, Detroit
- Fairfield Inn-Warren, Detroit
- Fairfield Inn-West, Detroit
- Golden Harp, Detroit
- Hampton Inn, Detroit
- Hilton-Airport, Detroit
- Hilton-North Field, Detroit
- Holiday Inn, Detroit
- Holiday Inn-Metro Airport, Detroit
- Hotel Pontchartrain, Detroit
- Omni Detroit, Detroit
- Westin Hotel Renaissance Center, Detroit
- Holiday Inn, East Lansing
- Holiday Inn-Proposed, East Lansing
- Knights Inn, Flint
- Amway Hotel, Grand Rapids
- Holiday Inn, Grand Rapids
- Grand Traverse Resort, Grand Traverse Village
- Holiday Inn, Howell
- Jackson Hotel, Jackson
- Fairfield Inn, Kalamazoo
- Hilton-Kalamazoo Center, Kalamazoo
- Holiday Inn, Kalamazoo
- Radison Plaza Hotel, Kalamazoo
- Residence Inn, Kalamazoo
- Super 8, Kalamazoo
- Embassy Suites-Proposed, Lansing
- Holiday Inn, Lansing
- Motel 6, Lansing
- Quality Suites Hotel, Lansing
- Compri Hotel-Proposed, Livonia
- Embassy Suites, Livonia
- Embassy Suites-Proposed, Livonia
- Holiday Inn, Livonia
- Marriott Hotel, Livonia
- Fairfield Inn, Madison Heights
- Residence Inn, Madison Heights
- Holiday Inn, Marquette
- Knights Inn, Monroe
- Comfort Inn-Proposed, Mount Clemens
- Holiday Inn, Muskegan
- Super 8, Muskegon
- Hilton Hotel, Novi
- Holiday Inn-Petoskey, Petoskey
- Mayflower Hotel, Plymouth
- Inn at the Bridge, Port Huron
- Radisson Hotel, Romulus
- Holiday Inn-East, Saginaw
- Super 8, Saginaw
- Courtyard by Marriott, Southfield
- Embassy Suites, Southfield
- Hilton Hotel, Southfield
- Marriott Hotel, Southfield
- Ramada Inn, Southfield
- Residence Inn, Southfield
- The Garden Inn, Southfield
- Comfort Suites-Proposed, Sterling Heights
- Holiday Inn, Sturgis
<PAGE>
- Grand Traverse Resort, Traverse City
- Hampton Inn, Traverse City
- Park Place Hotel, Traverse City
- Courtyard by Marriott, Troy
- Holiday Inn, Troy
- Marriott, Troy
- Residence Inn, Troy
- Courtyard by Marriott, Warren
- Days Inn, Warren
- Holiday Inn, Warren
- Motel 6, Warren
- Residence Inn, Warren
- Van Dyke Hotel & Conference Center, Warren
- Bob Evans Restaurant, Wyoming
- Super 8, Wyoming
- Radisson Resort-Conference Center, Ypsilanti
Minnesota
- Embassy Suites, Bloomington
- Hilton Airport Hotel, Bloomington
- Hilton Hotel, Bloomington
- Howard Johnson Lodge, Bloomington
- Marriott Hotel, Bloomington
- Ramada Inn, Bloomington
- Days Inn - Minneapolis, Brooklyn Center
- Residence Inn, Eagan
- Compri Hotel-Proposed, Minneapolis
- Courtyard by Marriott-Eden Prairie, Minneapolis
- Courtyard by Marriott-Mendota, Minneapolis
- Days Inn, Minneapolis
- Dyckman Hotel, Minneapolis
- Hilton Inn, Minneapolis
- Holiday Inn-Downtown, Minneapolis
- Hotel-Proposed, Minneapolis
- Luxeford Hotel, Minneapolis
- Marquette, Minneapolis
- Marriott City Center Hotel, Minneapolis
- Marriott-Minnetonka, Minneapolis
- Motel 6, Minneapolis
- Omni-Northstar, Minneapolis
- Radisson Hotel, Minneapolis
- Ramada Inn, Minneapolis
- Sheraton Minneapolis, Minneapolis
- Sofitel, Minneapolis
- Motel-Proposed, Montevideo
- Days Inn, Plymouth
- Hotel-Proposed, Rochester
- Howard Johnson, Rochester
- Motel 6, Rochester
- Radisson Hotel, Rochester
- Days Inn, Roseville
- Holiday Inn, Saint Paul
- Holiday Inn-Town Square, Saint Paul
- Hotel-Proposed, Saint Paul
- Inn and Expo Center, Saint Paul
- World Trade Hotel, Saint Paul
- Wayzata Conference Center, Wayzata
Mississippi
- Howard Johnson, Biloxi
- Holiday Inn, Greenwood
- Motel 6, Hattlesburg
- Hampton Inn, Jackson
- Howard Johnson, Jackson
- Ramada Inn-Proposed, Jackson
- Residence Inn, Jackson
- Cabot Lodge, Ridgeland
- Holiday Inn, Vicksburg
Missouri
- Ramada Inn, Columbia
- Howard Johnson-North St. Louis, Hazelwood
- Super 8, Independence
- La Quinta Inn, Jackson - North
- Capital Plaza, Jefferson City
- Ramada Inn, Jefferson City
- Days Inn, Joplin
- Super 8, Joplin
- Allis Plaza, Kansas City
- Americana Hotel, Kansas City
- AmeriSuites Hotel-Proposed, Kansas City
- Doubletree Hotel, Kansas City
- Embassy Suites, Kansas City
- Fairfield Inn-West, Kansas City
- Hilton - Proposed, Kansas City
- Hilton Inn, Kansas City
- Historic Suites Hotel, Kansas City
- Holiday Inn, Kansas City
- Holiday Inn Crowne Plaza, Kansas City
- Holiday Inn-Proposed, Kansas City
- Proposed Sheraton Hotel, Kansas City
- Radisson Suite Hotel, Kansas City
- Resort Hotel - Proposed, Kansas City
- Marriott-Tan-Tar-A, Lake of the Ozarks
- Super 8, Liberty
- Super 8, North Kansas City
- Inn at Grand Glaize, Osage Beach
- Super 8, Saint Joseph
- Clarion, Saint Louis
- Courtyard by Marriott-Creve Coeur, Saint Louis
- Courtyard by Marriott-Downtown, Saint Louis
- Courtyard by Marriott-Westport, Saint Louis
- Days Inn, Saint Louis
- Doubletree Hotel, Saint Louis
- Drury Inn, Saint Louis
- Embassy Suites, Saint Louis
- Fairfield Inn-Hazel, Saint Louis
- Henry VIII Hotel, Saint Louis
- Hilton Hotel-Bel Air, Saint Louis
- Holiday Inn Sports Complex, Saint Louis
- Holiday Inn-Airport North, Saint Louis
- Holiday Inn-Downtown, Saint Louis
- Holiday Inn-Riverfont, Saint Louis
- Howard Johnson-South, Saint Louis
- Mayfair Hotel, Saint Louis
- Omni-St. Louis Station, Saint Louis
- Ramada Inn-Westport, Saint Louis
- Residence Inn-Chesterfield, Saint Louis
- Residence Inn-Richmond Heights, Saint Louis
- Ritz-Carlton Hotel, Saint Louis
- Sheraton-Airport, Saint Louis
- St. Louis Airport Hilton, Saint Louis
- St. Louis Airport Radisson Hotel, Saint Louis
- St. Louisian Hotel, Saint Louis
- Stouffer Concourse Hotel, Saint Louis
- Super 8, Saint Louis
- Marriott Hotel, Saint Louis County
- Holiday Inn, Springfield
- Sheraton Inn, Springfield
- Super 8, Springfield
- Executive Inn & Office Building, St. Louis
- Holiday Inn, St. Louis
- Howard Johnson Hotel, St. Louis
- Hotel-Proposed, Unity Village
- Holiday Inn, Wendtzville
Montana
- Sheraton Hotel, Billings
- Super 8, Billings
- Super 8, Great Falls
- Super 8, Helena
- Super 8, Kalispell
- Holiday Inn, Missoula
- Red Lion Inn, Missoula
Nebraska
- Holiday Inn, Kearney
- Best Western Airport Inn, Lincoln
- Holiday Inn-Airport, Lincoln
- Holiday Inn-Northeast, Lincoln
- Howard Johnson, North Platte
- Marriott Hotel, Omaha
- Ramada Inn, Omaha
- Red Lion Inn, Omaha
Nevada
- Lake Mead Resort, Boulder City
- Ormsby House Hotel and Casino, Carson City
- Super 8, Carson City
- Doubletree Hotel and Resort, Cathedral City
- Best Western Motel - Proposed, Jackpot
- Airport Inn, Las Vegas
- Aladdin Hotel and Casino, Las Vegas
- Alexis Park Resort Hotel, Las Vegas
- Casino Hotel-Proposed, Las Vegas
- Courtyard by Marriott, Las Vegas
- El Rancho Hotel and Casino, Las Vegas
- Hotel and Casino-Proposed, Las Vegas
- Jockey Club Hotel and Casino, Las Vegas
- La Quinta Hotel, Las Vegas
- Paradise Resort, Las Vegas
- Residence Inn, Las Vegas
- Silverbird Casino, Las Vegas
<PAGE>
- Super 8-Proposed, Las Vegas
- The Mirage, Las Vegas
- Tropicana Travelodge, Las Vegas
- Westward Ho Casino, Las Vegas
- Echo Bay Resort, Overton
- Holiday Inn, Reno
- La Quinta Hotel, Reno
- Quality Inn and Casino, Reno
- Red Lion Hotel-Proposed, Reno
New Hampshire
- Sheraton Wayfarer, Bedford
- Hampton Inn, Bow
- Mount Washington Resort, Bretton Woods
- Balsams Hotel, Dixville Notch
- Sheraton Inn-Lamie's Tavern, Hampton
- Woodbound Inn, Jaffrey
- Brickyard Mountain Inn, Laconia
- Loon Mountain Hotel, Lincoln
- Appleton Inns, Manchester
- Holiday Inn Center, Manchester
- Sheraton Wayfarer, Manchester
- Susse Chalet, Manchester
- Clarion Somerset Hotel, Nashua
- Hotel-Proposed, Nashua
- Tara Sheraton Nashua, Nashua
- Wentworth by the Sea, Newcastle
- Susse Chalet, Portsmouth
- Wentworth-by-the-Sea, Portsmouth
- Salem Inn, Salem
- Susse Chalet, Salem
- Landmarc Lodge-East, Waterville Valley
- Landmarc Lodge-West, Waterville Valley
- Silver Squirrel Inn, Waterville Valley
- Snowy Owl Inn, Waterville Valley
- Chalet Susse International, Inc., Wilton
New Jersey
- Marriott Seaview Golf Resort, Abescon
- Howard Johnson Hotel, Absecon
- Seaview Country Club, Absecon
- Berkeley Carteret Hotel, Asbury Park
- Caesar's Hotel and Casino, Atlantic City
- Casino Hotel-Proposed, Atlantic City
- Deauville Hotel, Atlantic City
- Diplomat Hotel, Atlantic City
- Hampton Inn, Atlantic City
- Harrah's Marina Hotel Casino, Atlantic City
- Lafayette Hotel, Atlantic City
- Resorts Int'l Hotel and Casino, Atlantic City
- Royal Inn, Atlantic City
- Sands Hotel and Casino, Atlantic City
- Traymore Hotel Site, Atlantic City
- Tropicana Hotel and Casino, Atlantic City
- World International Hotel, Atlantic City
- Bernards Inn, Bernardsville
- Hotel-Proposed, Bridgewater
- Proposed Hotel, Camden
- Cherry Hill Hyatt, Cherry Hill
- Cherry Hill Inn, Cherry Hill
- Ramada Inn, Clifton
- Comfort Suites, E. Rutherford
- Ramada Renaissance, East Brunswick
- Sheraton Inn, East Brunswick
- Sheraton - Per Diem, East Rutherford
- Holiday Inn-Raritan Center, Edison
- Hotel-Proposed, Edison
- Ramada Inn, Edison
- Best Western Hotel, Egg Harbor Township
- Newark Airport Vista Hotel, Elizabeth
- Ramada Inn-Proposed, Elizabeth
- Sheraton Inn, Elizabeth
- Marriott Suite Hotel-Proposed, Elmwood Park
- Howard Johnson, Englewood
- Conference Center, Farleigh Dickinson
- Motel-Proposed, Flemington
- Hamilton Park Conference Center, Florham Park
- Courtesy Motel, Fort Lee
- Ramada Inn-Proposed, Franklin Township
- Playboy Resort, Great Gorge
- Marriott Hotel, Hanover
- Sheraton Hotel, Hasbrouck Heights
- Holiday Inn, Jamesburg
- Restaurant at Port Liberte, Jersey City
- Harrogate Senior Living Facility, Lakewood
- Courtyard by Marriott, Lincroft
- Hotel-Proposed, Long Branch
- Comfort Inn, Mahwah
- Courtyard by Marriott, Mahwah
- Residence Inn-Proposed, Mahwah
- Economy Lodge - Proposed, Meadowlands
- Holiday Inn, Meadowlands
- Hotel-Proposed, Meadowlands
- Meadowlands Hilton, Meadowlands
- Sheraton Hotel, Meadowlands
- Forsgate Conference Center, Monroe Township
- Conference Center, Morristown
- Governor Morris Inn, Morristown
- Headquarters Plaza Hotel, Morristown
- Pleasantville Farms Conference Cent, Morristown
- Howard Johnson Lodge, Mount Holly
- Courtyard by Marriott, Mount Laurel
- Hilton, Mount Laurel
- Days Hotel, New Brunswick
- Hyatt Hotel, New Brunswick
- Rennaisance Hotel, New Brunswick
- Residence Inn - Princeton, New Jersey
- Airport Hotel-Proposed, Newark
- Courtyard by Marriott-Airport, Newark
- Holiday Inn, Newark
- Holiday Inn-Airport North, Newark
- Hotel-Proposed, Newark
- Howard Johnson Hotel, Newark
- Days Inn, North Bergen
- Holiday Inn, North Brunswick
- Port-O-Call, Ocean City
- Sting Ray Motel, Ocean City
- Hotel-Proposed, Ocean Grove
- Spray View Hotel, Ocean Grove
- Macy Hotel-Proposed, Paramus
- Red Carpet Inn, Paramus
- Residence Inn-Proposed, Paramus
- Marriott Hotel-Proposed, Park Ridge
- Embassy Suites, Parsippany
- Hilton, Parsippany
- Residence Inn-Proposed, Parsippany
- Howard Johnson, Phillipsburg
- Hotel-Proposed, Piscataway
- Residence Inn-Proposed, Piscataway
- Compri Hotel-Proposed, Princeton
- Hyatt Regency, Princeton
- Marriott Hotel, Princeton
- Omni Nassau Inn, Princeton
- Treadway Inn, Princeton
- Howard Johnson, Ridgefield Park
- Hotel-Proposed, Rockleigh
- Hotel-Proposed, Roxbury Township
- Ramada Inn, Runnemede
- Howard Johnson, Saddle Brook
- Marriott Hotel, Saddle Brook
- Days Inn, Secaucus
- Howard Johnson, Secaucus
- Ramada Inn, Secaucus
- Hilton At Short Hills, Short Hills
- Pier 4 Motel, Somers Point
- Garden State Convention Center, Somerset
- Holiday Inn, Somerset
- Marriott Hotel, Somerset
- Neighborhood Suites-Proposed, Somerset
- Sommerset Plaza Hotel, Somerset
- Summerfield Suites Hotel, Sommerset
- Hewitt Wellington Hotel, Spring Lake
- Hotel-Proposed, Spring Lake
- Loews Glenpointe Hotel, Teaneck
- Appleton Inn, Tinton Falls
- Envoy Inn, Tinton Falls
- Hilton Inn, Tinton Falls
- Residence Inn, Tinton Falls
- Sunrise Suite Hotel, Tinton Falls
- Hotel-Proposed, Toms River
- Hotel-Proposed, Turnersville
- Hotel-Proposed, Wayne
- Howard Johnson-Proposed, Wayne
- Holiday Inn, Wildwood Crest
- Motel, Wrightstown
New Mexico
- Compri Hotel-Proposed, Albuquerque
- Courtyard by Marriott-Airport, Albuquerque
- Fairfield Inn-Proposed, Albuquerque
- Hampton Inn, Albuquerque
<PAGE>
- Hilton Hotel, Albuquerque
- Holiday Inn, Albuquerque
- Marriott Hotel, Albuquerque
- Radisson Suite Hotel-Proposed, Albuquerque
- Residence Inn, Albuquerque
- Rodeway Inn, Albuquerque
- Winrock Motor Inn, Albuquerque
- La Quinta Inn, Albuquerque - Airport
- Corkin's Lodge, Chama
- La Quinta Inn, Farmington
- Hilton, Las Cruces
- Las Cruces Hilton, Las Cruces
- Super 8, Las Cruces
- Ski Rio Ski Resort, Miracle Mountain
- Super 8, Raton
- Young's Ranch, Red River
- Eldorado Hotel, Santa Fe
- Homewood Suites Hotel, Santa Fe
- Hotel-Proposed, Santa Fe
- Inn at Loretto, Santa Fe
- Inn on the Alameda, Santa Fe
- La Fonda Hotel, Santa Fe
- La Quinta Hotel, Santa Fe
- Residence Inn, Santa Fe
- Santa Fe Motel, Santa Fe
- Sheraton de Santa Fe, Santa Fe
New York
- Americana Inn, Albany
- Desmond Hotel, Albany
- Hilton Hotel, Albany
- Marriott Hotel, Albany
- Sheraton Inn, Albany
- Susse Chalet, Albany
- VIP Motor Lodge (Howard Johnson), Albany
- Embassy Suites-Proposed, Amherst
- Holiday Inn, Amherst
- Annandale Inn-Proposed, Annandale
- Wampus Inn-Proposed, Armonk
- Treadway Inn, Batavia
- Hampton Inn, Binghamton
- Holiday Inn-Arena, Binghamton
- Holiday Inn-SUNY, Binghamton
- Hotel-Proposed, Binghamton
- Howard Johnson, Binghamton
- Residence Inn, Binghamton
- Sheraton Inn, Binghamton
- Eden Motel, Bronx
- Days Inn-Proposed, Brookhaven
- Residence Inn, Brookhaven
- Brooklyn Hotel-Proposed, Brooklyn
- Hilton Hotel, Brooklyn
- Airport Hotel-Proposed, Buffalo
- Buffalo Hotel, Buffalo
- Days Hotel-Proposed, Buffalo
- Hilton Hotel, Buffalo
- Holiday Inn - Midtown, Buffalo
- Hyatt Hotel, Buffalo
- Hyatt Regency Hotel & Retail Area, Buffalo
- Radisson Hotel, Buffalo
- Ramada Inn-Airport, Buffalo
- Ramada Renaissance Hotel, Buffalo
- Residence Inn-Proposed, Buffalo
- Sheraton Hotel, Buffalo
- Sheraton Inn Buffalo East, Buffalo
- Sheraton Inn-Airport, Buffalo
- Sheraton Inn, Canadaiqua
- Airway Motel, Cheektowaga
- Holiday Inn - Airport, Cheektowaga
- Holiday Inn - Gateway, Cheektowaga
- Quality Inn, Cheektowaga
- Sheraton Buffalo, Cheektowga
- Steeplechase Park-Proposed, Coney Island
- Hilton Inn, Corning
- Resort/Conference Center-Proposed, Cornwall
- Holiday Inn, Cortland
- Roycroft Inn, East Aurora
- Hotel-Proposed, East Elmhurst
- Susse Chalet, East Greenbush
- Nevele Hotel, Ellenville
- Int'l Conf./Learning Center-Propose, Ellis Island
- Days Inn, Elmsford
- Howard Johnson, Elmsford
- Neighborhood Suites Hotel-Proposed, Fishkill
- Residence Inn, Fishkill
- Metropole Hotel, Flushing
- Midway Hotel, Flushing
- Sheraton - Proposed, Flushing Center
- Hotel-Proposed, Garden City
- Wyndham Condominium, Garden City
- Harrison Conference Center, Glen Clove
- Great Neck Hotel, Great Neck
- Comfort Inn, Greece
- Holiday Inn-Proposed, Greece
- Tamarack Lodge, Greenfield Park
- Claudio's Restaurant, Greenport
- Colonie Hill, Hauppauge
- Holiday Inn, Hauppauge
- Marriott Wind Watch Hotel & Golf, Hauppauge
- Marriott Windwatch, Hauppauge
- Ramada Inn, Hauppauge
- Residence Inn, Hauppauge
- Homewood Suites-Proposed, Henrietta
- Howard Johnson, Huntington
- Huntington Townhouse, Huntington
- Hampton Inn, Islandia
- Marriott Wind Watch, Islandia
- Hotel-Proposed, Islip
- Howard Johnson Hotel, Ithaca
- Ramada Inn, Ithaca
- Sheraton Inn, Ithaca
- JFK Hilton, Jamaica
- Howard Johnson, Kingston
- Ramada Inn, Kingston
- Omni Sagamore, Lake George
- Ramada Inn, Lake George
- Former Lake Placid Club Hotel, Lake Placid
- Hilton Hotel, Lake Placid
- Mirror Lake Inn, Lake Placid
- Holiday Inn, Latham
- Howard Johnson, Latham
- Howard Johnson, Liberty
- The New Brown's Resort, Loch Sheldrake
- Convention Center - Proposed, Long Island
- Eastern Nassau/W. Suffolk Hotel, Long Island
- Hyatt Hotel-Proposed, Long Island
- Motel-Proposed, Lynbrook
- Crowne Plaza Hotel, Manhattan
- Hotel Mark, Manhattan
- Proposed Economy Hotel, Manhattan
- Sugar Maples Resort, Maplecrest
- Hotel-Proposed, Middletown
- Howard Johnson, Middletown
- Montauk Yacht Club and Inn, Montauk
- Kutsher's Resort, Monticello
- Motel-Proposed, Nanuet
- Wallkill Valley Inn Project, New Paltz
- Hotel-Proposed, New Rochelle
- Le Richmond Hotel, New Rochelle
- Ramada Plaza Inn and Offices, New Rochelle
- Sheraton Inn, New Rochelle
- Aberdeen Hotel, New York
- American Youth Hostel, New York
- Americana Hotel, New York
- Ashley Hotel, New York
- Astor House-Proposed, New York
- Barbizon Plaza Hotel, New York
- Barclay Hotel, New York
- Battery Park City Hotel-Proposed, New York
- Berkshire Place, New York
- Best Western Woodward Hotel, New York
- Biltmore Hotel, New York
- Broadway Crowne Plaza, New York
- Carlton House Hotel, New York
- Century Paramount Hotel, New York
- Chatwal Inn, New York
- Chatwal Inn on 45th Street, New York
- Chatwal Inn on Park Avenue, New York
- Chinatown Hotel-Proposed, New York
- Courtyard by Marriott-Proposed, New York
- Custom's House, New York
- Days Inn, New York
- Days Inn-West 57th Street, New York
- Doral Inn, New York
- Dover Hotel, New York
- Downtown Athletic Club, New York
- Downtown Conference Center, New York
- Drake Hotel, New York
- Econo Lodge-Proposed, New York
- El Rio Grande, New York
- Embassy Suites-Times Square-Propose, New York
<PAGE>
- Empire Hotel, New York
- Essex House, New York
- Executive Hotel, New York
- Giordano Hotel, New York
- Gorham Hotel, New York
- Grand Bay at Equitable Center, New York
- Grand Hyatt Hotel, New York
- Greenwich Street Hotel, New York
- Halloran House, New York
- Hampton House, New York
- Harley Hotel, New York
- Helmsley Hotel, New York
- Hilton Hotel, New York
- Hilton Hotel-Statler, New York
- Holiday Inn, New York
- Holiday Inn Crowne Plaza-Broadway, New York
- Holiday Inn Crowne Plaza-Manhattan, New York
- Holland Hotel, New York
- Hotel Intercontinental, New York
- Hotel Pierre, New York
- Hotel-1926 Broadway-Proposed, New York
- Hotel-East 57th Street-Proposed, New York
- Hotel-Proposed, New York
- Hotel-Tenth Avenue-Proposed, New York
- Howard Hotel, New York
- Howard Johnson, New York
- Journey's Court Hotel-Proposed, New York
- Journey's End, New York
- Kalikow Hotel-Proposed, New York
- Kennedy Inn, New York
- Lancaster Hotel, New York
- Le Meridien Liberty New York, New York
- Lowell Hotel, New York
- Luxury Hotel-Proposed, New York
- Macklowe Hotel, New York
- Madison Towers Hotel, New York
- Manger Windsor Hotel, New York
- Mark Hotel, New York
- Marriott East Side, New York
- Marriott Financial Center, New York
- Marriott Hotel-Proposed, New York
- Marriott Marquis, New York
- Martinique Hotel, New York
- Mayfair Regent, New York
- Milford Plaza Hotel, New York
- Millennium Hotel, New York
- Navarro Hotel, New York
- Nova Park-Gotham, New York
- Novotel, New York
- Omni Berkshire Place, New York
- Omni Park Central, New York
- Parc Fifty One Hotel, New York
- Parker Meridien Hotel, New York
- Peninsula Hotel, New York
- Penta Hotel, New York
- Piccadilly Hotel, New York
- Plaza Hotel, New York
- President Hotel, New York
- Prince George Hotel, New York
- Prince Street Hotel-Proposed, New York
- Proposed Hotel and Apartments, New York
- Proposed Luxury Hotel-Proposed, New York
- Quality Inn, New York
- Quality Suites, New York
- Ramada Inn, New York
- Regent Hotel-Proposed, New York
- Regent of New York-Proposed, New York
- Ritz-Carlton, New York
- Roger Smith Winthrop Hotel, New York
- Roosevelt Hotel, New York
- Russian Tea Room, New York
- Sheraton Hotel, New York
- Sheraton Motor Inn, New York
- Sheraton Park Avenue, New York
- Soho Hotel-Proposed, New York
- St. Moritz Hotel, New York
- St. Regis, New York
- Stanhope, New York
- Sutton Place Hotel, New York
- Taft Hotel, New York
- Tenth Avenue Hotels-Proposed, New York
- The Pierre Hotel, New York
- The Plaza Athenee, New York
- Times Square Hotel-Proposed, New York
- Timeshare-Proposed, New York
- Travel Inn, New York
- Tudor Hotel, New York
- UN Plaza Suite Hotel-Proposed, New York
- Vista International, New York
- Waldorf=Astoria Hotel, New York
- Warwick Hotel, New York
- Westbury Hotel, New York
- Westin Plaza Hotel, New York
- Woodward Hotel-Proposed, New York
- York Club, New York
- Howard Johnson Motel & Restaurant, Newburgh
- Ramada Inn, Newburgh
- Hilton Hotel, Niagara Falls
- Howard Johnson, Norwich
- Hotel-Proposed, Orangetown
- Hudson Valley Conference Center, Ossining
- Sheraton Inn, Ossining
- Hotel-Proposed, Oswego
- Best Western, Painted Post
- Lodge on the Green, Painted Post
- Residence Inn - Proposed, Parsippany
- Senior Living - Proposed, Pearl River
- Drum Hill Hotel, Peekskill
- Holiday Inn, Plainview
- Howard Johnson, Plainview
- Pickwick Motor Inn, Plainview
- Residence Inn, Plainview
- Holiday Inn, Plattsburgh
- Motel-Proposed, Port Jefferson
- Comfort Inn-Proposed, Poughkeepsie
- Courtyard by Marriott, Poughkeepsie
- Radison Hotel, Poughkeepsie
- Wyndham Hotel, Poughkeepsie
- Best Western-LaGuardia Airport, Queens
- Crown Motel, Queens
- Crowne Plaza-LaGuardia Airport, Queens
- Days Inn-LaGuardia Airport, Queens
- Executive Inn, Queens
- Hilton Inn-LaGuardia Airport, Queens
- Hilton-JFK Airport, Queens
- Holiday Inn-JFK Airport, Queens
- Holiday Inn-LaGuardia Airport, Queens
- Howard Johnson, Queens
- Jade East Motel, Queens
- JFK Plaza Hotel, Queens
- Marriott Hotel-JFK Airport, Queens
- Marriott-LaGuardia Airport, Queens
- Metropole Hotel, Queens
- Midway Hotel, Queens
- Riviera Hotel, Queens
- Royce Hotel-LaGuardia Airport, Queens
- Sheraton-LaGuardia East-Proposed, Queens
- Adria Hotel, Queens (Bayside)
- Holiday Inn, Riverhead
- Riverhead Motor Hotel, Riverhead
- Americana Hotel, Rochester
- Courtyard by Marriott-Wrighton, Rochester
- Days Hotel (former Holiday Inn), Rochester
- Hilton-Campus, Rochester
- Holiday Inn, Rochester
- Hotel-Proposed (former St. Bernard), Rochester
- Hyatt Hotel, Rochester
- Lodge at Woodcliff, Rochester
- Omni Suites Hotel, Rochester
- Residence Inn, Rochester
- Sheraton Inn, Rochester
- Stouffer Hotel, Rochester
- Town House Inn, Rochester
- Limited Service Hotel-Proposed, Rome
- Hotel - Proposed, Roslyn
- Roslyn Country Club, Roslyn
- Courtyard by Marriott, Rye
- Le Richemonde Hotel, Ryebrook
- Baron's Cove Inn, Sag Harbor
- Holiday Inn, Saratoga
- Hotel-Proposed, Saratoga Springs
- Howard Johnson, Saugerties
- Holiday Inn, Schenectady
- Ramada Inn, Schenectady
- Dering Harbor Inn, Shelter Island
- Crowne Plaza-Proposed, Smithtown
- Howard Johnson, Smithtown
- Sheraton, Smithtown
- Raleigh Hotel, South Fallsburg
- Hotel-Proposed, Southhold
- Susse Chalet, Spring Valley
<PAGE>
- Executive Motor Inn, Springfield Gardens
- Staten Island Hotel, Staten Island
- Imperial Htl/Stevensville Golf Crs., Stevensville
- Holiday Inn, Suffern
- Motel on the Mountain, Suffern
- Browns Hotel, Sullivan County
- Imperial Hotel, Sullivan County
- The New Brown's Resort, Sullivan County
- Courtyard by Marriott, Syracuse
- Embassy Suites, Syracuse
- Hampton Inn, Syracuse
- Hilton Inn, Syracuse
- Holiday Inn-Downtown, Syracuse
- Holiday Inn-Exit 35, Syracuse
- Holiday Inn-Exit 36, Syracuse
- Holiday Inn-Exit 39, Syracuse
- Holiday Inn-I-90, Syracuse
- Homewood Suites Hotel-Proposed, Syracuse
- Hotel Syracuse, Syracuse
- Hotel-Proposed, Syracuse
- Marriott Hotel, Syracuse
- Residence Inn-Proposed, Syracuse
- Sheraton University Inn & Conf.Ctr., Syracuse
- Treadway Inn, Syracuse
- Courtyard by Marriott, Tarrytown
- Tarrytown House Conference Center, Tarrytown
- Westchester Marriott, Tarrytown
- Embassy Suites - Proposed, Times Square, New York
- Marriott Hotel, Uniondale
- Sheraton Nassau Hotel, Uniondale
- Howard Johnson Hotel, Utica
- Howard Johnson, Vestal
- Hotel-Proposed, Watertown
- Convention Hotel-Proposed, Westbury
- Dalts Restaurant, Westbury
- Howard Johnson, Westbury
- Marriott Hotel, Westchester
- Inn-Proposed, Westhampton
- Crowne Plaza, White Plains
- Hotel-Proposed, White Plains
- Howard Johnson, White Plains
- Roger Smith Hotel, White Plains
- Stouffer Westchester Hotel, White Plains
- White Plains Hotel, White Plains
- Anton Meadows, Yaphank
- Quality Suites, Yorktown
- Yorktown Motor Lodge, Yorktown Heights
North Carolina
- Days Inn - Central, Asheville
- Holiday Inn - Airport, Asheville
- Holiday Inn - Tunnel, Asheville
- Inn on the Plaza, Asheville
- Sheraton Inn, Asheville
- Days Inn, Ashville
- Masters Economy Inn - Rocky Mount, Battlebro
- Days Inn, Blowing Rock
- All-Suite Hotel-Proposed, Boone
- Residence Inn-Proposed, Cary
- Carolina Inn, Chapel Hill
- Hilton-Proposed, Chapel Hill
- Charlotte Registry Hotel-Per Diem, Charlotte
- Compri Hotel-Proposed, Charlotte
- Courtyard by Marriott, Charlotte
- Days Inn, Charlotte
- Days Inn-Uptown, Charlotte
- Fairfield Inn, Charlotte
- Howard Johnson, Charlotte
- Howard Johnson Lodge, Charlotte
- Knights Inn, Charlotte
- Manger Motor Inn, Charlotte
- Marriott City Center, Charlotte
- Marriott Hotel-Independence Center, Charlotte
- Masters Economy Inn - Charlotte No, Charlotte
- Masters Economy Inn - Merchandise, Charlotte
- Queen City Motel, Charlotte
- Residence Inn, Charlotte
- Residence Inn-North, Charlotte
- Resistry Hotel, Charlotte
- Royce Suite Hotel, Charlotte
- Sheraton Inn, Charlotte
- Conference Center, Clemmons
- Sheraton Motel, Dunn
- Best Western, Durham
- Cricket Inn, Durham
- Days Inn, Durham
- Dutch Village Inn, Durham
- Fairfield Inn, Durham
- Holiday Inn-West, Durham
- Motel 6, Durham
- Sheraton-University Center, Durham
- The Duke Inn, Durham
- Days Inn, Fayetteville
- Fairfield Inn, Fayetteville
- Holiday Inn, Fayetteville
- Hotel-Proposed, Fayetteville
- Knights Inn, Fayetteville
- Goldsboro Motel, Goldsboro
- Courtyard by Marriott, Greensboro
- Days Inn, Greensboro
- Embassy Suites, Greensboro
- Fairfield Inn, Greensboro
- Hilton, Greensboro
- Marriott Hotel, Greensboro
- Residence Inn, Greensboro
- Sheraton Greensboro, Greensboro
- Hotel-Proposed, Greenville
- Radisson Hotel, High Point
- Days Inn, Lumberton
- Maggie Valley Country Club, Maggie Valley
- Courtyard by Marriott, Raleigh
- Fairfield Inn, Raleigh
- Hampton Inn, Raleigh
- Hilton, Raleigh
- Holiday Inn-Downtown, Raleigh
- Marriott Hotel-RTP, Raleigh
- Raleigh Radisson, Raleigh
- Residence Inn, Raleigh
- Holiday Inn - Airport, Research Triangle Park
- Howard Johnson, Roanoke Rapids
- Sheraton Inn, Rocky Mount
- Days Inn, Rocky Mountain
- Fairfield Inn, Rocky Mountain
- Motel 6, Rocky Mountain
- Days Inn, Rowland
- Sheraton Motel, Selma
- Masters Economy Inn, Smithfield
- Holiday Inn, Southern Pines
- Fairfield Inn, Wilmington
- Hilton, Winston/Salem
- Holiday Inn, Winston/Salem
- Winston Plaza Hotel, Winston/Salem
North Dakota
- Holiday Inn, Bismark
- Radisson Inn, Bismark
- Super 8, Bismark
- Ramada Hotel, Fargo
- Ramada Inn-Proposed, Fargo
- Super 8, Grand Forks
- Super 8, Minot
Ohio
- Holiday Inn-Cascade, Akron
- Ramada Inn, Akron
- Residence Inn, Akron
- Aurora Inn and Pine Lake Trout Club, Aurora
- Sheraton Inn, Aurora
- Woodlands Inn, Aurora
- Courtyard by Marriott, Blue Ash
- Embassy Suites, Blue Ash
- Residence Inn-Proposed, Blue Ash
- Best Western, Cambridge
- Days Inn, Cambridge
- Hilton Hotel, Canton
- Super 8, Canton
- Best Western Northeast, Cincinnati
- Carousel Inn, Cincinnati
- Cincinnati Hotel, Cincinnati
- Clarion Hotel, Cincinnati
- Days Inn, Cincinnati
- Embassy Suites-Proposed, Cincinnati
- Holiday Inn-Downtown, Cincinnati
- Holiday Inn-Eastgate, Cincinnati
- Holiday Inn-Northeast, Cincinnati
- Holiday Inn-Riverfront, Cincinnati
- Holiday Inn-South, Cincinnati
- Hotel-Airport-Proposed, Cincinnati
- Howard Johnson, Cincinnati
- Hyatt, Cincinnati
- Knights Inn, Cincinnati
<PAGE>
- KOA Campground, Cincinnati
- Marriott Inn, Cincinnati
- Netherland Hilton, Cincinnati
- Omni Netherland Plaza, Cincinnati
- Proposed Hotel, Cincinnati
- Radisson Inn, Cincinnati
- Ramada Inn, Cincinnati
- Residence Inn, Cincinnati
- Residence Inn-North, Cincinnati
- Sheraton Inn-Proposed, Cincinnati
- Treadway Inn, Cincinnati
- Vernon Manor, Cincinnati
- AmeriSuite Hotel-Proposed, Cleveland
- Downtown Hotel-Proposed, Cleveland
- Fairfield Inn-Brook Park, Cleveland
- Fairfield Inn-West, Cleveland
- Holiday Inn-Airport, Cleveland
- Holiday Inn-Lakeside, Cleveland
- Hyatt Hotel-Proposed, Cleveland
- Marriott Hotel, Cleveland
- Sheraton City Center, Cleveland
- Sheraton Hopkins, Cleveland
- AmeriSuite - Proposed, Columbus
- Embassy Suites, Columbus
- Fairfield Inn-North, Columbus
- Fairfield Inn-West, Columbus
- Hilton Inn, Columbus
- Holiday Inn-Airport, Columbus
- Holiday Inn-City Center, Columbus
- Holiday Inn-Worthington, Columbus
- Hotel-Proposed, Columbus
- Howard Johnson Hotel, Columbus
- Howard Johnson-East, Columbus
- Howard Johnson-West, Columbus
- Knights Inn-West, Columbus
- Marriott Hotel, Columbus
- Nationwide Hotel, Columbus
- Residence Inn-North, Columbus
- Sheraton Plaza Hotel, Columbus
- Sheraton-North, Columbus
- Union Plaza Hotel-Steeplechase, Columbus
- University Inn, Columbus
- Woodfin Hotel, Columbus
- Courtyard by Marriott, Crosswoods
- Courtyard by Marriott, Dayton
- Daytonian Hilton, Dayton
- Fairfield Inn, Dayton
- Hope Hotel & Conference Center, Dayton
- Knights Inn-North, Dayton
- Marriott Hotel, Dayton
- Motel 6, Dayton
- Ramada Inn, Dayton
- Residence Inn-North, Dayton
- Residence Inn By Marriott, Dayton South
- Courtyard by Marriott, Dublin
- Woodfin Suites, Dublin
- East Liverpool Motor Lodge, East Liverpool
- Howard Johnson, Euclid
- Ramada Inn, Fairlawn
- Hampton Inn, Independence
- Howard Johnson, Lima
- Ramada Inn, Lima
- Best Western, Mansfield
- Holiday Inn, Marietta
- Lafayette Hotel, Marietta
- Holiday Inn, Middletown
- Howard Johnson, Middletown
- Regal 8 Inn, Middletown
- Sheraton-Proposed, Milford
- Super 8, Montrose
- Ramada Inn, Sandusky
- Days Inn, Sharonville
- Holiday Inn-Cincinnati North, Sharonville
- Super 8, St. Clairsville
- Holiday Inn, Strongsville
- Balhalla Hotel, Toledo
- Courtyard by Marriott, Toledo
- Fairfield Inn-Airport, Toledo
- Hilton at the Medical College, Toledo
- Hilton Hotel, Toledo
- Holiday Inn, Toledo
- Knights Inn-West, Toledo
- Marriott Portside Hotel, Toledo
- Radisson Hotel, Toledo
- Sofitel, Toledo
- Hampton Inn-Proposed, Wickliffe
- Holiday Inn, Youngstown
- Hotel-Proposed, Youngstown
- Sheraton-Proposed, Youngstown
Oklahoma
- Fountainhead Resort, Mcintosh County
- Residence at the Trails Inn, Norman
- Suit Hotel, Norman
- Courtyard by Marriott, Oklahoma City
- Embassy Suites, Oklahoma City
- Holiday Inn, Oklahoma City
- Lexington Hotel Suites, Oklahoma City
- Lincoln Plaza Hotel, Oklahoma City
- Marriott Hotel, Oklahoma City
- Meridien Plaza, Oklahoma City
- Sheraton Hotel, Oklahoma City
- Arrowhead Resort, Pittsburgh County
- Camelot Hotel, Tulsa
- Doubletree Hotel, Tulsa
- Former Holiday Inn, Tulsa
- Former Holiday Inn-Downtown, Tulsa
- Holiday Inn, Tulsa
- Holiday Inn-Convention Center, Tulsa
- La Quinta Inn, Tulsa
- Marriott Hotel, Tulsa
- Mayo Hotel, Tulsa
- Residence Inn, Tulsa
- Westin Hotel, Tulsa
Oregon
- Inn At Face Rock, Bandon
- Courtyard by Marriott, Beaverton
- Red Lion Motel, Bend
- Sunriver Lodge and Resort, Bend
- Econolodge Motel, Eugene
- Valley River Inn, Eugene
- Residence Inn Portland-South, Lake Oswego
- Big Creek Resort-US Highway 101, Lane County
- Embassy Suites, Portland
- Holiday Inn Crowne Plaza - Proposed, Portland
- Holiday Inn-Airport, Portland
- Holiday Inn-South, Portland
- Proposed Sheraton Suites, Portland
- Red Lion - Jantzen Beach, Portland
- Red Lion Inn-Lloyd Center, Portland
- Red Lion Inn-Portland Center, Portland
- Residence Inn - Proposed, Portland
- Vintage Plaza Hotel, Portland
- Wells Building, Portland
- Execulodge Motel, Salem
- Oregon Capital Inn, Salem
- Springfield Red Lion Inn, Springfield
- Sunriver Resort, Sunriver
Pennsylvania
- Allentown Hilton Hotel, Allentown
- Holiday Inn, Allentown
- Proposed Microtel, Allentown
- Quality Inn, Allentown
- Bedford Springs Hotel, Bedford
- Compri Hotel-Proposed, Bensalem
- Days Inn-Proposed, Bensalem
- Holiday Inn, Bensalem
- Residence Inn By Marriott, Berwyn
- Econolodge, Bristol
- Days Inn, Brookville
- Buck Hill Falls Inn, Buck Hill Falls
- Howard Johnson, Butler
- Holiday Inn, Chambersburg
- Days Inn, Clarion
- Embassy Suites, Coraopolis
- Hydeholde Country House-Proposed, Coraopolis
- Days Inn, Danville
- Holiday Inn, Dubois
- Lafayette Inn-Proposed, Easton
- Howard Johnson Hotel, Erie
- Ramada Inn, Erie
- Holiday Inn, Essington
- Quality Suites-Proposed, Essington
- Super 8-Proposed, Essington
- Howard Johnson, Gibsonia
- Compri Hotel-Proposed, Harrisburg
- Holiday Inn, Harrisburg
- Marriott Hotel, Harrisburg
- Penn Harris Inn, Harrisburg
- Sheraton Inn, Harrisburg
<PAGE>
- Super 8-Proposed, Harrisburg
- Holiday Inn, Hazleton
- Super 8-Proposed, Hazleton
- Plaza Valley Forge Hotel, King of Prussia
- Radisson Hotel, King of Prussia
- Sheraton Hotel, King of Prussia
- Valley Forge Complex, King of Prussia
- Valley Forge Hilton, King of Prussia
- Motel-Proposed, Lake Ariel
- Days Inn, Lancaster
- Holiday Inn-Route 30E, Lancaster
- Holiday Inn-Route 501, Lancaster
- Sheraton Lancaster Golf Resort, Lancaster
- Super 8-Proposed, Lancaster
- Holiday Inn, Lionville
- Hilton-Great Valley, Malvern
- Summerfield Suite-Proposed, Malvern
- Days Inn, Meadville
- Hilton Inn, Monroeville
- Holiday Inn-West, Monroeville
- Economy Hotel, Montgomery Township
- Holiday Inn, New Hope
- Treadway Inn, Newport
- Residence Inn-Proposed, Paoli
- Conference Center-Proposed, Penn State
- Barclay Hotel, Philadelphia
- Bellevue, Philadelphia
- Courtyard by Marriott-Devon, Philadelphia
- Courtyard-Willow Grove, Philadelphia
- Days Inn-Airport, Philadelphia
- Econo Lodge-Franklin Towne, Philadelphia
- Essex Hotel, Philadelphia
- Franklin Motor Inn, Philadelphia
- Franklin Plaza Hotel, Philadelphia
- Guest Quarters Hotel, Philadelphia
- Hampton Inn-Proposed, Philadelphia
- Health Club-Proposed, Philadelphia
- Hilton Inn, Philadelphia
- Hilton Inn-Northeast, Philadelphia
- Holiday Inn-City Center, Philadelphia
- Holiday Inn-City Line, Philadelphia
- Hub Motor Inn, Philadelphia
- Hyatt-Proposed, Philadelphia
- Marriott Hotel, Philadelphia
- Marriott Hotel-Airport, Philadelphia
- Omni Philadelphia, Philadelphia
- Penn Center Inn, Philadelphia
- Quality Inn-Center City, Philadelphia
- Residence Inn-Proposed, Philadelphia
- Rittenhouse Hotel, Philadelphia
- Treadway Mohawk, Philadelphia
- Treadway Roosevelt, Philadelphia
- Residence Inn, Philadelphia/Berwyn
- Clubhouse Inn, Pittsburgh
- Courtyard by Marriott, Pittsburgh
- Hampton Inn at Playhouse Square, Pittsburgh
- Hilton Hotel, Pittsburgh
- Holiday Inn-Greentree, Pittsburgh
- Holiday Inn-North, Pittsburgh
- Holiday Inn-Parkway-East, Pittsburgh
- Holiday Inn-Parkway-West, Pittsburgh
- Hotel-Proposed, Pittsburgh
- Howard Johnson Hotel, Pittsburgh
- Marriott Hotel, Pittsburgh
- Marriott-Airport, Pittsburgh
- Motel 6, Pittsburgh
- Quality Inn, Pittsburgh
- Royce Hotel-Airport, Pittsburgh
- U.S.S. Hotel-Proposed, Pittsburgh
- Westin William Penn, Pittsburgh
- Courtyard By Marriott, Pittsburgh Airport
- Holiday Inn, Reading
- Sheraton Hotel, Reading
- Hilton at Lackawanna Station, Scranton
- Hilton Hotel, Scranton
- Sheraton Inn, Stroudsburg
- HoJo Inn, Tannersville
- Hilton-Northeast, Trevose
- Compri Hotel-Proposed, Valley Forge
- Courtyard by Marriott, Valley Forge
- Holiday Inn-Meadowlands, Washington
- Holiday Inn, Wilkes-Barre
- Days Inn-Proposed, Williamsport
- Hotel-Proposed, Williamsport
- Hampton Inn - Proposed, Willow Grove
- Holiday Inn-Market Street, York
- Holiday Inn-Route 30 and I-83, York
- Ramada Inn, York
- Super 8-Proposed, York
Rhode Island
- Cresthil-Proposed, Lincoln
- Courtyard by Marriott, Newport
- Vanderbilt Hotel-Convention Center, Newport
- Quality Inn, North Kingston
- Biltmore Plaza, Providence
- Convention Center Hotel-Proposed, Providence
- Holiday Inn Providence - Downtown, Providence
- Hotel-Proposed, Providence
- Marriott Hotel, Providence
- Sheraton-Airport, Providence
- Susse Chalet, Smithfield
- Howard Johnson, Warwick
- Residence Inn-Proposed, Warwick
- Susse Chalet, Warwick
South Carolina
- Quality Inn Motel, Anderson
- Super 8, Anderson
- Budget Hotel - Proposed, Charleston
- Charleston Center Hotel-Proposed, Charleston
- Cooper River Inn, Charleston
- Days Inn, Charleston
- Francis Marion Hotel, Charleston
- Hampton Inn-Proposed, Charleston
- Hawthorne Suites Hotel, Charleston
- Holiday Inn, Charleston
- Holiday Inn-Airport, Charleston
- Holiday Inn-Riverview, Charleston
- Masters Economy Inn - Mt. Pleasant, Charleston
- Masters Economy Inn - Rivers Ave, Charleston
- Middleton Inn, Charleston
- Omni Charleston, Charleston
- Quality Inn, Charleston
- Trusthouse Forte, Charleston
- Courtyard by Marriott, Columbia
- Courtyard by Marriott-Northeast, Columbia
- Courtyard by Marriott-Northwest, Columbia
- Embassy Suites, Columbia
- Marriott Hotel, Columbia
- Masters Economy Inn - I-26, Columbia
- Masters Economy Inn - Knox Abbot, Columbia
- Motel 6, Columbia
- Residence Inn, Columbia
- Coral Beach Hotel, Coral Beach
- Days Inn, Dillon
- Save Inn, Fairplay
- Fairfield Inn, Florence
- Holiday Inn, Florence
- Days Inn, Gaffney
- Courtyard by Marriott, Greenville
- Fairfield Inn, Greenville
- Greenville Hilton Hotel, Greenville
- Ramada Inn, Greenville
- Super 8, Greenwood
- Days Inn, Hardeeville
- Fairfield Inn, Hilton Head
- Hilton Head Inn, Hilton Head
- Holiday Inn, Hilton Head
- Inter-Continental Hotel, Hilton Head
- Islander Inn, Hilton Head
- Quality Suites-Proposed, Hilton Head
- Residence Inn-Proposed, Hilton Head
- Sheraton Inn, Hilton Head
- PGA East Resort-Proposed, Kiawah Island
- Save Inn, Lake Hartwell
- Days Inn, Mt. Pleasant
- Coral Beach Hotel, Myrtle Beach
- Radisson Hotel, Myrtle Beach
- Best Western Inn, North Charleston
- Budget Hotel-Proposed, North Charleston
- Days Inn, North Charleston
- Northwoods Atrium Inn, North Charleston
- Days Inn, Santee
- Holiday Inn-West, Spartanburg
- Howard Johnson, Spartanburg
- Residence Inn, Spartanburg
South Dakota
- Holiday Inn, Aberdeen
- Holiday Inn, Rapid City
<PAGE>
- Holiday Inn, Sioux Falls
- Super 8, Sioux Falls
- Holiday Inn, Spearfish
Tennessee
- Ameri Suite Hotel-Proposed, Brentwood
- Courtyard by Marriott, Brentwood
- Holiday Inn, Bristol
- Holiday Inn-Southeast, Chattanooga
- Howard Johnson, Chattanooga
- Marriott Hotel, Chattanooga
- Motel 6, Chattanooga
- Sheraton Inn, Chattanooga
- Super 8, Chattanooga
- Holiday Inn, Cove Lake
- Masters Economy Inn, Dickson
- Comfort Inn-Proposed, Elizabethton
- Park Vista Hotel, Gatlinburg
- Holiday Inn-I-40, Jackson
- Holiday Inn, Johnson City
- Super 8, Johnson City
- Fairfield Inn, Johnson Park
- Holiday Inn, Kingsport
- Courtsouth Healthclub-North, Knoxville
- Courtsouth Healthclub-South, Knoxville
- Courtsouth Healthclub-West, Knoxville
- Days Inn, Knoxville
- Hilton Hotel, Knoxville
- Howard Johnson-Westhills, Knoxville
- Motel 6, Knoxville
- Quality Inn, Knoxville
- Ramada Inn-West, Knoxville
- Rodeway Inn, Knoxville
- Courtyard by Marriott, Memphis
- Courtyard by Marriott-Airport, Memphis
- Holiday Inn - Crowne Plaza, Memphis
- Holiday Inn-East, Memphis
- Holiday Inn-East Poplar, Memphis
- Holiday Inn-I-40-Sycamore View, Memphis
- Holiday Inn-Memphis Int'l Airport, Memphis
- Hyatt Regency, Memphis
- Lexington Hotel Suites, Memphis
- Motel 6, Memphis
- Omni Hotel, Memphis
- Proposed Fairfield Inn, Memphis
- Residence Inn, Memphis
- La Quinta Inn, Memphis - Airport
- Brown County Inn, Nashville
- Capital Mall Conv. Center-Proposed, Nashville
- Clarion Maxwell House, Nashville
- Courtyard by Marriott-Airport, Nashville
- Days Inn, Nashville
- Doubletree Hotel, Nashville
- Grosvenor, Nashville
- Hampton Inn, Nashville
- Holiday Inn Crowne Plaza, Nashville
- Holiday Inn Express, Nashville
- Holiday Inn-Briley Parkway, Nashville
- Marriott Hotel, Nashville
- Nashville Union Station, Nashville
- Ramada Inn, Nashville
- Sheraton Hotel, Nashville
- Sheraton Music City, Nashville
- Stouffer Hotel, Nashville
- Super 8, Nashville
- Union Station Hotel, Nashville
- AmeriSuite, Oakridge
- Holiday Inn, Oakridge
- Super 8-Proposed, Union City
Texas
- Harvey Hotel, Addison
- Days Inn, Amarillo
- Motel 6, Amarillo
- Radisson Hotel-Proposed, Amarillo
- Super 8 Motel, Amarillo
- La Quinta Inn, Amarillo - Airport
- Courtyard by Marriott, Arlington
- Hilton Hotel, Arlington
- Holiday Inn, Arlington
- Lexington Suites Hotel, Arlington
- Compri Hotel-Proposed, Austin
- Driskill Hotel, Austin
- Embassy Suites-Austin Town Lake, Austin
- Embassy Suites-North, Austin
- Fairfield North, Austin
- Four Seasons Hotel, Austin
- Holiday Inn, Austin
- Holiday Inn-Austin Town Lake, Austin
- La Quinta Inn, Austin
- Marriott Hotel, Austin
- Proposed Fairfield Inn, Austin
- Quality Inn, Austin
- Residence South, Austin
- La Quinta Inn, Austin - Ben White
- Holiday Inn Airport, Austins Cities
- Holiday Inn, Bay Town
- Hilton Hotel, Beaumont
- Holiday Inn, Beaumont
- Courtyard by Marriott, Bedford
- Holiday Inn, Brownsville
- La Quinta Inn, Brownsville
- Hilton Hotel, College Station
- Ramada Inn, College Station
- Holiday Inn, Conroe
- Corpus Christi Hotel-Airport, Corpus Christi
- Days Inn, Corpus Christi
- Hilton - Proposed, Corpus Christi
- Holiday Inn, Corpus Christi
- Holiday Inn-Airport, Corpus Christi
- La Quinta Inn, Corpus Christi - North
- La Quinta Inn, Corpus Christi - South
- Allstar Inn, Dallas
- Ambassador Plaza Hotel, Dallas
- Arlington Hilton, Dallas
- Bradford Plaza Hotel, Dallas
- Bristol Suites, Dallas
- Convention Center Hotel-Proposed, Dallas
- Courtyard by Marriott, Dallas
- Courtyard by Marriott-Northeast, Dallas
- Courtyard by Marriott-Plano, Dallas
- Courtyard by Marriott-Stemmons, Dallas
- Dallas Grand Hotel, Dallas
- Doubletree Inn, Dallas
- Embassy Suites, Dallas
- Fairmont Hotel, Dallas
- Harvey Hotel, Dallas
- Hilltop, Dallas
- Hilton Inn-LBJ, Dallas
- Hilton-Arlington, Dallas
- Holiday Inn - North, Dallas
- Holiday Inn Crowne Plaza, Dallas
- Holiday Inn-Brook Hollow, Dallas
- Holiday Inn-South, Dallas
- Houstonian Hotel, Dallas
- Howard Johnson-East, Dallas
- Lexington Hotel Suites, Dallas
- Loews Anatole Hotel, Dallas
- Marriott Hotel-Airport, Dallas
- Marriott-Park Central, Dallas
- Marriott-Quorum, Dallas
- Melrose Hotel, Dallas
- Motel 6, Dallas
- Omni Melrose Hotel, Dallas
- Park Plaza, Dallas
- Propsed Hotel - DFW, Dallas
- Ramada Inn Convention Center, Dallas
- Ramada-Market Center, Dallas
- Registry Hotel, Dallas
- Residence Inn-Market Center, Dallas
- Sheraton Grand, Dallas
- Southland Center Hotel, Dallas
- Statler Hilton Hotel, Dallas
- Summit Hotel, Dallas
- Westin Galleria Hotel, Dallas
- La Quinta Inn, Dallas - DFW
- La Quinta Inn, Dallas - North Park
- La Quinta Inn, Dallas - Plano
- La Quinta Inn, Dallas - Richardson
- Allstar Inn, El Paso
- Hilton Inn-Airport, El Paso
- La Quinta Hotel-Airport, El Paso
- Rodeway Inn, El Paso
- Travelers Inn, El Paso
- Westin Paso del Norte, El Paso
- La Quinta Inn, El Paso - Lomaland
- Allstar Inn, Euless
- La Quinta Inn, Euless
- Allstar Inn, Fort Worth
- Courtyard by Marriott, Fort Worth
- Days Inn Downtown, Fort Worth
<PAGE>
- Hilton Hotel, Fort Worth
- Holiday Inn-North, Fort Worth
- Holiday Inn-South, Fort Worth
- Lexington Suites Hotel, Fort Worth
- Metro Center Hotel, Fort Worth
- Radisson Plaza Hotel, Fort Worth
- Residence Inn, Fort Worth
- La Quinta Inn, Fort Worth - East
- Holiday Inn, Harlingen
- La Quinta Inn, HI-LA Marque
- Crowne Plaza-Houston Park, Houston
- Days Inn, Houston
- Days Inn-Hobby, Houston
- Doubletree Hotel, Houston
- Embassy Suites, Houston
- Galleria Gardens, Houston
- Harvest House Hotel, Houston
- Harvey Hotel Medical Center, Houston
- Hilton Inn-West, Houston
- Holiday Inn I-10 East, Houston
- Holiday Inn-Downtown, Houston
- Holiday Inn-East, Houston
- Holiday Inn-Greenway Plaza, Houston
- Holiday Inn-Hobby, Houston
- Holiday Inn-Medical Center, Houston
- Holiday Inn-NASA, Houston
- Holiday Inn-North, Houston
- Holiday Inn-Northwest, Houston
- Holiday Inn-Southwest, Houston
- Host Hotel International, Houston
- Hotel Meridien, Houston
- Hotel-Proposed, Houston
- Houston House, Houston
- Houston Medical Center, Houston
- Houston Park 10 Crowne Plaza, Houston
- La Quinta Hotel-Astrodome, Houston
- La Quinta Hotel-Baytown, Houston
- La Quinta Hotel-CY Fair, Houston
- La Quinta Hotel-Hobby, Houston
- La Quinta Inn-Stafford, Houston
- Lexington Hotel Suites, Houston
- Marriott Astrodome, Houston
- Marriott Hotel, Houston
- Marriott Hotel-Medical Center, Houston
- Marriott-Airport, Houston
- Motel 6, Houston
- Remington, Houston
- Residence Inn, Houston
- Rodeway Inn, Houston
- Rodeway Inn-Hobby, Houston
- Shamrock Hilton Hotel, Houston
- Sheraton Hotel, Houston
- Sheraton Houston House, Houston
- Sheraton Houston Place Hotel, Houston
- Sheraton Town and Country, Houston
- Sofitel, Houston
- Stouffer Greenway Plaza, Houston
- Suite Hotel-Proposed, Houston
- Whitehall, Houston
- Whitehall Hotel Conversion to HI, Houston
- La Quinta Inn, Houston - Sharpstown
- La Quinta Inn, Houston - East
- La Quinta Inn, Houston - Loop 1960
- La Quinta Inn, Houston - Northwest
- La Quinta Inn, Houston- SW Freeway
- Holiday Inn, Huntsville
- Harvey Hotel DFW, Irvine
- Allstar Inn, Irving
- Hampton Inn, Irving
- Hampton Inn-Proposed, Irving
- Harvey Hotel-D/FW Airport, Irving
- Holiday Inn-Texas Stadium, Irving
- Marriott Hotel, Irving
- Holiday Inn, Kingsville
- Del Lago Hotel, Lake Conroe
- Hilton Inn, Laredo
- La Posada, Laredo
- Courtyard by Marriott, Las Colinas
- La Quinta Inn, Longview
- Hilton Inn, Lubbock
- Holiday Inn, Lubbock
- Residence Inn, Lubbock
- La Quinta Inn, Midland
- Holiday Inn, New Braunfels
- All Star Inn, North Richland Hills
- La Quinta Inn, Odessa
- Holiday Inn, Orange
- Holiday Inn, Paris
- Plano Harvey Hotel, Plano
- La Quinta Inn, Round Rock
- Sheraton Inn, San Angelo
- Coachman Inn-Proposed, San Antonio
- Courtyard by Marriott-Downtown, San Antonio
- Courtyard by Marriott-Medical Ctr., San Antonio
- Crockett Hotel, San Antonio
- Days Inn, San Antonio
- Fairfield - North, San Antonio
- Gunter Hotel, San Antonio
- Holiday Inn-Airport, San Antonio
- Holiday Inn-Market Square, San Antonio
- Holiday Inn-North, San Antonio
- Holiday Inn-Northwest, San Antonio
- Holiday Inn-Riverwalk, San Antonio
- La Quinta Hotel-Ingram, San Antonio
- La Quinta Hotel-Lackland, San Antonio
- La Quinta Hotel-Toepperwein, San Antonio
- Lexington Hotel Suites, San Antonio
- Marriott Hotel-Proposed, San Antonio
- Marriott Inn-North, San Antonio
- Proposed Fairfield Inn, San Antonio
- La Quinta Inn, San Antonio - Windsor
- La Quinta Inn, San Antonio - Wurzbach
- Holiday Inn, San Marcos
- La Quinta Inn, SAT-Toepperwein
- Sheraton Hotel, South Padre Island
- La Quinta Inn, Tyler
- Sheraton, Tyler
- Sheraton Inn, Tyler
- Traveler's Choice Inn, Tyler
- Hilton Hotel, Waco
- Gateway Inn, Wichita Falls
- Hilton Hotel, Wichita Falls
Utah
- Mount Holly Ski Resort, Beaver
- Hotel-Proposed, Brigham City
- Motel-Proposed, Cedar City
- Proposed Mayflower Hotel, Deer Valley
- Stein Eriksen Lodge, Deer Valley
- Deer Valley Resort, Park City
- Omni Yarrow, Park City
- Prospector Square Resort, Park City
- Yarrow Resort, Park City
- Seven Peaks Resort and Hotel, Provo
- Comfort Inn, Salt Lake City
- Doubletree, Salt Lake City
- Hilton Hotel-Airport, Salt Lake City
- Holiday Inn, Salt Lake City
- Holiday Inn-Salt Palace, Salt Lake City
- Hotel Utah, Salt Lake City
- Hotel-Proposed, Salt Lake City
- La Quinta Inn, Salt Lake City
- Nendels Inn, Salt Lake City
- New Grande Hotel, Salt Lake City
- Red Lion Hotel, Salt Lake City
- Sheraton Hotel, Salt Lake City
- Super 8, Salt Lake City
- University Park Hotel (Desktop Rev), Salt Lake City
- Ramada Inn-Proposed, Sandy
Vermont
- Ramada Inn, Bennington
- Bolton Valley Corporation, Bolton Valley
- Quality Inn, Brattleboro
- Radisson Hotel, Burlington
- Smugglers Notch, Cambridge
- Inn-Proposed, Essex
- Cascade Lodge, Killington
- Inn of the Six Mountains, Killington
- Mountain Inn, Killington
- Equinox Hotel, Manchester
- Howard Johnson Inn, Rutland
- Quality Inn, Stowe
- Conference Center-Proposed, Stratton Mountain
- Sugarbush Inn, Sugarbush
- Susse Chalet, Williston
Virginia
- Comfort Inn, Abingdon
- Best Western, Alexandria
- Comfort Inn, Alexandria
- Compri Hotel-Proposed, Alexandria
<PAGE>
- Embassy Suites, Alexandria
- Howard Johnson, Alexandria
- Marriott Suites, Alexandria
- Ramada Inn, Alexandria
- Best Western, Arlington
- Gateway Marriott, Arlington
- Hyatt Arlington Hotel, Arlington
- Hyatt Regency, Arlington
- Key Bridge Marriott, Arlington
- Marriott Hotel, Arlington
- Sheraton Crystal City Hotel, Arlington
- Sheraton National Hotel, Arlington
- Stouffer Concourse Hotel, Arlington
- Mountain Lake Hotel, Blacksburg
- Holiday Inn, Bristol
- Howard Johnson, Bristol
- Days Inn, Carmel Church
- Westfields International, Chantilly
- Boar's Head Inn, Charlottesville
- Cavalier Inn, Charlottesville
- Courtyard by Marriott, Charlottesville
- Hilton-University, Charlottesville
- Holiday Inn-North, Charlottesville
- Omni Charlottesville, Charlottesville
- Radisson-Proposed, Charlottesville
- Super 8, Charlottesville
- Days Inn, Chester
- Howard Johnson, Chester
- Days Inn, Colonial Heights
- Holiday Inn, Covington
- Embassy Suites, Crystal City
- Holiday Inn Crowne Plaza, Crystal City
- Hyatt Hotel, Crystal City
- Marriott Crystal Gateway Hotel, Crystal City
- Comfort Inn-Proposed, Dahlgren
- Days Inn, Emporia
- Courtyard by Marriott, Fairfax
- Embassy Suites, Fairfax
- Neighborhood Suites-Proposed, Fairfax
- Hampton Inn-Proposed, Fairfax City
- Westfields International, Fairfax County
- Marriott Hotel, Fairview
- Econo Lodge, Farmingville
- Comfort Inn-Proposed, Farmville
- Comfort Inn, Frederick County
- Motel 6, Fredericksburg
- Courtyard by Marriott, Hampton
- Days Inn, Hampton
- Fairfield Inn, Hampton
- Courtyard by Marriott, Herndon
- Embassy Suites Hotel, Herndon
- Ramada Renaissance and Health Club, Herndon
- Residence Inn-Proposed, Herndon
- Worldgate Marriott Hotel, Herndon
- Hotel-Proposed, Hopewell
- Keswick Inn, Keswick
- Holiday Inn, Lexington
- Radisson Hotel, Lynchburg
- Courtyard by Marriott, Manassas
- Holiday Inn, Marion
- Hilton, McLean
- Days Inn, Norfolk
- Marriott Waterside Hotel, Norfolk
- Omni Hotel, Norfolk
- Waterfront Hotel - Proposed, Norfolk
- 135-Suite Hotel-Proposed, Portsmouth
- Waterfront Suite Hotel-Proposed, Portsmouth
- Comfort Inn, Princeton
- Comfort Inn, Pulaski County
- Embassy Suites Hotel, Reston
- Hyatt Hotel, Reston
- Best Western Kings Quarters, Richmond
- Courtyard by Marriott, Richmond
- Embassy Suites Hotel, Richmond
- Hampton Inn, Richmond
- Holiday Inn, Richmond
- Howard Johnson Lodge, Richmond
- Hyatt House Hotel, Richmond
- La Quinta Hotel, Richmond
- Marriott Hotel, Richmond
- Omni Richmond, Richmond
- Radisson Hotel, Richmond
- Ramada Renaissance Hotel, Richmond
- Residence Inn, Richmond
- Days Inn, Richmond (Broad)
- Days Inn, Richmond (Byrd)
- Holiday Inn, Roanoke
- Holiday Inn - Airport, Roanoke
- Holiday Inn - Civic Center, Roanoke
- Holiday Inn - South, Roanoke
- Hotel Roanoke, Roanoke
- Howard Johnson, Roanoke
- Marriott - Roanoke Airport, Roanoke
- Marriott Hotel, Roanoke
- Holiday Inn, Salem
- Super 8, South Hill
- Days Inn, Springfield
- Hilton, Springfield
- Holiday Inn, Staunton
- Stonewall Jackson Hotel, Staunton
- Hampton Inn - Proposed, Tyson's Corner
- Embassy Suites, Tysons Corner
- Marriott Hotel, Tysons Corner
- Residence Inn, Tysons Corner
- Ritz Carlton-Proposed, Tysons Corner
- Courtyard by Marriott, Virginia Beach
- Courtyard by Marriott-Lynnhaven, Virginia Beach
- Fairfield Inn, Virginia Beach
- Hotel-Proposed, Virginia Beach
- Pavilion Tower Hotel, Virginia Beach
- Ramada Inn - Oceanside, Virginia Beach
- International Conference Center, Westfields
- Howard Johnson, Wheeling
- Fort Magruder Inn, Williamsburg
- Governor's Inn, Williamsburg
- Holiday Inn-East, Williamsburg
- Holiday Inn-West, Williamsburg
- Royce Hotel, Williamsburg
- Williamsburg Hilton, Williamsburg
- Best Western-Proposed, Wytheville
Washington
- Bellevue Thunderbird Motor Inn, Bellevue
- Embassy Suites, Bellevue
- Hampton Inn, Bellevue
- La Quinta, Bellevue
- Residence Inn Seattle-East, Bellevue
- Ramada Inn, Bothell
- Rattling Spring Hotel, Harpers Ferry
- Motel 6, Issaquah
- AmeriSuite, Kent
- Homecourt Suite Hotel, Kent
- Embassy Suite, Lynnwood
- Residence Inn-Seattle North, Lynnwood
- Red Lion Inn at Pasco, Pasco
- Redmond Motel, Redmond
- Hampton Inn, Sea Tac
- Holiday Inn Airport, Sea Tac
- Thunderbird Inn, Sea Tac
- Alexis Hotel, Seattle
- Courtyard by Marriott-South Center, Seattle
- Doubletree Inn at South Center, Seattle
- Doubletree Plaza, Seattle
- Hampton Inn-Airport, Seattle
- Holiday Inn Crowne Plaza, Seattle
- Holiday Inn-Sea Tac, Seattle
- La Quinta, Seattle
- Lake Union Residence Inn, Seattle
- Marriott Hotel-Airport, Seattle
- Marriott Sea-Tac Hotel, Seattle
- Plaza Park Suites, Seattle
- Ramada Inn-Airport, Seattle
- Red Lion, Seattle
- Stouffer Madison Hotel, Seattle
- Travelodge-Proposed, Seattle
- Westin Hotel, Seattle
- Courtyard by Marriott, Spokane
- Gateway Hotel, Spokane
- Holiday Inn-West, Spokane
- Red Lion Inn, Spokane
- Super 8, Spokane
- Hilton-Village Green, Tacoma
- Hotel-Proposed, Tacoma
- Park Shore Inn, Tacoma
- Tacoma Sheraton Hotel, Tacoma
- Embassy Suites Hotel, Tukwila
- Hampton Inn, Tukwila
- Residence Inn-Seattle South, Tukwila
- Red Lion Quay, Vancouver
- Residence Inn-Portland North, Vancouver
- Super 8, Wenatchee
<PAGE>
- Thunderbird Motor Inn, Yakima
West Virginia
- Comfort Inn-Proposed, Charleston
- Holiday Inn, Clarksburg
- Holiday Inn, Fairmont
- Hotel-Proposed, Harpers Ferry
- Holiday Inn, Huntington
- Comfort Inn-Proposed, Morgantown
- Holiday Inn, Morgantown
- Motel-Proposed, Morgantown
- Comfort Inn, Princeton
- Motel-Proposed, Princeton
- Hotel-Proposed, Wheeling
- Howard Johnson, Wheeling
Wisconsin
- Super 8, Ashland
- Holiday Inn, Beloit
- Embassy Suites Hotel-Proposed, Brookfield
- Marriott-Milwaukee, Brookfield
- Holiday Inn, Eau Claire
- Residence Inn, Glendale
- Granada Royale-Proposed, Green Bay
- Holiday Inn-Downtown, Green Bay
- Residence Inn-Proposed, Green Bay
- Super 8, Janesville
- Super 8, Kenosha
- Playboy Resort, Lake Geneva
- Concourse Hotel, Madison
- Fairfield Inn, Madison
- Hampton Inn - East, Madison
- Hampton Inn - West, Madison
- Compri Hotel-Proposed, Milwaukee
- Embassy Suite, Milwaukee
- Fairfield Inn, Milwaukee
- Holiday Inn-Airport, Milwaukee
- Holiday Inn-West, Milwaukee
- Hotel and Conv. Ctr. East-Proposed, Milwaukee
- Hyatt Regency, Milwaukee
- Marc Plaza, Milwaukee
- Marriott Inn, Milwaukee
- Omni Suite Hotel-Proposed, Milwaukee
- Super 8-Airport, Milwaukee
- Olympia Village Resort, Oconomowoc
- Scotsland Resort, Oconomowoc
- Sheraton, Racine
- Claridge Motor Inn, Rhinelander
- Super 8, Waukesha
- Holiday Inn, Wausau
- Mead Inn, Wisconsin Rapids
Wyoming
- Days Inn, Casper
- Flying L. Skytel, Cody
- Super 8, Cody
- Snow King Resort, Jackson
- Super 8, Jackson
- Wort Hotel, Jackson
- Development-Proposed, Jackson Hole
- Colter Bay Village, Moran
- Jackson Lake Lodge, Moran
- Jenny Lake Lodge, Moran
- Best Western-Bel Air, Rawlins
- Bridger Inn, Rawlins
- La Quinta Inn, Rock Springs
Western Europe
Belgium
- Oostkamp Hotel, Bruges
- Proposed Residence Inn, Brussels
- SAS Royal Hotel, Brussels
Denmark
- Proposed Hotel, Copenhagen
France
- The Miramar, Biarritz
- Chateau D'arc en Barroi, Haute-Marne
- Le Grand, Paris
- Royal Monceau, Paris
Germany
- Cumberland House, Berlin
- Munchen Penta Hotel, Munchen
Holland
- Carlton - Cannes & Amstel, Amsterdam
- The Pulitzer Hotel, Amsterdam
Spain
- Le Meridien, Barcelona
- Princess Sophia, Barcelona
- Hotel Los Monteros, Marbella
- Incosol Spa & Hotel, Marbella
- Proposed Hyatt Resort, Marbella
United Kingdom
- Copthorne Hotel, Aberdeen
- Copthorne Hotel, Birmingham
- Hyatt Regency, Birmingham
- Holiday Inn, Cambridge
- Copthorne Hotel, Cardiff
- Great Eastern Hotel, England
- Copthorne Hotel, Glasgow
- Hanbury Manor Hotel, Hertfordshire
- 47 Park Street, London
- Bailey's Hotel, London
- Basil Street Hotel, London
- Basil Street Hotel, Knightsbridge, London
- Britannic Tower, London
- Chelsea Hotel, London
- Chesterfield Hotel, London
- Chesterfield Hotel, Mayfair, London
- Copthorne Hotels, London
- Copthorne Tara Hotel, London
- Dorchester Mayfair, London
- Executive Hotel, London
- Marriott Hotel, London
- May Fair, London
- Plaza Hotel, London
- Proposed Hotel Conversion, London
- Proposed Hotel-The City, London
- Regent Hotel, London
- Regent London Hotel, London
- Sheraton Belgravia, London
- Sheraton Park Tower, London
- St. James Court Hotel, London
- The Executive Hotel, London
- Windsor Hotel, London
- Copthorne Hotel, Manchester
- Copthorne Hotel, Newcastle
- Copthorne Hotel, Slough/Windsor
- Swallow Hotel, Stockton
- Copthorne Hotel-Effingham Park, Sussex
- Copthorne Hotel-Gatwick, Sussex
Middle East and North Africa
Egypt
- Sheraton Anni Cruise Ship,
- Sheraton Aton Cruise Ship,
- Sheraton Hotp Cruise Ship,
- Sheraton Tut Cruise ship,
- Aswan Oberol Hotel, Aswan
- Cairo Sheraton Hotel, Cairo
- Hotel - Proposed, Cairo
- Lido Hotel, Cairo
- Meridien Hotel, Cairo
- Novotel Cairo Airport, Heliopolis, Cairo
- Proposed Resort Complex, Hurghada
- Luxor Sheraton Hotel, Luxor
- Proposed Hotel, Luxor
- Fayrouz Village Hotel, Sharm El Sheikh, Sinai
- Coral Village Hotel, Nuweiba, Sinai
- Hotel - Proposed, Dahab, Sinai
- Hotel - Proposed, St. Catherine, Sinai
Greece
- Athens Hilton & Proposed Hotel, Athens
- Caravel Hotel, Athens
- Proposed Sargani Hotel & Bungalows, Halkidiki
- Rhodes Hotel -Proposed, Rhodes
Israel
- Proposed Inter-Continental Hotel, Tel Aviv
Lebanon
- Hotel Market Review, Beruit
Morocco
- El Minzah Hotel, Tangier
<PAGE>
HVS International Mineola, New York
- --------------------------------------------------------------------------------
=============
HVS
- -------------
INTERNATIONAL
=============
Long-Term Founded in 1980, HVS International is in business for
Relationship the long term. The firm is dedicated to providing its
clients with consulting services of the highest quality.
Should you require assistance in any areas covered by
our expertise, please contact:
Stephen Rushmore, CRE, MAI, CHA
President and Founder
HVS International
372 Willis Avenue
Mineola, New York 11501
Phone: 516-248-8828 ext. 204
Fax: 516-742-3059
E-mail: [email protected]
Web Site: www.hvs-intl.com
<PAGE>
Nigeria
- Proposed Sheraton Hotel, Port Harcourt
Saudi Arabia
- Proposed Jeddah Corniche Project, Jeddah
Tunisia
- Proposed Hotel, Hammamet
Turkey
- Hotel Conrad, Istanbul
Latin America and the Caribbean
Bahamas
- Eleuthera Joint Venture, Eleuthera
- Cape Eleuthera Island Hotel, Eleuthera Island
- Eleuthera Joint Venture, Eleuthra
- The Montague, Nassau
- Paradise Island Hotel, Paradise Island
- Resorts Int'l Hotel and Casino, Paradise Island
Belize
- Journey's End Caribbean Club, Abergris Caye
Bermuda
- Sonesta Hotel, Bermuda
Brazil
- Quatro Rodas Hotel, Recife
Colombia
- Charleston Hotel - Proposed, Barranquilla
- Bella Suiza Hotel, Bogota
- Hotel & Convention Center -Proposed, Cali
- Cartagena Hilton, Cartagena
- El Faro de Cartagena Resort Propose, Cartagena
- Proposed Indian Sea and Sun Resort, Cartagena
- Hotel De Isleno, San Andres Isla
- Santamar Hotel, Santa Marta
Curacao
- Ramada Renaissance Hotel and Casino,
Honduras
- Inn Of The Sun, Guanaja
Jamaica
- Holiday Inn-Rose Hall, Montego Bay
- Americana Eden II, Ocho Rios
Mexico
- Posadas de Mexico Hotels,
- Americana Condesa Del Mar, Acapulco
- Americana El Presidente Hotel, Acapulco
- Resort-Proposed, Cabo San Lucas
- Palacio Del Margus, Chiconcuac
- Omni Hotel, Ixtapa
- Fiesta Inn-Proposed, Leon
- Karmina Place, Manzanillo
- Hotel - Proposed, Mexico City
- La Jolla de Mismaloya, Puerta Vallarta
Netherland Antilles
- Divi Divi Beach Resort, Aruba
- Divi Tamarijn Beach Resort, Aruba
- Golden Anchor, Bonaire
- Resort Hotel-Proposed, Bonaire
- Ramada Renaissance Hotel and Casino, Curacao
- Cupecoy Beach Club Hotel, St. Maarten
- Dawn Beach Hotel, St. Maarten
- Dawn Beach Resort, St. Maarten
- Mullet Bay Resort, St. Maarten
- Oyster Pond Hotel, St. Maarten
Puerto Rico
- Hyatt Dorado Beach Hotel, Dorado
- Hyatt Regency Cerromar Hotel, Dorado
- Hotel - Proposed, Fajardo
- Hotel Puerto Rico, Fajardo
- Westin Resort-Proposed, Palmer
- Marriott Resort & Casino-Proposed, Puerto Rico
- Carib Inn, San Juan
- Dupont Plaza, San Juan
- El San Juan Hotel and Casino, San Juan
- Howard Johnson Hotel, San Juan
- Marriott - Proposed, San Juan
- Marriott Update - Proposed, San Juan
- Sands Hotel and Casino, San Juan
Virgin Islands
- Caneel Bay, St. Croix
- Carambola Beach Resort, St. Croix
- Hotel - Proposed, St. Croix
- St. Croix Development, St. Croix
- Caneel Bay, St. John
- Pineapple Beach Hotel, St. Thomas
- Sugar Bay Plantation, St. Thomas
- Virgin Grand Hotel, St. Thomas
- Virgin Isle Hotel, St. Thomas
- Little Dix Bay, Virgin Borda
Eastern Europe
Croatia
- Two Hotels, Dubrovnik
Czech Republic
- Voronesh Hotel Complex, Brno
- Proposed Four Seasons Hotel, Prague
Hungary
- Proposed Resort Hotel, Babolna
- Duna Inter-Continental, Budapest
Latvia
- Daugava Hotel-Proposed, Riga
- Proposed Hotel, Riga
Poland
- Holiday Inn, Krakow
- Marriott Hotel - Proposed, Poznan
- Proposed Hotel, Poznan
- Radisson Hotel, Szczecin
- Bristol Hotel, Warsaw
- Holiday Inn, Warsaw
- Orbis Joint Venture, Warsaw
- Proposed Hotel, Warsaw
- Sheraton Hotel - Proposed, Warsaw
- Zakopane Resort Complex, Zakopane
Russia
- Kamiennyi Most Hotel & Business, Moscow
- Savoy Hotel, Moscow
Asia
Korea
- Ultrapolis 3000, Seoul
Malaysia
- UP 3000 Hotel-Proposed, Selangor
Singapore
- Resort Hotels - Proposed,
- Ultrapolis 3000, Singapore
West Indies
- Proposed Blue Lagoon Resort, St. Martin
<PAGE>
HVS International Mineola, New York
- --------------------------------------------------------------------------------
=============
HVS
- -------------
INTERNATIONAL
=============
================================================================================
HVS International
Unique Services HVS International is a global hospitality consulting
on a Global Scale organization offering a wide range of services,
including market feasibility studies, valuations,
strategic analysis, development planning, and litigation
support. Through its divisions, HVS supplies unique
hotel consulting expertise in the areas of executive
search, environmental sustainability, food and beverage
service, gaming operations analysis, asset management,
and investment counseling.
Its professional staff, operating on a worldwide basis
from offices in New York (Mineola), San Francisco,
Miami, Boulder, Vancouver, and London, has evaluated
more than 5,000 hotels and motels in every state and
over 55 countries. Each member of the HVS team is well
versed in lodging operations. Most have degrees in hotel
administration, as well as actual on-the-job hotel
experience. This thorough understanding of the industry
means that HVS speaks the language of hotel
professionals, and can investigate and analyze all
aspects of an assignment from the perspective of hotel
owners and operators. The resulting conclusions and
recommendations are comprehensive, well supported, and
thoroughly documented. HVS studies are relied on by
virtually every major hotel owner, operator, and lender
in the United States, and by a growing number throughout
the world.
Unparalleled The published writings of the HVS staff demonstrate the
Expertise firm's internationally recognized expertise. In addition
to more than 300 articles published in leading hotel
journals and professional periodicals, Stephen Rushmore,
the president and founder of HVS International, has
authored all four texts published by the Appraisal
Institute on the topics of hotel market studies,
investment analysis, and valuations. He has also written
three books covering hotel management contracts,
franchising, and finance. HVS Software, which was
designed by members of the firm, is used widely
throughout the industry. This software is recognized as
the state-of-the-art approach to analyzing hotel
markets, developing supportable forecasts of income and
expense, and valuing lodging facilities. HVS is also a
leader in innovative hotel financial research, and has
compiled the industry's largest database of hotel sales
and investment information. By virtue of the literature
it has
<PAGE>
HVS International Mineola, New York
- --------------------------------------------------------------------------------
=============
HVS
- -------------
INTERNATIONAL
=============
contributed, the software it has produced, and the
databases it has compiled, HVS is the recognized leader
in all aspects of hotel investment analysis.
Full-Service Through its nine divisions, HVS International offers the
Hotel Consulting following hotel-related consulting services.
HVS Hospitality Consulting Services: Market feasibility
studies, economic studies, management contract and
franchise negotiations, development assistance, expert
testimony, and operational reviews.
HVS Hospitality Valuation Services: Appraisals for
financing, property tax appeals, condemnation, damage
estimates, and litigation. HVS values single assets,
multiple assets, management contracts, and franchise
affiliations.
HVS Executive Search: Recruitment and placement of
top-level hotel management personnel.
HVS Eco Services: Environmental audits and assistance in
implementing a wide range of environmental programs,
including waste and energy management, recycling, green
product selection, and the ECOTEL Certification.
HVS Gaming Services: Specialized valuation and
consulting services for casinos and other types of
gaming activities.
HVS Food and Beverage: Specialized consulting services
for restaurants and other food-service facilities.
HVS Asset Management & Operational Advisory Services:
Consulting services focused on enhancing hotel
profitability and asset value.
HVS Investment Services: Agency and brokerage services
in Europe, Asia, and Africa.
HVS clients include major hotel companies in the U.S.,
Asia, Europe, and Latin America. The firm is also
employed by many leading lending institutions,
governmental and regulatory agencies, institutional
investors, and national and international accounting
firms. HVS works closely with top individual and
corporate developers, investors, syndicators, and
operators.
<PAGE>
================================================================================
MARKET STUDY OF REAL PROPERTY
Holiday Hills
2000 West 92nd Avenue
Federal Heights, Adams County, Colorado
================================================================================
As of December 4, 1997
Prepared For:
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Prepared By:
Cushman & Wakefield of Illinois, Inc.
Valuation Advisory Services
455 North Cityfront Plaza Drive, Suite 2800
Chicago, Illinois 60611-5555
CUSHMAN &
WAKEFIELD(R)
---------------------------
VALUATION ADVISORY SERVICES
---------------------------
<PAGE>
[Letterhead of Cushman & Wakefield of Illinois, Inc.]
December 15, 1997
Mr. Edward J. Welch
Director
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Re: Market Study of Real Property
Holiday Hills
2000 West 92nd Avenue
Federal Heights, Adams County, Colorado 80221
Dear Mr. Welch:
In fulfillment of our agreement as outlined in the Letter of Engagement,
Cushman & Wakefield of Illinois, Inc., is pleased to transmit our market study
and consulting report evaluating the above referenced real property.
As specified in the Letter of Engagement, our market study and consulting
report is qualified by certain assumptions, limiting conditions, certifications,
and definitions, which are set forth in the report.
This consulting report was prepared for the Client, and it is intended only
for the specified use of the Client. It may not be distributed to or relied upon
by other persons or entities without written permission of Cushman & Wakefield,
Inc.
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the above
referenced real property, as of the date of our property inspection. The
function of the report is to assist the client, in evaluating the property for
underwriting and rating purposes.
<PAGE>
Mr. Edward J. Welch - 2 - December 15, 1997
This market study and consulting report was prepared in conformity with the
requirements of the Code of Ethics and Standards of Professional Appraisal
Practice of the Appraisal Institute and the Uniform Standards of Professional
Practice (USPAP) adopted by the Appraisal Standards Board of the Appraisal
Foundation.
This letter is invalid if detached from the report, which contains the
text, exhibits, and the Addenda.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF ILLINOIS, INC.
/s/ Jody L. Garbisch
Jody L. Garbisch
Associate Appraiser
/s/ Michael J. Schaeffer
Michael J. Schaeffer
Director
/s/ Stanley R. Dennis, Jr.
Stanley R. Dennis, Jr., MAI
Director, Manager
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
---------------------------
<PAGE>
SUMMARY OF SALIENT FACTS
================================================================================
Property Name: Holiday Hills
Location: 2000 West 92nd Avenue
Federal Heights, Adams County, Colorado
Assessor's Parcel Number: Based on information provided by Adams
County Treasurer's Office, the subject
property is identified by Assessor's Parcel
Number 01719-21-2-00-007.
Date of Inspection: The property was inspected December 4, 1997.
Ownership: The subject property is legally entitled to
Snowland Vistas, Inc., an Illinois
corporation.
Land Area: Based on the measurements taken from the
property's legal plat of survey, the subject
property contains approximately 98.0 acres
of land area, or 4,268,748 square feet.
Zoning: Based on information provided by the City of
Federal Heights Zoning Department, the
subject property is zoned R-4, Mobile Home
Park, which is a legal and conforming use.
Improvements
Type: A manufactured housing community.
Year Built: The subject property was originally
developed in approximately 1960.
Size: The subject property consists of a 737-site
manufactured housing community, of which 473
sites are single-wide and 264 sites are
double-wide.
Condition: At the time of inspection, the subject
property was in good condition.
Property Rating: Four Star manufactured home community.
Special Assumptions: 1. Information regarding the subject
property, including its physical
characteristics, was provided to us by the
client and the on-site manager, and is
assumed to be accurate.
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
Summary of Salient Facts
================================================================================
2. The existence of potentially hazardous or
toxic materials, which may be located on or
about the property, was not considered in
our evaluation. The appraisers are not
qualified to detect such substances, and
Cushman & Wakefield urges that an expert in
this field be employed to determine the
existence, if any, of hazardous materials
located on or about the site.
3. Our market and consulting report
regarding the subject assumes the subject
property, as presently improved, represents
its highest and best use.
4. It is unknown to the appraiser if the
subject property complies with the Americans
with Disabilities Act (ADA). We recommend a
qualified specialist in the final
determination regarding any ADA compliance
deficiencies that may be present at the
subject property.
5. 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>
TABLE OF CONTENTS
================================================================================
Page
PHOTOGRAPHS OF SUBJECT PROPERTY ........................................... 1
INTRODUCTION .............................................................. 5
Identification of Property .............................................. 5
Property Ownership and Recent History ................................... 5
Purpose and Function of the Market Study and Consulting Assignment ...... 5
Scope of the Market Study and Consulting Assignment ..................... 5
Date of Property Inspection ............................................. 5
Definitions and Other Pertinent Terms ................................... 5
REGIONAL ANALYSIS ......................................................... 8
NEIGHBORHOOD ANALYSIS ..................................................... 17
MARKET ANALYSIS ........................................................... 18
National Overview ....................................................... 18
Competition ............................................................. 25
Comparable Manufactured Housing Community Sales ......................... 31
Demographic Trends ...................................................... 32
Expense Analysis ........................................................ 34
Market Supply and Demand ................................................ 34
Conclusion .............................................................. 34
PROPERTY DESCRIPTION ...................................................... 37
Site Description ........................................................ 37
Improvements Description ................................................ 37
REAL PROPERTY TAXES AND ASSESSMENTS ....................................... 38
ZONING .................................................................... 38
CONCLUSION ................................................................ 39
ASSUMPTIONS AND LIMITING CONDITIONS ....................................... 40
CERTIFICATION ............................................................. 42
ADDENDA ................................................................... 43
Pop-Fact Sheets
Legal Description
Qualifications of Appraisers
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
---------------------------
<PAGE>
PHOTOGRAPHS OF SUBJECT PROPERTY
================================================================================
[PHOTO OMITTED]
Front Entrance of Subject Property
[PHOTO OMITTED]
Exterior of Community Center
================================================================================
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<PAGE>
Photographs of Subject Property
================================================================================
[PHOTO OMITTED]
Interior of Clubhouse
[PHOTO OMITTED]
Typical Interior View of the Subject Park
================================================================================
2
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<PAGE>
Photographs of Subject Property
================================================================================
[PHOTO OMITTED]
Typical Interior View of the Subject Park
[PHOTO OMITTED]
Typical Interior View of the Subject Park
================================================================================
3
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<PAGE>
Photographs of Subject Property
================================================================================
[PHOTO OMITTED]
Street Scene Facing East Along West 92nd Avenue
[PHOTO OMITTED]
Street Scene Facing West Along West 92nd Avenue
================================================================================
4
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WAKEFIELD(R)
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<PAGE>
INTRODUCTION
================================================================================
Identification of Property
The subject property consists of a 737-site manufactured housing
community, situated on approximately 98.0 acres of land area for 55-year-old or
greater residents. Holiday Hills is located at the northwest corner of West 92nd
Avenue and Pecos Street, in the City of Federal Heights, Adams County, Colorado.
The property's street address is 2000 West 92nd Avenue. The property was
constructed in 1960, and was 98.0 percent occupied at the time of inspection.
Property Ownership and Recent History
The subject property is currently entitled to Snowland Vistas, Inc., an
Illinois corporation, and was originally developed in 1960.
Purpose and Function of the Market Study and Consulting Assignment
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the subject
property, as of the date of property inspection. The function of the consulting
report is to assist the client in evaluating the property for underwriting and
rating purposes.
Scope of the Market Study and Consulting Assignment
In the process of preparing this report, we inspected the property,
interviewed the on-site manager, conducted market research into asking rental
rates for comparable properties, conducted market investigations, and
ascertained sales prices of comparable properties. Additionally, we conducted
market research and evaluated demographic and economic trends; and, the market
position and rating of the subject property.
Date of Property Inspection
The property was inspected December 4, 1997.
Definitions and Other Pertinent Terms
Definitions of pertinent terms taken from the Dictionary of Real Estate
Appraisal, Third Edition (1993), published by the Appraisal Institute, is as
follows:
Market Rent
The rental income that a property would most probably command on the open
market; indicated by current rents paid and asked for comparable space as
of the date of the appraisal.
================================================================================
5
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WAKEFIELD(R)
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<PAGE>
Introduction
================================================================================
Evaluation
Evaluation is a study of the nature, quality, or utility of a parcel of
real estate or interest in, or aspects of, real property, in which a value
estimate is not necessarily required.
Market Study
A macroeconomic analysis that examines the general market conditions of
supply, demand, and pricing or the demographics of demand for a specific
area or property type.
Legal Description
The subject property is located at the northwest corner of West 92nd
Avenue and Pecos Street, in the City of Federal Heights, Adams County, Colorado.
The street address of the subject property is 2000 West 92nd Avenue, Federal
Heights, Colorado. The property is identified by tax parcel number
01719-21-2-00-007, according to Adams County Treasurer's Office. Due to the
lengthy metes and bounds legal description, the subject property's legal
description is presented in the Addenda of this report, and reference is made
thereto.
================================================================================
6
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WAKEFIELD(R)
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<PAGE>
LOCATION MAP
[MAP OMITTED]
<PAGE>
REGIONAL ANALYSIS
================================================================================
Locational, economic, and population trends of the Denver-Boulder
Metropolitan Statistical Area are detailed in this section.
Location
o The DMA is a six-county region including Adams, Arapahoe, Boulder, Denver,
Douglas and Jefferson Counties.
o Primary cities within the DMA include: Denver, Arvada, Aurora, Broomfield,
Boulder, Commerce City, Englewood, Golden, Lakewood, Littleton,
Northglenn, Thornton, Westminster, and Wheat Ridge. There are various
secondary municipalities.
o The DMA is part of the Rocky Mountain Front Range, which includes the
Cities of Colorado Springs, Fort Collins, Greeley, Longmont, Loveland and
Pueblo, as well as the cities within the DMA and various smaller
municipalities.
Employment and the Economy
Employment
The non-agricultural wage & salary employment by sector in the
Denver-Boulder Metropolitan Statistical Area is summarized in the table.
================================================================================
Denver-Boulder MSA
Nonagricultural Wage & Salary Employment
July 1996
- --------------------------------------------------------------------------------
Sector Employed
- --------------------------------------------------------------------------------
Mining and Construction 74,000
Manufacturing 119,600
Transportation & Public Utilities 88,200
Trade 282,300
F.I.R.E 84,100
Services 351,600
Government 157,800
- --------------------------------------------------------------------------------
TOTAL 1,157,600
================================================================================
Source: Colorado Department of Labor and Employment
o The DMA economy has grown since 1988, following substantial over-building
in the early-1980s and economic deterioration in the mid-1980s.
o The compounded, average annual increase in employment from 1990 through
1995 equaled 3.3 percent.
o The 1995 annual, average, non-agricultural wage and salary employment in
the Denver-Boulder MSA was 1,128,700. This represents an increase of 4.0
percent from
================================================================================
8
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<PAGE>
Regional Analysis
================================================================================
the 1994 annual average of 1,084,800. The 1996 employment level exhibited
continued increase (2.6 percent above the year-end 1995 level).
o The strongest growth over the past year occurred in the trade and services
sectors. Growth in the construction sector has been strong, due to public
works projects, single-family construction and build-to-suit development.
Government has grown to service a larger population. Other sectors have
exhibited moderate growth.
Major Employers
o Several, major telecommunications companies are headquartered or have
major operations in the area, including TCI (largest cable-TV provider in
the country), US West (largest private employer in the DMA), MCI, Sprint
and AT&T.
o There are numerous, large high-tech manufacturing facilities in the DMA
and along the Rocky Mountain Front Range, including Lockheed Martin (3.2
million square feet in the Denver area), Eastman-Kodak (occupying 3.1
million square feet in Greeley), Hewlett Packard (occupying 3.0 million
square feet in Fort Collins, Loveland and Colorado Springs), IBM (2.5
million square feet in Boulder) and StorageTek (2.3 million square feet in
Louisville and Longmont).
o Other major employers include numerous hospitals and health care
organizations (HealthOne and Kaiser Permanente), retailers (K-Mart, King
Soopers and Safeway) and financial institutions (Colorado National Bank).
Coors Brewing Company is one of the largest employers, providing
approximately 5,300 jobs in the Denver area.
o Denver International Airport (DIA), which opened February 28, 1995,
employ's approximately 26,000; of which 21,000 employees were transferred
from Stapleton International Airport, which was closed. United Airlines
employs approximately 6,700 at the new airport.
o Rocky Flats, previously a producer of nuclear weapons trigger devices,
employs approximately 5,000. This facility is currently operated by EG&G,
a private employer. Production has been terminated and the facility will
be phased-out over a 10-year period, with labor reductions of
approximately 15 to 20 percent per year projected for the next three
years.
o Government downsizing and cutbacks in defense spending has resulted in
closure of Lowry Air Force Base in Denver and decreased operations of EG&G
Rocky Flats.
o Lowry Air Force Base was recently closed, resulting in the elimination of
1,900 civilian positions, transfer or elimination of 2,200 military
positions and 2,500 students. The vacated base is being converted to
educational, research, commercial and residential use. The new Higher
Education and Advanced Technology Center on 156 acres is operated by
several colleges in the area.
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Regional Analysis
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The 20 largest private employers in the Denver Metropolitan Area are
summarized in the following table.
<TABLE>
<CAPTION>
====================================================================================================================================
20 Largest Private Employers in the Denver Metropolitan Area
- ------------------------------------------------------------------------------------------------------------------------------------
No. Company # Employed Primary Business Recent Announcements
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
*1 US West (All Operations) 15,400 Telecommunications Consolidating operations into Colorado
from throughout the Rocky Mountain
region.
*2 Columbia-HealthONE LLC 10,500 Hospitals, health care Recent merger of several hospitals
3 AT&T (All Operations) 8,000 Telecommunications services Numerous facilities in the area.
4 King Soopers 7,000 Grocery stores Largest grocer in the area with major
distribution facilities.
5 Lockheed Martin Corp. 7,000 Aerospace and Lockheed and Martin Marietta recently
defense-related systems merged. Largest defense contractor in the
nation.
6 United Airlines, Inc. 6,700 Airline, reservation center Major hub at new airport.
*7 Coors Brewing Company 5,300 Beverages Third-largest brewing company.
8 Rocky Flats Environmental 5,000 Clean-up and waste Will be phased-out over 10 years.
Technology Site management
9 Safeway 4,300 Grocery stores Largest grocer in nation.
*10 Public Service Company of Colorado 3,500 Natural gas and Major public utilities provider recently
electric utility cut 700 positions.
*11 StorageTek 3,500 Computer storage devices Recently cut 1,700 positions and placed a
550,000 SF facility on market.
*12 Provenant Health Partners 4,043 Health care Major hospital merger recently.
13 Kaiser Permanente of Colorado 3,055 Health care Numerous medical facilities throughout
region; major HMO.
14 Colorado National Bank 3,000 Bank services First Bank Systems recently acquired and
merged Bank Western, Central Bank and
Colorado National Bank.
*15 Lutheran Medical Center 2,800 Hospital, health care Large hospital.
16 Ball Corporation 2,650 Aerospace research & Recently won major contract with US
productions, containers Government.
17 IBM 2,500 Computer services Significant cuts totaling approx. 2,500
over past several years.
*18 St. Joseph Hospital 2,500 Hospital, health care Large hospital.
*19 University Hospital 2,450 Hospital, health care Large hospital.
20 K-Mart Stores 2,400 Retail stores Includes K-Mart, Super-K, Price Club,
Builder's Square.
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</TABLE>
* Headquarters in Denver Metropolitan Area
Source: The Business Development Group, Greater Denver Chamber of Commerce,
Cushman and Wakefield of Colorado, Inc.
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Regional Analysis
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o Merrill Lynch (financial services) plans to construct a one million
square-foot campus-type facility in the southeast quadrant of the DMA and
employ 3,000 to 5,000. The first 106,400 square-foot facility in the
Meridian International Business Center is nearing completion, and is
planned to be completed in early-1997.
o Sun Microsystems will construct a 1 million square-foot, high-tech/R&D and
manufacturing campus in the northwest quadrant of the DMA in the
Interlocken Business Park, and employ 3,500.
Public works projects have been a major factor in the DMA's economic
growth. The largest of these projects are summarized in the table below,
including approximate cost estimates and completion dates. Many projects have
been completed.
================================================================================
Major Public Works Projects in the Denver Metropolitan Area
- --------------------------------------------------------------------------------
Project Estimated Cost Projected Completion
- --------------------------------------------------------------------------------
Denver International Airport $4.0 billion Completed 1995
Interstates 25 and 76 $500 million Completed 1995
Central Platte Valley Street System $185 million Completed 1997
Coors Field Baseball Stadium $130 million Completed 1995
Metro Area Connection Light Rail System $112 million Completed 1994
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Source: City of Denver and Regional Transportation District (RTD)
Projected Employment Growth Rates and Trends
The following table summarizes employment projections by sector for the
DMA.
================================================================================
Projected Denver MSA Nonagricultural Wage & Salary Employment
================================================================================
Sector 2000 % (DELTA)* 2005 % (DELTA)*
- --------------------------------------------------------------------------------
Mining/Construction 65,400 -0.2% 67,000 0.5%
Manufacturing 121,700 0.7% 122,900 0.2%
Trans. & Pub. Util. 90,100 0.5% 95,600 1.2%
Trade 289,000 0.7% 298,600 0.7%
F.I.R.E. 85,100 0.5% 86,900 0.4%
Services 384,300 2.6% 421,300 1.9%
Government 177,100 1.8% 195,300 2.0%
- --------------------------------------------------------------------------------
TOTAL 1,212,700 1.4% 1,287,600 1.2%
================================================================================
* Compounded annual change from 1995-2000, and 2000-2005.
Source: Denver Regional Council of Governments and Colorado Department of
Labor and Employment
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Regional Analysis
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o Recent projections made by the Denver Regional Council of Governments
(DRCOG) indicates annual employment growth will average approximately 1.4
percent through 2000 (based on 1995 annual averages) and 1.2 percent from
2001 through 2005.
o Economic growth is expected to slow and the levels should more closely
mirror the national levels.
o The services sector (health care, legal, education, recreation, lodging,
etc.) will continue to exhibit the largest gains in employment, as has
been the case for the past 30 years; four in every 10 new jobs will be in
the services sector.
o The construction sector is projected to decline due to completion of major
public works projects and decreases in residential development.
o Transportation, communications and utilities are projected to continue to
grow, as a result of DIA, technological advances in communications, and
population growth. Retail trade is projected to experience modest growth.
o The government sector is projected to experience growth to service a
larger population and to accommodate an increasing elderly population.
Unemployment
o The unemployment rate for the Denver-Boulder Metropolitan Statistical Area
fluctuated between 3.0 and 7.0 percent from 1990 through September 1996.
o The most recent employment figures, as of August, 1997, indicate
unemployment rate of 2.8 percent in the Denver-Boulder MSA.
o Unemployment is projected to average approximately 4.0 to 5.0 percent over
the long term.
Inflation
o In 1994, Denver's CPI increased 4.4 percent, at a higher rate than the 2.6
percent level for the U.S.
o In 1995, Denver's index increased by 2.6 percent, while the national CPI
index increased by 2.5 percent during the same period.
o Compounded, annual, percentage changes in the national CPI are projected
to average 3.8 percent through 2005.(1)
o We project the Denver area CPI will increase by an average of 4.0 percent,
annually, during the next 10 years.
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(1) The WEFA Group Fall 1993 Regional Metro Area Long-Term Tables.
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<PAGE>
Regional Analysis
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Population
The following table summarizes population estimates for the DMA.
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1995 Population Estimates
- --------------------------------------------------------------------------------
Area Population
- --------------------------------------------------------------------------------
Adams County 291,798
Arapahoe County 442,136
Boulder County 259,421
Arapahoe County 502,796
Douglas County 97,739
Adams County 491,446
- --------------------------------------------------------------------------------
Denver Metro Area 2,085,336
================================================================================
Source: Colorado Division of Local Governments
o Following stagnant population growth from the mid-1980s through 1990,
including a decline in 1988, population began to increase substantially in
the 1990s.
o The compounded, average annual increase from 1990 to 1995 equaled 2.4
percent; population growth averaged 1.3 percent annually from 1980 through
1990.
o Relatively strong population growth over the past several years has been
due to strong economic and employment growth.
o A relatively large proportion of population growth has been net migration.
A majority of new residents migrated from California, Texas, Arizona,
Florida and Illinois. The net migration slowed in 1995.
o Recent projections by the Colorado Division of Local Governments and DRCOG
indicate annual population increases in the Metropolitan Area will average
1.3 percent in 1996, and 1.0 percent thereafter (projected declining
growth rates in future years is directly related to economic growth and
varying population in certain age groups).
o Approximately 46.0 to 50.0 percent of the projected population growth
through 2005 is composed of net migration.
Retail Sales
o Metro area retail sales began to increase substantially in 1990, due to
economic and population growth.
o The DMA's compounded, average annual retail sales increased 9.65 percent
from 1990 through 1994.
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<PAGE>
Regional Analysis
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o In 1995, average retail sales increased by 5.2 percent.
o Retail sales growth is projected to moderate in direct correlation with
projected decreases in economic and population growth.
Housing
There has been substantial single family residential development in recent
years. Information regarding building permits issued is summarized as follows.
o Between 1988 and 1991, an average of 6,600 residential building permits
were issued, annually (includes single and multi-family).
o In 1993, 16,254 building permits were issued. In 1994, 19,917 permits were
issued, a 22.5 percent increase over 1993 levels.
o Through 1995, approximately 12,450 residential building permits issued,
exhibiting a decrease from the 1994 level. The 1996 levels are similar to
1995.
o New housing sales increased 22 percent, as 13,456 homes were sold through
1995, compared to 11,039 in 1994. Through the third quarter 1996, 11,958
home sales were reported, above the 1995 pace by over 10 percent.
o Through 1995, there were 13,188 housing starts (attached, detached and
custom), compared to 12,745 during 1994, a 3.5 percent increase. Through
the third quarter 1996, there has been 11,500 starts, above the 1995 pace.
o The average price of a new production-built home currently equals
$172,000, similar to year-end 1995.
o The average single-family residential sales price (new and used) equaled
$154,000 at the end of 1995, up 10 percent from the 1994 average of
$140,000. The current average is approximately $159,000.
Interest Rates and Financing
The ability to obtain financing and the level of interest rates impacts
the supply and demand for real estate. A summary of historical interest rates is
summarized as follows.
o Interest rates hit an historical low in mid to late 1993. The average
30-year, fixed-rate, single-family residential mortgage interest rate was
approximately 6.5 percent in late-1993. Rates increased significantly in
1994 but have decreased since the beginning of 1995.
o The average residential mortgage interest rate has recently fluctuated
near 8.0 percent in the DMA.(2)
- ----------
(2) The Denver Post.
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Regional Analysis
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o Due to substantial over-building in the 1980s, and high number of
foreclosures in the late-1980s and early-1990s, financial and banking
institutions are cautious to provide financing for speculative office,
retail, industrial and hotel development.
Economic Impact on Real Property Markets
Growth in population and employment has resulted in increased demand for
real property throughout the DMA. Residential real estate has experienced
sufficient demand to result in substantial, new speculative construction. There
are numerous multi-family residential projects planned or under construction
throughout the DMA. Single-family construction is at its highest levels since
the building boom of the early-1980s.
Office occupancy has reached stabilized levels in most markets, due to
improved economic conditions and population growth. Office rental rates have
increased substantially since 1993, and speculative construction is occurring in
prime market areas, including the Denver Tech Center and Boulder. Certain
submarkets continue to lag in improvement, including Denver's central business
district. There are numerous build-to-suit projects, as several large companies
have established regional or national headquarters in the Denver area.
Industrial market conditions have improved substantially since 1993,
resulting in the achievement of stabilized occupancy levels. Proforma rental
rates have been reached in prime market areas. Numerous speculative industrial
projects are under way near the Denver International Airport, with over 3
million square feet recently completed or under way. The developers of a
majority of these speculative projects require lease-up prior to breaking
ground. Build-to-suit construction has been substantial.
Build-to-suit retail construction has been substantial throughout the DMA,
involving predominately national retailers such as "big box" operations and
national chain restaurants. The new Park Meadows Town Center, a 1.3 million
square-foot regional mall, located in the southeast suburban portion of the DMA,
was completed in September 1996. There has been some speculative retail
development in prime market areas.
The Denver Metropolitan Area economy has exhibited one of the strongest
growth rates in the nation in the 1990s. The result has been an influx of
investors, national retailers, major corporations, and other investors and users
of real property. The growth is projected to continue, though at moderating
levels to recent years.
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<PAGE>
NEIGHBORHOOD MAP
[MAP OMITTED]
<PAGE>
NEIGHBORHOOD ANALYSIS
================================================================================
Neighborhood Description
Federal Heights is located approximately 13 miles north of downtown
Denver. The subject property is situated at the northwest corner of West 92nd
Avenue and Pecos Street, in the City of Federal Heights, Colorado. The subject
property's neighborhood is generally bounded by 104th Avenue to the north,
Interstate 25/Highway 87 to the east, 84th Avenue to the south and Federal
Boulevard to the west. This area is primarily developed with manufactured
housing communities and single-family residential uses.
Manufactured housing communities and single-family houses are primarily
located to the north of the subject property. Manufactured housing communities
include: Countryside, Denver Cascade and Friendly Village. Comparison rental
information is provided in the Market Analysis section of this report.
Rivercreek Middle School and Northglenn High School are within the subject's
residential area, which are located to the northeast of the subject property. A
couple parks are located to the south of the subject site, including Water
World. Convenience stores, gas stations and neighborhood centers are located
along West 92nd Avenue.
Transportation in the subject's immediate area is excellent. The subject
property enjoys access and visibility along West 92nd Avenue, an east/west,
four-lane paved roadway, with a middle turning lane. The subject property has
approximately 2,617 feet of frontage along the north side of West 92nd Avenue.
West 92nd Avenue enjoys an interchange with Interstate 25/Highway 87,
approximately one mile east, and U.S. Highway 36 via Sheridan Boulevard,
approximately 2.5 miles west of the subject site. U.S. Highway 36 can also be
access from the approximately two miles south of the subject site via Pecos
Street.
In summary, the subject property is located within a well-established
area, which benefits from the nearby manufactured housing communities and
accessibility to Interstate 25/Highway 87 and U.S. Highway 36.
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MARKET ANALYSIS
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National Overview
Reportedly, the largest property owners of manufactured housing
communities in the United States are: ROC Communities, headquartered in
Colorado; MHC, Inc., headquartered in Illinois; Ellenburg Capital, headquartered
in Oregon; Lautrec Ltd., headquartered in Michigan; Clayton Homes, headquartered
in Tennessee; Clayton Williams and Sherwood, headquartered in California;
Chateau Properties, Sun Communities and UNIPROP, headquartered in Michigan.
The following represents the top ten manufactured housing community firms,
as reported by GFA Management, as of 1997.
<TABLE>
<CAPTION>
=========================================================================================
1997 Firm Name State No. of Sites No. of Communities
Rank Owned/Managed Owned/Managed
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Sun Communities Michigan 30,295/0 84/0
- -----------------------------------------------------------------------------------------
2 ROC Communities Colorado 22,441/7,167 77/36
- -----------------------------------------------------------------------------------------
3 Manufactured Home Communities Illinois 27,349/838 69/3
- -----------------------------------------------------------------------------------------
4 Ellenburg Capital Florida 25,173/0 63/0
- -----------------------------------------------------------------------------------------
5 Lautrec Ltd. Michigan 22,652/0 58/0
- -----------------------------------------------------------------------------------------
6 Chateau Properties Michigan 20,003/0 47/0
- -----------------------------------------------------------------------------------------
7 Clayton Homes Tennessee 18,000/0 66/0
- -----------------------------------------------------------------------------------------
8 Clayton, Williams and Sherwood California 16,946/0 44/0
- -----------------------------------------------------------------------------------------
9 UNIPROP Michigan 14,931/0 40/0
- -----------------------------------------------------------------------------------------
10 The Bloch Organization Michigan 14,379/0 37/0
=========================================================================================
</TABLE>
According to the U.S. Census Bureau, more than 8,521,000 people were
living in manufactured housing communities as of 1990 compared to 3,838,678 in
1980. This represents an increase in manufactured housing community living of
approximately 122.0 percent over the last ten years. Over the last ten years,
there has been a steady increase in manufactured housing community development
across the country. Among the demographic factors which account for the increase
in manufactured housing community living are: decreasing household size, a
growing demand for smaller housing, as well as an alternative to the increasing
cost of housing. Nationally, the largest percentage of manufactured housing
communities are located in California, Michigan, Colorado, Florida, New York,
Minnesota, Indiana, Arizona, Ohio, and Wisconsin.
The manufactured home industry has dramatically changed over the last 20
years. Manufactured homes are now designed and constructed to accommodate
spacious and attractive living requirements. Today, approximately one out of
sixteen families live in
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Market Analysis
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manufactured housing units. The manufactured housing market share has been
growing steadily over the last 10 years. In 1990, 6.7 percent of Americans lived
in manufactured housing units, up from 2.9 percent compared to 1970, according
to the U.S. Census Bureau, which represents 12.0 to 14.0 percent of all new
housing built since the mid-1980's, according to the Manufactured Housing
Institute in Arlington, Virginia.
In 1990, the average cost of a manufactured housing unit was $27,800
compared to $149,000 for a new house (including land), according to the
Manufactured Housing Institute. This reflects a 28.0 percent increase in the
cost of manufactured housing since 1980 versus a 49.0 percent increase in
conventional housing. Industry experts estimate that a single-family home
selling for $150,000 would require an annual income of $52,671. To purchase a
$27,800 manufactured housing unit, only a $19,984 income level would be
required.
At Fleetwood Enterprises, the nation's largest manufacturer of
manufactured housing units, units may be purchased for up to $100,000, which
would include a three-bedroom, two-bath unit of 2,100 square feet, with vaulted
ceilings.
In 1990, approximately 10.0 percent of manufactured home owners lived in
units worth approximately $40,000, up from 4.0 percent compared to 1981,
according to a study conducted by Foremost Insurance Company in Grand Rapids,
Michigan. Also, according to the study, approximately 21.0 percent of the
manufactured housing households are occupied by people' 65 years of age or
older, slightly lower than the age group for conventional homes, as reported by
Foremost Insurance.
The demand for good quality institutional grade manufactured housing
communities has substantially increased over the last ten years. Manufactured
housing communities provide an affordable alternative to the increasing cost of
housing. Also, manufactured housing communities provide an alternative form of
living for the elderly and retirees, especially for those living on fixed
incomes.
Acquisitions of manufactured housing communities during 1993 and 1994 were
clearly dominated by Real Estate Investment Trusts. During 1994 and 1995
Manufactured Home Communities (MHC) and ROC communities lead the acquisition of
manufactured housing communities nationally. During 1996, Sun Communities
captured the lead and, together with ROC and MHC dominate the Real Estate
Investment Trust market.
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Market Analysis
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The following chart represents the largest Real Estate Investment Trusts,
from 1991 to 1996, as reported by GFA Management
================================================================================
HOME SITE GROWTH, DEVELOPMENT AMONG THE LARGEST
REAL ESTATE INVESTMENT TRUST (REITS)
- --------------------------------------------------------------------------------
Year ROC MHC Chateau Sun United Total Annual
Growth
- --------------------------------------------------------------------------------
1996 29,608 28,187 20,003 30,295 5,234 113,327 17.0%
- --------------------------------------------------------------------------------
1995 27,910 26,237 19,594 18,000 4,850 96,591 9.0%
- --------------------------------------------------------------------------------
1994 26,231 28,407 15,689 13,500 4,623 88,450 37.8%
- --------------------------------------------------------------------------------
1993 20,142 14,700 15,261 9,036 5,050 64,189 17.8%
- --------------------------------------------------------------------------------
1992 18,745 12,873 10,032 7,600 5,200 54,450 N/A
- --------------------------------------------------------------------------------
1991 9,030 13,079 9,759 N/R N/R N/A N/A
- --------------------------------------------------------------------------------
N/R = No report N/A = Not applicable
- --------------------------------------------------------------------------------
NOTE: The 113,327 sites counted for the top five REITs in 1996 make up 20
percent of the total sites surveyed in the 1997 Allen Report. These rental sites
are located in 339 communities, accounting for about 1 percent of some 50,000
existing manufactured housing communities nationwide. The community counts for
the five major REITs are: ROC (113), MHC (72), Chateau (47), Sun (84) and United
(23). The proportion of communities owned by each of the REITs compared to the
others is: ROC (33%), MHC (21%), Chateau (14%), Sun (25%) and United (7%).
================================================================================
Manufactured Home Communities (MHC) is expected to continue an aggressive
acquisition campaign through 1997 and beyond. As of September 1997, the MHC REIT
had a market cap of $632.0 million, and continues to pursue the acquisition of
manufactured home communities. Aside from the ELL-CAP $300.0 million
transaction, in September 1997 Manufactured Home Communities, Inc. completed a
$107.0 million purchase of 18 manufactured housing communities and two related
commercial properties from partnerships affiliated with Mobileparks West. The
communities, with 3,505 sites, were purchased with about $3.0 million
manufactured home operating units, $16.0 million in cash and $20.0 million of
installment notes and assumed debt. The communities have an average monthly
rental of $349.00. The communities are located in California, Utah, Oregon,
Washington and Nevada. MHC may be the first manufactured home community REIT to
reach $1.0 billion.
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Market Analysis
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The MHC REIT continues to perform and expand, and as of September 1997 was
trading at $25.625, with a current yield of 5.2 percent. The top traded REITs,
are presented as follows.
<TABLE>
<CAPTION>
==========================================================================================
REIT MARKET UPDATE
- ------------------------------------------------------------------------------------------
Company Symbol Price Current Yield 52 Week High 52 Week Low Annual 12 Mth Tot
(9/19/97) Dividend Rtn
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CPJ $29.688 5.8% $31.125 $22.250 1.72 26.6%
- ------------------------------------------------------------------------------------------
MHC $25.625 5.2% $26.428 $18.875 1.32 30.7%
- ------------------------------------------------------------------------------------------
SUI $37.428 5.0% $ 38.00 $27.750 1.88 31.8%
- ------------------------------------------------------------------------------------------
UMH $11.625 6.0% $13.625 $10.875 0.70 -1.7%
- ------------------------------------------------------------------------------------------
Total return figures obtained through Standard & Poors and are for the period
through Sept 1997.
==========================================================================================
</TABLE>
The Southwest and Northwest Regions of the nation are the preferred
locations regarding recent and future manufactured housing community
acquisitions. However, investors seeking moderate, but consistent growth
expectations, are still looking at the midwest region. Also, southern portions
of Florida are still considered a prime area for investors seeking good quality
manufactured housing communities, with good up-side potential. What was once a
stagnant market, the northeast region is now being considered for future
acquisitions.
According to a recent study prepared by Merrill Lynch & Company, ownership
in the manufactured housing community industry is highly fragmented. The top 150
owner-operators account for less than 5.0 percent of the total industry, whereas
a host of "mom-and-pop" private companies account for the other 95.0 percent.
This unglamorous niche industry is ripe for consolidation, and an infusion of
professional management expertise is likely to yield significant economies of
scale. The four REIT's specializing in manufactured housing communities are
already among the top ten owner-operators, and are well positioned to facilitate
and hasten the industry's consolidation to the likely benefit of their
stockholders.
Manufactured homes are the fastest growing component of the nation's
housing inventory, due to their affordability, good quality design and safety
standards. According to the Merrill Lynch & Company Manufactured Housing
Community Industry Report, factory-built homes appeal especially to senior
citizens and to households with limited economic needs, two segments of the
population that are likely to grow rapidly in coming years.
Consistent returns in manufactured housing community investments have been
the mainstay of the industry. For this reason, as well as the amount of
acquisitions seen by Real
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Market Analysis
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Estate Investment Trusts (REITs) from 1991 to 1996, the availability of good
quality manufactured housing communities has been substantially reduced compared
to the 1980's. Good quality manufactured housing communities still command
premium prices, thus driving down overall capitalization rates.
Cushman & Wakefield's Valuation Advisory Services has tracked sale
transactions of manufactured housing communities since 1985. Overall
capitalization rates have consistently been within the 8.75 to 10.00 percent
range for communities located in moderate to increasing growth markets, and as
low as near 8.0 percent for those communities located in growing markets that
poses significant upside potential. Overall capitalization rates are clearly
affected and are differentiated among the properties relative to rent levels,
age, quality, condition, location, amenities, demographic characteristics,
resident profile, as well as the quality of management.
Manufactured housing communities fall within, and are categorized by their
overall appearance, age, and amenities, but more importantly the strength of the
local market. The various categories of manufactured housing communities,
according to the Woodall Directory, can be ranked as 1 to 5 Star Parks. These
rankings are defined as follows:
One Star Park
The most important consideration for a one star park is overall
appearance. If it is not a decent place to live, it will not be listed in
Woodall's Directory. The following are general requirements:
o Fair overall appearance;
o Patios on most lots. May be concrete, asphalt, wood, or some
suitable material;
o Grass, rock or shell to cover ground;
o Streets fair to good. May be dirt, asphalt or gravel in reasonable
condition;
o Restrooms clean, if any;
o Adequate laundry or laundromat nearby;
o If fences allowed, must be neat;
o Mail service;
o Homes may be old models, but show evidence of care; and,
o Manager available some hours of each day.
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Market Analysis
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Two Star Park
In addition to the requirements for a one star park, a two star park will
have the following:
o Landscaping - some lawns and shrubs;
o Streets in good condition. Must be dust free of crushed rock, gravel
or shell minimum;
o Neat storage;
o Well equipped laundry or laundromat nearby;
o 200 volt connections available;
o If children accepted, park should have play area;
o Park free of clutter, such as old cars and other abandoned
equipment; and,
o Well maintained and managed.
Three Star Park
What a three star park does it does well, but not as uniformly as higher
rated parks. Many three star parks were once higher rated, but original
construction does not allow for today's 10-foot, 12-foot, and double-wides
or the 55-foot and 60-foot lengths. If children are allowed, there should
be adequate play area. However, the disarray caused by children may at
times be the determining factor that keeps a three star park at that level
when it otherwise could be rated higher. In addition to the requirements
for one and two star parks, a three star park must have the following:
o Attractive entrance;
o All homes must be in good condition;
o Awnings and cabana rooms on some homes in southern areas;
o Some spaces for large mobile homes;
o Paved or hard surfaced streets;
o Off-street parking or streets wide enough for safe on-street
parking;
o Good lawns or substitute throughout, shade trees, some shrubs where
climate permits;
o Concrete patios or the equivalent on all lots;
o All lots neat and attractive;
o All park buildings in good repair; and,
o Good management.
Four Star Park
Four star parks are luxury parks. In addition to the requirements for one,
two and three star parks, a four star park must have the following:
o Good landscaping;
o Most homes skirted with metal skirts, concrete block, ornamental
wood or stone;
o Paved streets, edged or curbed.
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Market Analysis
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o Uncrowded lots;
o Underground utilities if permitted by local conditions and
authorities;
o Most tanks, if present, concealed;
o Any hedges or fences must be attractive and uniform;
o Awnings, cabanas, or porches on most homes in southern areas.
(Excepting double-wide units.);
o Most lots to accommodate large mobile homes;
o Where row parking of homes exists, all must be lined up uniformly;
o Community hall and/or swimming pool and/or recreation programs. If a
park is four star in all but this requirement, the fourth star will
be printed as an open star indicating a four star park without
park-centered recreation; and,
o Excellent management.
Five Star Park
Five star parks are the finest. They should be nearly impossible to
improve. In addition to the requirements for one, two, three, and four
star parks, a five star park must have the following:
o Well planned and laid out spacious appearance;
o Good location in regard to accessibility and desirable neighborhood.
In some locations, park should be enclosed by high hedges or
ornamental fence;
o Wide paved streets in perfect condition. Curbs or lawns edged to
streets, sidewalks, street lights, street signs;
o Homes set back from street;
o Exceptionally attractive entrance and park sign;
o Patios at least 8 x 30 feet. (Excepting double-wide units.);
o Paved off-street parking such as carports or planned parking;
o All homes skirted;
o All hitches concealed. Any existing tanks concealed;
o Recreation, some or all of the following: swimming pool (excepting
areas with long, cold winters), shuffleboards, horseshoe pitching,
golf course, hobby shop, hobby classes, games, potlucks, dances or
natural recreational facilities;
o Beautifully equipped recreation hall with kitchen. Room for
community gatherings, tiled restrooms, etc.;
o Uniform storage sheds or central storage facilities;
o All late model homes in excellent condition;
o At least 60 percent occupancy in order to judge quality of residents
which indicates park's ability to maintain a five star rating
between inspections;
o All empty lots grassed, graveled or otherwise well maintained;
o If pets or children allowed, there must be a place for them to run
and play without cluttering the streets and yards. Most five star
parks are for adults only; and,
o Superior management interested in comfort of residents and
maintenance of park.
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Market Analysis
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The demand for good quality institutional grade manufactured housing
communities is anticipated to increase throughout the 1990's, since manufactured
housing communities provide an alternative form of living for the elderly and
retirees, especially for those living on fixed income. Manufactured home
shipments continue to be strong. Shipments rose 20.0 percent in 1992 and 1994,
and 12.0 percent in 1995. The market for good quality manufactured housing
communities is expected to be strong, with yield and capitalization rates and
prices expected to continue to be competitive, with the REITs leading the way.
Competition
We have surveyed ten manufactured housing communities located within the
subject's primary market, including the subject property, containing a total of
4,360 sites. The combined occupancy rate of these ten manufactured housing
communities, including the subject property, is approximately 99.0 percent.
Excluding the subject property in our survey, the combined occupancy rate is
also approximately 99.0 percent, based on 3,623 sites.
The name and location of the subject property's primary competition, as
well as the number of sites, occupancy levels, amenities offered, monthly rental
rates and services provided in the monthly rental rate, are presented on the
following facing page, along with a map which identifies the location of each
competing park.
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<TABLE>
<CAPTION>
====================================================================================================================================
SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- ------------------------------------------------------------------------------------------------------------------------------------
Number Age
Of Sites --- 3-Year
-------- Condition Services Date Of Average
Comp. Name Occupancy --------- Monthly Provided Last Rental Annual Rental
No. Location Level Amenities Park Rating(1) Rent in Rent Increase Increase
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R-1 Countryside 327 Clubhouse 1972 $319.00/Mo. Refuse August, 1997 $10.00/Mo.
9850 N. Federal --- Pool/Spa ---- To
Boulevard 100% Playground Good $334.00/Mo.
Federal Heights, Storage ----
Colorado 4*
- ------------------------------------------------------------------------------------------------------------------------------------
R-2 Denver Cascade 382 Clubhouse 1974 $310.00/Mo. Water September, $10.00/Mo.
9650 N. Federal --- Pool/Spa ---- To Sewer 1997
Boulevard 100% Playground Good $325.00/Mo. Refuse
Federal Heights, Storage ----
Colorado 4*
- ------------------------------------------------------------------------------------------------------------------------------------
R-3 Friendly Village of 522 Clubhouse 1974 $300.00/Mo. Refuse April, 1997 $15.00/Mo.
the Rockies --- Pool ---- To
2100 W. 100th Avenue 100% Tennis Good $305.00/Mo.
Thornton, Colorado Court ----
Playground 4*
Laundry
Storage
- ------------------------------------------------------------------------------------------------------------------------------------
R-4 Thornton Estates 208 Clubhouse 1970 $315.00/Mo. Water May, 1997 $13.00/Mo.
3600 E. 88th Avenue --- Pool ---- Sewer
Thornton, Colorado 100% Library Good Refuse
Mini Golf ----
Laundry 4*
- ------------------------------------------------------------------------------------------------------------------------------------
R-5 North County Village 425 Clubhouse 1985 $325.00/Mo. Refuse March, 1997 $35.00/Mo.
9700 Riverdale Road --- Pool/Spa ----
Thornton, Colorado 100% Billiard Good
Room ----
Playground 4*
Laundry
Storage
- ------------------------------------------------------------------------------------------------------------------------------------
R-6 Pines Lake Ranch 766 Clubhouse 1972 $298.00/Mo. Water June, 1997 $14.00/Mo.
10201 Riverdale Road --- Pool ---- To Sewer
Thornton, Colorado 100% Tennis Good $308.00/Mo. Refuse
Court ----
Playground 4*
Storage
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</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- ------------------------------------------------------------------------------------------------------------------------------------
Number Age
Of Sites --- 3-Year
-------- Condition Services Date Of Average
Comp. Name Occupancy --------- Monthly Provided Last Rental Annual Rental
No. Location Level Amenities Park Rating(1) Rent in Rent Increase Increase
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R-7 Cimarron 327 Clubhouse 1972 $333.00/Mo. Refuse January, 1997 $18.00/Mo.
12205 North Perry --- Pool ----
Broomfield, Colorado 98% Billiard Room Good
Basketball ----
Court 4*
Playground
Storage
- ------------------------------------------------------------------------------------------------------------------------------------
R-8 Front Range 302 Clubhouse 1973 $295.00/Mo. Refuse April, 1997 $10.00/Mo.
2885 W. 128th Avenue --- Pool ---- To
Broomfield, Colorado 98% Playground Good $305.00/Mo.
Storage ----
4*
- ------------------------------------------------------------------------------------------------------------------------------------
R-9 Casa Estates 364 Clubhouse 1974 $315.00/Mo. Refuse April, 1997 $17.00/Mo.
860 W. 132nd Avenue --- Pool ----
Westminster, Colorado 100% Playground Good
Exercise Room ----
Storage 4*
- ------------------------------------------------------------------------------------------------------------------------------------
Subject Holiday Hills 737 Clubhouse 1960 $343.00/Mo. Refuse January, 1997 $18.00/Mo.
2000 West 92nd Avenue --- Pool/Spa ---- To
Federal Heights, 98% Exercise Room Good $362.00/Mo.
Colorado Billiard Room ----
Library 4*
Shuffleboards
Activity Room
Laundry
Storage
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Ratings from One Star to Five Star Parks are defined in the National Overview section of this report.
====================================================================================================================================
</TABLE>
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COMPETING MANUFACTURED HOUSING MAP
[MAP OMITTED]
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Market Analysis
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Rental rates of manufactured housing communities located within the
subject's primary market range from $295.00 to $334.00 per site, on a monthly
basis. The subject property is currently quoting monthly rental rates above the
market range, or at $343.00 to $362.00 per site. The last rental rate increase
at the subject property was as of January, 1997, of $18.00 per month.
The enclosed comparable rentals are considered the most competitive to the
subject property regarding amenities offered, condition, location and overall
ranking.
Comparable R-1, Countryside, is located at 9850 N. Federal Boulevard, in
Federal Heights, Colorado. This comparable property contains 327 sites,
and is 100.0 percent occupied. Countryside was developed in 1972, and is
in overall good condition. Over the last three years, the annual rental
rate increased approximately $10.00 per month. Monthly rental rates range
from $319.00 to $334.00, with refuse service included in monthly rental
payment. Amenities include a clubhouse, pool, spa, playground and
recreational vehicle storage.
Comparable R-2, Denver Cascade, is located at 9650 N. Federal Boulevard,
in Federal Heights, Colorado. This comparable property contains 382 sites,
and is 100.0 percent occupied. Denver Cascade was developed in 1974, and
is in overall good condition. Over the last three years, the annual rental
rate increased approximately $10.00 per month. Monthly rental rates range
from $310.00 to $325.00, with water, sewer and refuse service included in
monthly rental payment. Amenities include a clubhouse, pool, spa,
playground and recreational vehicle storage.
Comparable R-3, Friendly Village of the Rockies, is located at 2100 W.
100th Avenue, in Thornton, Colorado. This comparable property contains 522
sites, and is 100.0 percent occupied. Friendly Village of the Rockies was
developed in 1974, and is in overall good condition. Over the last three
years, the annual rental rate increased approximately $15.00 per month.
Monthly rental rates range from $300.00 to $305.00, with refuse service
included in monthly rental payment. Amenities include a clubhouse, two
pools, tennis court, playground, laundry facility and recreational vehicle
storage.
Comparable R-4, Thornton Estates, is located at 3600 E. 88th Avenue, in
Thornton, Colorado. This comparable property contains 208 sites, and is
100.0 percent occupied. Thornton Estates was developed in 1970, and is in
overall good condition. Over the last three years, the annual rental rate
increased approximately $13.00 per month. Monthly rental rates are at
$315.00, with water, sewer and refuse service included in monthly rental
payment. Amenities include a clubhouse, pool, library, mini golf and
laundry facility.
Comparable R-5, North County Village, is located at 9700 Riverdale Road,
in Thornton, Colorado. This comparable property contains 425 sites, and is
100.0
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Market Analysis
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percent occupied. North County Village was developed in 1985, and is in
overall good condition. Over the last three years, the annual rental rate
increased approximately $35.00 per month. Monthly rental rates are at
$325.00, with refuse service included in monthly rental payment. Amenities
include a clubhouse, two pools, two spas, billiard room, playground,
laundry facility and recreational vehicle storage.
Comparable R-6, Pines Lake Ranch, is located at 10201 Riverdale Road, in
Thornton, Colorado. This comparable property contains 766 sites, and is
100.0 percent occupied. Pines Lake Ranch was developed in 1972, and is in
overall good condition. Over the last three years, the annual rental rate
increased approximately $14.00 per month. Monthly rental rates range from
$298.00 to $308.00, with water, sewer and refuse service included in
monthly rental payment. Amenities include two clubhouses, three pools,
tennis court, playground and recreational vehicle storage.
Comparable R-7, Cimarron, is located at 12205 North Perry, in Broomfield,
Colorado. This comparable property contains 327 sites, and is
approximately 98.0 percent occupied. Cimarron was developed in 1972, and
is in overall good condition. Over the last three years, the annual rental
rate increased approximately $18.00 per month. Monthly rental rates are at
$333.00, with refuse service included in monthly rental payment. Amenities
include a clubhouse, pool, basketball court, playground, billiard room and
recreational vehicle storage.
Comparable R-8, Front Range, is located at 2885 W. 128th Avenue, in
Broomfield, Colorado. This comparable property contains 302 sites, and is
approximately 98.0 percent occupied. Front Range was developed in 1973,
and is in overall good condition. Over the last three years, the annual
rental rate increased approximately $10.00 per month. Monthly rental rates
range from $295.00 to $305.00, with refuse service included in monthly
rental payment. Amenities include a clubhouse, two pools, playground and
recreational vehicle storage.
Comparable R-9, Casa Estates, is located at 860 W. 132nd Avenue, in
Westminster, Colorado. This comparable property contains 364 sites, and is
100.0 percent occupied. Casa Estates was developed in 1974, and is in
overall good condition. Over the last three years, the annual rental rate
increased approximately $17.00 per month. Monthly rental rates are at
$315.00, with refuse service included in monthly rental payment. Amenities
include a clubhouse, pool, playground, exercise room and recreational
vehicle storage.
In our opinion, and based on conversations with the on-site manager,
properties R-1, R-2 and R-4 compete most favorably with the subject property,
with monthly rental rates ranging from $310.00 to $334.00 per site. The subject
property is currently quoting monthly rental rates ranging at $343.00 to $362.00
per site, which is above the range of rental rates of our
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Market Analysis
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more comparable competing properties. The subject property competes most
effectively with its primary competitors regarding amenities, condition and
current rent structure.
Comparable Manufactured Housing Community Sales
A search of the subject's market revealed six recent sales of manufactured
housing communities located in the Denver Metropolitan Area. The following is a
brief discussion of each of the manufactured housing sales located within the
subject's market. These sales are summarized on the following facing page.
Comparable Sale I-1, Pine Lakes, is located at 10201 Riverdale Road, in
Thornton, Colorado. This property contains 760 sites, situated on 183.67
acres of land area. The property was developed in 1972, and was in overall
good condition at the time of sale. Amenities include two clubhouses, two
pools, recreation room, tennis court, basketball court, and a playground.
The property was approximately 90.0 percent occupied at the time of sale.
The property was purchased for $12,500,000 as a combined transaction with
sale I-2, which equates to $16,447 per site,
Comparable Sale I-2, Redwood Estate II, is located at 9595 Pecos Street,
in Thornton, Colorado. This property contains 752 sites, situated on
128.22 acres of land area. Amenities include a clubhouse, pool, recreation
room, playground and recreational vehicle storage. The property was
approximately 93.0 percent occupied at the time of sale. The property was
purchased for $12,500,000 as a combined transaction with sale I-1, which
equates to $16,622 per site.
Comparable Sale I-3, Canyon Ridge, is located at 5150 Airport Road, in
Colorado Springs, Colorado. This property contains 250 sites, situated on
31.36 acres of land area. Canyon Ridge was developed in 1972, and was in
good condition at the time of sale. Amenities include a clubhouse, pool,
recreation room and laundry facility. The property was approximately 99.0
percent occupied at the time of sale. The property was purchased for
$4,200,000, which equates to $16,800 per site.
Comparable Sale I-4, Cottonwood Village, is located at 11990 S. Boulder
Road, in Layfayette, Colorado. This property contains 241 sites, situated
on 19.36 acres of land area. Cottonwood Village was developed in 1972, and
was in overall good condition at the time of sale. Amenities include a
clubhouse, pool, recreation room, playground and laundry facility. The
property was 100.0 percent occupied at the time of sale. The property was
purchased for $4,800,000, which equates to $19,917 per site.
Comparable Sale I-5, Canterbury Park, is located at 3020 S. Powers
Boulevard, in Colorado Springs, Colorado. This property contains 496
sites, situated on 61.73 acres of land area. Canterbury Park was developed
in 1985, and was in overall good condition at the time of sale. Amenities
include a clubhouse, pool
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SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- ------------------------------------------------------------------------------------------------------------------------------------
$EGI/Site
Sales Price --------------
Per Site $Expense/Site
Sales Date Land Area Density --------- EGIM -------------
Comp. Name ---------- --------- -------- Occupancy ---- Expense Ratio
No. Location Sales Price No. Sites Condition At Sale $NOI/Site OAR % Of EGI
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
I-1 Pine Lakes 7/96 183.67 4.14 $16,447 $1,563 N/A N/A
10201 Riverdale Road ----- ------ ---- ------- ---
Thornton, Colorado $12,500,000(1) 760 Good 90% 9.50%
- ------------------------------------------------------------------------------------------------------------------------------------
I-2 Redwood Estate II 7/96 128.22 5.86 $16,622 $1,579 N/A N/A
9595 Pecos Street ----- ------ ---- ------- ---
Thornton, Colorado $12,500,000(1) 752 Good 93% 9.50%
- ------------------------------------------------------------------------------------------------------------------------------------
I-3 Canyon Ridge 7/96 31.36 7.97 $16,800 $1,512 N/A N/A
5150 Airport Road ----- ----- ---- ------- ---
Colorado Springs, CO $4,200,000 250 Good 99% 9.00%
- ------------------------------------------------------------------------------------------------------------------------------------
I-4 Cottonwood Village 9/95 19.36 12.45 $19,917 $1,591 6.45x $3,089
11990 S. Boulder Road ---- ----- ----- ------- ----- ------
Lafayette, Colorado $4,800,000 241 Good 100% 7.99% $1,498
------
48.50%
- ------------------------------------------------------------------------------------------------------------------------------------
I-5 Canterbury Park 7/95 61.73 8.03 $18,750 $2,037 6.91x $2,714
3020 S. Powers Blvd. ---- ----- ---- ------- ----- ------
Colorado Springs, CO $9,300,000 496 Good 100% 10.87% $677
----
24.95%
- ------------------------------------------------------------------------------------------------------------------------------------
I-6 Woodland Hills 3/94 57.0 7.63 $18,391 $1,885 5.56x $3,310
1500 West Thornton ---- ---- ---- ------- ----- ------
Thornton, Colorado $8,000,000 435 Good 97% 10.25% $1,425
------
43.05%
- ------------------------------------------------------------------------------------------------------------------------------------
Subject Holiday Hills - - - 98.0 7.52 - - - $2,981 N/A $4,223
2000 W. 92nd ---- ---- ------
Avenue 737 Good 98% $1,242
Federal ------
Heights, CO 29.41%
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Sale I-1 and I-2 were purchased as a combined transaction.
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<CAPTION>
================================================================================================
SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- ------------------------------------------------------------------------------------------------
Comp. Name Comparability to
No. Location to the Subject Comments
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
I-1 Pine Lakes Similar Good condition; Amenities include
10201 Riverdale Road two clubhouses, two pools,
Thornton, Colorado recreation room, tennis,
basketball and playground.
- ------------------------------------------------------------------------------------------------
I-2 Redwood Estate II Similar Good condition; Amenities include
9595 Pecos Street a clubhouse, pool, recreation
Thornton, Colorado room, playground and RV storage.
- ------------------------------------------------------------------------------------------------
I-3 Canyon Ridge Inferior Developed in 1972;
5150 Airport Road Good condition; Amenities include
Colorado Springs, CO a clubhouse, pool, recreation
room and laundry facility.
- ------------------------------------------------------------------------------------------------
I-4 Cottonwood Village Inferior Developed in 1972; Good
11990 S. Boulder Road condition; Amenities include a
Lafayette, Colorado clubhouse, pool, recreation room,
playground and laundry facility.
- ------------------------------------------------------------------------------------------------
I-5 Canterbury Park Similar Developed in 1985; Good
3020 S. Powers Blvd. condition; Amenities include a
Colorado Springs, CO clubhouse, pool and RV storage.
- ------------------------------------------------------------------------------------------------
I-6 Woodland Hills Similar Developed in 1970; Good
1500 West Thornton condition; Amenities include a
Thornton, Colorado clubhouse, pool, playground and
barbecue pavilion.
- ------------------------------------------------------------------------------------------------
Subject Holiday Hills Subject Property Developed in 1960; Good
2000 W. 92nd Avenue condition; Amenities include a
Federal Heights, CO clubhouse, pool, spa, exercise
room, billiard room, library,
shuffleboards, activity room,
laundry facility and RV storage.
- ------------------------------------------------------------------------------------------------
(1) Sale I-1 and I-2 were purchased as a combined transaction.
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</TABLE>
<PAGE>
Market Analysis
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and recreational vehicle storage. The property was 100.0 percent occupied
at the time of sale. The property was purchased for $9,300,000, which
equates to $18,750 per site.
Comparable Sale I-6, Woodland Hills, is located at 1500 West Thornton, in
Thornton, Colorado. This property contains 435 sites, situated on 57.0
acres of land area. Woodland Hills was developed in 1970, and was in
overall good condition at the time of sale. Amenities include a clubhouse,
pool, playground and barbecue pavilion. The property was 97.0 percent
occupied at the time of sale. The property was purchased for $8,000,000,
which equates to $18,391 per site.
It should be noted that comparability does not imply an identical or exact
duplicate, but rather the possession of a similar utility and affected by
similar supply and demand forces. Also, relative to the subject property,
differences include: time or date of the transactions; location, which
encompasses differences in accessibility; site characteristics, including
differences in size, topography, access, exposure and development capacities;
and improvement characteristics, which include differences in age, quality,
condition, size and amenities.
Demographic Trends
Based on information provided by National Decision Systems (NDS), the
populations within the subject's primary 5-mile and secondary 10-mile market
areas, as of 1997, are 276,429 and 717,282, respectively. The populations of the
subject's primary and secondary market areas are projected to increase to
311,032 and 785,280, respectively, by the year 2002.
According to NDS, the total number of households within the subject's
primary and secondary market areas, are 107,215 and 300,194, respectively, for
1997. The number of households within the subject's primary 5-mile and secondary
10-mile market areas are projected to increase to 121,955 and 332,143,
respectively, by the year 2002.
The average household income levels within the subject's primary and
secondary market areas, for 1997, are $47,341 and $48,219, respectively, and are
expected to increase to $46,491 and $60,519, respectively, by the year 2002. The
median household income levels within the subject's primary and secondary market
areas, for 1997, are $39,937 and $36,797, respectively, and are expected to
increase to $44,982 and $43,489, respectively, by the year 2002. Per capita
income within the subject's primary and secondary market areas, for 1997, are
$18,192 and $19,519, respectively, and are expected to increase to $22,009 and
$24,735, respectively, by the year 2002.
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Market Analysis
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Based on the above levels, the demographics of the subject's primary
market area appear to indicate a positive growth trend, based on information
provided by NDS. For additional demographic information, please refer to the NDS
summary report in the Addenda of this report.
Expense Analysis
Expenses exhibited by manufactured housing communities nationally are
typically 35.0 to 45.0 percent of effective gross income. However, expense
ratios of manufactured housing communities located in the southeast and
southwest regions of the nation are typically lower by comparison, due to lower
real estate taxes and common area maintenance charges.
As presented in the Summary of Manufactured Housing Communities Sales,
operating expense ratios of competing parks range from 24.95 to 48.50 percent of
effective gross income levels, and $677 to $1,498 on a per site basis. The
subject property is currently reporting expenses, for the 12-month trailing
period of 1997, at 29.41 percent of effective gross income and $1,242 on a per
site basis. The operating expenses at the subject are within the range of
comparable properties on both a percentage of effective gross income and on a
per site basis.
Market Supply and Demand
There are a total of nine competing manufactured housing communities
located within the subject's market, which total 3,623 sites, with a
corresponding average occupancy rate of 99.0 percent. No specific absorption
statistics were available. The subject property, based on conversations with
management, has historically had occupancy rates consistent with competing
parks, and is currently 98.0 percent occupied. We believe the current occupancy
rate of the subject property is stabilized, and has similar occupancy rates of
competing parks presently presented. Based on the subject's current occupancy
rate and occupancy rates at competing parks, demand appears to be strong, with
steady rental rate increases expected.
Conclusion
Historically, the subject's primary market has sustained occupancy levels
of 95.0 to 100 percent. Rental rates of similar manufactured housing communities
located within the subject's primary market generally range from $295.00 to
$334.00 per site, on a monthly basis. The subject property is currently quoting,
and is currently achieving (based on the most recent rent roll provided), a
monthly rental rate above the range of the other competing parks, or at $343.00
to $362.00 per site.
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Market Analysis
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Based on our research, steady increases in rental rates are anticipated,
based on actual historical performance of competing parks and historical
increases seen at the subject property. Sales transactions of manufactured
housing communities located within the subject's region range from $16,447 to
$19,917 per site, with corresponding overall rates ranging from 7.99 to 10.87
percent. In our opinion, the subject property competes favorably with its
competition regarding amenities, condition, rent structure and overall market
rating.
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<PAGE>
SITE PLAN
[GRAPHIC OMITTED]
<PAGE>
PROPERTY DESCRIPTION
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Site Description
The subject site is located at the northwest corner of West 92nd Avenue,
in Federal Heights, Adams County, Colorado. The subject site is irregular in
shape and contains approximately 98.0 acres, or 4,268,748 square feet of land
area. Topographically, the site is rolling and below street grade.
Primary access to the subject site is available from West 92nd Avenue.
Reported by the City of Federal Heights, the subject property has 87 out of the
737 sites in a flood plain area, dated August 2, 1996.
The streets within the park have two-lanes, with concrete curbs. Overall,
the subject site is typical of the area and is functionally well suited for its
current use.
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.
Improvements Description
The subject property was originally developed in 1960. The subject
improvements consist of a 737-site manufactured housing community, with two
community centers, swimming pool, spa, exercise room, library, shuffleboards,
activity room, laundry facility and recreational vehicle storage. Of the 737
total sites, approximately 473 sites are single-wide, while the remaining 264
sites are double-wide.
The main community center consists of a manager's office, restroom
facilities, open-space available for resident use, billiard room, exercise room,
library, indoor shuffleboards, activity room, laundry facility and a fully
equipped kitchen area. The second community center is located adjacent to the
main community center, and consists of an open-space area and restroom facility.
The swimming pool is located adjacent to the main community center, and
the spa is located inside the main community center. Off-street parking is
available for each resident. Site improvements within the park include: paved
streets, street lighting and signage. Overall, the site improvements appeared to
be in good condition at the time of inspection.
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Property Description
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Holiday Hills is a functional manufactured housing community with good
ingress and egress along West 92nd Avenue. Overall, the subject community
appears to be well maintained and is in good condition. Holiday Hills is a
functional manufactured housing community and competes favorably with other
existing manufactured housing communities in the area in terms of appearance and
amenities. The subject property would fit the profile of a Four Star Park, as
defined in the National Overview section of this report.
Real Property Taxes and Assessments
Assessed value of commercial property in Adams County is assessed at 29.0
percent of the Assessor's opinion of market value. The subject property is
identified by tax parcel number 01719-21-2-00-007.
The total amount of real estate taxes for 1996 payable in 1997 for the
subject property amounts to $133,906. The total amount of real estate taxes for
1996 payable in 1997 equates to approximately $181.69 per site.
Zoning
According to the City of Federal Heights zoning officials, the subject
property is currently zoned R-4, Mobile Home Park. The subject property is a
legal and conforming use for this zoned district.
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38
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WAKEFIELD(R)
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<PAGE>
CONCLUSION
================================================================================
Conclusion
o The subject property, Holiday Hills, is a functional manufactured
housing community, which competes favorably in relation to its
competition;
o Comparable manufactured housing communities located within the
subject's market range in monthly rental rates per site from $295.00
to $334.00;
o The subject property is currently quoting, and is currently
achieving (based on the most recent rent roll provided) a monthly
rental rate range at $343.00 to $362.00 per site, which is above the
range of competing parks;
o Sale transactions of manufactured housings located within the
subject's region range in unit sales prices per site from $16,447 to
$19,917, with corresponding overall rates ranging from 7.99 to 10.87
percent;
o Operating expenses are within industry standards for a park located
in the mountain region of the country;
o The subject park appears to be operating at economic levels based on
our review of historical and budgeted 1998 income and expenses;
o The demographic characteristics of the area appear to be positive;
o The population profile of the subject property is 100 percent adult;
o The current occupancy rate at the subject property of 98.0 percent
is evident by a strong local market and demand;
o No significant manufactured housing communities are expected to be
developed in the near future;
o In our opinion, based on Woodall's criteria, the subject property is
a Four Star Park, and the reader's attention is directed to the
corresponding definition and criteria of a Four Star Park, presented
in the National Overview section of this report; and,
o Based on the subject's location, demographic, economic, market and
physical characteristics, we believe Holiday Hills will continue to
be a viable manufactured housing community in the foreseeable
future, and is well positioned in the marketplace.
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WAKEFIELD(R)
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<PAGE>
ASSUMPTIONS AND LIMITING CONDITIONS
================================================================================
"Report" means the consulting report to which these Assumptions and Limiting
Conditions are annexed.
"Property" means the subject of the Report.
"C&W" means Cushman & Wakefield, Inc. or its subsidiary which issued the Report.
"Appraiser(s)" means the employee(s) of C&W who prepared and signed the Report.
This report is made subject to the following assumptions and limiting
conditions:
1. No responsibility is assumed for the legal description or for any matters
which are legal in nature. 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 Report or upon which the Report 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 Appraisers nor C&W shall be responsible for the
accuracy or completeness of such information, including the correctness of
estimates, opinions, dimensions, sketches, exhibits, and other factual
matters.
3. The information is effective as of the date stated in the Report. Changes
since that date in external and market factors or in the property itself
can significantly affect our analysis.
4. The report is to be used in whole and not in part. No part of the Report
shall be used in conjunction with any other report. Possession of the
Report, or a copy thereof, does not carry with it the right of
publication. Publication of the Report or any portion thereof without the
prior written consent of C&W is prohibited. Except as may be otherwise
expressly stated in the letter of engagement to prepare the Report, C&W
does not permit use of the Report by any person other than the party to
whom it is addressed or for purposes other than those for which it was
prepared. If written permission is given by C&W to use the Report, the
Report must be used in its entirety and only with proper written
qualification as approved by C&W. No part of the Report or the identity of
the Appraiser shall be conveyed to the public through advertising, public
relations, news, sales, or other media or used in any material without
C&W's prior written consent. Reference to the Appraisal Institute or to
the MAI designation is prohibited.
5. The Appraiser shall not be required to give testimony in any court or
administrative proceedings relating to the Property or the Report.
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40
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WAKEFIELD(R)
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Assumptions and Limiting Conditions
================================================================================
6. The Report 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 Report; 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 Report is based.
7. The physical condition of the improvements considered by the Report is
based on visual inspection by the Appraiser or other person identified in
the Report. C&W assumes no responsibility for the soundness of structural
members nor for the condition of mechanical equipment, plumbing, or
electrical components.
8. Unless otherwise stated in the Report, the existence of potentially
hazardous or toxic materials which may have been used in the construction
or maintenance or operation of the improvements or may be located at or
about the Property was not considered in the Report. These materials (such
as formaldehyde foam insulation, asbestos insulation, various soil
contaminants, and other potentially hazardous materials) may affect the
value of the Property. The Appraisers are not qualified to detect such
substances, and C&W urges that an expert in this field be employed to
determine the economic impact of these matters, if any, on the property in
the Report.
9. Unless otherwise stated in the Report, compliance with the requirements of
the Americans With Disabilities Act of 1990 (ADA) has not been considered
in the Report. Failure to comply with the requirements of the ADA may
negatively affect the value of the property. C&W recommends that an expert
in this field be employed.
10. If the Report is submitted to a lender or investor with the prior approval
of C&W, such party should consider the Report as one factor, together with
its independent investment considerations and underwriting criteria, in
its overall investment decision.
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CERTIFICATION
================================================================================
We certify that, to the best of our knowledge and belief:
1. Jody L. Garbisch inspected the property, and Michael J. Schaeffer and
Stanley R. Dennis, Jr., MAI, have reviewed and approved the report, but
did not inspect 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 on an action or event (such as the
approval of a loan) resulting from the analyses, opinions, or conclusions
in, or the use of, this report.
6. 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 Ethics and Standards of Professional Practice of the Appraisal
Institute.
7. No one provided significant professional assistance to the persons signing
this 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. As of the date of this report, Stanley R. Dennis, Jr., MAI, has completed
the requirements of the continuing education program of the Appraisal
Institute.
/s/ Michael J. Schaeffer /s/ Jody L. Garbisch /s/ Stanley R. Dennis, Jr.
Michael J. Schaeffer Jody L. Garbisch Stanley R. Dennis, Jr., MAI
Director Associate Appraiser Director, Manager
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<PAGE>
ADDENDA
================================================================================
POP-FACT SHEETS
LEGAL DESCRIPTION
QUALIFICATIONS OF APPRAISERS
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43
<PAGE>
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POP-FACT SHEETS
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<PAGE>
Tue Nov 25, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP FACTS: SUMMARY REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6510
PREPARED FOR
CUSHMAN & WAKEFIELD, INC
HOLIDAY HILLS
FEDERAL HEIGHTS, CO COORD: 39:51.81 105:00.35
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- --------------------------------------------------------------------------------
POPULATION
2002 PROJECTION 311,032 785,280
1997 ESTIMATE 276,429 717,282
1990 CENSUS 229,659 622,936
1980 CENSUS 204,466 602,608
GROWTH 1980 - 1990 12.32% 3.37%
HOUSEHOLDS
2002 PROJECTION 121,955 332,143
1997 ESTIMATE 107,215 300,194
1990 CENSUS 84,489 247,292
1980 CENSUS 68,647 228,523
GROWTH 1980 - 1990 23.08% 8.21%
1997 ESTIMATED POPULATION BY RACE 276,429 717,282
WHITE 86.67% 79.57%
BLACK 1.19% 5.58%
ASIAN & PACIFIC ISLANDER 4.01% 3.06%
OTHER RACES 8.14% 11.79%
1997 ESTIMATED POPULATION 276,429 717,282
HISPANIC ORIGIN 16.74% 20.43%
OCCUPIED UNITS 84,489 247,292
OWNER OCCUPIED 67.16% 57.16%
RENTER OCCUPIED 32.84% 42.84%
1990 AVERAGE PERSON PER HH 2.71 2.48
1997 ESTIMATED HH BY INCOME 107,215 300,194
$150,000 + 1.50% 2.49%
$100,000 TO $149,999 3.12% 3.98%
$ 75,000 TO $ 99,999 6.42% 6.56%
$ 50,000 TO $ 74,999 23.95% 20.59%
$ 35,000 TO $ 49,999 22.37% 18.60%
$ 25,000 TO $ 34,999 15.31% 13.87%
$ 15,000 TO $ 24.999 13.75% 14.43%
$ 5,000 TO $ 14,999 10.42% 14.56%
UNDER $ 5,000 3.15% 4.91%
1997 EST. AVERAGE HH INCOME $47,341 $48,219
1997 EST. MEDIAN HH INCOME $39,937 $36,797
1997 EST. PER CAPITA INCOME $18,192 $19,519
<PAGE>
Tue Nov 25, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP 80-02, HR 80-02, INC 80-02)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6510
PREPARED FOR
CUSHMAN & WAKEFIELD, INC
HOLIDAY HILLS
FEDERAL HEIGHTS, CO COORD: 39:51.81 105:00.35
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- --------------------------------------------------------------------------------
POP_80: TOTAL 204,466 602,608
POP_90: TOTAL 229,659 622,936
POP_97: TOTAL (EST.) 276,429 717,282
POP_02: TOTAL (PROJ.) 311,032 785,280
HH_80: TOTAL 68,647 228,523
HH_90: TOTAL 84,489 247,292
HH_97: TOTAL (EST.) 107,215 300,194
HH_02: TOTAL (PROJ.) 121,955 332,143
INC_80: PER CAPITA (EST.) $7,824 $7,813
INC_9O: PER CAPITA $13,573 $13,711
INC_97: PER CAPITA (EST.) $18,192 $19,519
INC_02: PER CAPITA (PRO $22,009 $24,735
HH_90_BY INCOME_89: MEDIAN $33,188 $28,525
HH_97_BY INCOME: MEDIAN $39,937 $36,797
HH_02_BY INCOME: MEDIAN $44,982 $43,489
NH_80_BY INCOME_79: AVERAGE $23,304 $20,603
HH_90_BY INCOME_89: AVERAGE $36,758 $34,175
HH_97_BY INCOME: AVERAGE $47,341 $48,219
HH_02_BY INCOME: AVERAGE $56,491 $60,519
<PAGE>
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LEGAL DESCRIPTION
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<PAGE>
LEGAL DESCRIPTION
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The South 1/2 of the Northeast 1/2 of the Northwest 1/4 of Section 21, Township
2 South, Range 68 West of the 6th Principal Meridian, except the East 30 feet
thereof;
and
The Southeast 1/4 of the Northwest 1/4 of said Section 21, except the East 30
feet and the South 30 feet thereof;
and
The Southwest 1/4 of the Northwest 1/4 of said Section 21, except the South 30
feet thereof and except the following described parcel of land:
Beginning at the Southwest corner of said Southwest 1/4 of the Northwest
1/4 of Section 21;
thence North 00(degree)04'12" East, 30.00 feet to the true point of
beginning;
thence North 89(degree)38'23" West and parallel to the South line of said
Southwest 1/4 of the Nrothwest 1/4 of Section 21, 428.39 feet;
thence North 00(degree)21'37" East, 67.51 feet;
thence Northwesterly along the arc of a circle whose central angle is
23(degree)14'00" left and whose radius is 112.00 feet, a distance of 45.42
feet;
thence North 50(degree)46'30" East, 116.62 feet;
thence South 89(degree)38'23" East and parallel to the South line of said
Southwest 1/4 of the Northwest 1/4 of Section 21, 346.66 feet to the East
line of said Southwest 1/4 of the Northwest 1/4 of Section 21;
thence South 00(degree)04'12" West, 186.00 feet to the true point of
beginning;
containing 96.055 Acres (4,184,145 Square feet);
All located in the Town of Federal Heights, Adams County, Colorado, and steel
pins and iron pipes and caps stamped "2828" were set at the property corners and
30 foot offset corners as shown and that this plot is a true representation
thereof.
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<PAGE>
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QUALIFICATIONS OF APPRAISERS
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<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
JODY L. GARBISCH
Education
Bachelor of Science Degree in Finance, concentration in Real Estate, from the
College of Commerce and Business Administration at the University of Illinois,
Urbana-Champaign, Illinois, 1997.
Real Estate Education
The following courses have been completed through the Real Estate Program at the
University of Illinois at Urbana-Champaign:
Urban Real Estate Valuation
Urban Economics
Real Estate Financial Markets
Real Estate Investments
Real Estate Law
Real Estate Fundamentals
Current Position
Associate Appraiser, Cushman & Wakefield of Illinois, Inc., Valuation Advisory
Services.
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
MICHAEL J. SCHAEFFER
Real Estate Experience
Mr. Schaeffer has been active in the appraisal of real estate since 1983.
Appraisal experience includes the valuation of income-producing real estate in
the Chicago area as well as many major cities and small towns throughout the
Midwest. The types of properties appraised include office buildings, regional
malls, shopping centers, country clubs, apartment complexes, subsidized housing
units, industrial buildings, nursing homes, retirement communities, automotive
dealerships, department stores, vacant land, proposed income-producing
properties, and various special purpose properties. Mr. Schaeffer also has had
over 10 years of experience in new construction and renovation of commercial,
industrial, residential and specialized real estate properties.
Education
Bachelor of Arts, University of Cincinnati, Cincinnati, Ohio MBA Graduate Course
Work in Economics and Management, Xavier University, Cincinnati, Ohio
Real Estate Education
The following courses sponsored by the Appraisal Institute have been
successfully completed:
Real Estate Appraisal Principles 1A-1
Basic Valuation Procedures 1A-2
Standards of Professional Practice
Capitalization Theory and Techniques 1BA
Capitalization Theory and Techniques IBB
Advanced Applications 550
Report Writing & Valuation Analysis 540
Mr. Schaeffer has also attended numerous lectures and seminars sponsored by the
Appraisal Institute.
Mr. Schaeffer is currently a candidate for the MAI designation of the Appraisal
Institute, and has completed the educational and experience requirements for the
MAI designation.
Current Position
Director, Appraisal Services, Cushman & Wakefield, Inc., Chicago, Illinois
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
STANLEY R. DENNIS, JR., MAI
Real Estate Experience
Director, Manager, Cushman & Wakefield Valuation Advisory Services, Chicago,
Illinois. Division is responsible for the appraisal and consultation function of
Cushman & Wakefield, Inc., a national full service real estate organization,
1989.
Vice President, Manager, Cushman & Wakefield Appraisal Services, Portland,
Oregon, 1983.
Principal, Stanley R. Dennis & Associates, Portland, Oregon, 1982.
Education
Portland State University, Portland, Oregon
Bachelor of Science Degree, 1977, Finance and Real Estate
Appraisal Institute
Course I-A Fundamentals and Principles of Real Estate Appraisal
Course I-B Capitalization Theory and Techniques
Course II-I Case Studies in Real Estate Valuation
Course II-2 Valuation Analysis and Report Writing
Course II-3 Standards of Professional Practice
Course IV Litigation/Condemnation Valuation
Course VI Investment Analysis
Course VIII Residential Case Studies
Course X Market Analysis
Seminar Feasibility Analysis and Highest and Best Use
Seminar Discounted Cash Flow Analysis
Seminar Cash Equivalency
Seminar Subdivision Analysis
Seminar Rates, Ratios and Reasonableness
Professional Affiliations
American Institute of Real Estate Appraisers, Member (Designation #6754)
Building Owners and Managers Association (BOMA)
National Association of Corporate Real Estate Executives (NACORE)
<PAGE>
================================================================================
MARKET STUDY OF REAL PROPERTY
California Hawaiian
3637 Snell Avenue
San Jose, Santa Clara County, California
================================================================================
As of December 2, 1997
Prepared For:
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Prepared By:
Cushman & Wakefield of Illinois, Inc.
Valuation Advisory Services
455 North Cityfront Plaza Drive, Suite 2800
Chicago, Illinois 60611-5555
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
[Letterhead of Cushman & Wakefield of Illinois, Inc.]
December 12, 1997
Mr. Edward J. Welch
Director
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Re: Market Study of Real Property
California Hawaiian
3637 Snell Avenue
San Jose, Santa Clara County, California 95136
Dear Mr. Welch:
In fulfillment of our agreement as outlined in the Letter of Engagement,
Cushman & Wakefield of Illinois, Inc., is pleased to transmit our market study
and consulting report evaluating the above referenced real property.
As specified in the Letter of Engagement, our market study and consulting
report is qualified by certain assumptions, limiting conditions, certifications,
and definitions, which are set forth in the report.
This consulting report was prepared for the Client, and it is intended
only for the specified use of the Client. It may not be distributed to or relied
upon by other persons or entities without written permission of Cushman &
Wakefield, Inc.
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the above
referenced real property, as of the date of our property inspection. The
function of the report is to assist the client, in evaluating the property for
underwriting and rating purposes.
<PAGE>
Mr. Edward J. Welch - 2 - December 12, 1997
This market study and consulting report was prepared in conformity with
the requirements of the Code of Ethics and Standards of Professional Appraisal
Practice of the Appraisal Institute and the Uniform Standards of Professional
Practice (USPAP) adopted by the Appraisal Standards Board of the Appraisal
Foundation.
This letter is invalid if detached from the report, which contains the
text, exhibits, and the Addenda.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF ILLINOIS, INC.
/s/ Nancy D. Piekos
Nancy D. Piekos
Associate Appraiser
/s/ Michael J. Schaeffer
Michael J. Schaeffer
Director
/s/ Stanley R. Dennis, Jr.
Stanley R. Dennis, Jr., MAI
Director, Manager
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
SUMMARY OF SALIENT FACTS
================================================================================
Property Name: California Hawaiian
Location: 3637 Snell Avenue
San Jose, Santa Clara County, California
Assessor's Parcel Number: Based on information provided by Santa Clara
County records, the subject property is
identified by Assessor's Parcel Number
462-19-005-00.
Date of Inspection: The property was inspected December 2,
1997.
Ownership: The subject property is legally entitled to
MHC Operating Limited Partnership, an
Illinois limited partnership.
Land Area: Based on information provided by the
property's legal plat of survey, the subject
property contains approximately 49.63 acres
of land area, or 2,161,883 square feet.
Zoning: Based on information provided by the City of
San Jose zoning department, the subject
property is zoned T-M, Mobile Home Park
District. The subject property is a legal
and conforming use under the current zoning
classification.
Improvements
Type: A manufactured housing community.
Year Built: The subject property was originally
developed in approximately 1970.
Size: The subject property consists of a 412-site
manufactured housing community.
Condition: At the time of inspection, the subject
property was in very good condition.
Property Rating: Five Star manufactured home community.
Special Assumptions: 1. Information regarding the subject
property, including its physical
characteristics, was provided to us by the
client and the on-site manager, and is
assumed to be accurate.
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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Summary of Salient Facts
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2. The existence of potentially hazardous or
toxic materials, which may be located on or
about the property, was not considered in
our evaluation. The appraisers are not
qualified to detect such substances, and
Cushman & Wakefield urges that an expert in
this field be employed to determine the
existence, if any, of hazardous materials
located on or about the site.
3. Our market and consulting report
regarding the subject assumes the subject
property, as presently improved, represents
its highest and best use.
4. It is unknown to the appraiser if the
subject property complies with the Americans
with Disabilities Act (ADA). We recommend a
qualified specialist in the final
determination regarding any ADA compliance
deficiencies that may be present at the
subject property.
5. Please refer to the complete list of
assumptions and limiting conditions included
at the end of this report.
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
TABLE OF CONTENTS
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Page
PHOTOGRAPHS OF SUBJECT PROPERTY................................................1
INTRODUCTION...................................................................6
Identification of Property...................................................6
Property Ownership and Recent History........................................6
Purpose and Function of the Market Study and Consulting Assignment...........6
Scope of the Market Study and Consulting Assignment..........................6
Date of Property Inspection..................................................6
Definitions and Other Pertinent Terms........................................6
REGIONAL ANALYSIS..............................................................9
NEIGHBORHOOD ANALYSIS.........................................................15
MARKET ANALYSIS...............................................................16
National Overview...........................................................16
Competition.................................................................23
Comparable Manufactured Housing Community Sales.............................28
Demographic Trends..........................................................30
Expense Analysis............................................................30
Market Supply and Demand....................................................31
Conclusion..................................................................31
PROPERTY DESCRIPTION..........................................................33
Site Description............................................................33
Improvements Description....................................................33
REAL PROPERTY TAXES AND ASSESSMENTS...........................................34
ZONING........................................................................34
CONCLUSION....................................................................35
ASSUMPTIONS AND LIMITING CONDITIONS...........................................36
CERTIFICATION.................................................................38
ADDENDA.......................................................................39
Pop-Fact Sheets
Legal Description
Qualifications of Appraisers
CUSHMAN &
WAKEFIELD(R)
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PHOTOGRAPHS OF SUBJECT PROPERTY
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[PICTURE OMITTED]
Front Entrance of the Subject Property Along Snell Avenue
[PICTURE OMITTED]
Exterior View of the Community Center
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Photographs of Subject Property
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[PICTURE OMITTED]
Interior View of the Community Center
[PICTURE OMITTED]
Interior View of the Community Center
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Photographs of Subject Property
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[PICTURE OMITTED]
Exterior View of the Community Center, Comprising the Pool Area
[PICTURE OMITTED]
Exterior View of the Playground Area
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<PAGE>
Photographs of Subject Property
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[PICTURE OMITTED]
Typical Lake Views within the Subject Park
[PICTURE OMITTED]
Typical Lake Views Within the Subject Park
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Photographs of Subject Property
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[PICTURE OMITTED]
Typical Street Scene within the Subject Park
[PICTURE OMITTED]
Typical Street Scene within the Subject Park
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<PAGE>
INTRODUCTION
================================================================================
Identification of Property
The subject property consists of a 412-site manufactured housing
community, situated on approximately 49.63 acres of land area, located along
Snell Avenue, within the city limits of San Jose, Santa Clara County,
California. The property's street address is 3637 Snell Avenue. The property was
constructed in 1970, and was 99.51 percent occupied at the time of inspection,
with only two vacant sites available.
Property Ownership and Recent History
The subject property is currently entitled to MHC Operating Limited
Partnership, an Illinois limited partnership. The subject property was most
recently acquired by current ownership in March, 1997, for a reported sales
price of $23,300,000, or approximately $56,553 per site. The subject property
was originally developed in 1970, with 412 manufactured housing sites.
Purpose and Function of the Market Study and Consulting Assignment
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the subject
property, as of the date of property inspection. The function of the consulting
report is to assist the client in evaluating the property for underwriting and
rating purposes.
Scope of the Market Study and Consulting Assignment
In the process of preparing this report, we inspected the property,
interviewed the on-site manager, conducted market research into asking rental
rates for comparable properties, conducted market investigations, and
ascertained sales prices of comparable properties. Additionally, we conducted
market research and evaluated demographic and economic trends; and, the market
position and rating of the subject property.
Date of Property Inspection
The property was inspected December 2, 1997.
Definitions and Other Pertinent Terms
Definitions of pertinent terms taken from the Dictionary of Real Estate
Appraisal, Third Edition (1993), published by the Appraisal Institute, is as
follows:
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<PAGE>
Introduction
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Market Rent
The rental income that a property would most probably command on the open
market; indicated by current rents paid and asked for comparable space as
of the date of the appraisal.
Evaluation
Evaluation is a study of the nature, quality, or utility of a parcel of
real estate or interest in, or aspects of, real property, in which a value
estimate is not necessarily required.
Market Study
A macroeconomic analysis that examines the general market conditions of
supply, demand, and pricing or the demographics of demand for a specific
area or property type.
Legal Description
The subject property is located along the west side of Snell Avenue, just
north of its intersection with Capitol Expressway, within the San Jose city
limits, Santa Clara County, California. The street address of the subject
property is 3637 Snell Avenue, San Jose, California. The property is identified
by tax parcel number 462-19-005-00, according to Santa Clara County records. Due
to the lengthy metes and bounds legal description, the subject property's legal
description is presented in the Addenda of this report, and reference is made
thereto.
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<PAGE>
REGIONAL MAP
[MAP OMITTED]
<PAGE>
REGIONAL ANALYSIS
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Introduction
The subject property is located within the city of San Jose, Santa Clara
County, California, and as such is part of a region commonly known as the San
Francisco Bay Area. The greater San Francisco Bay Area consists of nine
counties: Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo, Santa
Clara, Solano, and Sonoma. Please refer to the map on the facing page, which
shows the subject property's location in the region.
The market value of real property is influenced by the economic,
political, physical and social characteristics of the overall economic region of
which it is a part. Following is an overview of the San Francisco Bay Area
Region focusing on some of its more important characteristics.
Population
Historical and projected population trends between 1960 and 2000 for the
nine Bay Area counties, and for the State of California as a whole, as shown as
follows:
<TABLE>
<CAPTION>
=================================================================================================================================
HISTORIC POPULATION
(Bay Area Region and State of California)
=================================================================================================================================
1960 1970 1980 1990 2000
----------------------------------------------------------------------------------------------------------------
County Population Population Average Population Average Population Average Population Average
Annual Annual Annual Annual
Growth Growth Growth Growth
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Alameda 908,209 1,073,184 1.7% 1,105,379 0.3% 1,276,702 1.5% 1,364,600 1.4%
Contra Costa 409,030 558,389 3.2 656,380 1.6 803,732 2.0 882,700 2.0
Marin 146,820 206,038 3.4 222,568 0.8 230,096 0.3 234,600 1.3
Napa 65,890 79,140 1.8 99,199 2.3 110,765 1.1 121,150 1.9
San Francisco 740,316 715,674 (0.3) 678,974 (0.5) 723,959 0.6 759,900 1.0
Santa Mateo 444,387 556,234 2.3 587,329 0.5 649,623 1.0 696,450 1.4
Santa Clara 642,315 1,064,714 5.2 1,295,071 2.0 1,497,577 1.5 1,611,200 1.5
Solano 134,597 169,941 2.4 235,203 3.3 340,421 3.8 379,350 2.3
Sonoma 147,375 204,885 3.3 299,681 3.9 388,222 2.6 432,000 2.2
=================================================================================================================================
Nine-County 3,638,939 4,628,199 2.4% 5,179,784 1.1% 6,021,097 1.5% 6,492,950 1.6%
California 15,717,200 19,953,100 2.4 23,668,600 1.7 29,760,000 2.3 32,344,000 1.7
=================================================================================================================================
</TABLE>
The San Francisco Bay Area's current population is an estimated 6.5
million; the Bay Area is the nation's fourth largest metropolitan area. Growth
was most vigorous between 1960-1970 and occurred primarily in the suburbs
surrounding San Francisco.
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Regional Analysis
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From 1960 to 1980, the fastest growing counties were Santa Clara, Contra
Costa and Sonoma. During the 1980s, the fastest growing counties were Sonoma,
Solano, Napa and Contra Costa. Contra Costa and Santa Clara Counties showed the
largest gains in total number of persons. Between 1990 and 1995 the fastest
growing counties were Solano and Sonoma, with Santa Clara, Alameda, and Contra
Costa counties again showing the largest gain in total persons.
The following chart summarizes projected population figures for the nine
Bay Area counties through the year 2015. Santa Clara, Alameda, and Contra Costa
Counties are projected to experience the greatest increase in terms of absolute
numbers. Solano County is projected to experience the greatest percentage
increase over the next 20 years.
<TABLE>
<CAPTION>
====================================================================================================================================
PROJECTED POPULATION IN THE SAN FRANCISCO BAY REGION
====================================================================================================================================
Projected % Projected Average Annual
Actual ------------------------------------------------------------- Change Growth
County 1995 2000 2005 2010 2015 1995-2015 1995-2015
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Alameda 1,364,600 1,453,000 1,518,700 1,556,600 1,591,500 16.6% 0.8%
Contra Costa 882,700 962,900 1,059,500 1,120,000 1,169,400 32.5% 1.6%
Marin 245,600 255,650 263,250 271,950 278,150 13.2% 0.7%
Napa 121,150 132,700 138,800 144,700 152,500 25.9% 1.3%
San Francisco 759,900 780,400 789,100 800,600 795,800 4.7% 0.2%
San Mateo 696,450 727,300 754,750 746,950 755,350 8.4% 0.4%
Santa Clara 1,611,200 1,719,150 1,790,050 1,844,300 1880,650 16.7% 0.8%
Solano 379,350 423,300 472,200 513,400 531,700 40.2% 2.0%
Sonoma 432,000 476,900 509,900 541,100 565,900 31.0% 1.6%
---------------------------------------------------------------------------------------------------------------------
Region 6,492,950 6,931,300 7,539,600 7,539,600 7,720,950 18.9% 0.9%
====================================================================================================================================
</TABLE>
Housing
Similar to many areas in the country, the Bay Area has experienced an
inverse relationship between residential and commercial real estate markets. The
housing supply has lagged behind demand, driving prices up beyond the reach of
most area residents and forcing them to find more affordable housing elsewhere.
San Francisco, Oakland, Sunnyvale, Santa Clara and Palo Alto top the Bay Area in
net commuters and conditions are unlikely to improve. ABAG reports that
"inadequate housing production and high housing prices remains the most serious
constraints to the economic health of the region." Although availability of land
would not appear to be a problem in most areas, public policy and infrastructure
constraints do pose limitations to residential development.
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Regional Analysis
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Economy
The Bay Area's economic base is constantly growing in size and diversity.
The economy is not oriented toward heavy manufacturing or mature industries;
these have moved out of the area in the last 10 years. High-technology
manufacturing and research now play significant roles in the economy. Although
industrial growth is cyclical, it should remain strong over the long term. San
Francisco, and the region as a whole, is shifting away from goods-production and
toward service-oriented activities and high-technology manufacturing, which
fosters economic stability.
A table illustrating historical employment growth, by county, in the San
Francisco Bay Area Region is presented below. Jobs growth in absolute terms
increased the most during the 1970s, followed by the 1980s.
<TABLE>
<CAPTION>
====================================================================================================================================
HISTORICAL EMPLOYMENT GROWTH IN THE SAN FRANCISCO BAY REGION
====================================================================================================================================
County 1960 1970 1980 1990 1995 % Change % Change % Change
1990-1995 1970-1980 1980-1990
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alameda 310,700 404,000 513,800 620,980 608,770 -2.0% 27% 21%
Contra Costa 85,100 125,300 201,200 303,830 298,420 -1.8% 61% 51%
Marin 27,000 45,600 77,900 101,060 104,870 3.8% 71% 30%
Napa 15,500 21,700 35,800 47,710 50,000 4.8% 65% 33%
San Francisco 385,700 440,300 552,200 566,640 534,610 -5.6% 25% 3%
San Mateo 113,300 183,700 259,800 311,600 318,350 2.2% 41% 20%
Santa Clara 222,800 380,900 702,900 852,080 827,350 -2.9% 85% 21%
Solano 35,700 53,600 103,400 149,890 164,030 9.4% 93% 45%
Sonoma 39,400 49,900 90,800 119,210 121,890 2.2% 82% 31%
-------------- --------------- -------------- -------------- -------------- -------------- --------------- =========
Region 1,235,200 1,705,000 2,537,800 3,073,000 3,028,920 -1.4% 49% 21%
====================================================================================================================================
</TABLE>
The Bay Area economy and job market was negatively impacted in recent
years by the national recession, military base closures, and the trend in
corporate downsizing and mergers. The region as a whole lost over 44,000 jobs.
Significant job losses were experienced in the manufacturing, construction,
wholesale and retail trade. FIRE and government sectors. The service sector
actually added 60,000 jobs during the time period.
According to the ABAG, the Bay Area experienced a net decline of 134,000
jobs between July 1990 and August 1993. From 1993 to 1995, only 70,000 jobs had
been added according to the Employment Development Department. ABAG projects
that the region will add approximately 54,000 jobs annually between 1995 and
2000. The projected growth is significantly lower than the historic job growth
during the previous decades
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Regional Analysis
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(57,000 new jobs annually during the 1980s and 81,000 new jobs annually during
the 1970s).
A table illustrating projected jobs by industry is displayed in the
following table. Growth will occur primarily in the service, wholesale trade,
and transportation/communication/utilities sectors. Overall, ABAG projects that
over 990,000 new jobs will become available during the next 20-year period
between 1995 and 2015. This is an average annual increase of 1.6 percent
compared to the projected population growth rate of 0.9 percent.
<TABLE>
<CAPTION>
====================================================================================================================================
SAN FRANCISCO BAY AREA REGIONAL PROJECTIONS
====================================================================================================================================
Industry 1990 1995 2000 2005 2010 2015
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Agriculture,
Mining 35,220 34,200 33,030 31,780 31,090 28,230
Construction 141,970 135,420 160,610 176,430 181,410 181,960
Manufacturing 494,670 454,800 491,730 524,080 561,440 584,820
High Technology* 263,720 236,380 263,400 279,210 293,690 307,000
Transp., Comm.,
Utilities 182,130 185,910 210,970 225,530 244,350 264,670
Wholesale Trade 184,130 172,170 193,100 223,750 239,060 252,810
Retail Trade 514,920 487,190 528,660 577,320 621,570 654,160
F.I.R.E. 220,040 208,740 224,910 237,730 245,070 259,430
Services 1,019,190 1,080,850 1,195,380 1,320,400 1,428,260 1,522,220
Business Services* 356,600 378,150 441,910 505,020 564,260 632,610
Government 280,730 268,990 260,410 268,620 274,270 273,480
- ------------------------------------------------------------------------------------------------------------------------------------
Total Jobs 3,073,000 3,028,290 3,298,800 3,585,640 3,826,520 4,021,780
====================================================================================================================================
</TABLE>
Transportation
The Bay Area Rapid Transit (BART) system provides passenger rail service
throughout the Bay Area. The modern, high-speed BART system currently serves San
Francisco and the East Bay cities of Fremont, Union City, Hayward, San Leandro,
Oakland, Alameda, Berkeley, San Pablo, El Cerrito, Richmond, Orinda, Lafayette,
Walnut Creek, Pleasant Hill, and Concord. Eventually, the East Bay lines may be
expanded. The Concord line is currently being extended north to Antioch. Future
plans involve adding a new line which will connect Hayward, in southern Alameda
county, and Livermore, in eastern Alameda County. Additionally, a new BART line
is being planned for service between San Francisco and the airport in Burlingame
in San Mateo County.
Income
The Bay Area had the highest average household income in California in
1990; one reason is that the region also leads the state in the percentage of
women who work. About 70 percent of all Bay Area women are employed, compared
with a statewide average of 63 percent, according to the Center for Continuing
Study of California. Actual 1995 average
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Regional Analysis
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household incomes for the Bay Area, and projections for 2015, are shown in the
table below.
<TABLE>
<CAPTION>
====================================================================================================================================
SAN FRANCISCO BAY REGION MEAN HOUSEHOLD INCOME
(IN CONSTANT 1995 DOLLARS)
====================================================================================================================================
1995-2015
Area 1995 2005 2015 Percent Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alameda County $58,800 $68,700 $78,000 33%
Contra Costa County 70,400 83,400 95,800 36%
Marin County 86,800 108,600 125,300 44%
Napa County 58,400 70,100 81,300 39%
San Francisco County 59,600 73,400 94,300 41%
San Mateo County 77,800 94,400 109,500 41%
Santa Clara County 73,800 87,200 98,700 34%
Solano County 54,900 64,700 72,500 32%
Sonoma County 58,100 69,700 79,500 37%
Total Region $66,900 $79,800 $90,900 36%
====================================================================================================================================
</TABLE>
Source: Association of Bay Area Governments
Projections-96, December 1995
Summary
The subject property is located in the fourth largest metropolitan area in
the U.S. Historically, regional population and employment growth have out paced
the nation's. The Bay Area is the wealthiest region in California in terms of
average household income.
The area has recovered from recessionary economic conditions which plagued
the early-1990's. Job growth over the next five years is forecast to be moderate
given the weak recovery in high technology, continued restructuring of other
major job sectors including finance and business services, and local military
base closures.
On the other hand, the Bay Area benefits from a diverse economy which is
well positioned to remain the economic center for northern California, as well
as the western United States. The region is also well located to serve the
Pacific Rim. The Bay Area is faring better than the remainder of the state in
terms of economic growth.
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<PAGE>
NEIGHBORHOOD MAP
[MAP OMITTED]
<PAGE>
NEIGHBORHOOD ANALYSIS
================================================================================
The subject property is situated along the west side of Snell Avenue, just
north of its intersection with Capitol Expressway, within the city limits of San
Jose, Santa Clara County, California. The subject's immediate neighborhood is
bordered by mountainous terrain to the north, Capitol Expressway to the south,
the Monterey Highway (State Route 82) to the east, and State Route 87 to the
west. The subject's immediate area along Snell Avenue is predominantly developed
with service commercial uses at the intersection of Snell Avenue and Capitol
Expressway, and light industrial and office uses along Snell Avenue, across the
street from the subject property.
The subject property is immediately bounded by Snell Avenue to the east.
Snell Avenue is a secondary two-lane, north-south thoroughfare, within the
vicinity of the subject property. Snell Avenue provides access to Capitol
Expressway, which in turn provides direct access to State Route 87 to the west,
Monterey Highway to the east, as well as to U.S. Highway 101 which is situated
approximately 2.5 miles east of the subject property.
The subject property enjoys good visibility along Snell Avenue, and
primary access to the subject's main entrance to the park is accessed directly
off of Snell Avenue. Other developments along Snell Avenue consists of light
industrial and professional office uses, situated across the street from the
subject property, located along the east side of Snell Avenue.
As previously mentioned, the subject property is located within the San
Jose city limits. The majority of the commercial and retail establishments
serving the subject's immediate area are located within one mile of the subject
property, along Monterey Road and Almaden Road. According to Equifax National
Decision Systems (ENDS), the 1997 estimated population of the city of San Jose
is 844,225. The local population is projected to increase to 894,496 by the year
2002. The 1997 estimated total number of households is 275,416, which is
projected to increase to 295,394 households by the year 2002.
The subject property is situated in an area well suited for manufactured
housing development. Real estate values are anticipated to increase at a steady
pace. The economy in the area is anticipated to be good, with unemployment
steadily decreasing. The growth in population is anticipated to increase.
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MARKET ANALYSIS
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National Overview
Reportedly, the largest property owners of manufactured housing
communities in the United States are: ROC Communities, headquartered in
Colorado; MHC, Inc., headquartered in Illinois; Ellenburg Capital, headquartered
in Oregon; Lautrec Ltd., headquartered in California; Clayton Homes,
headquartered in Tennessee; Clayton Williams and Sherwood, headquartered in
California; Chateau Properties, Sun Communities and UNIPROP, headquartered in
California.
The following represents the top ten manufactured housing community firms,
as reported by GFA Management, as of 1997.
<TABLE>
<CAPTION>
=================================================================================================
1997 Firm Name State No. of Sites No. of Communities
Rank Owned/Managed Owned/Managed
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Sun Communities California 30,295/0 84/0
- -------------------------------------------------------------------------------------------------
2 ROC Communities Colorado 22,441/7,167 77/36
- -------------------------------------------------------------------------------------------------
3 Manufactured Home Communities Illinois 27,349/838 69/3
- -------------------------------------------------------------------------------------------------
4 Ellenburg Capital Florida 25,173/0 63/0
- -------------------------------------------------------------------------------------------------
5 Lautrec Ltd. California 22,652/0 58/0
- -------------------------------------------------------------------------------------------------
6 Chateau Properties California 20,003/0 47/0
- -------------------------------------------------------------------------------------------------
7 Clayton Homes Tennessee 18,000/0 66/0
- -------------------------------------------------------------------------------------------------
8 Clayton, Williams and Sherwood California 16,946/0 44/0
- -------------------------------------------------------------------------------------------------
9 UNIPROP California 14,931/0 40/0
- -------------------------------------------------------------------------------------------------
10 The Bloch Organization California 14,379/0 37/0
=================================================================================================
</TABLE>
According to the U.S. Census Bureau, more than 8,521,000 people were
living in manufactured housing communities as of 1990 compared to 3,838,678 in
1980. This represents an increase in manufactured housing community living of
approximately 122.0 percent over the last ten years. Over the last ten years,
there has been a steady increase in manufactured housing community development
across the country. Among the demographic factors which account for the increase
in manufactured housing community living are: decreasing household size, a
growing demand for smaller housing, as well as an alternative to the increasing
cost of housing. Nationally, the largest percentage of manufactured housing
communities are located in California, California, Colorado, Florida, New York,
Minnesota, Indiana, Arizona, Ohio, and Wisconsin.
The manufactured home industry has dramatically changed over the last 20
years. Manufactured homes are now designed and constructed to accommodate
spacious and
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Market Analysis
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attractive living requirements. Today, approximately one out of sixteen families
live in manufactured housing units. The manufactured housing market share has
been growing steadily over the last 10 years. In 1990, 6.7 percent of Americans
lived in manufactured housing units, up from 2.9 percent compared to 1970,
according to the U.S. Census Bureau, which represents 12.0 to 14.0 percent of
all new housing built since the mid-1980's, according to the Manufactured
Housing Institute in Arlington, Virginia.
In 1990, the average cost of a manufactured housing unit was $27,800
compared to $149,000 for a new house (including land), according to the
Manufactured Housing Institute. This reflects a 28.0 percent increase in the
cost of manufactured housing since 1980 versus a 49.0 percent increase in
conventional housing. Industry experts estimate that a single-family home
selling for $150,000 would require an annual income of $52,671. To purchase a
$27,800 manufactured housing unit, only a $19,984 income level would be
required.
At Fleetwood Enterprises, the nation's largest manufacturer of
manufactured housing units, units may be purchased for up to $100,000, which
would include a three-bedroom, two-bath unit of 2,100 square feet, with vaulted
ceilings.
In 1990, approximately 10.0 percent of manufactured home owners lived in
units worth approximately $40,000, up from 4.0 percent compared to 1981,
according to a study conducted by Foremost Insurance Company in Grand Rapids,
California. Also, according to the study, approximately 21.0 percent of the
manufactured housing households are occupied by people' 65 years of age or
older, slightly lower than the age group for conventional homes, as reported by
Foremost Insurance.
The demand for good quality institutional grade manufactured housing
communities has substantially increased over the last ten years. Manufactured
housing communities provide an affordable alternative to the increasing cost of
housing. Also, manufactured housing communities provide an alternative form of
living for the elderly and retirees, especially for those living on fixed
incomes.
Acquisitions of manufactured housing communities during 1993 and 1994 were
clearly dominated by Real Estate Investment Trusts. During 1994 and 1995
Manufactured Home Communities (MHC) and ROC communities lead the acquisition of
manufactured housing communities nationally. During 1996, Sun Communities
captured the lead and, together with ROC and MHC dominate the Real Estate
Investment Trust market.
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Market Analysis
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The following chart represents the largest Real Estate Investment Trusts,
from 1991 to 1996, as reported by GFA Management
================================================================================
HOME SITE GROWTH, DEVELOPMENT AMONG THE LARGEST
REAL ESTATE INVESTMENT TRUST (REITS)
- --------------------------------------------------------------------------------
Year ROC MHC Chateau Sun United Total Annual
Growth
- --------------------------------------------------------------------------------
1996 29,608 28,187 20,003 30,295 5,234 113,327 17.0%
- --------------------------------------------------------------------------------
1995 27,910 26,237 19,594 18,000 4,850 96,591 9.0%
- --------------------------------------------------------------------------------
1994 26,231 28,407 15,689 13,500 4,623 88,450 37.8%
- --------------------------------------------------------------------------------
1993 20,142 14,700 15,261 9,036 5,050 64,189 17.8%
- --------------------------------------------------------------------------------
1992 18,745 12,873 10,032 7,600 5,200 54,450 N/A
- --------------------------------------------------------------------------------
1991 9,030 13,079 9,759 N/R N/R N/A N/A
- --------------------------------------------------------------------------------
N/R = No report N/A = Not applicable
- --------------------------------------------------------------------------------
NOTE: The 113,327 sites counted for the top five REITs in 1996 make up 20
percent of the total sites surveyed in the 1997 Allen Report. These rental
sites are located in 339 communities, accounting for about 1 percent of
some 50,000 existing manufactured housing communities nationwide. The
community counts for the five major REITs are: ROC (113), MHC (72),
Chateau (47), Sun (84) and United (23). The proportion of communities
owned by each of the REITs compared to the others is: ROC (33%), MHC (21%),
Chateau (14%), Sun (25%) and United (7%).
================================================================================
Manufactured Home Communities (MHC) is expected to continue an aggressive
acquisition campaign through 1997 and beyond. As of September 1997, the MHC REIT
had a market cap of $632.0 million, and continues to pursue the acquisition of
manufactured home communities. Aside from the ELL-CAP $300.0 million
transaction, in September 1997 Manufactured Home Communities, Inc. completed a
$107.0 million purchase of 18 manufactured housing communities and two related
commercial properties from partnerships affiliated with Mobileparks West. The
communities, with 3,505 sites, were purchased with about $3.0 million
manufactured home operating units, $16.0 million in cash and $20.0 million of
installment notes and assumed debt. The communities have an average monthly
rental of $349.00. The communities are located in California, Utah, Oregon,
Washington and Nevada. MHC may be the first manufactured home community REIT to
reach $1.0 billion.
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Market Analysis
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The MHC REIT continues to perform and expand, and as of September 1997 was
trading at $25.625, with a current yield of 5.2 percent. The top traded REITs,
are presented as follows.
================================================================================
REIT MARKET UPDATE
- --------------------------------------------------------------------------------
Company Price Current 52 Week 52 Week Annual 12 Mth
Symbol (9/19/97) Yield High Low Dividend Tot Rtn
- --------------------------------------------------------------------------------
CPJ $29.688 5.8% $31.125 $22.250 1.72 26.6%
- --------------------------------------------------------------------------------
MHC $25.625 5.2% $26.428 $18.875 1.32 30.7%
- --------------------------------------------------------------------------------
SUI $37.428 5.0% $ 38.00 $27.750 1.88 31.8%
- --------------------------------------------------------------------------------
UMH $11.625 6.0% $13.625 $10.875 0.70 -1.7%
- --------------------------------------------------------------------------------
Total return figures obtained through Standard & Poors and are for the period
through Sept 1997.
================================================================================
The Southwest and Northwest Regions of the nation are the preferred
locations regarding recent and future manufactured housing community
acquisitions. However, investors seeking moderate, but consistent growth
expectations, are still looking at the midwest region. Also, southern portions
of Florida are still considered a prime area for investors seeking good quality
manufactured housing communities, with good up-side potential. What was once a
stagnant market, the northeast region is now being considered for future
acquisitions.
According to a recent study prepared by Merrill Lynch & Company, ownership
in the manufactured housing community industry is highly fragmented. The top 150
owner-operators account for less than 5.0 percent of the total industry, whereas
a host of "mom-and-pop" private companies account for the other 95.0 percent.
This unglamorous niche industry is ripe for consolidation, and an infusion of
professional management expertise is likely to yield significant economies of
scale. The four REIT's specializing in manufactured housing communities are
already among the top ten owner-operators, and are well positioned to facilitate
and hasten the industry's consolidation to the likely benefit of their
stockholders.
Manufactured homes are the fastest growing component of the nation's
housing inventory, due to their affordability, good quality design and safety
standards. According to the Merrill Lynch & Company Manufactured Housing
Community Industry Report, factory-built homes appeal especially to senior
citizens and to households with limited economic needs, two segments of the
population that are likely to grow rapidly in coming years.
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Market Analysis
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Consistent returns in manufactured housing community investments have been
the mainstay of the industry. For this reason, as well as the amount of
acquisitions seen by Real Estate Investment Trusts (REITs) from 1991 to 1996,
the availability of good quality manufactured housing communities has been
substantially reduced compared to the 1980's. Good quality manufactured housing
communities still command premium prices, thus driving down overall
capitalization rates.
Cushman & Wakefield's Valuation Advisory Services has tracked sale
transactions of manufactured housing communities since 1985. Overall
capitalization rates have consistently been within the 8.75 to 10.00 percent
range for communities located in moderate to increasing growth markets, and as
low as near 8.0 percent for those communities located in growing markets that
poses significant upside potential. Overall capitalization rates are clearly
affected and are differentiated among the properties relative to rent levels,
age, quality, condition, location, amenities, demographic characteristics,
resident profile, as well as the quality of management.
Manufactured housing communities fall within, and are categorized by their
overall appearance, age, and amenities, but more importantly the strength of the
local market. The various categories of manufactured housing communities,
according to the Woodall Directory, can be ranked as 1 to 5 Star Parks These
rankings are defined as follows:
One Star Park
The most important consideration for a one star park is overall
appearance. If it is not a decent place to live, it will not be listed in
Woodall's Directory. The following are general requirements:
o Fair overall appearance;
o Patios on most lots. May be concrete, asphalt, wood, or some
suitable material;
o Grass, rock or shell to cover ground;
o Streets fair to good. May be dirt, asphalt or gravel in
reasonable condition;
o Restrooms clean, if any;
o Adequate laundry or laundromat nearby;
o If fences allowed, must be neat;
o Mail service;
o Homes may be old models, but show evidence of care; and,
o Manager available some hours of each day.
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Market Analysis
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Two Star Park
In addition to the requirements for a one star park, a two star park will
have the following:
o Landscaping - some lawns and shrubs;
o Streets in good condition. Must be dust free of crushed rock, gravel
or shell minimum;
o Neat storage;
o Well equipped laundry or laundromat nearby;
o 200 volt connections available;
o If children accepted, park should have play area;
o Park free of clutter, such as old cars and other abandoned
equipment; and,
o Well maintained and managed.
Three Star Park
What a three star park does it does well, but not as uniformly as higher
rated parks. Many three star parks were once higher rated, but original
construction does not allow for today's 10-foot, 12-foot, and double-wides
or the 55-foot and 60-foot lengths. If children are allowed, there should
be adequate play area. However, the disarray caused by children may at
times be the determining factor that keeps a three star park at that level
when it otherwise could be rated higher. In addition to the requirements
for one and two star parks, a three star park must have the following:
o Attractive entrance;
o All homes must be in good condition;
o Awnings and cabana rooms on some homes in southern areas;
o Some spaces for large mobile homes; Paved or hard surfaced streets;
o Off-street parking or streets wide enough for safe on-street
parking;
o Good lawns or substitute throughout, shade trees, some shrubs where
climate permits;
o Concrete patios or the equivalent on all lots;
o All lots neat and attractive;
o All park buildings in good repair; and,
o Good management.
Four Star Park
Four star parks are luxury parks. In addition to the requirements for one,
two and three star parks, a four star park must have the following:
o Good landscaping;
o Most homes skirted with metal skirts, concrete block, ornamental
wood or stone;
o Paved streets, edged or curbed.
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Market Analysis
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o Uncrowded lots;
o Underground utilities if permitted by local conditions and
authorities;
o Most tanks, if present, concealed;
o Any hedges or fences must be attractive and uniform;
o Awnings, cabanas, or porches on most homes in southern areas.
(Excepting double-wide units.);
o Most lots to accommodate large mobile homes;
o Where row parking of homes exists, all must be lined up uniformly;
o Community hall and/or swimming pool and/or recreation programs. If a
park is four star in all but this requirement, the fourth star will
be printed as an open star indicating a four star park without
park-centered recreation; and,
o Excellent management.
Five Star Park
Five star parks are the finest. They should be nearly impossible to
improve. In addition to the requirements for one, two, three, and four
star parks, a five star park must have the following:
o Well planned and laid out spacious appearance;
o Good location in regard to accessibility and desirable neighborhood.
In some locations, park should be enclosed by high hedges or
ornamental fence;
o Wide paved streets in perfect condition. Curbs or lawns edged to
streets, sidewalks, street lights, street signs;
o Homes set back from street;
o Exceptionally attractive entrance and park sign;
o Patios at least 8 x 30 feet. (Excepting double-wide units.);
o Paved off-street parking such as carports or planned parking;
o All homes skirted;
o All hitches concealed. Any existing tanks concealed;
o Recreation, some or all of the following: swimming pool
(excepting areas with long, cold winters), shuffleboards, horseshoe
pitching, golf course, hobby shop, hobby classes, games, potlucks,
dances or natural recreational facilities;
o Beautifully equipped recreation hall with kitchen. Room for
community gatherings, tiled restrooms, etc.;
o Uniform storage sheds or central storage facilities;
o All late model homes in excellent condition;
o At least 60 percent occupancy in order to judge quality of residents
which indicates park's ability to maintain a five star rating
between inspections;
o All empty lots grassed, graveled or otherwise well maintained;
o If pets or children allowed, there must be a place for them to run
and play without cluttering the streets and yards. Most five star
parks are for adults only; and,
o Superior management interested in comfort of residents and
maintenance of park.
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Market Analysis
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The demand for good quality institutional grade manufactured housing
communities is anticipated to increase throughout the 1990's, since manufactured
housing communities provide an alternative form of living for the elderly and
retirees, especially for those living on fixed income. Manufactured home
shipments continue to be strong. Shipments rose 20.0 percent in 1992 and 1994,
and 12.0 percent in 1995. The market for good quality manufactured housing
communities is expected to be strong, with yield and capitalization rates and
prices expected to continue to be competitive, with the REITs leading the way.
Competition
We have surveyed six manufactured housing communities located within the
subject's primary market, including the subject property, containing a total of
2,136 sites. The combined occupancy rate of these six manufactured housing
communities, including the subject property, is approximately 99.49 percent.
Excluding the subject property in our survey, the combined occupancy rate is
approximately 99.48 percent, based on 1,724 sites.
The name and location of the subject property's primary competition, as
well as the number of sites, occupancy levels, amenities offered, monthly rental
rates and services provided in the monthly rental rate, are presented on the
following facing page, along with a map which identifies the location of each
competing park.
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<TABLE>
<CAPTION>
=============================================================================================================================
SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- -----------------------------------------------------------------------------------------------------------------------------
Number Age
Of Sites ---------
-------- Condition Services Date Of
Comp. Name Occupancy ---------- Monthly Provided Last Rental
No. Location Level Amenities Park Rating(1) Rent in Rent Increase
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
R-1 Eastridge Mobile Estates 187 Clubhouse 1980 $450.00/Mo. Water 1997
1955 Quimby Road --- Pools/Spa ---- To Sewer
San Jose, California 98.40% Laundry/Sauna Good $560.00/Mo.
Tennis Courts ----
Playground 3*-4*
- -----------------------------------------------------------------------------------------------------------------------------
R-2 Magic Sands 542 Clubhouse 1968 $400.00/Mo. None 1997
165 Blossom Hill Road --- Pool/Spa ---- To
San Jose, California 100% Sauna/Laundry Good $750.00/Mo.
RV Storage ----
3*-4*
- -----------------------------------------------------------------------------------------------------------------------------
R-3 Chateau LaSalle 434 Clubhouse 1979 $550.00/Mo. Water 1997
2681 Monterey Road ---- Pool/Spa ----
San Jose, California 98.62% Sauna/Laundry Very Good
Tennis Courts ---------
RV Storage 4*-5*
- -----------------------------------------------------------------------------------------------------------------------------
R-4 Coyote Creek MHP 182 Clubhouse 1971 $460.00/Mo. None 1997
2580 Senter Road --- Pool/Spa ---- To
San Jose, California 100% Sauna/Laundry Average $630.00/Mo.
Playground -------
RV Storage 3*-4*
- -----------------------------------------------------------------------------------------------------------------------------
R-5 La Buona Vita(2) 108 Clubhouse 1977 $375.00/Mo. None 1997
445 N. Capitol Avenue ---- Pool/Spa ---- To
San Jose, California 100% Sauna/Laundry Good $550.00/Mo.
RV Storage ----
3*-4*
- -----------------------------------------------------------------------------------------------------------------------------
R-6 Village of the Four Seasons 271 Clubhouse 1971 $550.00/Mo. Sewer 1997
200 Ford Road ---- Pool/Spa ---- Refuse
San Jose, California 100% Sauna/Laundry Good
----
3*-4*
- -----------------------------------------------------------------------------------------------------------------------------
Subject California Hawaiian 412 Clubhouse 1970 $547.00/Mo. None May, 1997
3637 Snell Avenue ---- 2 Pools/Spas ----
San Jose, California 99.51% Sauna/Laundry Very Good
Shuffleboard ---------
Playground 5*
RV Storage
- -----------------------------------------------------------------------------------------------------------------------------
(1) Ratings from One Star to Five Star Parks are defined in the National
Overview section of this report.
(2) Senior park for residents 55 years of age or older.
(3) According to the rent control ordinance governed by the city of San Jose,
the annual increase is equivalent to 75.0% of the CPI increase or 3.0%
minimum, which ever is greater. The rental increase is capped at 7.0%.
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</TABLE>
=================================================================
SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- -----------------------------------------------------------------
3-Year
Average
Comp. Name Annual Rental
No. Location Increase
- -----------------------------------------------------------------
R-1 Eastridge Mobile Estates Over the past 3 year
1955 Quimby Road period, the monthly
San Jose, California rental rate has
increased by the CPI,
pursuant to the rent
control ordinance.(3)
- -----------------------------------------------------------------
R-2 Magic Sands Over the past 3 year
165 Blossom Hill Road period, the monthly
San Jose, California rental rate has
increased by the CPI,
pursuant to the rent
control ordinance.(3)
- -----------------------------------------------------------------
R-3 Chateau LaSalle Over the past 3 year
2681 Monterey Road period, the monthly
San Jose, California rental rate has
increased by the CPI,
pursuant to the rent
control ordinance.(3)
- -----------------------------------------------------------------
R-4 Coyote Creek MHP Over the past 3 year
2580 Senter Road period, the monthly
San Jose, California rental rate has
increased by the CPI,
pursuant to the rent
control ordinance.(3)
- -----------------------------------------------------------------
R-5 La Buona Vita(2) Over the past 3 year
445 N. Capitol Avenue period, the monthly
San Jose, California rental rate has
increased by the CPI,
pursuant to the rent
control ordinance.(3)
- -----------------------------------------------------------------
R-6 Village of the Four Seasons Over the past 3 year
200 Ford Road period, the monthly
San Jose, California rental rate has
increased by the CPI,
pursuant to the rent
control ordinance.(3)
- -----------------------------------------------------------------
Subject California Hawaiian The monthly rental rate
3637 Snell Avenue has increased by CPI
San Jose, California over the past three year
period, pursuant to the
rent control ordinance,
or approximately 3.0
percent per year.(3)
- -----------------------------------------------------------------
(1) Ratings from One Star to Five Star Parks are defined in the National
Overview section of this report.
(2) Senior park for residents 55 years of age or older.
(3) According to the rent control ordinance governed by the city of San Jose,
the annual increase is equivalent to 75.0% of the CPI increase or 3.0%
minimum, which ever is greater. The rental increase is capped at 7.0%.
================================================================================
<PAGE>
COMPETING MANUFACTURED HOUSING MAP
[MAP OMITTED]
<PAGE>
Market Analysis
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Rental rates of manufactured housing communities located within the
subject's primary market range from $375.00 to $750.00 per site, on a monthly
basis. According to the most recent rent roll, dated October 22, 1997, rents
currently being achieved at the subject property range from $503.01 per site to
$705.56 per site. The subject property is currently quoting a monthly rental
rate within the market range as previously mentioned, or at $547.00 per site.
The last rental rate increase at the subject property was as of May 1, 1997 and
the monthly rental rate increased by 3.0 percent.
As the subject property is governed by the City of San Jose, the subject
property is subject to the "rent control" ordinance whereby the monthly rental
rate can only be increased (annually) by 75.0 percent of the change/increase of
the Consumer Price Index of the San Francisco Bay area, or a minimum of 3.0
percent, which ever is greater, and the rent increase is capped at 7.0 percent
per year.
The enclosed comparable rentals are considered the most competitive to the
subject property regarding amenities offered, condition, location and overall
ranking.
Comparable R-1, Eastridge Mobile Estates, is located at 1955 Quimby Road,
in San Jose, California. This comparable property contains 187 sites, and
is presently 98.40 percent occupied, with approximately three vacant sites
available. Eastridge Mobile Estates is a family park which was originally
developed in 1980, and is considered to be in overall good condition.
Reportedly, the monthly rental payment has increased annually over the
past three year period, according to the CPI, pursuant to the rent control
ordinance. At present, the monthly rental rate for all sites within the
park ranges from $450.00 to $560.00. The monthly rental rate includes
water and sewer services. Amenities at the property include a clubhouse,
pool/spa, sauna, laundry facility, tennis courts, and playground.
Comparable R-2, Magic Sands, is located at 165 Blossom Hill Road, in San
Jose, California. This comparable property contains 542 sites, and is
presently 100 percent occupied. Magic Sands is a family park which was
originally developed in 1968, and is considered to be in overall good
condition. Reportedly, the monthly rental payment has increased annually
over the past three year period, according to the CPI, pursuant to the
rent control ordinance. At present, the monthly rental rate for all sites
within the park ranges from $400.00 to $750.00. The monthly rental rate
does not include any utilities. Amenities at the property include a
clubhouse, pool/spa, sauna, laundry facility, and RV storage.
Comparable R-3, Chateau LaSalle, is located at 2681 Monterey Road, in San
Jose, California. This comparable property contains 434 sites, and is
presently 98.62 percent occupied, with six vacant sites presently
available. Chateau LaSalle is a family park which was originally developed
in 1979, and is considered to be in overall very good condition.
Reportedly, the monthly rental payment has
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Market Analysis
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increased annually over the past three year period, according to the CPI,
pursuant to the rent control ordinance. At present, the monthly rental
rate for all sites within the park is $550.00. The monthly rental rate
includes water. Amenities at the property include a clubhouse, pool/spa,
sauna, tennis courts, laundry facility, and RV storage.
Comparable R-4, Coyote Creek Mobile Home Park, is located at 2580 Senter
Road, in San Jose, California. This comparable property contains 182
sites, and is presently 100 percent occupied. Coyote Creek is a family
park which was originally developed in 1971, and is considered to be in
overall average condition. Reportedly, the monthly rental payment has
increased annually over the past three year period, according to the CPI,
pursuant to the rent control ordinance. At present, the monthly rental
rates within the park range from $460.00 to $630.00 per site. The monthly
rental rate does not include any utilities. Amenities at the property
include a clubhouse, pool/spa, sauna, playground, laundry facility, and RV
storage.
Comparable R-5, La Buona Vita, is located at 445 North Capitol Avenue, in
San Jose, California. This comparable property contains 108 sites, and is
presently 100 percent occupied. La Buona Vita is a senior park for
residents aged 55 years or older, and was originally developed in 1977. La
Buona Vita is considered to be in overall good condition. Reportedly, the
monthly rental payment has increased annually over the past three year
period, according to the CPI, pursuant to the rent control ordinance. At
present, the monthly rental rates within the park ranges from $375.00 to
$550.00. The monthly rental rate does not include any utilities. Amenities
at the property include a clubhouse, pool/spa, sauna, laundry facility,
and RV storage.
Comparable R-6, Village of the Four Seasons, is located at 200 Ford Road,
in San Jose, California. This comparable property contains 271 sites, and
is presently 100 percent occupied. Four Seasons is a family park which was
originally developed in 1971, and is considered to be in overall good
condition. Reportedly, the monthly rental payment has increased annually
over the past three-year period, according to the CPI, pursuant to the
rent control ordinance. At present, the monthly rental rate for all sites
within the park is $550.00 per site. The monthly rental rate includes
sewer and refuse service. Amenities at the property include a clubhouse,
pool/spa, sauna, and laundry facility.
In our opinion, and based on conversations with the on-site manager,
properties R-3 and R-6 compete most favorably with the subject property, with
monthly rental rates of $550.00 per site. The subject property is currently
quoting a monthly rental rate of $547.00 per site, which is within the range of
rental rates of our more comparable competing properties. The subject property
competes most effectively with its primary competitors regarding amenities,
condition and current rent structure.
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Market Analysis
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Comparable Manufactured Housing Community Sales
A search of the subject's market revealed five recent sales of
manufactured housing communities located in the greater San Francisco-San Jose,
California area. The following is a brief discussion of each of the manufactured
housing sales located within the subject's market. These sales are summarized on
the following facing page.
Comparable Sale I-1, Rancho De Sonoma, is located at 19275 Sonoma Highway,
in Sonoma, California. This property contains 98 sites, situated on 15.34
acres of land area. The property was in average condition at the time of
sale and was developed in 1969. Amenities at the property include only a
pool and laundry facility. The property was approximately 95.0 percent
occupied at the time of sale. The property was purchased for $2,825,000,
which equates to $28,827 per site.
Comparable Sale I-2, Quail Meadows, is located at 5901 Newbrook Drive, in
Riverbank, California. This property contains 147 sites, situated on 20.13
acres of land area. The property was in good condition at the time of sale
and was developed in 1988. Amenities at the property include a clubhouse,
pool/spa, playground, and laundry facility. The property was approximately
97.0 percent occupied at the time of sale. The property was purchased for
$4,300,000, which equates to $29,252 per site.
Comparable Sale I-3, California Hawaiian Mobile Estates, is located at
3637 Snell Avenue, in San Jose, California. This property contains 412
sites, situated on 49.63 acres of land area. The property was in good
condition at the time of sale and was developed in 1970. Amenities at the
property include a clubhouse, pool/spa, sauna, shuffleboard, laundry
facility and RV storage. The property was 100 percent occupied at the time
of sale. The property was purchased for $23,300,000, which equates to
$56,553 per site.
Comparable Sale I-4, Village of the Four Seasons, is located at 200 Ford
Road, in San Jose, California. This property contains 271 sites, situated
on 29.97 acres of land area. The park was in very good condition at the
time of sale and was developed in approximately 1971. Amenities at the
property include a gated entrance, clubhouse, pool, playground, and a
laundry facility. The property was 97.0 percent occupied at the time of
sale. The property was purchased for $11,075,000, which equates to $40,867
per site.
Comparable Sale I-5, Casa Nova Mobile Home Park, is located at 2701 Martin
Road, in Fairfield, California. This property contains 131 sites, situated
on 18.95 acres of land area. The park was in average condition at the time
of sale and was developed in approximately 1972. Amenities at the property
include a clubhouse, pool, and laundry facility. The property was 98.0
percent occupied at the time of sale. The property was purchased for
$4,400,000, which equates to $33,588 per site.
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<TABLE>
<CAPTION>
====================================================================================================================================
SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- ------------------------------------------------------------------------------------------------------------------------------------
Sales Price
Per Site
Sales Date Land Area Density ---------- EGIM
Comp. Name ---------- --------- -------- Occupancy ----
No. Location Sales Price No. Sites Condition At Sale $NOI/Site OAR
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
I-1 Rancho De Sonoma 8/97 15.34 6.39 $28,827 $2,480 6.65x
19275 Sonoma Hwy ----- ----- ----- ------- -----
Sonoma, California $2,825,000 98 Average 95.0% 8.60%
- ------------------------------------------------------------------------------------------------------------------------------------
I-2 Quail Meadows 5/97 20.13 7.30 $29,252 $2,736 7.54x
5901 Newbrook Drive ----- ----- ---- ------- -----
Riverbank, California $4,300,000 147 Good 97.0% 9.35%
- ------------------------------------------------------------------------------------------------------------------------------------
I-3 California Hawaiian Mobile Estates(1) 3/97 49.63 8.30 $56,553 $4,612 7.28x
3637 Snell Ave. ----- ----- ---- ------- -----
San Jose, California 23,300,000 412 Good 100% 8.15%
- ------------------------------------------------------------------------------------------------------------------------------------
I-4 Village of the Four Seasons 12/96 29.97 9.04 $40,867 $4,273 6.03x
200 Ford Road ------ ----- ---- ------- -----
San Jose, California 11,075,000 271 Good 97.0% 10.46%
- ------------------------------------------------------------------------------------------------------------------------------------
I-5 Casa Nova MHP 4/96 18.95 6.91 $33,588 $2,958 8.55x
2701 Martin Road ----- ----- ---- ------- -----
Fairfield, California $4,400,000 131 Average 98.0% 8.81%
- ------------------------------------------------------------------------------------------------------------------------------------
Subject California Hawaiian - - - 49.63 8.30 - - - $3,215 N/A
3637 Snell Avenue ----- ---- 99.51%
San Jose, CA 412 Very Good
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Financial information based on Actual 1996 Budget, provided by MHC, the
buyer. This is the sale of the subject property.
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<CAPTION>
====================================================================================================================================
SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- ------------------------------------------------------------------------------------------------------------------------------------
$EGI/Site
$Expense/Site
--------------
Comp. Name Expense Ratio Comparability
No. Location % Of EGI to the Subject Comments
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
I-1 Rancho De Sonoma $4,335 Inferior Developed in 1969; Average
19275 Sonoma Hwy ------ condition; Amenities include
Sonoma, California $1,855 pool and laundry facility.
------
42.79%
- ------------------------------------------------------------------------------------------------------------------------------------
I-2 Quail Meadows $3,880 Similar Developed in 1988; Good
5901 Newbrook Drive ------ condition; Amenities include:
Riverbank, California $1,144 clubhouse, pool, playground,
------ and laundry facility.
29.48%
- ------------------------------------------------------------------------------------------------------------------------------------
I-3 California Hawaiian Mobile Estates(1) $7,767 Similar Developed in 1970;
3637 Snell Ave. ------ Very good condition; Amenities
San Jose, California $3,155 include: gated entrance,
------ clubhouse, pool/spa, sauna,
40.62% shuffleboard, laundry facility,
shuffleboard, playground, and
RV storage.
- ------------------------------------------------------------------------------------------------------------------------------------
I-4 Village of the Four Seasons $6,782 Similar Developed in 1971;
200 Ford Road ------ Good condition; Amenities
San Jose, California $2,509 include: clubhouse, pool,
------ playground, and laundry facility.
36.99%
- ------------------------------------------------------------------------------------------------------------------------------------
I-5 Casa Nova MHP $3,927 Inferior Developed in 1972;
2701 Martin Road ------ Average condition; Amenities
Fairfield, California $969 include: clubhouse, pool, and
---- laundry facility.
24.68%
- ------------------------------------------------------------------------------------------------------------------------------------
Subject California Hawaiian $4,997 Subject Proper Developed in 1970;
3637 Snell Avenue ------ Very good condition;
San Jose, CA $1,781 Amenities include: Gated
------ entrance; clubhouse, pool/spa,
35.64% sauna, laundry, shuffleboard,
playground, and RV storage.
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Financial information based on Actual 1996 Budget, provided by MHC, the
buyer. This is the sale of the subject property.
====================================================================================================================================
</TABLE>
<PAGE>
Market Analysis
================================================================================
It should be noted that comparability does not imply an identical or exact
duplicate, but rather the possession of a similar utility and affected by
similar supply and demand forces. Also, relative to the subject property,
differences include: time or date of the transactions; location, which
encompasses differences in accessibility; site characteristics, including
differences in size, topography, access, exposure and development capacities;
and improvement characteristics, which include differences in age, quality,
condition, size and amenities.
Demographic Trends
Based on information provided by National Decision Systems (NDS), the
populations within the subject's primary 5-mile and secondary 10-mile market
areas, as of 1997, are 503,833 and 1,058,417 respectively. The populations of
the subject's primary and secondary market areas are projected to increase to
532,093 and 1,109,119 respectively, by the year 2002.
According to NDS, the total number of households within the subject's
primary and secondary market areas, are 160,413 and 357,548, respectively, for
1997. The number of households within the subject's primary 5-mile and secondary
10-mile market areas are projected to increase to 171,425 and 378,542
respectively, by the year 2002.
The average household income levels within the subject's primary and
secondary market areas, for 1997, are $76,708 and $80,674 respectively. The
median household income levels within the subject's primary and secondary market
areas, for 1997, are $62,212 and $63,078, respectively. Per capita income within
the subject's primary and secondary market areas, for 1997, are $24,599 and
$27,548 respectively.
Based on the above levels, the demographics of the subject's primary
market area appear to indicate a positive growth trend, based on information
provided by NDS. A copy of the subject's NDS report is provided in the Addenda
of this report and reference is made thereto.
Expense Analysis
Expenses exhibited by manufactured housing communities nationally are
typically 35.0 to 45.0 percent of effective gross income. However, expense
ratios of manufactured housing communities located in the southeast and
southwest regions of the nation are typically lower by comparison, due to lower
real estate taxes and common area maintenance charges.
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Market Analysis
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As presented in the Summary of Manufactured Housing Communities Sales,
operating expense ratios of competing parks range from 24.68 to 42.79 percent of
effective gross income levels, but typically from 29.48 to 42.79 percent. On a
per site basis, the comparable sales display operating expenses ranging from
$969 to $3,155, but typically from $1,144 to $3,155 per site. The subject
property is currently reporting expenses, for the 12-month trailing period of
1997, at 35.64 percent of effective gross income and $1,781 on a per site basis.
Operating expenses at the subject property appear to be within the range as
displayed by the comparable sales of manufactured housing communities within the
local area.
Market Supply and Demand
There are a total of six competing manufactured housing communities
located within the subject's market, which total 1,724 sites, with a
corresponding average occupancy rate of 99.48 percent. No specific absorption
statistics were available, since the subject's competing parks have historically
reported occupancy rates at, or above 95.0 percent. The occupancy rate of the
subject property, based on conversations with management, has historically been
slightly higher than occupancy rates consistent with competing parks, and is
currently 99.51 percent occupied, with two vacant sites available. We believe
the current occupancy rate of the subject property is stabilized. Based on the
subject's current occupancy rate and occupancy rates at competing parks, demand
appears to be strong, with steady rental rate increases expected.
Conclusion
Historically, the subject's primary market has sustained high occupancy
levels of 95.0 to 100 percent. Rental rates of similar manufactured housing
communities located within the subject's primary market generally range from
$400.00 to $750.00 per site, on a monthly basis. The subject property is
currently quoting, and is currently achieving (based on the most recent rent
roll provided), a monthly rental rate of $547.00 per site, which we believe is
market-orientated, given the high historical occupancy of the park, the
amenities offered, and the overall very good condition of the subject park.
Based on our research, steady increases in rental rates are anticipated,
based on actual historical performance of competing parks and historical
increases seen at the subject property. Sales transactions of manufactured
housing communities located within the subject's region widely range from
$28,827 to $56,553 per site, with corresponding overall rates ranging from 8.15
to 10.46 percent. In our opinion, the subject property competes favorably with
its competition regarding amenities, condition, rent structure and overall
market rating.
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SITE PLAN
[GRAPHIC OMITTED]
<PAGE>
PROPERTY ANALYSIS
================================================================================
Site Description
The subject site is located along the west side of Snell Avenue, just
north of its intersection with Capitol Expressway, within the city limits of San
Jose. The subject site is irregular in shape and contains 49.63, acres or
2,161,883 square feet of land area. Topographically, the site is level at street
grade.
The San Jose Water District provides the water to the subject park, while
the City of San Jose provides sewer service to the subject property. The Pacific
Gas & Electric Company provides the gas and electric service to the subject
property. Primary access to the subject site is provided by Snell Avenue. Based
on the subject's legal plat of survey, the subject property is located in Zone
D, which is an undetermined area, which may be an area of flood hazard. However,
we recommend a qualified engineer to determine the existence of any flood hazard
areas.
The streets within the park have two-lanes, with concrete curbs. Overall,
the subject site is typical of the area and is functionally well suited for its
current use.
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.
Improvements Description
The subject property was originally developed in 1970. The subject
improvements consist of a 412-site manufactured housing community, with a
community center, two swimming pools/spas, sauna, laundry facility,
shuffleboard, playground, and recreational vehicle and boat storage area. Of the
412 total sites, four sites are single-wide, while the remaining 408 sites are
double-wide, however, approximately 99.0 percent of the sites, or 408 sites, can
accommodate a double-wide home. The average site size is approximately 45 feet
by 70 feet.
The community center consists of a manager's office, restroom facilities,
and open-space available for resident use, with a fully-equipped kitchen area.
The exterior of the one-story community center is a combination of concrete
block and stucco, with a Spanish tile roof, and appeared to be in overall good
condition at the time of inspection.
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Property Description
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The swimming pool/spa area is located adjacent to the community center.
The recreational vehicle and boat storage is located toward the southwestern
portion of the park. Wrought iron fencing surrounds the pool area and a
chain-link fence surrounds the recreational vehicle and boat storage area.
Off-street parking is available for each resident. Site improvements within the
park include: paved streets, concrete sites, street lighting and signage.
Overall, the site improvements appeared to be in good condition at the time of
inspection.
California Hawaiian is a functional manufactured housing community with
good ingress and egress along Snell Avenue. Overall, the subject community
appears to be well maintained and is in very good condition. California Hawaiian
is a functional manufactured housing community and competes favorably with other
existing manufactured housing communities in the area in terms of appearance and
amenities. The subject property would fit the profile of a Five Star Park, as
defined in the National Overview section of this report.
Real Property Taxes and Assessments
Since the passage of Proposition 13, or the Jarvis Gann Initiative in
1978, real property taxes in the State of California are limited to 1.0 percent
of market value, as of a specified base year. The base year valuation is the
Assessor's 1975 market value estimate, unless there is a transfer of ownership
(sale), new construction, or the property is leased on a long-term basis.
Whenever this occurs, the property is reassessed at full market value. If a
reassessment is not triggered, the assessed value is trended upward at 2.0
percent annually.
According to the Santa Clara County Assessor's Office, the market value of
the subject property equates to $22,140,902. The subject property is identified
by tax parcel number 462-19-005-00.
The total amount of real estate taxes for fiscal year 1996, payable in
1997 for the subject property amounts to $356,377.90. The total amount of real
estate taxes for fiscal year 1996 payable in 1997 equates to approximately
$864.99 per site.
Zoning
According to zoning officials of the City of San Jose, the subject
property is currently zoned T-M, Mobile Home Park District. Based on
conversations with zoning officials, the subject property is a legal and
conforming use under its present zoning classification.
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CONCLUSION
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Conclusion
o The subject property, California Hawaiian, is a functional
manufactured housing community, which competes favorably in relation
to its competition;
o Comparable manufactured housing communities located within the
subject's market range in monthly rental rates per site from $400.00
to $750.00, but typically from $400.00 to $630.00 per site;
o The subject property is currently quoting, and is currently
achieving (based on the most recent rent roll provided) a monthly
rental rate of $547.00 per site, which is within the range of
competing parks, and appears to be market-oriented;
o Sale transactions of manufactured housing communities located within
the subject's region range in unit sales prices per site from
$28,827 to $56,553, with corresponding overall rates ranging from
8.15 to 10.46 percent;
o Operating expenses are within industry standards for a park located
in the western region of the country;
o The subject park appears to be operating at economic levels based on
our review of historical and budgeted 1998 income and expenses;
o The demographic characteristics of the area appear to be positive;
o The population profile of the subject property is 55 percent adult,
with the remaining 45 percent family oriented;
o The current occupancy rate at the subject property is 99.51 percent,
with two vacant sites presently available. This stabilized occupancy
rate is evident by a strong local market and demand;
o No significant manufactured housing communities are expected to be
developed in the near future;
o In our opinion, based on Woodall's criteria, the subject property is
a Five Star Park, and the reader's attention is directed to the
corresponding definition and criteria of a Five Star Park, presented
in the National Overview section of this report; and,
o Based on the subject's location, demographic, economic, market and
physical characteristics, we believe California Hawaiian will
continue to be a viable manufactured housing community in the
foreseeable future, and is well positioned in the marketplace.
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ASSUMPTIONS AND LIMITING CONDITIONS
================================================================================
"Report" means the consulting report to which these Assumptions and Limiting
Conditions are annexed.
"Property" means the subject of the Report.
"C&W" means Cushman & Wakefield, Inc. or its subsidiary which issued the Report.
"Appraiser(s)" means the employee(s) of C&W who prepared and signed the Report.
This report is made subject to the following assumptions and limiting
conditions:
1. No responsibility is assumed for the legal description or for any matters
which are legal in nature. 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 Report or upon which the Report 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 Appraisers nor C&W shall be responsible for the
accuracy or completeness of such information, including the correctness of
estimates, opinions, dimensions, sketches, exhibits, and other factual
matters.
3. The information is effective as of the date stated in the Report. Changes
since that date in external and market factors or in the property itself
can significantly affect our analysis.
4. The report is to be used in whole and not in part. No part of the Report
shall be used in conjunction with any other report. Possession of the
Report, or a copy thereof, does not carry with it the right of
publication. Publication of the Report or any portion thereof without the
prior written consent of C&W is prohibited. Except as may be otherwise
expressly stated in the letter of engagement to prepare the Report, C&W
does not permit use of the Report by any person other than the party to
whom it is addressed or for purposes other than those for which it was
prepared. If written permission is given by C&W to use the Report, the
Report must be used in its entirety and only with proper written
qualification as approved by C&W. No part of the Report or the identity of
the Appraiser shall be conveyed to the public through advertising, public
relations, news, sales, or other media or used in any material without
C&W's prior written consent. Reference to the Appraisal Institute or to
the MAI designation is prohibited.
5. The Appraiser shall not be required to give testimony in any court or
administrative proceedings relating to the Property or the Report.
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Assumptions And Limiting Conditions
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6. The Report 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 Report; 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 Report is based.
7. The physical condition of the improvements considered by the Report is
based on visual inspection by the Appraiser or other person identified in
the Report. C&W assumes no responsibility for the soundness of structural
members nor for the condition of mechanical equipment, plumbing, or
electrical components.
8. Unless otherwise stated in the Report, the existence of potentially
hazardous or toxic materials which may have been used in the construction
or maintenance or operation of the improvements or may be located at or
about the Property was not considered in the Report. These materials (such
as formaldehyde foam insulation, asbestos insulation, various soil
contaminants, and other potentially hazardous materials) may affect the
value of the Property. The Appraisers are not qualified to detect such
substances, and C&W urges that an expert in this field be employed to
determine the economic impact of these matters, if any, on the property in
the Report.
9. Unless otherwise stated in the Report, compliance with the requirements of
the Americans With Disabilities Act of 1990 (ADA) has not been considered
in the Report. Failure to comply with the requirements of the ADA may
negatively affect the value of the property. C&W recommends that an expert
in this field be employed.
10. If the Report is submitted to a lender or investor with the prior approval
of C&W, such party should consider the Report as one factor, together with
its independent investment considerations and underwriting criteria, in
its overall investment decision.
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CERTIFICATION
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We certify that, to the best of our knowledge and belief:
1. Nancy D. Piekos inspected the property, and Michael J. Schaeffer and
Stanley R. Dennis, Jr., MAI, have reviewed and approved the report, but
did not inspect 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 on an action or event (such as the
approval of a loan) resulting from the analyses, opinions, or conclusions
in, or the use of, this report.
6. 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 Ethics and Standards of Professional Practice of the Appraisal
Institute.
7. No one provided significant professional assistance to the persons signing
this 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. As of the date of this report, Stanley R. Dennis, Jr., MAI, has completed
the requirements of the continuing education program of the Appraisal
Institute.
/s/ Michael J. Schaeffer /s/ Nancy D. Piekos /s/ Stanley R. Dennis, Jr
Michael J. Schaeffer Nancy D. Piekos Stanley R. Dennis, Jr., MAI
Director Associate Appraiser Director, Manager
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ADDENDA
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POP-FACT SHEETS
LEGAL DESCRIPTION
QUALIFICATIONS OF APPRAISERS
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39
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POP-FACT SHEETS
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<PAGE>
Tue Dec 2, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP FACTS: SUMMARY REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6511
PREPARED FOR
Cushman & Wakefield
3637 Snell Avenue
San Jose, California COORD: 37:16.63 121:50.43
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
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POPULATION
2002 PROJECTION 532,093 1,109,119
1997 ESTIMATE 503,833 1,058,417
1990 CENSUS 469,210 994,592
1980 CENSUS 385,831 853,526
GROWTH 1980- 1990 21.61% 16.53%
HOUSEHOLDS
2002 PROJECTION 171,425 378,542
1997 ESTIMATE 160,413 357,548
1990 CENSUS 146,456 331,969
1980 CENSUS 125,282 294,481
GROWTH 1980 - 1990 16.90% 12.73%
1997 ESTIMATED POPULATION BY RACE 503,833 1,058,417
WHITE 55.81% 58.31%
BLACK 4.85% 4.27%
ASIAN & PACIFIC ISLANDER 25.16% 25.65%
OTHER RACES 14.17% 11.77%
1997 ESTIMATED POPULATION 503,833 1,058,417
HISPANIC ORIGIN 28.93% 26.06%
OCCUPIED UNITS 146,456 331,969
OWNER OCCUPIED 65.11% 60.84%
RENTER OCCUPIED 34.89% 39.16%
1990 AVERAGE PERSON PER HH 3.17 2.95
1997 ESTIMATED HH BY INCOME 160,413 357,548
$150,000 + 5.46% 6.94%
$100,000 TO $149,999 13.96% 13.92%
$ 75,000 TO $ 99,999 17.25% 17.14%
$ 50,000 TO $ 74,999 26.05% 25.18%
$ 35,000 TO $ 49,999 12.76% 12.54%
$ 25,000 TO $ 34,999 8.10% 8.17%
$ 15,000 TO $ 24,999 7.64% 7.35%
$ 5,000 TO $ 14,999 7.08% 7.00%
UNDER $ 5,000 1.69% 1.78%
1997 EST. AVERAGE HH INCOME $76,708 $80,674
1997 EST. MEDIAN HE INCOME $62,212 $63,078
1997 EST. PER CAPITA INCOME $24,599 $27,548
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LEGAL DESCRIPTION
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LEGAL DESCRIPTION
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DESCRIPTION
Policy No. 765797 LM
Page 1
All that certain Real Property in the City of San Jose, County of Santa Clara,
State of California, described as follows:
Beginning at the point of Intersection of the Northeasterly line of Baroni
Avenue (40 feet in width) with the Southeasterly line of the lands and right of
way of Southern Pacific Railroad Company (100 feet in width); thence along said
northeasterly line of said Baroni Avenue, South 80 deg. 59' 43" East, 1758.38
feet (Record South 81 deg. 30' East, 1758.26 Feet) to the line dividing lands
now or formerly of Silvera, et al., and the lands now or formerly of Borghi, et
al; thence along said dividing line, North 25 deg. 52' 13" East, 1069.48 feet
(Record North 25 deg. 21' 48" East, 1069.53 Feet) to the centerline of proposed
Hillsdale Avenue (90 feet in width); thence along said centerline, North 36 deg.
40' 45" West, 217.12 feet (record North 37 deg. 11' 32" West, 217.59 Feet) to
the beginning of a tangent curve to the left with a radius of 1400.00 feet;
thence Northwesterly along the arc of said curve, through a central angle of 42
deg. 32' 55" (Record 42 deg. 34' 40"), an arc distance of 1039.66 feet (Record
1040.37 Feet); thence tangent to said curve, North 79 deg. 13' 40" West, 256.54
feet (Record North 79 deg. 46' 12" West, 255.37 Feet) to a point on said
Southeasterly line of the lands and right of way of Southern Pacific Railroad
Company; thence along said line, South 24 deg. 25' 56" West, 653.97 feet (Record
South 23 deg. 54' 00" West, 654.08 Feet); thence continuing along said line,
South 28 deg. 59' 56" West, 129.42 feet (Record South 28 deg. 28' 00" West,
128.04 rest); thence continuing along said line, South 36 deg. 29' 58" West,
125.36 feet (Record South 36 deg. 00' 00" West, 126.72 Feet); thence continuing
along said line, South 40 deg. 51' 58" East, 844.78 Feet (Record South 40 deg.
22' 00", 844.74 Feet) to the point of Beginning.
Said land being the same property conveyed to California Hawaiian Associates,
L.P., A California Limited Partnership by Deed from Stonegate Lewisville
Associates, LTD., A California Limited partnership dated January, 1993, recorded
January 15, 1993, with the recorder of Santa Clara County, California in Book
M586, Page 1755.
Excepting therefrom the Northeasterly 45.00 feet of premises lying within
Hillsdale Avenue as granted to the City of San Jose, A Municipal Corporation, in
Deed recorded September 17, 1968 in Book 8264 of Official Records, Page 727.
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QUALIFICATIONS OF APPRAISERS
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<PAGE>
STATEMENT OF QUALIFICATIONS
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NANCY D. PIEKOS
Real Estate Experience
Ms. Piekos has been active in the appraisal of real estate since 1993. The types
of properties appraised include office buildings, industrial buildings,
automotive dealerships, vacant land, and manufactured housing communities.
Education
Bachelor of Arts Degree in Urban Planning from the University of Illinois,
Urbana-Champaign, Illinois, 1993.
Real Estate Education
The following courses have been completed through the Appraisal Institute:
Appraisal Procedures
Principles of Appraisal
Residential Case Studies
Standards of Professional Practice
License
Real Estate Salesperson - State of Illinois
Current Position
Associate Appraiser, Cushman & Wakefield of Illinois, Inc., Valuation
Advisory Services.
<PAGE>
STATEMENT OF QUALIFICATIONS
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MICHAEL J. SCHAEFFER
Real Estate Experience
Mr. Schaeffer has been active in the appraisal of real estate since 1983.
Appraisal experience includes the valuation of income-producing real estate in
the Chicago area as well as many major cities and small towns throughout the
Midwest. The types of properties appraised include office buildings, regional
malls, shopping centers, country clubs, apartment complexes, subsidized housing
units, industrial buildings, nursing homes, retirement communities, automotive
dealerships, department stores, vacant land, proposed income-producing
properties, and various special purpose properties. Mr. Schaeffer also has had
over 10 years of experience in new construction and renovation of commercial,
industrial, residential and specialized real estate properties.
Education
Bachelor of Arts, University of Cincinnati, Cincinnati, Ohio MBA Graduate Course
Work in Economics and Management, Xavier University, Cincinnati, Ohio
Real Estate Education
The following courses sponsored by the Appraisal Institute have been
successfully completed:
Real Estate Appraisal Principles 1A-1
Basic Valuation Procedures 1A-2
Standards of Professional Practice
Capitalization Theory and Techniques 1BA
Capitalization Theory and Techniques IBB
Advanced Applications 550
Report Writing & Valuation Analysis 540
Mr. Schaeffer has also attended numerous lectures and seminars sponsored by the
Appraisal Institute.
Mr. Schaeffer is currently a candidate for the MAI designation of the Appraisal
Institute, and has completed the educational and experience requirements for the
MAI designation.
Current Position
Director, Appraisal Services, Cushman & Wakefield, Inc., Chicago, Illinois
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
STANLEY R. DENNIS, JR., MAI
Real Estate Experience
Director, Manager, Cushman & Wakefield Valuation Advisory Services, Chicago,
Illinois. Division is responsible for the appraisal and consultation function of
Cushman & Wakefield, Inc., a national full service real estate organization,
1989.
Vice President, Manager, Cushman & Wakefield Appraisal Services, Portland,
Oregon, 1983.
Principal, Stanley R. Dennis & Associates, Portland, Oregon, 1982.
Education
Portland State University, Portland, Oregon
Bachelor of Science Degree, 1977, Finance and Real Estate
Appraisal Institute
Course I-A Fundamentals and Principles of Real Estate Appraisal
Course I-B Capitalization Theory and Techniques
Course II-I Case Studies in Real Estate Valuation
Course II-2 Valuation Analysis and Report Writing
Course II-3 Standards of Professional Practice
Course IV Litigation/Condemnation Valuation
Course VI Investment Analysis
Course VIII Residential Case Studies
Course X Market Analysis
Seminar Feasibility Analysis and Highest and Best Use
Seminar Discounted Cash Flow Analysis
Seminar Cash Equivalency
Seminar Subdivision Analysis
Seminar Rates, Ratios and Reasonableness
Professional Affiliations
American Institute of Real Estate Appraisers, Member (Designation #6754)
Building Owners and Managers Association (BOMA)
National Association of Corporate Real Estate Executives (NACORE)
<PAGE>
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MARKET STUDY OF REAL PROPERTY
Contempo Marin
400 Yosemite Road
San Rafael, Marin County, California
================================================================================
As of December 3, 1997
Prepared For:
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Prepared By:
Cushman & Wakefield of Illinois, Inc.
Valuation Advisory Services
455 North Cityfront Plaza Drive, Suite 2800
Chicago, Illinois 60611-5555
CUSHMAN &
WAKEFIELD(R)
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<PAGE>
[Letterhead of Cushman & Wakefield of Illinois, Inc.]
December 9, 1997
Mr. Edward J. Welch
Director
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Re: Market Study of Real Property
Contempo Marin
400 Yosemite Road
San Rafael, Marin County, California 94903
Dear Mr. Welch:
In fulfillment of our agreement as outlined in the Letter of Engagement,
Cushman & Wakefield of Illinois, Inc., is pleased to transmit our market study
and consulting report evaluating the above referenced real property.
As specified in the Letter of Engagement, our market study and consulting
report is qualified by certain assumptions, limiting conditions, certifications,
and definitions, which are set forth in the report.
This consulting report was prepared for the Client, and it is intended
only for the specified use of the Client. It may not be distributed to or relied
upon by other persons or entities without written permission of Cushman &
Wakefield, Inc.
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the above
referenced real property, as of the date of our property inspection. The
function of the report is to assist the client, in evaluating the property for
underwriting and rating purposes.
<PAGE>
Mr. Edward J. Welch - 2 - December 9, 1997
This market study and consulting report was prepared in conformity with
the requirements of the Code of Ethics and Standards of Professional Appraisal
Practice of the Appraisal Institute and the Uniform Standards of Professional
Practice (USPAP) adopted by the Appraisal Standards Board of the Appraisal
Foundation.
This letter is invalid if detached from the report, which contains the
text, exhibits, and the Addenda.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF ILLINOIS, INC.
/s/ Nancy D. Piekos
Nancy D. Piekos
Associate Appraiser
/s/ Michael J. Schaeffer
Michael J. Schaeffer
Director
/s/ Stanley R. Dennis, Jr., MAI
Stanley R. Dennis, Jr., MAI
Director, Manager
NDP/MJS:jp
Revised 1212/97
File No. 97-362-07
CUSHMAN &
WAKEFIELD(R)
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SUMMARY OF SALIENT FACTS
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Property Name: Contempo Marin
Location: 400 Yosemite Road
San Rafael, Marin County, California
Assessor's Parcel Number: Based on information provided by Marin
County records, the subject property is
identified by Assessor's Parcel Numbers
155-110-23; 155-110-24; and 155-121-11.
Date of Inspection: The property was inspected December 3, 1997.
Ownership: The subject property is legally entitled
to Grapeland Vistas, Inc., an Illinois
Corporation, and MHC Financing Limited
Partnership, as beneficiary.
Land Area: Based on information provided by the
property's legal plat of survey, the
subject property contains approximately
63.30 acres of land area, or 2,757,348
square feet.
Zoning: Based on information provided by the
City of San Rafael, the subject property
is zoned PD-WO, Planned
Development-Wetland Overlay. The subject
property is a legal and conforming use
under the planned development agreement.
Improvements
Type: A manufactured housing community.
Year Built: The subject property was originally
developed in approximately 1972.
Size: The subject property consists of a
396-site manufactured housing
community.
Condition: At the time of inspection, the subject
property was in very good condition.
Property Rating: Five Star manufactured home community.
Special Assumptions: 1. Information regarding the subject
property, including its physical
characteristics, was provided to us by
the client and the on-site manager, and
is assumed to be accurate.
CUSHMAN &
WAKEFIELD(R)
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Summary of Salient Facts
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2. The existence of potentially hazardous or
toxic materials, which may be located on or about
the property, was not considered in our
evaluation. The appraisers are not qualified to
detect such substances, and Cushman & Wakefield
urges that an expert in this field be employed to
determine the existence, if any, of hazardous
materials located on or about the site.
3. Our market and consulting report regarding the
subject assumes the subject property, as
presently improved, represents its highest and
best use.
4. It is unknown to the appraiser if the subject
property complies with the Americans with
Disabilities Act (ADA). We recommend a qualified
specialist in the final determination regarding
any ADA compliance deficiencies that may be
present at the subject property.
5. Please refer to the complete list of
assumptions and limiting conditions included at
the end of this report.
CUSHMAN &
WAKEFIELD(R)
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TABLE OF CONTENTS
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Page
PHOTOGRAPHS OF SUBJECT PROPERTY...........................................1
INTRODUCTION..............................................................7
Identification of Property..............................................7
Property Ownership and Recent History...................................7
Purpose and Function of the Market Study and Consulting Assignment......7
Scope of the Market Study and Consulting Assignment.....................7
Date of Property Inspection.............................................7
Definitions and Other Pertinent Terms...................................7
REGIONAL ANALYSIS........................................................10
NEIGHBORHOOD ANALYSIS....................................................16
MARKET ANALYSIS..........................................................17
National Overview......................................................17
Competition............................................................24
Comparable Manufactured Housing Community Sales........................28
Demographic Trends.....................................................30
Expense Analysis.......................................................31
Market Supply and Demand...............................................31
Conclusion.............................................................32
PROPERTY DESCRIPTION.....................................................34
Site Description.......................................................34
Improvements Description...............................................34
REAL PROPERTY TAXES AND ASSESSMENTS......................................35
ZONING...................................................................35
CONCLUSION...............................................................36
ASSUMPTIONS AND LIMITING CONDITIONS......................................37
CERTIFICATION............................................................39
ADDENDA..................................................................40
Pop-Fact Sheets
Legal Description
Qualifications of Appraisers
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PHOTOGRAPHS OF SUBJECT PROPERTY
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[PHOTO OMITTED]
Front Entrance of the Subject Property Along Smith Ranch Road
[PHOTO OMITTED]
Street Scene: Looking Westbound Along Smith Ranch Road
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Photographs of Subject Property
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[PHOTO OMITTED]
View of the Entrance to the Subject Park, Along Yosemite Road
[PHOTO OMITTED]
Exterior of the Community Center
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Photographs of Subject Property
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[PHOTO OMITTED]
Interior View of the Community Center
[PHOTO OMITTED]
Interior View of the Community Center
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Photographs of Subject Property
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[PHOTO OMITTED]
Exterior View of the Community Center, Comprising the Pool Area
[PHOTO OMITTED]
View of the Playground Area
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Photographs of Subject Property
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[PHOTO OMITTED]
Typical Lake View within the Subject Property
[PHOTO OMITTED]
Typical Lake View within the Subject Property
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Photographs of Subject Property
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[PHOTO OMITTED]
Typical Street Scene within the Subject Park
[PHOTO OMITTED]
Typical Street Scene within the Subject Park
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INTRODUCTION
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Identification of Property
The subject property consists of a 396-site manufactured housing
community, situated on approximately 63.30 acres of land area, located south of
Smith Ranch Road, along Yosemite Road, within the city of San Rafael, in Marin
County, California. The property's street address is 400 Yosemite Road. The
property was constructed in 1972, and was 100 percent occupied at the time of
inspection.
Property Ownership and Recent History
The subject property is currently entitled to Grapeland Vistas, Inc., an
Illinois corporation, and MHC Financing Limited Partnership, as beneficiary. The
subject property was originally developed in 1972, with 396 manufactured housing
sites.
Purpose and Function of the Market Study and Consulting Assignment
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the subject
property, as of the date of property inspection. The function of the consulting
report is to assist the client in evaluating the property for underwriting and
rating purposes.
Scope of the Market Study and Consulting Assignment
In the process of preparing this report, we inspected the property,
interviewed the on-site manager, conducted market research into asking rental
rates for comparable properties, conducted market investigations, and
ascertained sales prices of comparable properties. Additionally, we conducted
market research and evaluated demographic and economic trends; and, the market
position and rating of the subject property.
Date of Property Inspection
The property was inspected December 3, 1997.
Definitions and Other Pertinent Terms
Definitions of pertinent terms taken from the Dictionary of Real Estate
Appraisal, Third Edition (1993), published by the Appraisal Institute, is as
follows:
Market Rent
The rental income that a property would most probably command on the open
market; indicated by current rents paid and asked for comparable space as
of the date of the appraisal.
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Introduction
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Evaluation
Evaluation is a study of the nature, quality, or utility of a parcel of
real estate or interest in, or aspects of, real property, in which a value
estimate is not necessarily required.
Market Study
A macroeconomic analysis that examines the general market conditions of
supply, demand, and pricing or the demographics of demand for a specific
area or property type.
Legal Description
The subject property is located south of Smith Ranch Road, specifically
off of Yosemite Road, within the city of San Rafael, Marin County, California.
The street address of the subject property is 400 Yosemite Road, San Rafael,
California. The property is identified by tax parcel numbers 155-110-23;
115-110-24; and 155-121-11, according to Marin County records. Due to the
lengthy metes and bounds legal description, the subject property's legal
description is presented in the Addenda of this report, and reference is made
thereto.
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REGIONAL MAP
[MAP OMITTED]
<PAGE>
REGIONAL ANALYSIS
================================================================================
Introduction
The subject property is located in the city of San Rafael, Marin County,
California, and as such is part of a region commonly known as the San Francisco
Bay Area. The greater San Francisco Bay Area consists of nine counties: Alameda,
Contra Costa, Marin, Napa, San Francisco, San Mateo, Santa Clara, Solano, and
Sonoma. Please refer to the map on the facing page, which shows the subject
property's location in the region.
The market value of real property is influenced by the economic,
political, physical and social characteristics of the overall economic region of
which it is a part. Following is an overview of the San Francisco Bay Area
Region focusing on some of its more important characteristics.
Population
Historical and projected population trends between 1960 and 2000 for the
nine Bay Area counties, and for the State of California as a whole, as shown as
follows:
<TABLE>
<CAPTION>
=============================================================================================================================
HISTORIC POPULATION
(Bay Area Region and State of California)
=============================================================================================================================
1960 1970 1980 1990 2000
---------------------------------------------------------------------------------------------------------
County Population Population Average Population Average Population Average Population Average
Annual Annual Annual Annual
Growth Growth Growth Growth
=============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Alameda 908,209 1,073,184 1.7% 1,105,379 0.3% 1,276,702 1.5% 1,364,600 1.4%
Contra Costa 409,030 558,389 3.2 656,380 1.6 803,732 2.0 882,700 2.0
Marin 146,820 206,038 3.4 222,568 0.8 230,096 0.3 234,600 1.3
Napa 65,890 79,140 1.8 99,199 2.3 110,765 1.1 121,150 1.9
San Francisco 740,316 715,674 (0.3) 678,974 (0.5) 723,959 0.6 759,900 1.0
Santa Mateo 444,387 556,234 2.3 587,329 0.5 649,623 1.0 696,450 1.4
Santa Clara 642,315 1,064,714 5.2 1,295,071 2.0 1,497,577 1.5 1,611,200 1.5
Solano 134,597 169,941 2.4 235,203 3.3 340,421 3.8 379,350 2.3
Sonoma 147,375 204,885 3.3 299,681 3.9 388,222 2.6 432,000 2.2
=============================================================================================================================
Nine-County 3,638,939 4,628,199 2.4% 5,179,784 1.1% 6,021,097 1.5% 6,492,950 1.6%
California 15,717,200 19,953,100 2.4 23,668,600 1.7 29,760,000 2.3 32,344,000 1.7
=============================================================================================================================
</TABLE>
The San Francisco Bay Area's current population is an estimated 6.5
million; the Bay Area is the nation's fourth largest metropolitan area. Growth
was most vigorous between 1960-1970 and occurred primarily in the suburbs
surrounding San Francisco.
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Regional Analysis
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From 1960 to 1980, the fastest growing counties were Santa Clara, Contra
Costa and Sonoma. During the 1980s, the fastest growing counties were Sonoma,
Solano, Napa and Contra Costa. Contra Costa and Santa Clara Counties showed the
largest gains in total number of persons. Between 1990 and 1995 the fastest
growing counties were Solano and Sonoma, with Santa Clara, Alameda, and Contra
Costa counties again showing the largest gain in total persons.
The following chart summarizes projected population figures for the nine
Bay Area counties through the year 2015. Santa Clara, Alameda, and Contra Costa
Counties are projected to experience the greatest increase in terms of absolute
numbers. Solano County is projected to experience the greatest percentage
increase over the next 20 years.
<TABLE>
<CAPTION>
====================================================================================================================================
PROJECTED POPULATION IN THE SAN FRANCISCO BAY REGION
====================================================================================================================================
Projected % Projected Average Annual
Actual ------------------------------------------------------------- Change Growth
County 1995 2000 2005 2010 2015 1995-2015 1995-2015
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Alameda 1,364,600 1,453,000 1,518,700 1,556,600 1,591,500 16.6% 0.8%
Contra Costa 882,700 962,900 1,059,500 1,120,000 1,169,400 32.5% 1.6%
Marin 245,600 255,650 263,250 271,950 278,150 13.2% 0.7%
Napa 121,150 132,700 138,800 144,700 152,500 25.9% 1.3%
San Francisco 759,900 780,400 789,100 800,600 795,800 4.7% 0.2%
San Mateo 696,450 727,300 754,750 746,950 755,350 8.4% 0.4%
Santa Clara 1,611,200 1,719,150 1,790,050 1,844,300 1880,650 16.7% 0.8%
Solano 379,350 423,300 472,200 513,400 531,700 40.2% 2.0%
Sonoma 432,000 476,900 509,900 541,100 565,900 31.0% 1.6%
---------------------------------------------------------------------------------------------------------------------
Region 6,492,950 6,931,300 7,539,600 7,539,600 7,720,950 18.9% 0.9%
====================================================================================================================================
</TABLE>
Housing
Similar to many areas in the country, the Bay Area has experienced an
inverse relationship between residential and commercial real estate markets. The
housing supply has lagged behind demand, driving prices up beyond the reach of
most area residents and forcing them to find more affordable housing elsewhere.
San Francisco, Oakland, Sunnyvale, Santa Clara and Palo Alto top the Bay Area in
net commuters and conditions are unlikely to improve. ABAG reports that
"inadequate housing production and high housing prices remains the most serious
constraints to the economic health of the region." Although availability of land
would not appear to be a problem in most areas, public policy and infrastructure
constraints do pose limitations to residential development.
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Regional Analysis
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Economy
The Bay Area's economic base is constantly growing in size and diversity.
The economy is not oriented toward heavy manufacturing or mature industries;
these have moved out of the area in the last 10 years. High-technology
manufacturing and research now play significant roles in the economy. Although
industrial growth is cyclical, it should remain strong over the long term. San
Francisco, and the region as a whole, is shifting away from goods-production and
toward service-oriented activities and high-technology manufacturing, which
fosters economic stability.
A table illustrating historical employment growth, by county, in the San
Francisco Bay Area Region is presented below. Jobs growth in absolute terms
increased the most during the 1970s, followed by the 1980s.
<TABLE>
<CAPTION>
====================================================================================================================================
HISTORICAL EMPLOYMENT GROWTH IN THE SAN FRANCISCO BAY REGION
====================================================================================================================================
County 1960 1970 1980 1990 1995 % Change % Change % Change
1990-1995 1970-1980 1980-1990
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alameda 310,700 404,000 513,800 620,980 608,770 -2.0% 27% 21%
Contra Costa 85,100 125,300 201,200 303,830 298,420 -1.8% 61% 51%
Marin 27,000 45,600 77,900 101,060 104,870 3.8% 71% 30%
Napa 15,500 21,700 35,800 47,710 50,000 4.8% 65% 33%
San Francisco 385,700 440,300 552,200 566,640 534,610 -5.6% 25% 3%
San Mateo 113,300 183,700 259,800 311,600 318,350 2.2% 41% 20%
Santa Clara 222,800 380,900 702,900 852,080 827,350 -2.9% 85% 21%
Solano 35,700 53,600 103,400 149,890 164,030 9.4% 93% 45%
Sonoma 39,400 49,900 90,800 119,210 121,890 2.2% 82% 31%
-------------------------------------------------------------------------------------------------------------------
Region 1,235,200 1,705,000 2,537,800 3,073,000 3,028,920 -1.4% 49% 21%
====================================================================================================================================
</TABLE>
The Bay Area economy and job market was negatively impacted in recent
years by the national recession, military base closures, and the trend in
corporate downsizing and mergers. The region as a whole lost over 44,000 jobs.
Significant job losses were experienced in the manufacturing, construction,
wholesale and retail trade. FIRE and government sectors. The service sector
actually added 60,000 jobs during the time period.
According to the ABAG, the Bay Area experienced a net decline of 134,000
jobs between July 1990 and August 1993. From 1993 to 1995, only 70,000 jobs have
been added according to the Employment Development Department. ABAG projects
that the region will add approximately 54,000 jobs annually between 1995 and
2000. The projected growth is significantly lower than the historic job growth
during the previous decades (57,000 new jobs annually during the 1980s and
81,000 new jobs annually during the 1970s).
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Regional Analysis
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A table illustrating projected jobs by industry is displayed in the
following table. Growth will occur primarily in the service, wholesale trade,
and transportation/communication/utilities sectors. Overall, ABAG projects that
over 990,000 new jobs will become available during the next 20-year period
between 1995 and 2015. This is an average annual increase of 1.6 percent
compared to the projected population growth rate of 0.9 percent.
<TABLE>
<CAPTION>
===================================================================================================================
SAN FRANCISCO BAY AREA REGIONAL PROJECTIONS
===================================================================================================================
Industry 1990 1995 2000 2005 2010 2015
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Agriculture, Mining 35,220 34,200 33,030 31,780 31,090 28,230
Construction 141,970 135,420 160,610 176,430 181,410 181,960
Manufacturing 494,670 454,800 491,730 524,080 561,440 584,820
High Technology* 263,720 236,380 263,400 279,210 293,690 307,000
Transp., Comm., 182,130 185,910 210,970 225,530 244,350 264,670
Utilities
Wholesale Trade 184,130 172,170 193,100 223,750 239,060 252,810
Retail Trade 514,920 487,190 528,660 577,320 621,570 654,160
F.I.R.E. 220,040 208,740 224,910 237,730 245,070 259,430
Services 1,019,190 1,080,850 1,195,380 1,320,400 1,428,260 1,522,220
Business Services* 356,600 378,150 441,910 505,020 564,260 632,610
Government 280,730 268,990 260,410 268,620 274,270 273,480
- -------------------------------------------------------------------------------------------------------------------
Total Jobs 3,073,000 3,028,290 3,298,800 3,585,640 3,826,520 4,021,780
===================================================================================================================
</TABLE>
Transportation
The Bay Area Rapid Transit (BART) system provides passenger rail service
throughout the Bay Area. The modern, high-speed BART system currently serves San
Francisco and the East Bay cities of Fremont, Union City, Hayward, San Leandro,
Oakland, Alameda, Berkeley, San Pablo, El Cerrito, Richmond, Orinda, Lafayette,
Walnut Creek, Pleasant Hill, and Concord. Eventually, the East Bay lines may be
expanded. The Concord line is currently being extended north to Antioch. Future
plans involve adding a new line which will connect Hayward, in southern Alameda
county, and Livermore, in eastern Alameda County. Additionally, a new BART line
is being planned for service between San Francisco and the airport in Burlingame
in San Mateo County.
Income
The Bay Area had the highest average household income in California in
1990; one reason is that the region also leads the state in the percentage of
women who work. About 70 percent of all Bay Area women are employed, compared
with a statewide average of 63 percent, according to the Center for Continuing
Study of California. Actual 1995 average household incomes for the Bay Area, and
projections for 2015, are shown in the table on the following page.
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Regional Analysis
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<TABLE>
<CAPTION>
======================================================================================
SAN FRANCISCO BAY REGION MEAN HOUSEHOLD INCOME
(IN CONSTANT 1995 DOLLARS)
======================================================================================
1995-2015
Area 1995 2005 2015 Percent Change
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alameda County $ 58,800 $ 68,700 $ 78,000 33%
Contra Costa County 70,400 83,400 95,800 36%
Marin County 86,800 108,600 125,300 44%
Napa County 58,400 70,100 81,300 39%
San Francisco County 59,600 73,400 94,300 41%
San Mateo County 77,800 94,400 109,500 41%
Santa Clara County 73,800 87,200 98,700 34%
Solano County 54,900 64,700 72,500 32%
Sonoma County 58,100 69,700 79,500 37%
Total Region $ 66,900 $ 79,800 $ 90,900 36%
======================================================================================
</TABLE>
Source: Association of Bay Area Governments
Projections-96, December 1995
Summary
The subject property is located in the fourth largest metropolitan area in
the U.S. Historically, regional population and employment growth have out paced
the nation's. The Bay Area is the wealthiest region in California in terms of
average household income.
The area has recovered from recessionary economic conditions which plagued
the early-1990's. Job growth over the next five years is forecast to be moderate
given the weak recovery in high technology, continued restructuring of other
major job sectors including finance and business services, and local military
base closures.
On the other hand, the Bay Area benefits from a diverse economy which is
well positioned to remain the economic center for northern California, as well
as the western United States. The region is also well located to serve the
Pacific Rim. The Bay Area is faring better than the remainder of the state in
terms of economic growth.
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NEIGHBORHOOD MAP
[MAP OMITTED]
<PAGE>
NEIGHBORHOOD ANALYSIS
================================================================================
The subject property is situated along Yosemite Road, just south of its
intersection with Smith Ranch Road, within the city of San Rafael, Marin County,
California. The subject's immediate neighborhood is bordered by Smith Ranch Road
to the north, San Pedro Road to the south, Marin Ranch Airport to the east, and
U.S. Highway 101 to the west. The Smith Ranch Road and U.S. Highway 101
interchange is situated approximately one-half mile west of the subject
property. The subject's immediate area along Smith Ranch Road is predominantly
developed with low-rise professional office buildings and single-family
residential communities.
The subject property is immediately bounded by Smith Ranch Road to the
north. Smith Ranch Road is a primary four-lane, east-west thoroughfare, within
the vicinity of the subject property. As previously mentioned, Smith Ranch Road
provides direct access to U.S. Highway 101 approximately one-half mile west of
the subject property. U.S. Highway 101 is the major north-south freeway serving
the San Francisco area. Specifically, the subject park is accessed off of Smith
Ranch Road via Yosemite Road. Yosemite Road is considered to be a secondary,
two-lane roadway, which primarily provides access to the subject property.
The subject property has limited visibility along Smith Ranch Road, but
does have good signage at the primary entrance of the park which is accessed off
of Smith Ranch Road. The park is set back approximately one block from Smith
Ranch Road and is specifically accessed from Yosemite Road.
As previously mentioned, the subject property is located within the city
of San Rafael. The majority of the commercial and retail establishments serving
the subject's immediate area are located within one mile of the subject
property, on the west side of U.S. Highway 101, near downtown San Rafael.
According to Equifax National Decision Systems (ENDS), the 1997 estimated
population of the city of San Rafael is 49,359. The local population is
projected to increase to 51,354 by the year 2002. Similarly, the 1997 estimated
total number of households is 21,826, which is projected to increase slightly to
23,712 households by the year 2002.
The subject property is situated in an area well suited for manufactured
housing development. Real estate values are anticipated to increase at a steady
pace. The economy in the area is anticipated to be good, with unemployment
steadily decreasing. The growth in population is anticipated to increase.
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MARKET ANALYSIS
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National Overview
Reportedly, the largest property owners of manufactured housing
communities in the United States are: ROC Communities, headquartered in
Colorado; MHC, Inc., headquartered in Illinois; Ellenburg Capital, headquartered
in Oregon; Lautrec Ltd., headquartered in California; Clayton Homes,
headquartered in Tennessee; Clayton Williams and Sherwood, headquartered in
California; Chateau Properties, Sun Communities and UNIPROP, headquartered in
California.
The following represents the top ten manufactured housing community firms,
as reported by GFA Management, as of 1997.
================================================================================
No. of
1997 No. of Sites Communities
Rank Firm Name State Owned/Managed Owned/Managed
- --------------------------------------------------------------------------------
1 Sun Communities California 30,295/0 84/0
- --------------------------------------------------------------------------------
2 ROC Communities Colorado 22,441/7,167 77/36
- --------------------------------------------------------------------------------
Manufactured Home
3 Communities Illinois 27,349/838 69/3
- --------------------------------------------------------------------------------
4 Ellenburg Capital Florida 25,173/0 63/0
- --------------------------------------------------------------------------------
5 Lautrec Ltd. California 22,652/0 58/0
- --------------------------------------------------------------------------------
6 Chateau Properties California 20,003/0 47/0
- --------------------------------------------------------------------------------
7 Clayton Homes Tennessee 18,000/0 66/0
- --------------------------------------------------------------------------------
8 Clayton, Williams and
Sherwood California 16,946/0 44/0
- --------------------------------------------------------------------------------
9 UNIPROP California 14,931/0 40/0
- --------------------------------------------------------------------------------
10 The Bloch Organization California 14,379/0 37/0
================================================================================
According to the U.S. Census Bureau, more than 8,521,000 people were
living in manufactured housing communities as of 1990 compared to 3,838,678 in
1980. This represents an increase in manufactured housing community living of
approximately 122.0 percent over the last ten years. Over the last ten years,
there has been a steady increase in manufactured housing community development
across the country. Among the demographic factors which account for the increase
in manufactured housing community living are: decreasing household size, a
growing demand for smaller housing, as well as an alternative to the increasing
cost of housing. Nationally, the largest percentage of manufactured housing
communities are located in California, California, Colorado, Florida, New York,
Minnesota, Indiana, Arizona, Ohio, and Wisconsin.
The manufactured home industry has dramatically changed over the last 20
years. Manufactured homes are now designed and constructed to accommodate
spacious and attractive living requirements. Today, approximately one out of
sixteen families live in
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Market Analysis
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manufactured housing units. The manufactured housing market share has been
growing steadily over the last 10 years. In 1990, 6.7 percent of Americans lived
in manufactured housing units, up from 2.9 percent compared to 1970, according
to the U.S. Census Bureau, which represents 12.0 to 14.0 percent of all new
housing built since the mid-1980's, according to the Manufactured Housing
Institute in Arlington, Virginia.
In 1990, the average cost of a manufactured housing unit was $27,800
compared to $149,000 for a new house (including land), according to the
Manufactured Housing Institute. This reflects a 28.0 percent increase in the
cost of manufactured housing since 1980 versus a 49.0 percent increase in
conventional housing. Industry experts estimate that a single-family home
selling for $150,000 would require an annual income of $52,671. To purchase a
$27,800 manufactured housing unit, only a $19,984 income level would be
required.
At Fleetwood Enterprises, the nation's largest manufacturer of
manufactured housing units, units may be purchased for up to $100,000, which
would include a three-bedroom, two-bath unit of 2,100 square feet, with vaulted
ceilings.
In 1990, approximately 10.0 percent of manufactured home owners lived in
units worth approximately $40,000, up from 4.0 percent compared to 1981,
according to a study conducted by Foremost Insurance Company in Grand Rapids,
California. Also, according to the study, approximately 21.0 percent of the
manufactured housing households are occupied by people' 65 years of age or
older, slightly lower than the age group for conventional homes, as reported by
Foremost Insurance.
The demand for good quality institutional grade manufactured housing
communities has substantially increased over the last ten years. Manufactured
housing communities provide an affordable alternative to the increasing cost of
housing. Also, manufactured housing communities provide an alternative form of
living for the elderly and retirees, especially for those living on fixed
incomes.
Acquisitions of manufactured housing communities during 1993 and 1994 were
clearly dominated by Real Estate Investment Trusts. During 1994 and 1995
Manufactured Home Communities (MHC) and ROC communities lead the acquisition of
manufactured housing communities nationally. During 1996, Sun Communities
captured the lead and, together with ROC and MHC dominate the Real Estate
Investment Trust market.
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Market Analysis
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The following chart represents the largest Real Estate Investment Trusts,
from 1991 to 1996, as reported by GFA Management
================================================================================
HOME SITE GROWTH, DEVELOPMENT AMONG THE LARGEST
REAL ESTATE INVESTMENT TRUST (REITS)
- --------------------------------------------------------------------------------
Annual
Year ROC MHC Chateau Sun United Total Growth
- --------------------------------------------------------------------------------
1996 29,608 28,187 20,003 30,295 5,234 113,327 17.0%
- --------------------------------------------------------------------------------
1995 27,910 26,237 19,594 18,000 4,850 96,591 9.0%
- --------------------------------------------------------------------------------
1994 26,231 28,407 15,689 13,500 4,623 88,450 37.8%
- --------------------------------------------------------------------------------
1993 20,142 14,700 15,261 9,036 5,050 64,189 17.8%
- --------------------------------------------------------------------------------
1992 18,745 12,873 10,032 7,600 5,200 54,450 N/A
- --------------------------------------------------------------------------------
1991 9,030 13,079 9,759 N/R N/R N/A N/A
- --------------------------------------------------------------------------------
N/R = No report N/A = Not applicable
- --------------------------------------------------------------------------------
NOTE: The 113,327 sites counted for the top five REITs in 1996 make up 20
percent of the total sites surveyed in the 1997 Allen Report. These rental sites
are located in 339 communities, accounting for about 1 percent of some 50,000
existing manufactured housing communities nationwide. The community counts for
the five major REITs are: ROC (113), MHC (72), Chateau (47), Sun (84) and United
(23). The proportion of communities owned by each of the REITs compared to the
others is: ROC (33%), MHC (21%), Chateau (14%), Sun (25%) and United (7%).
================================================================================
Manufactured Home Communities (MHC) is expected to continue an aggressive
acquisition campaign through 1997 and beyond. As of September 1997, the MHC REIT
had a market cap of $632.0 million, and continues to pursue the acquisition of
manufactured home communities. Aside from the ELL-CAP $300.0 million
transaction, in September 1997 Manufactured Home Communities, Inc. completed a
$107.0 million purchase of 18 manufactured housing communities and two related
commercial properties from partnerships affiliated with Mobileparks West. The
communities, with 3,505 sites, were purchased with about $3.0 million
manufactured home operating units, $16.0 million in cash and $20.0 million of
installment notes and assumed debt. The communities have an average monthly
rental of $349.00. The communities are located in California, Utah, Oregon,
Washington and Nevada. MHC may be the first manufactured home community REIT to
reach $1.0 billion.
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Market Analysis
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The MHC REIT continues to perform and expand, and as of September 1997 was
trading at $25.625, with a current yield of 5.2 percent. The top traded REITs,
are presented as follows.
================================================================================
REIT MARKET UPDATE
- --------------------------------------------------------------------------------
Company Price Current 52 Week 52 Week Annual 12 Mth
Symbol (9/19/97) Yield High Low Dividend Tot Rtn
- --------------------------------------------------------------------------------
CPJ $29.688 5.8% $31.125 $22.250 1.72 26.6%
- --------------------------------------------------------------------------------
MHC $25.625 5.2% $26.428 $18.875 1.32 30.7%
- --------------------------------------------------------------------------------
SUI $37.428 5.0% $ 38.00 $27.750 1.88 31.8%
- --------------------------------------------------------------------------------
UMH $11.625 6.0% $13.625 $10.875 0.70 -1.7%
- --------------------------------------------------------------------------------
Total return figures obtained through Standard & Poors and are for the period
through Sept 1997.
================================================================================
The Southwest and Northwest Regions of the nation are the preferred
locations regarding recent and future manufactured housing community
acquisitions. However, investors seeking moderate, but consistent growth
expectations, are still looking at the midwest region. Also, southern portions
of Florida are still considered a prime area for investors seeking good quality
manufactured housing communities, with good up-side potential. What was once a
stagnant market, the northeast region is now being considered for future
acquisitions.
According to a recent study prepared by Merrill Lynch & Company, ownership
in the manufactured housing community industry is highly fragmented. The top 150
owner-operators account for less than 5.0 percent of the total industry, whereas
a host of "mom-and-pop" private companies account for the other 95.0 percent.
This unglamorous niche industry is ripe for consolidation, and an infusion of
professional management expertise is likely to yield significant economies of
scale. The four REIT's specializing in manufactured housing communities are
already among the top ten owner-operators, and are well positioned to facilitate
and hasten the industry's consolidation to the likely benefit of their
stockholders.
Manufactured homes are the fastest growing component of the nation's
housing inventory, due to their affordability, good quality design and safety
standards. According to the Merrill Lynch & Company Manufactured Housing
Community Industry Report, factory-built homes appeal especially to senior
citizens and to households with limited economic needs, two segments of the
population that are likely to grow rapidly in coming years.
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Market Analysis
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Consistent returns in manufactured housing community investments have been
the mainstay of the industry. For this reason, as well as the amount of
acquisitions seen by Real Estate Investment Trusts (REITs) from 1991 to 1996,
the availability of good quality manufactured housing communities has been
substantially reduced compared to the 1980's. Good quality manufactured housing
communities still command premium prices, thus driving down overall
capitalization rates.
Cushman & Wakefield's Valuation Advisory Services has tracked sale
transactions of manufactured housing communities since 1985. Overall
capitalization rates have consistently been within the 8.75 to 10.00 percent
range for communities located in moderate to increasing growth markets, and as
low as near 8.0 percent for those communities located in growing markets that
poses significant upside potential. Overall capitalization rates are clearly
affected and are differentiated among the properties relative to rent levels,
age, quality, condition, location, amenities, demographic characteristics,
resident profile, as well as the quality of management.
Manufactured housing communities fall within, and are categorized by their
overall appearance, age, and amenities, but more importantly the strength of the
local market. The various categories of manufactured housing communities,
according to the Woodall Directory, can be ranked as 1 to 5 Star Parks These
rankings are defined as follows:
One Star Park
The most important consideration for a one star park is overall
appearance. If it is not a decent place to live, it will not be listed in
Woodall's Directory. The following are general requirements:
o Fair overall appearance;
o Patios on most lots. May be concrete, asphalt, wood, or some
suitable material;
o Grass, rock or shell to cover ground;
o Streets fair to good. May be dirt, asphalt or gravel in reasonable
condition;
o Restrooms clean, if any;
o Adequate laundry or laundromat nearby;
o If fences allowed, must be neat;
o Mail service;
o Homes may be old models, but show evidence of care; and,
o Manager available some hours of each day.
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Two Star Park
In addition to the requirements for a one star park, a two star park will
have the following:
o Landscaping - some lawns and shrubs;
o Streets in good condition. Must be dust free of crushed rock, gravel
or shell minimum;
o Neat storage;
o Well equipped laundry or laundromat nearby;
o 200 volt connections available;
o If children accepted, park should have play area;
o Park free of clutter, such as old cars and other abandoned
equipment; and,
o Well maintained and managed.
Three Star Park
What a three star park does it does well, but not as uniformly as higher
rated parks. Many three star parks were once higher rated, but original
construction does not allow for today's 10-foot, 12-foot, and double-wides
or the 55-foot and 60-foot lengths. If children are allowed, there should
be adequate play area. However, the disarray caused by children may at
times be the determining factor that keeps a three star park at that level
when it otherwise could be rated higher. In addition to the requirements
for one and two star parks, a three star park must have the following:
o Attractive entrance;
o All homes must be in good condition;
o Awnings and cabana rooms on some homes in southern areas;
o Some spaces for large mobile homes;
o Paved or hard surfaced streets;
o Off-street parking or streets wide enough for safe on-street
parking;
o Good lawns or substitute throughout, shade trees, some shrubs where
climate permits;
o Concrete patios or the equivalent on all lots;
o All lots neat and attractive;
o All park buildings in good repair; and,
o Good management.
Four Star Park
Four star parks are luxury parks. In addition to the requirements for one,
two and three star parks, a four star park must have the following:
o Good landscaping;
o Most homes skirted with metal skirts, concrete block, ornamental
wood or stone;
o Paved streets, edged or curbed.
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Market Analysis
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o Uncrowded lots;
o Underground utilities if permitted by local conditions and
authorities;
o Most tanks, if present, concealed;
o Any hedges or fences must be attractive and uniform;
o Awnings, cabanas, or porches on most homes in southern areas.
(Excepting double-wide units.);
o Most lots to accommodate large mobile homes;
o Where row parking of homes exists, all must be lined up uniformly;
o Community hall and/or swimming pool and/or recreation programs. If a
park is four star in all but this requirement, the fourth star will
be printed as an open star indicating a four star park without
park-centered recreation; and,
o Excellent management.
Five Star Park
Five star parks are the finest. They should be nearly impossible to
improve. In addition to the requirements for one, two, three, and four
star parks, a five star park must have the following:
o Well planned and laid out spacious appearance;
o Good location in regard to accessibility and desirable neighborhood.
In some locations, park should be enclosed by high hedges or
ornamental fence;
o Wide paved streets in perfect condition. Curbs or lawns edged to
streets, sidewalks, street lights, street signs;
o Homes set back from street;
o Exceptionally attractive entrance and park sign;
o Patios at least 8 x 30 feet. (Excepting double-wide units.);
o Paved off-street parking such as carports or planned parking;
o All homes skirted;
o All hitches concealed. Any existing tanks concealed;
o Recreation, some or all of the following: swimming pool (excepting
areas with long, cold winters), shuffleboards, horseshoe pitching,
golf course, hobby shop, hobby classes, games, potlucks, dances or
natural recreational facilities;
o Beautifully equipped recreation hall with kitchen. Room for
community gatherings, tiled restrooms, etc.;
o Uniform storage sheds or central storage facilities;
o All late model homes in excellent condition;
o At least 60 percent occupancy in order to judge quality of residents
which indicates park's ability to maintain a five star rating
between inspections;
o All empty lots grassed, graveled or otherwise well maintained;
o If pets or children allowed, there must be a place for them to run
and play without cluttering the streets and yards. Most five star
parks are for adults only; and,
o Superior management interested in comfort of residents and
maintenance of park.
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Market Analysis
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The demand for good quality institutional grade manufactured housing
communities is anticipated to increase throughout the 1990's, since manufactured
housing communities provide an alternative form of living for the elderly and
retirees, especially for those living on fixed income. Manufactured home
shipments continue to be strong. Shipments rose 20.0 percent in 1992 and 1994,
and 12.0 percent in 1995. The market for good quality manufactured housing
communities is expected to be strong, with yield and capitalization rates and
prices expected to continue to be competitive, with the REITs leading the way.
Competition
The subject property is reportedly the only "family" park situated within
Marin County, and for that reason, there is a limited amount of local
competition for the subject park. We have surveyed two manufactured housing
communities located within the subject's primary market, which are considered to
be comparable to the subject property regarding physical attributes, but are
actually "senior" parks, including the subject property, containing a total of
919 sites. The combined occupancy rate of these two manufactured housing
communities, including the subject property, is approximately 98.91 percent.
Excluding the subject property in our survey, the combined occupancy rate is
approximately 98.09 percent, based on 523 sites.
The name and location of the subject property's primary competition, as
well as the number of sites, occupancy levels, amenities offered, monthly rental
rates and services provided in the monthly rental rate, are presented on the
following facing page, along with a map which identifies the location of each
competing park.
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<TABLE>
<CAPTION>
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SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- ------------------------------------------------------------------------------------------------------------------------------------
Number 3-Year
Of Sites Age Services Date Of Average
Comp. Name Occupancy Condition Monthly Provided Last Rental Annual Rental
No. Location Level Amenities Park Rating(1) Rent in Rent Increase Increase
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R-1 Los Robles(2) 212 Clubhouse 1969 $475.00/Mo. Water June, 1995 The most
100 Roblar Drive ----- Pool/Spa ---- Cable T.V. recent rental
Novato, 99.06% Laundry/Sauna Good increase
California RV Storage ---- occurred in
3*-4* 6/95 and
the monthly
rental rate
increased
by $50.00/
month.
- -----------------------------------------------------------------------------------------------------------------------------------
R-2 Marin Valley(2) 311 Clubhouse 1967 $450.00/Mo. Water January, 1997 The monthly
100 Marin Valley ----- Pool/Spa ---- To rental rate
Drive 97.43% Sauna/Laundry Good $550.00/Mo. has increased
Novato, Shuffleboard ---- by CPI over
California RV Storage 3*-4* the past
three year
period, or
approximately
2.0 to 3.0
percent per
year.
- -----------------------------------------------------------------------------------------------------------------------------------
Subject Contempo Marin 396 Clubhouse 1972 $582.00/Mo. Sewer January, 1997 The monthly
400 Yosemite Road ----- Pool/Spa Very Good Refuse rental rate
San Rafael, 100% Sauna/Laundry --------- has increased
California Basketball/Tennis 5* by CPI over
Courts the past
Playground three year
RV Storage period, or
approximately
2.0 to 3.0
percent per
year.
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</TABLE>
(1) Ratings from One Star to Five Star Parks are defined in the National
Overview section of this report.
(2) Senior park for residents 55 years of age or older.
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COMPETING MANUFACTURED HOUSING MAP
[MAP OMITTED]
<PAGE>
Market Analysis
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Rental rates of manufactured housing communities located within the
subject's primary market range from $450.00 to $550.00 per site, on a monthly
basis. According to the most recent rent roll, dated October 22, 1997, rents
currently being achieved at the subject property range widely from $500.00 per
site to $790.00 per site, with an overall average monthly rent of $580.00 per
site. The subject property is currently quoting a monthly rental rate above the
market range as previously mentioned, or at $582.00 per site, but is considered
the market leader. The last rental rate increase at the subject property was as
of January 1, 1997 and the monthly rental rate increased by 2.83 percent, or
from $566.00 to $582.00 per site. Reportedly, the monthly rental rate at the
subject property is scheduled to increase in January, 1998 by $17.00 per month,
or from $582.00 to $599.00 per site, an increase of 2.92 percent.
As the subject property is located within the City of San Rafael, the
subject property is subject to the "rent control" ordinance, whereby the monthly
rental rate can only be increased (annually) by the Consumer Price Increase of
the San Francisco Bay area, and is capped at 5.0 percent per year. There is no
ordinance governing the minimum rental increase.
The enclosed comparable rentals are considered the most competitive to the
subject property regarding amenities offered, condition, location and overall
ranking. However, it is noted that the subject property is the only family park
of its caliber in Marin County, and that the two following comparable rental
parks are senior parks for residents aged 55 years or older.
Comparable R-1, Los Robles, is located at 100 Roblar Drive, in Novato,
California. This comparable property contains 212 sites, and is presently
99.06 percent occupied, with approximately two vacant sites available. Los
Robles was developed in 1969, and is considered to be in overall good
condition. Reportedly, the most recent rental increase occurred in June,
1995, whereby the monthly rental payment was increased by $50.00 per
month. There has not been a rental payment increase since 1995 and it is
unknown at this time if a rental payment increase is scheduled for 1998.
At present, the monthly rental rate for all sites within the park is
$475.00. The monthly rental rate includes water and basic cable
television. Amenities include a clubhouse, pool/spa, sauna, laundry
facility, and RV storage.
Comparable R-2, Marin Valley, is located at 100 Marin Valley Drive, in
Novato, California. This comparable property contains 311 sites, and is
presently 97.43 percent occupied, with eight sites presently available.
Marin Valley was developed in 1967, and is considered to be in overall
good condition. Reportedly, the most recent rental increase occurred in
January, 1997, whereby the monthly rental payment was increased by the
Consumer Price Index. Furthermore, the monthly rental rate has increased
over the past three year period by the CPI, or approximately 2.0 to 3.0
percent per year, and there is an increase scheduled for
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1998, by the CPI. At present, the monthly rental rate ranges from $450.00
to $550.00 depending upon location within the park. The monthly rental
rate includes only water. Amenities include a clubhouse, pool/spa, sauna,
laundry facility, shuffleboard, and RV storage.
In our opinion, and based on conversations with the on-site manager, both
of the comparable rental properties represent functional, well located
manufactured housing communities, which are in overall good condition, like the
subject property; however, Los Robles and Marin Valley are "senior parks" for
residents aged 55 years or older. As the subject property is the only family
park of its caliber within Marin County, the subject property has limited
competition, and therefore is presently achieving monthly rents above that of
the two competing parks presented in our analysis. In support of the subject's
higher rent structure, the subject property has been at or near 100 percent
occupancy over the past three year period, with a waiting list of residents
wanting to move into the subject park. The subject park offers a wide range of
amenities and is in overall very good condition. Based on the foregoing, we
believe that the subject's current asking monthly rental rate of $582.00 per
site, is market oriented.
Comparable Manufactured Housing Community Sales
A search of the subject's market revealed five recent sales of
manufactured housing communities located in the greater San Francisco-San Jose,
California area. The following is a brief discussion of each of the manufactured
housing sales located within the subject's market. These sales are summarized on
the following facing page.
Comparable Sale I-1, Rancho De Sonoma, is located at 19275 Sonoma Highway,
in Sonoma, California. This property contains 98 sites, situated on 15.34
acres of land area. The property was in average condition at the time of
sale and was developed in 1969. Amenities at the property include only a
pool and laundry facility. The property was approximately 95.0 percent
occupied at the time of sale. The property was purchased for $2,825,000,
which equates to $28,827 per site.
Comparable Sale I-2, Quail Meadows, is located at 5901 Newbrook Drive, in
Riverbank, California. This property contains 147 sites, situated on 20.13
acres of land area. The property was in good condition at the time of sale
and was developed in 1988. Amenities at the property include a clubhouse,
pool/spa, playground, and laundry facility. The property was approximately
97.0 percent occupied at the time of sale. The property was purchased for
$4,300,000, which equates to $29,252 per site.
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<CAPTION>
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SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
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Sales Price $EGI/Site
Per Site $Expense/Site
Sales Date Land Area Density ---------- EGIM -------------
Comp. Name ---------- --------- ------- Occupancy ---- Expense Ratio
No. Location Sales Price No. Sites Condition At Sale $NOI/Site OAR % Of EGI
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
I-1 Rancho De Sonoma 8/97 15.34 6.39 $28,827 $2,480 6.65x $4,335
19275 Sonoma Hwy ------- ----- ----- ------- ----- ------
Sonoma, California $2,825,000 98 Average 95.0% 8.60% $1,855
------
42.79%
- -----------------------------------------------------------------------------------------------------------------------------------
I-2 Quail Meadows 5/97 20.13 7.30 $29,252 $2,736 7.54x $3,880
5901 Newbrook Drive ------- ----- ---- ------- ----- ------
Riverbank, California $4,300,000 147 Good 97.0% 9.35% $1,144
------
29.48%
- -----------------------------------------------------------------------------------------------------------------------------------
I-3 California Hawaiian 3/97 49.63 8.30 $56,553 $4,612 7.28x $7,767
Mobile Estates(1) ------- ----- ---- ------- ----- ------
3637 Snell Ave. $23,300,000 412 Good 100% 8.15% $3,155
San Jose, California ------
40.62%
- -----------------------------------------------------------------------------------------------------------------------------------
I-4 Village of the Four 12/96 29.97 9.04 $40,867 $4,273 6.03x $6,782
Seasons -------- ----- ---- ------- ----- ------
200 Ford Road $11,075,000 271 Good 97.0% 10.46% $2,509
San Jose, California ------
36.99%
- -----------------------------------------------------------------------------------------------------------------------------------
I-5 Casa Nova MHP 4/96 18.95 6.91 $33,588 $2,958 8.55x $3,927
2701 Martin Road ------- ----- ---- ------- ----- ------
Fairfield, California $4,400,000 131 Average 98.0% 8.81% $969
----
24.68%
- -----------------------------------------------------------------------------------------------------------------------------------
Subject Contempo Marin - - - 63.30 6.26 - - - $4,822 N/A $7,054
400 Yosemite Blvd. ----- ---- ------
San Rafael, CA 396 Very Good 100% $2,233
------
31.66%
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Comp. Name Comparability
No. Location to the Subject Comments
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
I-1 Rancho De Sonoma Inferior Developed in 1969; Average
19275 Sonoma Hwy condition; Amenities
Sonoma, California include pool and laundry
facility.
- ------------------------------------------------------------------------------------
I-2 Quail Meadows Similar Developed in 1988; Good
5901 Newbrook Drive condition; Amenities
Riverbank, California include: clubhouse, pool,
playground, and laundry
facility.
- ------------------------------------------------------------------------------------
I-3 California Hawaiian Similar Developed in 1970;
Mobile Estates(1) Good condition; Amenities
3637 Snell Ave. include: clubhouse,
San Jose, California pool/spa, sauna,
shuffleboard, and laundry
facility.
- ------------------------------------------------------------------------------------
I-4 Village of the Four Similar Developed in 1971;
Seasons Good condition; Amenities
200 Ford Road include: clubhouse, pool,
San Jose, California playground, and laundry
facility.
- ------------------------------------------------------------------------------------
I-5 Casa Nova MHP Inferior Developed in 1972;
2701 Martin Road Average condition;
Fairfield, California Amenities include:
clubhouse, pool, and
laundry facility.
- ------------------------------------------------------------------------------------
Subject Contempo Marin Subject Developed in 1972;
400 Yosemite Blvd. Property Very good condition;
San Rafael, CA Amenities include:
Clubhouse, pool/spa, sauna,
laundry, tennis &
basketball courts, and RV
storage.
- ------------------------------------------------------------------------------------
(1) Financial information based on Actual 1996 Budget, provided by MHC, the
buyer.
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</TABLE>
<PAGE>
Market Analysis
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Comparable Sale I-3, California Hawaiian Mobile Estates, is located at
3637 Snell Avenue, in San Jose, California. This property contains 412
sites, situated on 49.63 acres of land area. The property was in good
condition at the time of sale and was developed in 1970. Amenities at the
property include a clubhouse, pool/spa, sauna, shuffleboard, laundry
facility and RV storage. The property was 100 percent occupied at the time
of sale. The property was purchased for $23,300,000, which equates to
$56,553 per site.
Comparable Sale I-4, Village of the Four Seasons, is located at 200 Ford
Road, in San Jose, California. This property contains 271 sites, situated
on 29.97 acres of land area. The park was in good condition at the time of
sale and was developed in approximately 1971. Amenities at the property
include a clubhouse, pool, playground, and a laundry facility. The
property was 97.0 percent occupied at the time of sale. The property was
purchased for $11,075,000, which equates to $40,867 per site.
Comparable Sale I-5, Casa Nova Mobile Home Park, is located at 2701 Martin
Road, in Fairfield, California. This property contains 131 sites, situated
on 18.95 acres of land area. The park was in average condition at the time
of sale and was developed in approximately 1972. Amenities at the property
include a clubhouse, pool, and laundry facility. The property was 98.0
percent occupied at the time of sale. The property was purchased for
$4,400,000, which equates to $33,588 per site.
It should be noted that comparability does not imply an identical or exact
duplicate, but rather the possession of a similar utility and affected by
similar supply and demand forces. Also, relative to the subject property,
differences include: time or date of the transactions; location, which
encompasses differences in accessibility; site characteristics, including
differences in size, topography, access, exposure and development capacities;
and improvement characteristics, which include differences in age, quality,
condition, size and amenities.
Demographic Trends
Based on information provided by National Decision Systems (NDS), the
populations within the subject's primary 5-mile and secondary 10-mile market
areas, as of 1997, are 112,893 and 209,357, respectively. The populations of the
subject's primary and secondary market areas are projected to increase to
114,378 and 211,269, respectively, by the year 2002.
According to NDS, the total number of households within the subject's
primary and secondary market areas, are 49,056 and 89,169, respectively, for
1997. The number of
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Market Analysis
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households within the subject's primary 5-mile and secondary 10-mile market
areas are projected to increase to 52,812 and 95,960, respectively, by the year
2002.
The average household income levels within the subject's primary and
secondary market areas, for 1997, are $97,632 and $103,238, respectively. The
median household income levels within the subject's primary and secondary market
areas, for 1997, are $63,879 and $67,072, respectively. Per capita income within
the subject's primary and secondary market areas, for 1997, are $43,013 and
$44,458, respectively.
Based on the above levels, the demographics of the subject's primary
market area appear to indicate a positive growth trend, based on information
provided by NDS. A copy of the subject's NDS report is provided in the Addenda
of this report and reference is made thereto.
Expense Analysis
Expenses exhibited by manufactured housing communities nationally are
typically 35.0 to 45.0 percent of effective gross income. However, expense
ratios of manufactured housing communities located in the southeast and
southwest regions of the nation are typically lower by comparison, due to lower
real estate taxes and common area maintenance charges.
As presented in the Summary of Manufactured Housing Communities Sales,
operating expense ratios of competing parks range from 24.68 to 42.79 percent of
effective gross income levels, but typically from 29.48 to 42.79 percent. On a
per site basis, the comparable sales display operating expenses ranging from
$969 to $3,155, but typically from $1,144 to $2,509 per site. The subject
property is currently reporting expenses, for the 12-month trailing period of
1997, at 31.66 percent of effective gross income and $2,233 on a per site basis.
Operating expenses at the subject property appear to be within the range as
displayed by the comparable sales of manufactured housing communities within the
local area.
Market Supply and Demand
As the subject property is reportedly the only family oriented park of its
caliber situated in Marin County, there is a limited amount of local area
manufacturing housing communities to compare with the subject property. There
are a total of two competing manufactured housing communities located within the
subject's market, both of which are "senior parks," which total 523 sites, with
a corresponding average occupancy rate of 98.09 percent. No specific absorption
statistics were available, since the subject's competing parks have historically
reported occupancy rates at, or above 95.0 percent. The subject property, based
on conversations with management, has historically been slightly higher than
occupancy rates of
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Market Analysis
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the competing parks, and is currently 100 percent occupied, with a waiting list.
We believe the current occupancy rate of the subject property is stabilized.
Based on the subject's current occupancy rate and occupancy rates at competing
parks, demand appears to be strong, with steady rental rate increases expected.
Conclusion
Historically, the subject's primary market has sustained high occupancy
levels of 95.0 to 100 percent. Rental rates of similar manufactured housing
communities located within the subject's primary market generally range from
$450.00 to $550.00 per site, on a monthly basis. The subject property is
currently quoting, and is currently achieving (based on the most recent rent
roll provided), a monthly rental rate of $582.00 per site, which we believe is
market-orientated, given the high historical occupancy of the park, the
amenities offered, and the overall very good condition of the subject park.
Based on our research, steady increases in rental rates are anticipated,
based on actual historical performance of competing parks and historical
increases seen at the subject property. Sales transactions of manufactured
housing communities located within the subject's region widely range from
$28,827 to $56,553 per site, with corresponding overall rates ranging from 8.15
to 10.46 percent. In our opinion, the subject property competes favorably with
its competition regarding amenities, condition, rent structure and overall
market rating.
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SITE PLAN
[GRAPHIC OMITTED]
<PAGE>
PROPERTY DESCRIPTION
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Site Description
The subject site is located approximately one-half mile east of the Smith
Ranch Road and U.S. Highway 101 intersection, within the city limits of San
Rafael. The subject site is specifically accessed off of Smith Ranch Road via
Yosemite Road. The subject site is effectively rectangular in shape and contains
63.30, acres or 2,757,348 square feet of land area. Topographically, the site is
level at street grade.
The Marin Municipal Water Company provides the water to the subject park,
while the City of San Rafael provides sewer service to the subject property. The
Pacific Gas & Electric Company provides the gas and electric service to the
subject property. Primary access to the subject site is provided by Smith Ranch
Road via Yosemite Road. Based on conversations with the property manager of the
subject property, as well as according to the subject's legal plat of survey,
the subject property is located within a flood hazard area. To alleviate
excessive flooding, the subject property is equipped with a lagoon/lake, which
is situated within the central portion of the park and provides aesthetic value
to the property. However, we recommend a qualified engineer to determine the
existence of any flood hazard areas.
The streets within the park have two-lanes, with concrete curbs. Overall,
the subject site is typical of the area and is functionally well suited for its
current use.
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.
Improvements Description
The subject property was originally developed in 1972. The subject
improvements consist of a 396-site manufactured housing community, with a
community center, swimming pool/spa, playground, tennis and basketball courts,
laundry facility and recreational vehicle and boat storage area. Of the 396
total sites, 15 sites are single-wide, while the remaining 381 sites are
double-wide, however, all sites can accommodate a double-wide home. The average
site size is approximately 50 feet by 100 feet.
The community center consists of a manager's office, restroom facilities,
and open-space available for resident use, with a fully-equipped kitchen area.
The exterior of the one-story community center is combination of concrete block
and stucco and appeared to be in overall good condition at the time of
inspection.
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Property Description
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The swimming pool/spa area is located adjacent to the community center.
The recreational vehicle and boat storage is located toward the southeastern
portion of the park. Wrought iron fencing surrounds the pool area and a chain
link fence surrounds the recreational vehicle and boat storage area. Off-street
parking is available for each resident. Site improvements within the park
include: paved streets, concrete sites, street lighting and signage. Overall,
the site improvements appeared to be in very good condition at the time of
inspection.
Contempo Marin is a functional manufactured housing community with good
ingress and egress along Yosemite Road via Smith Ranch Road. Overall, the
subject community appears to be well maintained and is in very good condition.
Contempo Marin is a functional manufactured housing community and competes
favorably with other existing manufactured housing communities in the area in
terms of appearance and amenities. The subject property would fit the profile of
a Five Star Park, as defined in the National Overview section of this report.
Real Property Taxes and Assessments
Since the passage of Proposition 13, or the Jarvis Gann Initiative in
1978, real property taxes in the State of California are limited to 1.0 percent
of market value, as of a specified base year. The base year valuation is the
Assessor's 1975 market value estimate, unless there is a transfer of ownership
(sale), new construction, or the property is leased on a long-term basis.
Whenever this occurs, the property is reassessed at full market value. If a
reassessment is not triggered, the assessed value is trended upward at 2.0
percent annually.
According to the Marin County Assessor's Office, the market value of the
subject property equates to $18,466,066. The subject property is identified by
tax parcel numbers 155-110-23; 155-110-24; and 155-121-11.
The total amount of real estate taxes for fiscal year 1996, payable in
1997 for the subject property amounts to $272,122.50. The total amount of real
estate taxes for fiscal year 1996 payable in 1997 equates to approximately
$687.18 per site.
Zoning
According to zoning officials of the City of San Rafael, the subject
property is currently zoned PD-WO, Planned Development-Wetland Overlay. Based on
conversations with zoning officials, the subject property is a legal and
conforming use under its present zoning classification.
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CONCLUSION
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Conclusion
o The subject property, Contempo Marin, is a functional manufactured
housing community, which competes favorably in relation to its
competition, but is considered to be the only family park of its
caliber located within Marin County;
o Comparable manufactured housing communities located within the
subject's market range in monthly rental rates per site from $450.00
to $550.00;
o The subject property is currently quoting, and is currently
achieving (based on the most recent rent roll provided) a monthly
rental rate of $582.00 per site, which is slightly above the range
of competing parks, but appears to be market-oriented, given the
subject's historically high occupancy rate, amenities offered, and
overall very good condition of the improvements;
o Sale transactions of manufactured housing communities located within
the subject's region range in unit sales prices per site from
$28,827 to $56,553, with corresponding overall rates ranging from
8.15 to 10.46 percent;
o Operating expenses are within industry standards for a park located
in the western region of the country;
o The subject park appears to be operating at economic levels based on
our review of historical and budgeted 1998 income and expenses;
o The demographic characteristics of the area appear to be positive;
o The population profile of the subject property is 25 percent adult,
with the remaining 75 percent family oriented;
o The current occupancy rate at the subject property is 100 percent.
This stabilized occupancy rate is evident by a strong local market
and demand;
o No significant manufactured housing communities are expected to be
developed in the near future;
o In our opinion, based on Woodall's criteria, the subject property is
a Five Star Park, and the reader's attention is directed to the
corresponding definition and criteria of a Five Star Park, presented
in the National Overview section of this report; and,
o Based on the subject's location, demographic, economic, market and
physical characteristics, we believe Contempo Marin will continue to
be a viable manufactured housing community in the foreseeable
future, and is well positioned in the marketplace.
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36
CUSHMAN &
WAKEFIELD(R)
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<PAGE>
ASSUMPTIONS AND LIMITING CONDITIONS
================================================================================
"Report" means the consulting report to which these Assumptions and Limiting
Conditions are annexed.
"Property" means the subject of the Report.
"C&W" means Cushman & Wakefield, Inc. or its subsidiary which issued the Report.
"Appraiser(s)" means the employee(s) of C&W who prepared and signed the Report.
This report is made subject to the following assumptions and limiting
conditions:
1. No responsibility is assumed for the legal description or for any matters
which are legal in nature. 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 Report or upon which the Report 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 Appraisers nor C&W shall be responsible for the
accuracy or completeness of such information, including the correctness of
estimates, opinions, dimensions, sketches, exhibits, and other factual
matters.
3. The information is effective as of the date stated in the Report. Changes
since that date in external and market factors or in the property itself
can significantly affect our analysis.
4. The report is to be used in whole and not in part. No part of the Report
shall be used in conjunction with any other report. Possession of the
Report, or a copy thereof, does not carry with it the right of
publication. Publication of the Report or any portion thereof without the
prior written consent of C&W is prohibited. Except as may be otherwise
expressly stated in the letter of engagement to prepare the Report, C&W
does not permit use of the Report by any person other than the party to
whom it is addressed or for purposes other than those for which it was
prepared. If written permission is given by C&W to use the Report, the
Report must be used in its entirety and only with proper written
qualification as approved by C&W. No part of the Report or the identity of
the Appraiser shall be conveyed to the public through advertising, public
relations, news, sales, or other media or used in any material without
C&W's prior written consent. Reference to the Appraisal Institute or to
the MAI designation is prohibited.
5. The Appraiser shall not be required to give testimony in any court or
administrative proceedings relating to the Property or the Report.
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37
CUSHMAN &
WAKEFIELD(R)
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<PAGE>
Assumptions and Limiting Conditions
================================================================================
6. The Report 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 Report; 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 Report is based.
7. The physical condition of the improvements considered by the Report is
based on visual inspection by the Appraiser or other person identified in
the Report. C&W assumes no responsibility for the soundness of structural
members nor for the condition of mechanical equipment, plumbing, or
electrical components.
8. Unless otherwise stated in the Report, the existence of potentially
hazardous or toxic materials which may have been used in the construction
or maintenance or operation of the improvements or may be located at or
about the Property was not considered in the Report. These materials (such
as formaldehyde foam insulation, asbestos insulation, various soil
contaminants, and other potentially hazardous materials) may affect the
value of the Property. The Appraisers are not qualified to detect such
substances, and C&W urges that an expert in this field be employed to
determine the economic impact of these matters, if any, on the property in
the Report.
9. Unless otherwise stated in the Report, compliance with the requirements of
the Americans With Disabilities Act of 1990 (ADA) has not been considered
in the Report. Failure to comply with the requirements of the ADA may
negatively affect the value of the property. C&W recommends that an expert
in this field be employed.
10. If the Report is submitted to a lender or investor with the prior approval
of C&W, such party should consider the Report as one factor, together with
its independent investment considerations and underwriting criteria, in
its overall investment decision.
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38
CUSHMAN &
WAKEFIELD(R)
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CERTIFICATION
================================================================================
We certify that, to the best of our knowledge and belief:
1. Nancy D. Piekos inspected the property, and Michael J. Schaeffer and
Stanley R. Dennis, Jr., MAI, have reviewed and approved the report, but
did not inspect 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 on an action or event (such as the
approval of a loan) resulting from the analyses, opinions, or conclusions
in, or the use of, this report.
6. 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 Ethics and Standards of Professional Practice of the Appraisal
Institute.
7. No one provided significant professional assistance to the persons signing
this 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. As of the date of this report, Stanley R. Dennis, Jr., MAI, has completed
the requirements of the continuing education program of the Appraisal
Institute.
/s/ Michael J. Schaeffer /s/ Nancy D. Piekos /s/ Stanley R. Dennis, Jr., MAI
Michael J. Schaeffer Nancy D. Piekos Stanley R. Dennis, Jr., MAI
Director Associate Appraiser Director,Manager
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39
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WAKEFIELD(R)
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<PAGE>
ADDENDA
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POP-FACT SHEETS
LEGAL DESCRIPTION
QUALIFICATIONS OF APPRAISERS
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40
<PAGE>
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POP-FACT SHEETS
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<PAGE>
Tue Dec 2, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP FACTS: SUMMARY REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6511
PREPARED FOR
Cushman & Wakefield
400 Yosemite Road
San Rafael, California COORD: 38:01.28 122:32.28
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- --------------------------------------------------------------------------------
POPULATION
2002 PROJECTION 114,378 211,269
1997 ESTIMATE 112,893 209,357
1990 CENSUS 112,619 207,010
1980 CENSUS 10&,756 200,011
GROWTH 1980- 1990 3.55% 3.50%
HOUSEHOLDS
2002 PROJECTION 52,812 95,960
1997 ESTIMATE 49,056 89,169
1990 CENSUS 46,110 84,034
1980 CENSUS 42,880 78,547
GROWTH 1980- 1990 7.53% 6.99%
1997 ESTIMATED POPULATION BY RACE 112,893 209,357
WHITE 84.14% 84.96%
BLACK 3.14% 4.09%
ASIAN & PACIFIC ISLANDER 6.32% 5.93%
OTHER RACES 6.40% 5.02%
1997 ESTIMATED POPULATION 112,893 209,357
HISPANIC ORIGIN 12.27% 10.47%
OCCUPIED UNITS 46,110 84,034
OWNER OCCUPIED 61.78% 62.94%
RENTER OCCUPIED 38.22% 37.06%
1990 AVERAGE PERSON PER HH 2.40 2.36
1997 ESTIMATED HH BY INCOME 49,056 89,169
$150,000 + 14.40% 15.95%
$100,000 TO $149,999 12.42% 13.12%
$ 75,000 TO $ 99,999 14.56% 14.64%
$ 50,000 TO $ 74,999 19.39% 19.84%
$ 35,000 TO $ 49,999 12.13% 11.40%
$ 25,000 TO $ 34,999 9.06% 8.65%
$ 15,000 TO $ 24,999 8.88% 8.20%
$ 5,000 TO $ 14,999 7.66% 6.85%
UNDER $ 5,000 1.51% 1.36%
1997 EST. AVERAGE HH INCOME $97,632 $103,238
1997 EST. MEDIAN HH INCOME $63,879 $67,072
1997 EST. PER CAPITA INCOME $43,013 $44,458
<PAGE>
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LEGAL DESCRIPTION
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<PAGE>
LEGAL DESCRIPTION
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PARCEL ONE:
BEGINNING at Station 81 on the inner line of Salt Marsh, as said Station and
Line are shown upon that certain map entitled. "Map No. 3 of Salt Marsh and Tide
lands situate in the County of Marin, State of California, 1871", a copy of
which was filed July 20, 1959 in "Can F", Marin County Records; running thence
along said inner line of Salt Marsh North 40 Degrees 30 Minutes 55 Seconds West
529.31 feet to Station 82; thence North 55 Degrees 30 Minutes 55 Seconds West
317.59 feet to Station 83; and thence North 19 Degrees 15 Minutes 55 Seconds
West 47.47 feet to the most Southerly corner of the Parcel of land described in
the Deed from Frieda Smith, et al, to Draper Industrial Properties, Inc., et al,
recorded November 30, 1964 in Book 1887 of Official Records, at Page 518, Marin
County Records; thence along the Southeastern line of said Draper Parcel (1887
OR 518) North 19 Degrees 50 Minutes 24 Seconds East 2288.77 feet to the
Northeast corner thereof; thence leaving said Draper Parcel and running North 71
Degrees 27 Minutes 00 Seconds East 41.46 feet; thence North 44 Degrees 00
Minutes 00 Seconds East 65,00 feet; and thence North 30 Degrees 36 Minutes 00
Seconds East 161.62 feet; thence North 54 Degrees 34 Minutes 26 Seconds East
121.79 feet to a point on the line of ordinary low tide on the south bank of the
North Fork of Gallinas Creek; said point being designated as Station 78 on the
"Plat of the Grant to the County of Marin Parcel "B" Chapter 497 Statutes of
1959, vicinity of Gallinas Creek by the State Lands commission, State of
California", filed September 16, 1960 in "Can G" Marin County Records; thence
along last mentioned line North 58 Degrees 18 Minutes 27 Seconds East, 179.75
feet; North 70 Degrees 47 Minutes 11 Seconds East 450.73 feet; thence leaving
said line, South 17 Degrees 12 Minutes 00 Seconds East 87.52 feet; thence on a
curve to the left with a radius of 140 feet, a central angle of 17 Degrees 16
Minutes 17 Seconds a distance of 42.20 feet; thence South 34 Degrees 28 Minutes
17 Seconds East 210.80 feet; thence on a curve to the left with a radius of 65
feet, a central angle of 35 Degrees 41 Minutes 19 Seconds a distance of 40,49
feet to the Northwesterly line of the lands of the Northwestern Pacific
Railroad, as described in the Deed recorded October 23, 1916 in Book 183 of
Deeds, at Page 104, Marin County Records; thence along last said Northwesterly
line South 19 Degrees 50 Minutes 24 Seconds West 3165.70 feet, thence
Southwesterly along a taper curve to the right, increasing 0 Degrees 40 Minutes
00 Seconds in each 28.96 feet, a distance of 88.43 feet, to a point of compound
curvature; thence Southwesterly on a curve to the right, whose center bears
North 71 Degrees 03 Minutes 36 Seconds West 2814.93 feet, through a central
angle of 2 Degrees 35 Minutes 42 Seconds, an arc distance of 127.49 feet to a
point on the aforesaid inner line of Salt Marsh; thence leaving last said
Northwesterly line (183 Deeds 104) and running along said inner line of Salt
Marsh North 12 Degrees 30 Minutes 55 Seconds West, 212.70 feet to the point of
beginning.
PARCEL TWO:
BEGINNING at a point entitled, "N.W.P. North" the same as shown and delineated
on the "Plat of The Grant to The County of Marin, Parcel "B" Chapter 497,
Statutes of 1959,
EXHIBIT A -- LEGAL CONTINUED
vicinity of Gallinas Creek, Marin County. California":, and running thence North
11 Degrees 26 Minutes 18 Seconds East 28.89 feet to an angle point on the
Southerly line of Parcel "B" herein above described, thence along said Southerly
line the following courses and distances; North 75 Degrees 18 Minutes 58 Seconds
East 112.37 feet, North 50 Degrees 03 Minutes 14 Seconds West 101.81 feet, North
56 Degrees 57 Minutes 35 Seconds West 146.73 feet; North 89 Degrees 41 Minutes
07 Seconds West 182.00 feet, South 72 Degrees 03 Minutes 43 Seconds West 407.61
feet and North 17 Degrees 53 Minutes 25 Seconds West 25.90 feet to the True
Point of Beginning; thence from said True Point of Beginning, as follows: South
74 Degrees 25 Minutes 53 Seconds West 60.05 feet; North 17 Degrees 53 Minutes 25
Seconds West 48.72 feet; thence on a tangent curve to the right, with a radius
of 230 feet, a central angle of 45 Degrees 00 Minutes 00 Seconds an arc distance
of 180.64 feet, thence North 27 Degrees 06 Minutes 35 Seconds East 173.82 feet;
thence on a curve to the left; whose center bears North 27 Degrees 29 Minutes 13
Seconds East with a radius of 850 feet, a central angle of 4 Degrees 02 Minutes
40 Seconds an arc distance of 60.04 feet; thence South 27 Degrees 06 Minutes 35
Seconds West 175.54 feet; thence on a tangent curve to the left with a radius of
170 feet, a central angle of 45 Degrees 00 Minutes 00 Seconds an arc distance of
133.52 feet; thence South 17 Degrees 53 Minutes 25 Seconds East 51.17 feet to
the True Point of Beginning.
PARCEL THREE:
AN EASEMENT for lateral support over the Easterly 50 feet of that certain parcel
of land as conveyed in that certain Trustee's Deed upon Sale from Philip V.
Abend as Trustee to Robert Goetz, recorded November 30, 1973 in Book 2745 of
Official Records at Page 500, Marin County Records.
SAID EASEMENT Is appurtenant to the property conveyed by that certain Deed from
U. S. Communities, a corporation, to United California Bank, as Trustee of Trust
Number 1-41-149-30, recorded May 18, 1972 in Book 2569 of Official Records at
Page 597, Marin County Records.
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<PAGE>
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QUALIFICATIONS OF APPRAISERS
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<PAGE>
STATEMENT OF QUALIFICATIONS
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NANCY D. PIEKOS
Real Estate Experience
Ms. Piekos has been active in the appraisal of real estate since 1993. The types
of properties appraised include office buildings, industrial buildings,
automotive dealerships, vacant land, and manufactured housing communities.
Education
Bachelor of Arts in Urban Planing from the University of Illinois,
Urbana-Champaign, Illinois, 1993.
Real Estate Education
The following courses have been completed through the Appraisal Institute:
Appraisal Procedures
Principles of Appraisal
Residential Case Studies
Standards of Professional Practice
License
Real Estate Salesperson - State of Illinois
Current Position
Associate Appraiser, Cushman & Wakefield of Illinois, Inc., Valuation Advisory
Services.
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
MICHAEL J. SCHAEFFER
Real Estate Experience
Mr. Schaeffer has been active in the appraisal of real estate since 1983.
Appraisal experience includes the valuation of income-producing real estate in
the Chicago area as well as many major cities and small towns throughout the
Midwest. The types of properties appraised include office buildings, regional
malls, shopping centers, country clubs, apartment complexes, subsidized housing
units, industrial buildings, nursing homes, retirement communities, automotive
dealerships, department stores, vacant land, proposed income-producing
properties, and various special purpose properties. Mr. Schaeffer also has had
over 10 years of experience in new construction and renovation of commercial,
industrial, residential and specialized real estate properties.
Education
Bachelor of Arts, University of Cincinnati, Cincinnati, Ohio MBA Graduate Course
Work in Economics and Management, Xavier University, Cincinnati, Ohio
Real Estate Education
The following courses sponsored by the Appraisal Institute have been
successfully completed:
Real Estate Appraisal Principles 1A-1
Basic Valuation Procedures 1A-2
Standards of Professional Practice
Capitalization Theory and Techniques 1BA
Capitalization Theory and Techniques IBB
Advanced Applications 550
Report Writing & Valuation Analysis 540
Mr. Schaeffer has also attended numerous lectures and seminars sponsored by the
Appraisal Institute.
Mr. Schaeffer is currently a candidate for the MAI designation of the Appraisal
Institute, and has completed the educational and experience requirements for the
MAI designation.
Current Position
Director, Appraisal Services, Cushman & Wakefield, Inc., Chicago, Illinois
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
STANLEY R. DENNIS, JR., MAI
Real Estate Experience
Director, Manager, Cushman & Wakefield Valuation Advisory Services, Chicago,
Illinois. Division is responsible for the appraisal and consultation function of
Cushman & Wakefield, Inc., a national full service real estate organization,
1989.
Vice President, Manager, Cushman & Wakefield Appraisal Services, Portland,
Oregon, 1983.
Principal, Stanley R. Dennis & Associates, Portland, Oregon, 1982.
Education
Portland State University, Portland, Oregon
Bachelor of Science Degree, 1977, Finance and Real Estate
Appraisal Institute
Course I-A Fundamentals and Principles of Real Estate Appraisal
Course I-B Capitalization Theory and Techniques
Course II-I Case Studies in Real Estate Valuation
Course II-2 Valuation Analysis and Report Writing
Course II-3 Standards of Professional Practice
Course IV Litigation/Condemnation Valuation
Course VI Investment Analysis
Course VIII Residential Case Studies
Course X Market Analysis
Seminar Feasibility Analysis and Highest and Best Use
Seminar Discounted Cash Flow Analysis
Seminar Cash Equivalency
Seminar Subdivision Analysis
Seminar Rates, Ratios and Reasonableness
Professional Affiliations
American Institute of Real Estate Appraisers, Member (Designation #6754)
Building Owners and Managers Association (BOMA)
National Association of Corporate Real Estate Executives (NACORE)
<PAGE>
================================================================================
MARKET STUDY OF REAL PROPERTY
Green Acres
8785 Turkey Ridge Road
Breinigsville, Lehigh County, Pennsylvania
================================================================================
As of December 2, 1997
Prepared For:
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Prepared By:
Cushman & Wakefield of Illinois, Inc.
Valuation Advisory Services
455 North Cityfront Plaza Drive, Suite 2800
Chicago, Illinois 60611-5555
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
[Letterhead of Cushman & Wakefield of Illinois, Inc.]
December 19, 1997
Mr. Edward J. Welch
Director
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Re: Market Study of Real Property
Green Acres
8785 Turkey Ridge Road
Breinigsville, Lehigh County, Pennsylvania 18031
Dear Mr. Welch:
In fulfillment of our agreement as outlined in the Letter of Engagement,
Cushman & Wakefield of Illinois, Inc., is pleased to transmit our market study
and consulting report evaluating the above referenced real property.
As specified in the Letter of Engagement, our market study and consulting
report is qualified by certain assumptions, limiting conditions, certifications,
and definitions, which are set forth in the report.
This consulting report was prepared for the Client, and it is intended
only for the specified use of the Client. It may not be distributed to or relied
upon by other persons or entities without written permission of Cushman &
Wakefield, Inc.
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the above
referenced real property, as of the date of our property inspection. The
function of the report is to assist the client, in evaluating the property for
underwriting and rating purposes.
<PAGE>
Mr. Edward J. Welch -2- December 19, 1997
This market study and consulting report was prepared in conformity with
the requirements of the Code of Ethics and Standards of Professional Appraisal
Practice of the Appraisal Institute and the Uniform Standards of Professional
Practice (USPAP) adopted by the Appraisal Standards Board of the Appraisal
Foundation.
This letter is invalid if detached from the report, which contains the
text, exhibits, and the Addenda.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF ILLINOIS, INC.
/s/ Michael J. Schaeffer
Michael J. Schaeffer
Director
/s/ Stanley R. Dennis, Jr.
Stanley R. Dennis, Jr., MAI
Director, Manager
CUSHMAN &
WAKEFIELD(R)
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<PAGE>
SUMMARY OF SALIENT FACTS
================================================================================
Property Name: Green Acres
Location: 8785 Turkey Ridge Road
Breinigsville, Lehigh County, Pennsylvania
Assessor's Parcel Number: Based on information provided by the client, the
subject property is identified by Assessor's
Parcel Number 20-03789.
Date of Inspection: The property was inspected on December 2, 1997.
Ownership: The subject property is legally entitled to
Pennland Vistas, an Illinois Corporation, and
MHC Financing Limited Partnership, as
beneficiary.
Land Area: Based on information provided by the property's
legal plat of survey, the subject property
contains approximately 149.49 acres of land
area, or 6,511,784 square feet.
Zoning: Based on information provided by the
Upper-Macungie Township Zoning Department, the
subject property is zoned R-5, Medium-High
Density Residential District. The subject
property is a legal and conforming use in the
R-5, Medium-High Density Residential District.
Improvements
Type: A manufactured housing community.
Year Built: The subject property was originally developed in
phases between 1969 and 1994.
Size: The subject property consists of a 595-site
manufactured housing community.
Condition: At the time of inspection, the subject property
was in good condition.
Property Rating: Four Star manufactured home community.
Special Assumptions: 1. Information regarding the subject property,
including its physical characteristics, was
provided to us by the client and the on-site
manager, and is assumed to be accurate.
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
Summary of Salient Facts
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2. The existence of potentially hazardous or
toxic materials, which may be located on or
about the property, was not considered in our
evaluation. The appraisers are not qualified to
detect such substances, and Cushman & Wakefield
urges that an expert in this field be employed
to determine the existence, if any, of hazardous
materials located on or about the site.
3. Our market and consulting report regarding
the subject assumes the subject property, as
presently improved, represents its highest and
best use.
4. It is unknown to the appraiser if the subject
property complies with the Americans with
Disabilities Act (ADA). We recommend a qualified
specialist in the final determination regarding
any ADA compliance deficiencies that may be
present at the subject property.
5. Please refer to the complete list of
assumptions and limiting conditions included at
the end of this report.
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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TABLE OF CONTENTS
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Page
PHOTOGRAPHS OF SUBJECT PROPERTY................................................1
INTRODUCTION...................................................................5
Identification of Property..................................................5
Property Ownership and Recent History.......................................5
Purpose and Function of the Market Study and Consulting Assignment..........5
Scope of the Market Study and Consulting Assignment.........................5
Date of Property Inspection.................................................5
Definitions and Other Pertinent Terms.......................................5
REGIONAL ANALYSIS..............................................................8
NEIGHBORHOOD ANALYSIS.........................................................11
MARKET ANALYSIS...............................................................12
National Overview..........................................................12
Competition................................................................18
Comparable Manufactured Housing Community Sales............................22
Demographic Trends.........................................................24
Expense Analysis...........................................................25
Market Supply and Demand...................................................25
Conclusion.................................................................25
PROPERTY DESCRIPTION..........................................................28
Site Description...........................................................28
Improvements Description...................................................28
REAL PROPERTY TAXES AND ASSESSMENTS...........................................29
ZONING .......................................................................29
CONCLUSION....................................................................30
ASSUMPTIONS AND LIMITING CONDITIONS...........................................31
CERTIFICATION.................................................................33
ADDENDA ......................................................................34
Pop-Fact Sheets
Legal Description
Qualifications of Appraisers
CUSHMAN &
WAKEFIELD(R)
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PHOTOGRAPHS OF SUBJECT PROPERTY
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[PHOTO OMITTED]
Front Entrance of the Subject Property
[PHOTO OMITTED]
Exterior View of the Manager's Office
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Photographs of Subject Property
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[PHOTO OMITTED]
View of the Playground at the Subject Property
[PHOTO OMITTED]
View of the Pool at the Subject Property
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<PAGE>
Photographs of Subject Property
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[PHOTO OMITTED]
Typical Interior View of the Subject Park
[PHOTO OMITTED]
Typical Interior View of the Subject Park
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Photographs of Subject Property
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[PHOTO OMITTED]
Street Scene Facing West Along U.S. Route 222
[PHOTO OMITTED]
Street Scene Facing East Along U.S. Route 222
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4
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<PAGE>
INTRODUCTION
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Identification of Property
The subject property consists of a 595-site manufactured housing
community, situated on approximately 149.49 acres of land area, located just
west of Twin Ponds Road, along the north side of U.S. Highway 222 (U.S. 222), in
Breinigsville, Lehigh County, Pennsylvania. The property's street address is
8785 Turkey Ridge Road. The property was constructed in phases between 1969 and
1994, and was 99.3 percent occupied at the time of inspection.
Property Ownership and Recent History
The subject property is currently entitled to Pennland Vistas, an Illinois
corporation, and MHC Financing Limited Partnership, as beneficiary. The subject
property was originally developed in phases between 1969 and 1994, with 595
manufactured housing sites.
Purpose and Function of the Market Study and Consulting Assignment
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the subject
property, as of the date of property inspection. The function of the consulting
report is to assist the client in evaluating the property for underwriting and
rating purposes.
Scope of the Market Study and Consulting Assignment
In the process of preparing this report, we inspected the property,
interviewed the on-site manager, conducted market research into asking rental
rates for comparable properties, conducted market investigations, and
ascertained sales prices of comparable properties. Additionally, we conducted
market research and evaluated demographic and economic trends; and, the market
position and rating of the subject property.
Date of Property Inspection
The property was inspected December 2, 1997.
Definitions and Other Pertinent Terms
Definitions of pertinent terms taken from the Dictionary of Real Estate
Appraisal, Third Edition (1993), published by the Appraisal Institute, is as
follows:
Market Rent
The rental income that a property would most probably command on the open
market; indicated by current rents paid and asked for comparable space as
of the date of the appraisal.
Evaluation
Evaluation is a study of the nature, quality, or utility of a parcel of
real estate or interest in, or aspects of, real property, in which a value
estimate is not necessarily required.
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5
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<PAGE>
Introduction
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Market Study
A macroeconomic analysis that examines the general market conditions of
supply, demand, and pricing or the demographics of demand for a specific
area or property type.
Legal Description
The subject property is located just west of Twin Ponds Road, along the
north side of U.S. Highway 222, in Breinigsville, Lehigh County, Pennsylvania.
The street address of the subject property is 8785 Turkey Ridge Road. The
property is identified by tax parcel number 20-03789, according to information
provided by the client. The subject property's legal description is presented in
the Addenda of this report, and reference is made thereto.
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<PAGE>
LOCATION MAP
[MAP OMITTED]
<PAGE>
REGIONAL ANALYSIS
================================================================================
The subject property is located in Breinigsville, Lehigh County,
Pennsylvania. The subject property is part of the Allentown-Bethlehem-Easton
Metropolitan Statistical Area (MSA). Allentown, and to a lesser extent,
Bethlehem and Easton, serves as the commercial core of the metropolitan area.
The Allentown-Bethlehem-Easton metropolitan area is comprised of Lehigh, Carbon,
and North Hampton Counties.
Population
According to Sales and Marketing Management's 1997 Survey of Buying Power,
the 1996 estimated population of the Allentown-Bethlehem-Easton MSA is 614,400.
The historical and projected population characteristics of the
Allentown-Bethlehem-Easton MSA, are presented in the table below.
================================================================================
POPULATION
ALLENTOWN-BETHLEHEM-EASTON MSA
- --------------------------------------------------------------------------------
YEAR POPULATION % CHANGE
- --------------------------------------------------------------------------------
1980 554,700 - - -
- --------------------------------------------------------------------------------
1990 618,900 +1.57%
- --------------------------------------------------------------------------------
1996 614,400 -0.73%
- --------------------------------------------------------------------------------
2002 615,700 +0.21%
- --------------------------------------------------------------------------------
Source: SALES AND MARKETING MANAGEMENT, U.S. Bureau of the Census.
================================================================================
As indicated above, the population in the Allentown-Bethlehem-Easton MSA
grew significantly between 1980 and 1990. However there has been a slight
decrease in population since 1990, and minimal growth is expected through the
year 2002. The largest age group currently, are those individuals over 50 years
of age, accounting for 30.8 percent of the total population.
Income and Employment
The economic base of the Allentown-Bethlehem-Easton metropolitan area has
historically been based in the heavy and light manufacturing industries. While
this segment remains important, the regional economy is currently dominated by
the service industries. Approximately 32.0 percent of the workforce are now
employed in the service industries. The distribution of the workforce, per
industry, is presented in the table on the following page.
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Regional Analysis
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Allentown-Bethlehem-Easton Metropolitan Area
Distribution of Employment
- --------------------------------------------------------------------------------
Percentage of Total
Industry Classification As of August, 1997 Employment
- --------------------------------------------------------------------------------
Manufacturing 56,900 21.88%
- --------------------------------------------------------------------------------
Construction & Mining 11,000 4.23%
- --------------------------------------------------------------------------------
Transportation, 14,000 5.38%
Communication,
& Utilities
- --------------------------------------------------------------------------------
Wholesale & Retail Trades 54,800 21.08%
- --------------------------------------------------------------------------------
Finance, Insurance & Real Estate 13,300 5.12%
(FIRE)
- --------------------------------------------------------------------------------
Services 82,100 31.58%
- --------------------------------------------------------------------------------
Government 27,900 10.73%
- --------------------------------------------------------------------------------
Total Wage and Salary Employment 260,000 100.00%
- --------------------------------------------------------------------------------
Source: Pennsylvania Department of Labor and Industry
================================================================================
The services industry comprises the largest percentage of total
employment, followed by the manufacturing and wholesale and retail trade
industries.
The median household effective buying income is $37,675. The majority of
households, approximately 33.8 percent, have an effective buying income of
$50,000 or greater.
Transportation
The Allentown-Bethlehem-Easton MSA is served by two interstate highways
and multiple state roads. Interstate 476 (I-476) runs northwest and Interstate
78 (I-78) runs east and west, through the region. Commercial air-service is
available at the Lehigh Valley International Airport, located just outside the
City of Bethlehem. Regular service and Commuter airlines provide air-service to
many American and Canadian locations.
Summary and Conclusions
The Allentown-Bethlehem-Easton MSA area is a stable and well established
area, which experienced the majority of population growth between 1980 and 1990.
Negative growth has occurred in recent years, but minimal positive growth is
anticipated in the near future. In recent years, the workforce has been
primarily employed in the services industry, and this trend is expected to
continue in the foreseeable future. In summary, the outlook for the
Allentown-Bethlehem-Easton MSA is generally positive, with minimal population
growth expected.
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NEIGHBORHOOD MAP
[MAP OMITTED]
<PAGE>
NEIGHBORHOOD ANALYSIS
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The subject property is located just west of Twin Ponds Road, along the
north side of U.S. Highway 222, in Breinigsville, Lehigh County, Pennsylvania.
U.S. Highway 222 runs effectively northeast through the Lehigh County area. The
subject's immediate neighborhood is roughly defined as Centronia Road to the
north, U.S. Highway 222 to the south, SR 100 to the east, and SR 863 to the
west. The immediate neighborhood of the subject property is developed primarily
with single-family residential housing, and large open tracts of farmland, with
the exception of the Lucent Technologies research and technology park, located
less than one-quarter mile west of the subject property.
Regional access to the subject property is very good, as the subject
property is located along U.S. Highway 222. U.S. Highway 222 is accessible via
State Route 863 and State Route 100. Interstate 78 is accessible via State Route
863 and State Route 100. Interstate 476 provides direct access to Philadelphia
to the southeast. Neighborhood access to the subject property is very good,
since thoroughfares in the area connect with U.S. Highway 222.
Development in the area of the subject property consists primarily of
single-family residential housing, and large tracts of open farmland, with the
exception of the Lucent Technologies research and technology park, located less
than one-quarter mile west of the subject property. According to the
Allentown-Bethlehem Chamber of Commerce, total employment at Lucent Technologies
at the Breinigsville office is approximately 4,000, and the majority of the
Lucent Technologies employees live in the Breinigsville area.
Neighborhood residents at the subject property can find retail
establishments in the Town of Trexlertown, directly east of Breinigsville. The
Trexler Mall and the Trexlertown Shopping Center is just east of State Route
100, along the south side of U.S . Highway 222.
The subject property is situated in an area well suited for manufactured
housing development. Real estate values are anticipated to increase at a steady
pace. The economy of the area is anticipated to be good, with Lucent
Technologies comprising the largest employment base. The growth in population is
anticipated to remain constant.
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MARKET ANALYSIS
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National Overview
Reportedly, the largest property owners of manufactured housing
communities in the United States are: ROC Communities, headquartered in
Colorado; MHC, Inc., headquartered in Illinois; Ellenburg Capital, headquartered
in Oregon; Lautrec Ltd., headquartered in Michigan; Clayton Homes, headquartered
in Tennessee; Clayton Williams and Sherwood, headquartered in California;
Chateau Properties, Sun Communities and UNIPROP, headquartered in Michigan.
The following represents the top ten manufactured housing community firms,
as reported by GFA Management, as of 1997.
<TABLE>
<CAPTION>
=========================================================================================
1997 Firm Name State No. of Sites No. of Communities
Rank Owned/Managed Owned/Managed
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Sun Communities Michigan 30,295/0 84/0
- -----------------------------------------------------------------------------------------
2 ROC Communities Colorado 22,441/7,167 77/36
- -----------------------------------------------------------------------------------------
3 Manufactured Home Communities Illinois 27,349/838 69/3
- -----------------------------------------------------------------------------------------
4 Ellenburg Capital Florida 25,173/0 63/0
- -----------------------------------------------------------------------------------------
5 Lautrec Ltd. Michigan 22,652/0 58/0
- -----------------------------------------------------------------------------------------
6 Chateau Properties Michigan 20,003/0 47/0
- -----------------------------------------------------------------------------------------
7 Clayton Homes Tennessee 18,000/0 66/0
- -----------------------------------------------------------------------------------------
8 Clayton, Williams and Sherwood California 16,946/0 44/0
- -----------------------------------------------------------------------------------------
9 UNIPROP Michigan 14,931/0 40/0
- -----------------------------------------------------------------------------------------
10 The Bloch Organization Michigan 14,379/0 37/0
=========================================================================================
</TABLE>
According to the U.S. Census Bureau, more than 8,521,000 people were
living in manufactured housing communities as of 1990 compared to 3,838,678 in
1980. This represents an increase in manufactured housing community living of
approximately 122.0 percent over the last ten years. Over the last ten years,
there has been a steady increase in manufactured housing community development
across the country. Among the demographic factors which account for the increase
in manufactured housing community living are: decreasing household size, a
growing demand for smaller housing, as well as an alternative to the increasing
cost of housing. Nationally, the largest percentage of manufactured housing
communities are located in California, Michigan, Colorado, Florida, New York,
Minnesota, Indiana, Arizona, Ohio, and Wisconsin.
The manufactured home industry has dramatically changed over the last 20
years. Manufactured homes are now designed and constructed to accommodate
spacious and attractive living requirements. Today, approximately one out of
sixteen families live in manufactured housing units. The manufactured housing
market share has been growing
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Market Analysis
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steadily over the last 10 years. In 1990, 6.7 percent of Americans lived in
manufactured housing units, up from 2.9 percent compared to 1970, according to
the U.S. Census Bureau, which represents 12.0 to 14.0 percent of all new housing
built since the mid-1980's, according to the Manufactured Housing Institute in
Arlington, Virginia.
In 1990, the average cost of a manufactured housing unit was $27,800
compared to $149,000 for a new house (including land), according to the
Manufactured Housing Institute. This reflects a 28.0 percent increase in the
cost of manufactured housing since 1980 versus a 49.0 percent increase in
conventional housing. Industry experts estimate that a single-family home
selling for $150,000 would require an annual income of $52,671. To purchase a
$27,800 manufactured housing unit, only a $19,984 income level would be
required.
At Fleetwood Enterprises, the nation's largest manufacturer of
manufactured housing units, units may be purchased for up to $100,000, which
would include a three-bedroom, two-bath unit of 2,100 square feet, with vaulted
ceilings.
In 1990, approximately 10.0 percent of manufactured home owners lived in
units worth approximately $40,000, up from 4.0 percent compared to 1981,
according to a study conducted by Foremost Insurance Company in Grand Rapids,
Michigan. Also, according to the study, approximately 21.0 percent of the
manufactured housing households are occupied by people' 65 years of age or
older, slightly lower than the age group for conventional homes, as reported by
Foremost Insurance.
The demand for good quality institutional grade manufactured housing
communities has substantially increased over the last ten years. Manufactured
housing communities provide an affordable alternative to the increasing cost of
housing. Also, manufactured housing communities provide an alternative form of
living for the elderly and retirees, especially for those living on fixed
incomes.
Acquisitions of manufactured housing communities during 1993 and 1994 were
clearly dominated by Real Estate Investment Trusts. During 1994 and 1995
Manufactured Home Communities (MHC) and ROC communities lead the acquisition of
manufactured housing communities nationally. During 1996, Sun Communities
captured the lead and, together with ROC and MHC dominate the Real Estate
Investment Trust market.
The following chart represents the largest Real Estate Investment Trusts,
from 1991 to 1996, as reported by GFA Management
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Market Analysis
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HOME SITE GROWTH, DEVELOPMENT AMONG THE LARGEST
REAL ESTATE INVESTMENT TRUST (REITS)
- --------------------------------------------------------------------------------
Year ROC MHC Chateau Sun United Total Annual
Growth
- --------------------------------------------------------------------------------
1996 29,608 28,187 20,003 30,295 5,234 113,327 17.0%
- --------------------------------------------------------------------------------
1995 27,910 26,237 19,594 18,000 4,850 96,591 9.0%
- --------------------------------------------------------------------------------
1994 26,231 28,407 15,689 13,500 4,623 88,450 37.8%
- --------------------------------------------------------------------------------
1993 20,142 14,700 15,261 9,036 5,050 64,189 17.8%
- --------------------------------------------------------------------------------
1992 18,745 12,873 10,032 7,600 5,200 54,450 N/A
- --------------------------------------------------------------------------------
1991 9,030 13,079 9,759 N/R N/R N/A N/A
- --------------------------------------------------------------------------------
N/R = No report N/A = Not applicable
- --------------------------------------------------------------------------------
NOTE: The 113,327 sites counted for the top five REITs in 1996 make up 20
percent of the total sites surveyed in the 1997 Allen Report. These rental sites
are located in 339 communities, accounting for about 1 percent of some 50,000
existing manufactured housing communities nationwide. The community counts for
the five major REITs are: ROC (113), MHC (72), Chateau (47), Sun (84) and United
(23). The proportion of communities owned by each of the REITs compared to the
others is: ROC (33%), MHC (21%), Chateau (14%), Sun (25%) and United (7%).
================================================================================
Manufactured Home Communities (MHC) is expected to continue an aggressive
acquisition campaign through 1997 and beyond. As of September 1997, the MHC REIT
had a market cap of $632.0 million, and continues to pursue the acquisition of
manufactured home communities. Aside from the ELL-CAP $300.0 million
transaction, in September 1997 Manufactured Home Communities, Inc. completed a
$107.0 million purchase of 18 manufactured housing communities and two related
commercial properties from partnerships affiliated with Mobileparks West. The
communities, with 3,505 sites, were purchased with about $3.0 million
manufactured home operating units, $16.0 million in cash and $20.0 million of
installment notes and assumed debt. The communities have an average monthly
rental of $349.00. The communities are located in California, Utah, Oregon,
Washington and Nevada. MHC may be the first manufactured home community REIT to
reach $1.0 billion.
The MHC REIT continues to perform and expand, and as of September 1997 was
trading at $25.625, with a current yield of 5.2 percent. The top traded REITs,
are presented as follows.
<TABLE>
<CAPTION>
==========================================================================================
REIT MARKET UPDATE
- ------------------------------------------------------------------------------------------
Company Symbol Price Current Yield 52 Week High 52 Week Low Annual 12 Mth Tot
(9/19/97) Dividend Rtn
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CPJ $29.688 5.8% $31.125 $22.250 1.72 26.6%
- ------------------------------------------------------------------------------------------
MHC $25.625 5.2% $26.428 $18.875 1.32 30.7%
- ------------------------------------------------------------------------------------------
SUI $37.428 5.0% $ 38.00 $27.750 1.88 31.8%
- ------------------------------------------------------------------------------------------
UMH $11.625 6.0% $13.625 $10.875 0.70 -1.7%
- ------------------------------------------------------------------------------------------
Total return figures obtained through Standard & Poors and are for the period
through Sept 1997.
==========================================================================================
</TABLE>
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Market Analysis
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The Southwest and Northwest Regions of the nation are the preferred
locations regarding recent and future manufactured housing community
acquisitions. However, investors seeking moderate, but consistent growth
expectations, are still looking at the midwest region. Also, southern portions
of Florida are still considered a prime area for investors seeking good quality
manufactured housing communities, with good up-side potential. What was once a
stagnant market, the northeast region is now being considered for future
acquisitions.
According to a recent study prepared by Merrill Lynch & Company, ownership
in the manufactured housing community industry is highly fragmented. The top 150
owner-operators account for less than 5.0 percent of the total industry, whereas
a host of "mom-and-pop" private companies account for the other 95.0 percent.
This unglamorous niche industry is ripe for consolidation, and an infusion of
professional management expertise is likely to yield significant economies of
scale. The four REIT's specializing in manufactured housing communities are
already among the top ten owner-operators, and are well positioned to facilitate
and hasten the industry's consolidation to the likely benefit of their
stockholders.
Manufactured homes are the fastest growing component of the nation's
housing inventory, due to their affordability, good quality design and safety
standards. According to the Merrill Lynch & Company Manufactured Housing
Community Industry Report, factory-built homes appeal especially to senior
citizens and to households with limited economic needs, two segments of the
population that are likely to grow rapidly in coming years.
Consistent returns in manufactured housing community investments have been
the mainstay of the industry. For this reason, as well as the amount of
acquisitions seen by Real Estate Investment Trusts (REITs) from 1991 to 1996,
the availability of good quality manufactured housing communities has been
substantially reduced compared to the 1980's. Good quality manufactured housing
communities still command premium prices, thus driving down overall
capitalization rates.
Cushman & Wakefield's Valuation Advisory Services has tracked sale
transactions of manufactured housing communities since 1985. Overall
capitalization rates have consistently been within the 8.75 to 10.00 percent
range for communities located in moderate to increasing growth markets, and as
low as near 8.0 percent for those communities located in growing markets that
poses significant upside potential. Overall capitalization rates are clearly
affected and are differentiated among the properties relative to rent levels,
age, quality, condition, location, amenities, demographic characteristics,
resident profile, as well as the quality of management.
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Market Analysis
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Manufactured housing communities fall within, and are categorized by their
overall appearance, age, and amenities, but more importantly the strength of the
local market. The various categories of manufactured housing communities,
according to the Woodall Directory, can be ranked as 1 to 5 Star Parks These
rankings are defined as follows:
One Star Park
The most important consideration for a one star park is overall
appearance. If it is not a decent place to live, it will not be listed in
Woodall's Directory. The following are general requirements:
o Fair overall appearance;
o Patios on most lots. May be concrete, asphalt, wood, or some
suitable material;
o Grass, rock or shell to cover ground;
o Streets fair to good. May be dirt, asphalt or gravel in reasonable
condition;
o Restrooms clean, if any;
o Adequate laundry or laundromat nearby;
o If fences allowed, must be neat;
o Mail service;
o Homes may be old models, but show evidence of care; and,
o Manager available some hours of each day.
Two Star Park
In addition to the requirements for a one star park, a two star park will
have the following:
o Landscaping - some lawns and shrubs;
o Streets in good condition. Must be dust free of crushed rock, gravel
or shell minimum;
o Neat storage;
o Well equipped laundry or laundromat nearby;
o 200 volt connections available;
o If children accepted, park should have play area;
o Park free of clutter, such as old cars and other abandoned
equipment; and,
o Well maintained and managed.
Three Star Park
What a three star park does it does well, but not as uniformly as higher
rated parks. Many three star parks were once higher rated, but original
construction does not allow for today's 10-foot, 12-foot, and double-wides
or the 55-foot and 60-foot lengths. If children are allowed, there should
be adequate play area. However, the disarray caused by children may at
times be the determining factor that keeps a three star park at that level
when it otherwise could be rated higher. In addition to the requirements
for one and two star parks, a three star park must have the following:
o Attractive entrance;
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Market Analysis
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o All homes must be in good condition;
o Awnings and cabana rooms on some homes in southern areas;
o Some spaces for large mobile homes;
o Paved or hard surfaced streets;
o Off-street parking or streets wide enough for safe on-street
parking;
o Good lawns or substitute throughout, shade trees, some shrubs where
climate permits;
o Concrete patios or the equivalent on all lots;
o All lots neat and attractive;
o All park buildings in good repair; and,
o Good management.
Four Star Park
Four star parks are luxury parks. In addition to the requirements for one,
two and three star parks, a four star park must have the following:
o Good landscaping;
o Most homes skirted with metal skirts, concrete block, ornamental
wood or stone;
o Paved streets, edged or curbed.
o Uncrowded lots;
o Underground utilities if permitted by local conditions and
authorities;
o Most tanks, if present, concealed;
o Any hedges or fences must be attractive and uniform;
o Awnings, cabanas, or porches on most homes in southern areas.
(Excepting double-wide units.);
o Most lots to accommodate large mobile homes;
o Where row parking of homes exists, all must be lined up uniformly;
o Community hall and/or swimming pool and/or recreation programs. If a
park is four star in all but this requirement, the fourth star will
be printed as an open star indicating a four star park without
park-centered recreation; and,
o Excellent management.
Five Star Park
Five star parks are the finest. They should be nearly impossible to
improve. In addition to the requirements for one, two, three, and four
star parks, a five star park must have the following:
o Well planned and laid out spacious appearance;
o Good location in regard to accessibility and desirable neighborhood.
In some locations, park should be enclosed by high hedges or
ornamental fence;
o Wide paved streets in perfect condition. Curbs or lawns edged to
streets, sidewalks, street lights, street signs;
o Homes set back from street;
o Exceptionally attractive entrance and park sign;
o Patios at least 8 x 30 feet. (Excepting double-wide units.);
o Paved off-street parking such as carports or planned parking;
o All homes skirted;
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Market Analysis
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o All hitches concealed. Any existing tanks concealed;
o Recreation, some or all of the following: swimming pool (excepting
areas with long, cold winters), shuffleboards, horseshoe pitching,
golf course, hobby shop, hobby classes, games, potlucks, dances or
natural recreational facilities;
o Beautifully equipped recreation hall with kitchen. Room for
community gatherings, tiled restrooms, etc.;
o Uniform storage sheds or central storage facilities;
o All late model homes in excellent condition;
o At least 60 percent occupancy in order to judge quality of residents
which indicates park's ability to maintain a five star rating
between inspections;
o All empty lots grassed, graveled or otherwise well maintained;
o If pets or children allowed, there must be a place for them to run
and play without cluttering the streets and yards. Most five star
parks are for adults only; and,
o Superior management interested in comfort of residents and
maintenance of park.
The demand for good quality institutional grade manufactured housing
communities is anticipated to increase throughout the 1990's, since manufactured
housing communities provide an alternative form of living for the elderly and
retirees, especially for those living on fixed income. Manufactured home
shipments continue to be strong. Shipments rose 20.0 percent in 1992 and 1994,
and 12.0 percent in 1995. The market for good quality manufactured housing
communities is expected to be strong, with yield and capitalization rates and
prices expected to continue to be competitive, with the REITs leading the way.
Competition
We have surveyed five manufactured housing communities located within the
subject's primary market, including the subject property, containing a total of
1,869 sites. The combined occupancy rate of these five manufactured housing
communities, including the subject property, is approximately 97.8 percent.
Excluding the subject property in our survey, the combined occupancy rate is
approximately 97.0 percent, based on 1,274 sites.
The name and location of the subject property's primary competition, as
well as the number of sites, occupancy levels, amenities offered, monthly rental
rates and services provided in the monthly rental rate, are presented on the
following facing page, along with a map which identifies the location of each
competing park.
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<TABLE>
<CAPTION>
===========================================================================================================================
SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- ---------------------------------------------------------------------------------------------------------------------------
Number Age
Of Sites ---------
-------- Condition Services Date Of
Comp. Name Occupancy --------- Monthly Provided Last Rental
No. Location Level Amenities Park Rating(1) Rent in Rent Increase
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
R-1 Hickory Hills 352 Clubhouse 1971 $355.00/Mo. Water January, 1997
121 Hickory Hills Drive ---- Pool ---- To Sewer
Bath, Pennsylvania 100% Playground Good $380.00/Mo.
Storage ----
Basketball 4*
Pond
Putting Green
- ---------------------------------------------------------------------------------------------------------------------------
R-2 Greenbriar Village 319 Clubhouse 1987 $290.00/Mo. None September, 1997
63 A Greenbriar Drive North --- Playground ---- To
Bath, Pennsylvania 94% Tennis Very Good $334.00/Mo.
Basketball ---------
5*
- ---------------------------------------------------------------------------------------------------------------------------
R-3 Melody Lakes 353 Clubhouse 1960's $395.00/Mo. Water Approximately
1045 Northwest End Boulevard ---- Pool ------ Sewer 2 years ago
Quakertown, Pennsylvania 100% Storage Good
Laundry ----
Mini-Golf 4*
- ---------------------------------------------------------------------------------------------------------------------------
R-4 Li'l Wolfe 250 Clubhouse 1976 $334.00/Mo. Water April, 1997
3411 Wolfe Drive ---- Pool ---- Sewer
Orefield, Pennsylvania 93% Playground Good Snow Removal
Tennis ----
4*
- ---------------------------------------------------------------------------------------------------------------------------
Subject Green Acres 595 Clubhouse 1969-1994 $361.00/Mo. Water March 1997
8785 Turkey Ridge Road ---- Pool --------- To Sewer
Breinigsville, Pennsylvania 99% Tennis Good $382.00/Mo.
Basketball ----
Playground 4*
Volleyball
- ---------------------------------------------------------------------------------------------------------------------------
(1) Ratings from One Star to Five Star Parks are defined in the National Overview section of this report.
===========================================================================================================================
<CAPTION>
========================================================
SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- --------------------------------------------------------
3-Year
Average
Comp. Name Annual Rental
No. Location Increase
- --------------------------------------------------------
<S> <C> <C>
R-1 Hickory Hills $10.00/Mo.
121 Hickory Hills Drive
Bath, Pennsylvania
- --------------------------------------------------------
R-2 Greenbriar Village $11.00/Mo.
63 A Greenbriar Drive North
Bath, Pennsylvania
- --------------------------------------------------------
R-3 Melody Lakes $15.00-20.00/Mo.
1045 Northwest End Boulevard (Last increase)
Quakertown, Pennsylvania
- --------------------------------------------------------
R-4 Li'l Wolfe $11.00/Mo.
3411 Wolfe Drive (Last Increase)
Orefield, Pennsylvania
- --------------------------------------------------------
Subject Green Acres $16.00/Mo.
8785 Turkey Ridge Road
Breinigsville, Pennsylvania
- --------------------------------------------------------
========================================================
</TABLE>
<PAGE>
COMPETING MANUFACTURED HOUSING MAP
[MAP OMITTED]
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Market Analysis
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Rental rates of manufactured housing communities located within the
subject's primary market range from $290.00 to $395.00 per site, on a monthly
basis. The subject property is currently quoting monthly rental rates within the
market range, or from $361.00 to $382.00 per site. The last rental rate increase
at the subject property was as of March 1, 1997.
The enclosed comparable rentals are considered the most competitive to the
subject property regarding amenities offered, condition, location and overall
ranking.
Comparable R-1, Hickory Hills, is located at 121 Hickory Hills Drive, in
Bath, Pennsylvania. This comparable property contains 352 sites, and is
100 percent occupied. Hickory Hills was developed in 1971, and is in
overall good condition. Amenities include a clubhouse, pool, playground,
storage area, basketball courts, pond, and putting green. Over the last
three years, the average annual rental rate increase was approximately
$10.00 per month. The monthly rental rates range from $355.00 to $380.00,
with water and sewer are included in the monthly rental payment.
Comparable R-2, Greenbriar Village, is located at 63 A Greenbriar Drive
North, in Bath, Pennsylvania. Greenbriar Village contains 319 sites, and
is 94 percent occupied. Greenbriar Village was developed in 1987, and is
in overall very good condition. Amenities include a clubhouse, playground,
tennis courts, and basketball courts. Over the last three years, the
average annual rental rate increase was $11.00 per month. Monthly rental
rates range from $290.00 to $334.00, with no utilities included in the
monthly rental payment.
Comparable R-3, Melody Lakes, is located at 1045 Northwest End Boulevard,
in Quakertown, Pennsylvania. Melody Lakes contains 353 sites, and is 100
percent occupied. Melody Lakes was developed in the 1960's, and is in
overall good condition. Amenities include a clubhouse, pool, storage,
laundry facilities, and mini-golf. The last rental rate increase was
approximately two years ago, and ranged from $15.00 to $20.00 per month.
The monthly rental rate is $395.00, with water and sewer service included
in the monthly rental payment.
Comparable R-4, Li'l Wolfe, is located at 3411 Li'l Wolfe Drive, in
Orefield, Pennsylvania. Lil' Wolfe contains 250 sites, and is 93 percent
occupied. Li'l Wolfe was developed in 1976, and is in overall good
condition. Amenities include a clubhouse, pool, playground, and tennis
courts. The last annual rental rate increase occurred in April, 1997, and
was $11.00 per month. The monthly rental rate is $334.00, with water,
sewer, and snow removal included in the monthly rental payment.
In our opinion, and based on conversations with the on-site manager,
properties R-3 and R-4 compete most favorably with the subject property, with
monthly rental rates ranging from $334.00 to $395.00 per month per site. The
subject property is currently quoting monthly rental rates ranging from $361.00
to $382.00 per site, which is within the range of rental rates of the most
comparable competing properties. The subject property competes most
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Market Analysis
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effectively with its primary competitors regarding amenities, condition and
current rent structure.
Comparable Manufactured Housing Community Sales
A search of the subject's market revealed no sales of manufactured housing
communities in the immediate market area. Therefore we have presented sales of
five manufactured housing communities located in the southern mid-section of
Pennsylvania. The following is a brief discussion of each of the manufactured
housing sales.
Comparable Sale I-1, Breezy Acres, is located at 87 Lincoln Circle, in
Falls Township, Pennsylvania. This property contains 206 sites, and is
situated on 25.15 acres of land area. The property was in average
condition at the time of sale and was developed in 1970. Breezy Acres
contains no amenities. The property was approximately 98.0 percent
occupied at the time of sale. The property was purchased for $5,800,000,
which equates to $28,155 per site.
Comparable Sale I-2, Dauberton Manor, is located on Boxwood Road, in
Manchestor Township, Pennsylvania. This property contains 85 sites, and is
situated on 19.56 acres of land area. The property was in excellent
condition at the time of sale, and was developed in 1991. Dauberton Manor
contains no amenities. The property was approximately 98 percent occupied
at the time of sale. The property was purchased for $1,700,000, which
equates to $20,000 per site.
Comparable Sale I-3, Country Manor, is located at Bernheisel Bridge Road
at Carlisle Pike, in Middlesex Township, Pennsylvania. This property
contains 426 sites, and is situated on 99.24 acres of land area. The
property was in good condition at the time of sale, and was developed in
1970. Amenities include a clubhouse, pool, basketball courts, and
playground. The property was 100 percent occupied at the time of sale. The
property was purchased for $8,446,000, which equates to $19,826 per site.
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<TABLE>
<CAPTION>
=======================================================================================================================
SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- -----------------------------------------------------------------------------------------------------------------------
Sales Price
Per Site
Sales Date Land Area Density -------- EGIM
Comp. Name ---------- --------- -------- Occupancy ----
No. Location Sales Price No. Sites Condition At Sale $NOI/Site OAR
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
I-1 Breezy Acres 7/96 25.15 8.19 $28,155 $2,815 6.84x
87 Lincoln Circle ----- ----- ---- ------- -----
Fall Township, Pennsylvania $5,800,000 206 Average 98% 10.00%
- -----------------------------------------------------------------------------------------------------------------------
I-2 Dauberton Manor 9/95 19.56 4.35 $20,000 $2,059 7.25x
Boxwood Road, Manchestor ----- ----- ---- ------- -----
Township, Pennsylvania $1,700,000 85 Excellent 98% 10.29%
- -----------------------------------------------------------------------------------------------------------------------
I-3 Country Manor 5/94 99.24 4.29 $19,826 $2,248 11.34%
Bernheisel Bridge Road ----- ----- ---- -------
at Carlisle Pike $8,446,000 426 Good 100
Middlesex Township,
Pennsylvania
- -----------------------------------------------------------------------------------------------------------------------
I-4 Millcreek Estates 4/93 37.30 3.89 $16,552 $1,785 6.40
Airport and Ranck Roads ----- ----- ---- ------- ----
Earl and Earl Township, $2,400,000 145 Average 99% 10.78%
Pennsylvania
- -----------------------------------------------------------------------------------------------------------------------
I-5 Parkview Acres 3/93 12.74 7.97 $21,538 $1,723 5.10
West of Ashley Drive ---- ----- ---- ------- ----
Ephrata Township, $1,400,000 65 Average 100% 8.00%
Pennsylvania
- -----------------------------------------------------------------------------------------------------------------------
Subject Green Acres - - - 149.49 3.98 99% $2,782(1) N/A
8785 Turkey Ridge Road ------ ----
Breinigsville, Pennsylvania 595 Good
- -----------------------------------------------------------------------------------------------------------------------
(1) 1997 Trailing 12 months
=======================================================================================================================
<CAPTION>
=====================================================================================================
SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- -----------------------------------------------------------------------------------------------------
$EGI/Site
---------
$Expense/Site
-------------
Comp. Name Expense Ratio Comparability to
No. Location % Of EGI to the Subject Comments
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
I-1 Breezy Acres $4,116 Inferior Developed in 1970;
87 Lincoln Circle ------ Average condition; No
Fall Township, Pennsylvania $1,301 amenities.
------
31.61%
- -----------------------------------------------------------------------------------------------------
I-2 Dauberton Manor $2,760 Comparable Developed in 1991;
Boxwood Road, Manchestor ------ Excellent condition; No
Township, Pennsylvania $701 amenities
----
25.40%
- -----------------------------------------------------------------------------------------------------
I-3 Country Manor $3,180 Similar Developed in 1970;
Bernheisel Bridge Road ------ Good condition; Amenities
at Carlisle Pike $932 include: clubhouse, pool,
Middlesex Township, ---- basketball courts,
Pennsylvania 29.30% playground.
- -----------------------------------------------------------------------------------------------------
I-4 Millcreek Estates $2,588 Inferior Developed in 1970;
Airport and Ranck Roads ------ Average condition; No
Earl and Earl Township, $803 amenities.
Pennsylvania ----
31.03%
- -----------------------------------------------------------------------------------------------------
I-5 Parkview Acres $2,703 Inferior Developed in 1965;
West of Ashley Drive ------ Average condition; No
Ephrata Township, $980 amenities.
Pennsylvania ----
36.25%
- -----------------------------------------------------------------------------------------------------
Subject Green Acres $3,975 Subject Property Developed in from
8785 Turkey Ridge Road ------ 1969-1994;
Breinigsville, Pennsylvania $1,193 Good condition;
------ Amenities include:
30.01% Clubhouse, pool, tennis
courts, basketball court,
playground, and
volleyball court.
- -----------------------------------------------------------------------------------------------------
(1) 1997 Trailing 12 months
=====================================================================================================
</TABLE>
<PAGE>
Market Analysis
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Comparable Sale I-4, Millcreek Estates, is located at Airport and Ranck
Roads, in Earl and Earl Township, Lancaster County, Pennsylvania. This
property contains 145 sites, and is situated on 37.30 acres of land area.
The park was in average condition at the time of sale and was developed in
approximately 1970. Millcreek Estates contains no amenities. The property
was 99.0 percent occupied at the time of sale. The property was purchased
for $2,400,000, which equates to $16,552 per site.
Comparable Sale I-5, Parkview Acres, is located at Parkview Road, west of
Ashley Drive, in Ephrata Township, Pennsylvania. This property contains 65
sites, and is situated on 12.74 acres of land area. The park was in
average condition at the time of sale, and was developed in 1965. Parkview
Acres contains no amenities. The property was 100 percent occupied at the
time of sale. The property was purchased for $1,400,000, which equates to
$21,538 per site.
It should be noted that comparability does not imply an identical or exact
duplicate, but rather the possession of a similar utility and affected by
similar supply and demand forces. Also, relative to the subject property,
differences include: time or date of the transactions; location, which
encompasses differences in accessibility; site characteristics, including
differences in size, topography, access, exposure and development capacities;
and improvement characteristics, which include differences in age, quality,
condition, size and amenities.
Demographic Trends
Based on information provided by National Decision Systems (NDS), the
populations within the subject's primary 5-mile and secondary 10-mile market
areas, as of 1997, are 39,916 and 219,909, respectively. The populations of the
subject's primary and secondary market areas are projected to increase to 40,403
and 224,330, respectively, by the year 2002.
According to NDS, the total number of households within the subject's
primary and secondary market areas, are 14,730 and 86,269, respectively, for
1997. The number of households within the subject's primary 5-mile and secondary
10-mile market areas are projected to increase to 15,737 and 89,416,
respectively, by the year 2002.
The average household income levels within the subject's primary and
secondary market areas, for 1997, are $69,752 and $60,348, respectively, and are
expected to increase to $89,513 and $78,175, respectively, by the year 2002. The
median household income levels within the subject's primary and secondary market
areas, for 1997, are $52,181 and $43,119, respectively, and are expected to
increase to $60,193 and $50,779, respectively, by the year 2002. Per capita
income within the subject's primary and secondary market areas, for 1997, are
$26,422 and $24,125, respectively, and are expected to increase to $35,861 and
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Market Analysis
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$32,041, respectively, by the year 2002.
Based on the above levels, the demographics of the subject's primary
market area appear to indicate a positive growth trend, based on information
provided by NDS. For additional demographic information, please refer to the NDS
summary report in the Addenda of this report.
Expense Analysis
Expenses exhibited by manufactured housing communities nationally are
typically 35.0 to 45.0 percent of effective gross income. However, expense
ratios of manufactured housing communities located in the southeast and
southwest regions of the nation are typically lower by comparison, due to lower
real estate taxes and common area maintenance charges.
As presented in the Summary of Manufactured Housing Communities Sales,
operating expense ratios of competing parks range from 25.4 to 36.2 percent of
effective gross income levels, and $701 to $1,301 on a per site basis. The
subject property is currently reporting operating expenses, for the 12-month
trailing period of 1997, at 30.01 percent of effective gross income and $1,193
on a per site basis. The operating expenses appear to be within the range of
comparable properties on both a per site basis as well as on a percentage of
effective gross income.
Market Supply and Demand
There are a total of four competing manufactured housing communities
located within the subject's market, which total 1,274 sites, with a
corresponding average occupancy rate of about 97.0 percent. No specific
absorption statistics were available, since the subject's competing parks have
historically reported occupancy rates at, or above 95.0 percent. The occupancy
rate at the subject property, based on conversations with management, has
historically been consistent with competing parks, and is currently 99.3
percent. We believe the current occupancy rate of the subject property is
stabilized, and is within the range of occupancy rates of competing parks
presently presented. Based on the subject's current occupancy rate and occupancy
rates at competing parks, demand appears to be very strong, with steady rental
rate increases expected.
Conclusion
Historically, the subject's primary market has sustained high occupancy
levels of 95.0 to 100 percent. Rental rates of similar manufactured housing
communities located within the subject's primary market generally range from
$290.00 to $395.00 per site, on a monthly basis. The subject property is
currently quoting, and is currently achieving (based on the most recent rent
roll provided), a monthly rental rate within the range of competing parks, or at
$361.00 to $382.00 per site, which we believe is market-orientated.
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Market Analysis
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Based on our research, steady increases in rental rates are anticipated,
based on actual historical performance of competing parks and historical
increases seen at the subject property. Sales transactions of manufactured
housing communities located within the subject's region range from $16,552 to
$28,155 per site, with corresponding overall rates ranging from 8.00 to 11.34
percent. In our opinion, the subject property competes most favorably with its
competition regarding amenities, condition, rent structure and overall market
rating.
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<PAGE>
SITE PLAN
[GRAPHIC OMITTED]
<PAGE>
PROPERTY DESCRIPTION
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Site Description
The subject site is located just west of Twin Ponds Road, along the north
side of U.S. Highway 222, in Breinigsville, Pennsylvania. The subject site is
irregular in shape and contains approximately 149.49 acres, or 6,511,784 square
feet of land area. Topographically, the site is gently rolling.
On site sewer and water service is provided. Electric Service is provided
by Pennsylvania Power & Light. Gas service is not available, and GTE Company
provides telephone service.
The subject property is accessible via U.S. Highway 222. The
Upper-Macungie Township Planning Department, would not comment if the subject
property was located in a flood hazard area. Therefore, we recommend a qualified
engineer to determine the existence of any flood hazard areas.
Each developed site has an asphalt driveway. The streets within the park
have two-lanes. Overall, the subject site is typical of the area and is
functionally well suited for its current use.
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.
Improvements Description
The subject property was originally developed in phases between 1969 and
1994. The subject improvements consist of a 595-site manufactured housing
community, with a clubhouse, pool, tennis courts, basketball court, playground,
and volleyball court.
The clubhouse consists of open-space available for resident use, and a
kitchen. The clubhouse is a manufactured home converted for resident use; and,
appeared to be in overall very good condition at the time of inspection.
The pool is adjacent to the on-site managers office. Off-street parking is
available for each resident. Site improvements within the park include: asphalt
paved streets, asphalt driveways, some street lighting and signage. Overall, the
site improvements appeared to be in good condition at the time of inspection.
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Property Description
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Green Acres is a functional manufactured housing community with good
ingress and egress from U.S. Highway 222. Overall, the subject community appears
to be well maintained and is in good condition. Green Acres is a functional
manufactured housing community and competes favorably with other existing
manufactured housing communities in the area in terms of appearance and
amenities. The subject property would fit the profile of a Four Star Park, as
defined in the National Overview section of this report.
Real Property Taxes and Assessments
Assessed value of commercial property in Lehigh County is assessed at 50.0
percent of the Assessor's opinion of market value. The subject property is
identified by tax parcel Number 20-03789.
The total amount of real estate taxes for 1997 for the subject property
amounts to $154,995.63. Real estate taxes for the subject property for 1997 are
due in August, 1997. The total amount of real estate taxes for 1997, equates to
approximately $260.50 per site.
Zoning
According to zoning officials of Upper-Macungie Township, the subject
property is currently zoned R-5, Medium-High Density Residential District. Based
on conversations with zoning officials of Upper-Macungie Township, the subject
property is a legal and conforming use in the R-5, Medium-High Density
Residential District.
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CONCLUSION
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Conclusion
o The subject property, Green Acres, is a functional manufactured
housing community, which competes favorably in relation to its
competition;
o Comparable manufactured housing communities located within the
subject's market range in monthly rental rates per site from $290.00
to $395.00;
o The subject property is currently quoting, and is currently
achieving (based on the most recent rent roll provided) monthly
rental rates ranging from $361.00 to $382.00 per site, which is
within the range of competing parks, and appears to be
market-oriented;
o Sale transactions of manufactured housings located within the
subject's region range in unit sales prices per site from $16,552 to
$28,155, with corresponding overall rates ranging from 8.00 to 11.34
percent;
o Operating expenses are within industry standards for a park located
in the eastern region of the country;
o The subject park appears to be operating at economic levels based on
our review of historical and budgeted 1998 income and expenses;
o The demographic characteristics of the area appear to be positive;
o The population profile of the subject property is approximately 45.0
percent families, and 55.0 percent retired adults.
o The current occupancy rate at the subject property of 99.3 percent
is evident by a strong local market and demand;
o No significant manufactured housing communities are expected to be
developed in the near future;
o In our opinion, based on Woodall's criteria, the subject property is
a Four Star Park, and the reader's attention is directed to the
corresponding definition and criteria of a Four Star Park, presented
in the National Overview section of this report; and,
o Based on the subject's location, demographic, economic, market and
physical characteristics, we believe Green Acres will continue to be
a viable manufactured housing community in the foreseeable future,
and is well positioned in the marketplace.
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<PAGE>
ASSUMPTIONS AND LIMITING CONDITIONS
================================================================================
"Report" means the consulting report to which these Assumptions and Limiting
Conditions are annexed.
"Property" means the subject of the Report.
"C&W" means Cushman & Wakefield, Inc. or its subsidiary which issued the Report.
"Appraiser(s)" means the employee(s) of C&W who prepared and signed the Report.
This report is made subject to the following assumptions and limiting
conditions:
1. No responsibility is assumed for the legal description or for any matters
which are legal in nature. 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 Report or upon which the Report 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 Appraisers nor C&W shall be responsible for the
accuracy or completeness of such information, including the correctness of
estimates, opinions, dimensions, sketches, exhibits, and other factual
matters.
3. The information is effective as of the date stated in the Report. Changes
since that date in external and market factors or in the property itself
can significantly affect our analysis.
4. The report is to be used in whole and not in part. No part of the Report
shall be used in conjunction with any other report. Possession of the
Report, or a copy thereof, does not carry with it the right of
publication. Publication of the Report or any portion thereof without the
prior written consent of C&W is prohibited. Except as may be otherwise
expressly stated in the letter of engagement to prepare the Report, C&W
does not permit use of the Report by any person other than the party to
whom it is addressed or for purposes other than those for which it was
prepared. If written permission is given by C&W to use the Report, the
Report must be used in its entirety and only with proper written
qualification as approved by C&W. No part of the Report or the identity of
the Appraiser shall be conveyed to the public through advertising, public
relations, news, sales, or other media or used in any material without
C&W's prior written consent. Reference to the Appraisal Institute or to
the MAI designation is prohibited.
5. The Appraiser shall not be required to give testimony in any court or
administrative proceedings relating to the Property or the Report.
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Assumptions and Limiting Conditions
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6. The Report 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 Report; 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 Report is based.
7. The physical condition of the improvements considered by the Report is
based on visual inspection by the Appraiser or other person identified in
the Report. C&W assumes no responsibility for the soundness of structural
members nor for the condition of mechanical equipment, plumbing, or
electrical components.
8. Unless otherwise stated in the Report, the existence of potentially
hazardous or toxic materials which may have been used in the construction
or maintenance or operation of the improvements or may be located at or
about the Property was not considered in the Report. These materials (such
as formaldehyde foam insulation, asbestos insulation, various soil
contaminants, and other potentially hazardous materials) may affect the
value of the Property. The Appraisers are not qualified to detect such
substances, and C&W urges that an expert in this field be employed to
determine the economic impact of these matters, if any, on the property in
the Report.
9. Unless otherwise stated in the Report, compliance with the requirements of
the Americans With Disabilities Act of 1990 (ADA) has not been considered
in the Report. Failure to comply with the requirements of the ADA may
negatively affect the value of the property. C&W recommends that an expert
in this field be employed.
10. If the Report is submitted to a lender or investor with the prior approval
of C&W, such party should consider the Report as one factor, together with
its independent investment considerations and underwriting criteria, in
its overall investment decision.
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CERTIFICATION
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We certify that, to the best of our knowledge and belief:
1. Michael J. Schaeffer inspected the property, and Stanley R. Dennis, Jr.,
MAI, has reviewed and approved the report, but did not inspect 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 on an action or event (such as the
approval of a loan) resulting from the analyses, opinions, or conclusions
in, or the use of, this report.
6. 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 Ethics and Standards of Professional Practice of the Appraisal
Institute.
7. No one provided significant professional assistance to the persons signing
this 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. As of the date of this report, Stanley R. Dennis, Jr., MAI, has completed
the requirements of the continuing education program of the Appraisal
Institute.
/s/ Michael J. Schaeffer /s/ Stanley R. Dennis, Jr., MAI
Michael J. Schaeffer Stanley R. Dennis, Jr., MAI
Director Director, Manager
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<PAGE>
ADDENDA
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POP-FACT SHEETS
LEGAL DESCRIPTION
QUALIFICATIONS OF APPRAISERS
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34
<PAGE>
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POP-FACT SHEETS
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<PAGE>
Mon Dec 1, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP FACTS: SUMMARY REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6510
PREPARED FOR
CUSHMAN & WAKEFIELD, INC
TWIN PONDS RD & US 222
BREINIGSVILLE, PA COORD: 40:32.38 75:37.52
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- --------------------------------------------------------------------------------
POPULATION
2002 PROJECTION 40,403 224,330
1997 ESTIMATE 39,916 219,909
1990 CENSUS 37,185 212,916
1980 CENSUS 30,348 194,179
GROWTH 1980 - 1990 22.53% 9.65%
HOUSEHOLDS
2002 PROJECTION 15,737 89,416
1997 ESTIMATE 14,730 86,269
1990 CENSUS 13,256 81,436
1980 CENSUS 10,223 72,141
GROWTH 1980 - 1990 29.67% 12.88%
1997 ESTIMATED POPULATION BY RACE 39,916 219,909
WHITE 96.26% 90.92%
BLACK 0.65% 3.35%
ASIAN & PACIFIC ISLANDER 2.83% 1.90%
OTHER RACES 0.26% 3.83%
1997 ESTIMATED POPULATION 39,916 219,909
HISPANIC ORIGIN 1.66% 6.46%
OCCUPIED UNITS 13,256 81,436
OWNER OCCUPIED 82.57% 68.22%
RENTER OCCUPIED 17.43% 31.78%
1990 AVERAGE PERSON PER HH 2.74 2.52
1997 ESTIMATED HH BY INCOME 14,730 86,269
$150,000 + 6.18% 5.10%
$100,000 TO $149,999 6.54% 5.23%
$ 75,000 TO $ 99,999 12.39% 9.08%
$ 50,000 TO $ 74,999 27.27% 22.17%
$ 35,000 TO $ 49,999 18.29% 18.34%
$ 25,000 TO $ 34,999 10.04% 12.32%
$ 15,000 TO $ 24,999 9.90% 13.54%
$ 5,000 TO $ 14,999 8.11% 11.66%
UNDER $ 5,000 1.28% 2.56%
1997 EST. AVERAGE HH INCOME $69,752 $ 60,348
1997 EST. MEDIAN HE INCOME $52,181 $ 43,119
1997 EST. PER CAPITA INCOME $26,422 $ 24,125
<PAGE>
Mon Dec 1, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP 80-02, HH 80-02, INC 80-02)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6510
PREPARED FOR
CUSHMAN & WAKEFIELD, INC
TWIN PONDS RD & US 222
BREINIGSVILLE, PA COORD: 40:32.38 75:37.52
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- --------------------------------------------------------------------------------
POP_80: TOTAL 30,348 194,179
POP_90: TOTAL 37,185 212,916
POP_97: TOTAL (EST.) 39,916 219,909
POP_02: TOTAL (PROJ.) 40,403 224,330
HH_80: TOTAL 10,223 72,141
HH_90: TOTAL 13,256 81,436
HH_97: TOTAL (EST.) 14,730 86,269
HH_02: TOTAL (PROJ.) 15,737 89,416
INC_80: PER CAPITA (EST.) $ 8,155 $ 7,950
INC_90: PER CAPITA $18,246 $ 15,920
INC_97: PER CAPITA (EST. $26,422 $ 24,125
INC_02: PER CAPITA (PROJ $35,861 $ 32,041
HH_90_BY INCOME_89: MEDIAN $41,734 $ 33,292
HH_97_BY INCOME: MEDIAN $52,181 $ 43,119
HH_02_BY INCOME: MEDIAN $60,193 $ 50,779
HH_80_BY INCOME_79: AVERAGE $24,209 $ 21,400
HH_90_BY INCOME_89: AVERAGE $49,963 $ 40,954
HH_97_BY INCOME: AVERAGE $69,752 $ 60,348
HH_02_BY INCOME: AVERAGE $89,513 $ 78,175
<PAGE>
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LEGAL DESCRIPTION
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<PAGE>
LEGAL DESCRIPTION
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BEGIN the same premises as described in Deed from Fred J. Jaindl, t/a Jaindl's
Turkey Farm to Pennland Vistas, Inc., an Illinois corporation, as Nominee for
MHC Financing, Limited Partnership dated JANUARY 13, 1988 and recorded JANUARY
20, 1988 in the Office of the Recorder of Deeds of Lehigh County in Deed Book
1409 at Page 449.
AND ALSO
BEGIN the same premises as described in Mortgage from Pennland Vistas, Inc., an
Illinois corporation, as Nominee for MHC Financing, Limited Partnership to MHC
FINANCING CORPORATION, A DELAWARE CORPORATION, AND HARRIS TRUST AND SAVINGS
BANK, AS TRUSTEE dated MARCH 3, 1993 and recorded MARCH 5, 1993 in the Office of
the Recorder of Deeds in Lehigh County in Mortgage Book 1795 page 218.
- --------------------------------------------------------------------------------
<PAGE>
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QUALIFICATIONS OF APPRAISERS
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<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
MICHAEL J. SCHAEFFER
Real Estate Experience
Mr. Schaeffer has been active in the appraisal of real estate since 1983.
Appraisal experience includes the valuation of income-producing real estate in
the Chicago area as well as many major cities and small towns throughout the
Midwest. The types of properties appraised include office buildings, regional
malls, shopping centers, country clubs, apartment complexes, subsidized housing
units, industrial buildings, nursing homes, retirement communities, automotive
dealerships, department stores, vacant land, proposed income-producing
properties, and various special purpose properties. Mr. Schaeffer also has had
over 10 years of experience in new construction and renovation of commercial,
industrial, residential and specialized real estate properties.
Education
Bachelor of Arts, University of Cincinnati, Cincinnati, Ohio MBA Graduate Course
Work in Economics and Management, Xavier University, Cincinnati, Ohio
Real Estate Education
The following courses sponsored by the Appraisal Institute have been
successfully completed:
Real Estate Appraisal Principles 1A-1
Basic Valuation Procedures 1A-2
Standards of Professional Practice
Capitalization Theory and Techniques 1BA
Capitalization Theory and Techniques IBB
Advanced Applications 550
Report Writing & Valuation Analysis 540
Mr. Schaeffer has also attended numerous lectures and seminars sponsored by the
Appraisal Institute.
Mr. Schaeffer is currently a candidate for the MAI designation of the Appraisal
Institute, and has completed the educational and experience requirements for the
MAI designation.
Current Position
Director, Appraisal Services, Cushman & Wakefield, Inc., Chicago, Illinois
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
STANLEY R. DENNIS, JR., MAI
Real Estate Experience
Director, Manager, Cushman & Wakefield Valuation Advisory Services, Chicago,
Illinois. Division is responsible for the appraisal and consultation function of
Cushman & Wakefield, Inc., a national full service real estate organization,
1989.
Vice President, Manager, Cushman & Wakefield Appraisal Services, Portland,
Oregon, 1983.
Principal, Stanley R. Dennis & Associates, Portland, Oregon, 1982.
Education
Portland State University, Portland, Oregon
Bachelor of Science Degree, 1977, Finance and Real Estate
Appraisal Institute
Course I-A Fundamentals and Principles of Real Estate Appraisal
Course I-B Capitalization Theory and Techniques
Course II-I Case Studies in Real Estate Valuation
Course II-2 Valuation Analysis and Report Writing
Course II-3 Standards of Professional Practice
Course IV Litigation/Condemnation Valuation
Course VI Investment Analysis
Course VIII Residential Case Studies
Course X Market Analysis
Seminar Feasibility Analysis and Highest and Best Use
Seminar Discounted Cash Flow Analysis
Seminar Cash Equivalency
Seminar Subdivision Analysis
Seminar Rates, Ratios and Reasonableness
Professional Affiliations
American Institute of Real Estate Appraisers, Member (Designation #6754)
Building Owners and Managers Association (BOMA)
National Association of Corporate Real Estate Executives (NACORE)
<PAGE>
================================================================================
MARKET STUDY OF REAL PROPERTY
Hillcrest Village
1600 Sable Boulevard
Aurora, Adams County, Colorado
================================================================================
As of December 4, 1997
Prepared For:
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Prepared By:
Cushman & Wakefield of Illinois, Inc.
Valuation Advisory Services
455 North Cityfront Plaza Drive, Suite 2800
Chicago, Illinois 60611-5555
CUSHMAN &
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<PAGE>
[Letterhead of Cushman & Wakefield of Illinois, Inc.]
December 16, 1997
Mr. Edward J. Welch
Director
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Re: Market Study of Real Property
Hillcrest Village
1600 Sable Boulevard
Aurora, Adams County, Colorado 80011
Dear Mr. Welch:
In fulfillment of our agreement as outlined in the Letter of Engagement,
Cushman & Wakefield of Illinois, Inc., is pleased to transmit our market study
and consulting report evaluating the above referenced real property.
As specified in the Letter of Engagement, our market study and consulting
report is qualified by certain assumptions, limiting conditions, certifications,
and definitions, which are set forth in the report.
This consulting report was prepared for the Client, and it is intended
only for the specified use of the Client. It may not be distributed to or relied
upon by other persons or entities without written permission of Cushman &
Wakefield, Inc.
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the above
referenced real property, as of the date of our property inspection. The
function of the report is to assist the client, in evaluating the property for
underwriting and rating purposes.
<PAGE>
Mr. Edward J. Welch -2- December 16, 1997
This market study and consulting report was prepared in conformity with
the requirements of the Code of Ethics and Standards of Professional Appraisal
Practice of the Appraisal Institute and the Uniform Standards of Professional
Practice (USPAP) adopted by the Appraisal Standards Board of the Appraisal
Foundation.
This letter is invalid if detached from the report, which contains the
text, exhibits, and the Addenda.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF ILLINOIS, INC.
/s/ Jody L. Garbisch
Jody L. Garbisch
Associate Appraiser
/s/ Michael J. Schaeffer
Michael J. Schaeffer
Director
/s/ Stanley R. Dennis, Jr.
Stanley R. Dennis, Jr., MAI
Director, Manager
CUSHMAN &
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<PAGE>
TABLE OF CONTENTS
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Page
PHOTOGRAPHS OF SUBJECT PROPERTY................................................1
INTRODUCTION...................................................................5
Identification of Property...................................................5
Property Ownership and Recent History........................................5
Purpose and Function of the Market Study and Consulting Assignment...........5
Scope of the Market Study and Consulting Assignment..........................5
Date of Property Inspection..................................................5
Definitions and Other Pertinent Terms........................................5
REGIONAL ANALYSIS..............................................................8
NEIGHBORHOOD ANALYSIS.........................................................17
MARKET ANALYSIS...............................................................19
National Overview...........................................................19
Competition.................................................................26
Comparable Manufactured Housing Community Sales.............................30
Demographic Trends..........................................................32
Expense Analysis............................................................33
Market Supply and Demand....................................................33
Conclusion..................................................................34
PROPERTY DESCRIPTION..........................................................36
Site Description............................................................36
Improvements Description....................................................36
REAL PROPERTY TAXES AND ASSESSMENTS...........................................37
ZONING........................................................................37
CONCLUSION....................................................................38
ASSUMPTIONS AND LIMITING CONDITIONS...........................................39
CERTIFICATION.................................................................41
ADDENDA.......................................................................42
Pop-Fact Sheets
Legal Description
Qualifications of Appraisers
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PHOTOGRAPHS OF SUBJECT PROPERTY
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[PHOTO OMITTED]
Front Entrance of Subject Property
[PHOTO OMITTED]
Exterior of Community Center
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Photographs of Subject Property
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[PHOTO OMITTED]
Typical Interior View of the Subject Park
[PHOTO OMITTED]
Typical Interior View of the Subject Park
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<PAGE>
Photographs of Subject Property
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[PHOTO OMITTED]
Typical Interior View of the Subject Park
[PHOTO OMITTED]
Typical Interior View of the Subject Park
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<PAGE>
Photographs of Subject Property
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[PHOTO OMITTED]
Street Scene Facing North Along Sable Boulevard
[PHOTO OMITTED]
Street Scene Facing South Along Sable Boulevard
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<PAGE>
SUMMARY OF SALIENT FACTS
================================================================================
Property Name: Hillcrest Village
Location: 1600 Sable Boulevard
Aurora, Adams County, Colorado
Assessor's Parcel Number: Based on information provided by Adams
County Treasurer's Office, the subject
property is identified by Assessor's Parcel
Number 01821-31-3-01-002.
Date of Inspection: The property was inspected December 4, 1997.
Ownership: The subject property is legally entitled to
Snowland Vistas, Inc., an Illinois
corporation.
Land Area: Based on the property's legal plat of
survey, the subject property contains 72.392
acres of land area, or 3,153,385 square
feet.
Zoning: Based on information provided by the City of
Aurora Zoning Department, the subject
property is zoned MH, Manufactured Housing
District, and is a legal and conforming use.
Improvements
Type: A manufactured housing community.
Year Built: The subject property was originally
developed in approximately 1960.
Size: The subject property consists of a 604-site
manufactured housing community of which
approximately 60.0 percent are single wide,
and 40.0 percent are double wide.
Condition: At the time of inspection, the subject
property was in good condition.
Property Rating: Four Star manufactured home community.
Special Assumptions: 1. Information regarding the subject
property, including its physical
characteristics, was provided to us by the
client and the on-site manager, and is
assumed to be accurate.
CUSHMAN &
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<PAGE>
Summary of Salient Facts
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2. The existence of potentially hazardous or
toxic materials, which may be located on or
about the property, was not considered in
our evaluation. The appraisers are not
qualified to detect such substances, and
Cushman & Wakefield urges that an expert in
this field be employed to determine the
existence, if any, of hazardous materials
located on or about the site.
3. Our market and consulting report
regarding the subject assumes the subject
property, as presently improved, represents
its highest and best use.
4. It is unknown to the appraiser if the
subject property complies with the Americans
with Disabilities Act (ADA). We recommend a
qualified specialist in the final
determination regarding any ADA compliance
deficiencies that may be present at the
subject property.
5. Please refer to the complete list of
assumptions and limiting conditions included
at the end of this report.
CUSHMAN &
WAKEFIELD(R)
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<PAGE>
INTRODUCTION
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Identification of Property
The subject property consists of a 604-site manufactured housing
community, situated on approximately 72.392 acres of land area. Hillcrest
Village is located along the east and west side of Sable Boulevard, just north
of East Colfax Avenue, in the City of Aurora, Adams County, Colorado. The
property's street address is 1600 Sable Boulevard. The property was constructed
in 1960, and was 95.0 percent occupied at the time of inspection.
Property Ownership and Recent History
The subject property is currently entitled to Snowland Vistas, Inc., an
Illinois corporation, and was originally developed in 1960.
Purpose and Function of the Market Study and Consulting Assignment
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the subject
property, as of the date of property inspection. The function of the consulting
report is to assist the client in evaluating the property for underwriting and
rating purposes.
Scope of the Market Study and Consulting Assignment
In the process of preparing this report, we inspected the property,
interviewed the on-site manager, conducted market research into asking rental
rates for comparable properties, conducted market investigations, and
ascertained sales prices of comparable properties. Additionally, we conducted
market research and evaluated demographic and economic trends; and, the market
position and rating of the subject property.
Date of Property Inspection
The property was inspected December 4, 1997.
Definitions and Other Pertinent Terms
Definitions of pertinent terms taken from the Dictionary of Real Estate
Appraisal, Third Edition (1993), published by the Appraisal Institute, is as
follows:
Market Rent
The rental income that a property would most probably command on the open
market; indicated by current rents paid and asked for comparable space as
of the date of the appraisal.
Evaluation
Evaluation is a study of the nature, quality, or utility of a parcel of
real estate or interest in, or aspects of, real property, in which a value
estimate is not necessarily required.
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<PAGE>
Introduction
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Market Study
A macroeconomic analysis that examines the general market conditions of
supply, demand, and pricing or the demographics of demand for a specific
area or property type.
Legal Description
The subject property is located along the east and west side of Sable
Boulevard, in the City of Aurora, Adams County, Colorado. The street address of
the subject property is 1600 Sable Boulevard, Aurora, Colorado. The property is
identified by tax parcel number 01821-31-3-01-002, according to Adams County
Treasurer's Office. Due to the lengthy metes and bounds legal description, the
subject property's legal description is presented in the Addenda of this report,
and reference is made thereto.
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<PAGE>
LOCATION MAP
[MAP OMITTED]
<PAGE>
REGIONAL ANALYSIS
================================================================================
Locational, economic, and population trends of the Denver-Boulder
Metropolitan Statistical Area are detailed in this section.
Location
o The DMA is a six-county region including Adams, Arapahoe, Boulder, Denver,
Douglas and Jefferson Counties.
o Primary cities within the DMA include: Denver, Arvada, Aurora, Broomfield,
Boulder, Commerce City, Englewood, Golden, Lakewood, Littleton,
Northglenn, Thornton, Westminster, and Wheat Ridge. There are various
secondary municipalities.
o The DMA is part of the Rocky Mountain Front Range, which includes the
Cities of Colorado Springs, Fort Collins, Greeley, Longmont, Loveland and
Pueblo, as well as the cities within the DMA and various smaller
municipalities.
Employment and the Economy
Employment
The non-agricultural wage & salary employment by sector in the
Denver-Boulder Metropolitan Statistical Area is summarized in the table below.
================================================================================
Denver-Boulder MSA
Nonagricultural Wage & Salary Employment
July 1996
- --------------------------------------------------------------------------------
Sector Employed
- --------------------------------------------------------------------------------
Mining and Construction 74,000
Manufacturing 119,600
Transportation & Public Utilities 88,200
Trade 282,300
F.I.R.E. 84,100
Services 351,600
Government 157,800
- --------------------------------------------------------------------------------
TOTAL 1,157,600
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Source: Colorado Department of Labor and Employment
o The DMA economy has grown since 1988, following substantial over-building
in the early-1980s and economic deterioration in the mid-1980s.
o The compounded, average annual increase in employment from 1990 through
1995 equaled 3.3 percent.
o The 1995 annual, average, non-agricultural wage and salary employment in
the Denver-Boulder MSA was 1,128,700. This represents an increase of 4.0
percent from
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Regional Analysis
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the 1994 annual average of 1,084,800. The 1996 employment level exhibited
continued increase (2.6 percent above the year-end 1995 level).
o The strongest growth over the past year occurred in the trade and services
sectors. Growth in the construction sector has been strong, due to public
works projects, single-family construction and build-to-suit development.
Government has grown to service a larger population. Other sectors have
exhibited moderate growth.
Major Employers
o Several, major telecommunications companies are headquartered or have
major operations in the area, including TCI (largest cable-TV provider in
the country), US West (largest private employer in the DMA), MCI, Sprint
and AT&T.
o There are numerous, large high-tech manufacturing facilities in the DMA
and along the Rocky Mountain Front Range, including Lockheed Martin (3.2
million square feet in the Denver area), Eastman-Kodak (occupying 3.1
million square feet in Greeley), Hewlett Packard (occupying 3.0 million
square feet in Fort Collins, Loveland and Colorado Springs), IBM (2.5
million square feet in Boulder) and StorageTek (2.3 million square feet in
Louisville and Longmont).
o Other major employers include numerous hospitals and health care
organizations (HealthOne and Kaiser Permanente), retailers (K-Mart, King
Soopers and Safeway) and financial institutions (Colorado National Bank).
Coors Brewing Company is one of the largest employers, providing
approximately 5,300 jobs in the Denver area.
o Denver International Airport (DIA), which opened February 28, 1995,
employ's approximately 26,000; of which 21,000 employees were transferred
from Stapleton International Airport, which was closed. United Airlines
employs approximately 6,700 at the new airport.
o Rocky Flats, previously a producer of nuclear weapons trigger devices,
employs approximately 5,000. This facility is currently operated by EG&G,
a private employer. Production has been terminated and the facility will
be phased-out over a 10-year period, with labor reductions of
approximately 15 to 20 percent per year projected for the next three
years.
o Government downsizing and cutbacks in defense spending has resulted in
closure of Lowry Air Force Base in Denver and decreased operations of EG&G
Rocky Flats.
o Lowry Air Force Base was recently closed, resulting in the elimination of
1,900 civilian positions, transfer or elimination of 2,200 military
positions and 2,500 students. The vacated base is being converted to
educational, research, commercial and residential use. The new Higher
Education and Advanced Technology Center on 156 acres is operated by
several colleges in the area.
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<PAGE>
Regional Analysis
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The 20 largest private employers in the Denver Metropolitan Area are
summarized in the following table.
<TABLE>
<CAPTION>
====================================================================================================================================
20 Largest Private Employers in the Denver Metropolitan Area
- ------------------------------------------------------------------------------------------------------------------------------------
No. Company # Employed Primary Business Recent Announcements
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
*1 US West (All Operations) 15,400 Telecommunications Consolidating operations into Colorado
from throughout the Rocky Mountain
region.
*2 Columbia-HealthONE LLC 10,500 Hospitals, health care Recent merger of several hospitals
3 AT&T (All Operations) 8,000 Telecommunications services Numerous facilities in the area.
4 King Soopers 7,000 Grocery stores Largest grocer in the area with major
distribution facilities.
5 Lockheed Martin Corp. 7,000 Aerospace and Lockheed and Martin Marietta recently
defense-related systems merged. Largest defense contractor in the
nation.
6 United Airlines, Inc. 6,700 Airline, reservation center Major hub at new airport.
*7 Coors Brewing Company 5,300 Beverages Third-largest brewing company.
8 Rocky Flats Environmental 5,000 Clean-up and waste Will be phased-out over 10 years.
Technology Site management
9 Safeway 4,300 Grocery stores Largest grocer in nation.
*10 Public Service Company of Colorado 3,500 Natural gas and Major public utilities provider recently
electric utility cut 700 positions.
*11 StorageTek 3,500 Computer storage devices Recently cut 1,700 positions and placed a
550,000 SF facility on market.
*12 Provenant Health Partners 4,043 Health care Major hospital merger recently.
13 Kaiser Permanente of Colorado 3,055 Health care Numerous medical facilities throughout
region; major HMO.
14 Colorado National Bank 3,000 Bank services First Bank Systems recently acquired and
merged Bank Western, Central Bank and
Colorado National Bank.
*15 Lutheran Medical Center 2,800 Hospital, health care Large hospital.
16 Ball Corporation 2,650 Aerospace research & Recently won major contract with US
productions, containers Government.
17 IBM 2,500 Computer services Significant cuts totaling approx. 2,500
over past several years.
*18 St. Joseph Hospital 2,500 Hospital, health care Large hospital.
*19 University Hospital 2,450 Hospital, health care Large hospital.
20 K-Mart Stores 2,400 Retail stores Includes K-Mart, Super-K, Price Club,
Builder's Square.
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</TABLE>
* Headquarters in Denver Metropolitan Area
Source: The Business Development Group, Greater Denver Chamber of Commerce,
Cushman and Wakefield of Colorado, Inc.
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Regional Analysis
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o Merrill Lynch (financial services) plans to construct a one million
square-foot campus-type facility in the southeast quadrant of the DMA and
employ 3,000 to 5,000. The first 106,400 square-foot facility in the
Meridian International Business Center is nearing completion, and is
planned to be completed in early-1997.
o Sun Microsystems will construct a 1 million square-foot, high-tech/R&D and
manufacturing campus in the northwest quadrant of the DMA in the
Interlocken Business Park, and employ 3,500.
Public works projects have been a major factor in the DMA's economic
growth. The largest of these projects are summarized in the table below,
including approximate cost estimates and completion dates. Many projects have
been completed.
================================================================================
Major Public Works Projects in the Denver Metropolitan Area
- --------------------------------------------------------------------------------
Project Estimated Cost Projected Completion
- --------------------------------------------------------------------------------
Denver International Airport $4.0 billion Completed 1995
Interstates 25 and 76 $500 million Completed 1995
Central Platte Valley Street System $185 million Completed 1997
Coors Field Baseball Stadium $130 million Completed 1995
Metro Area Connection Light Rail System $112 million Completed 1994
================================================================================
Source: City of Denver and Regional Transportation District (RTD)
Projected Employment Growth Rates and Trends
The following table summarizes employment projections by sector for the
DMA.
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Projected Denver MSA Nonagricultural Wage & Salary Employment
================================================================================
Sector 2000 % (DELTA)* 2005 % (DELTA)*
- --------------------------------------------------------------------------------
Mining/Construction 65,400 -0.2% 67,000 0.5%
Manufacturing 121,700 0.7% 122,900 0.2%
Trans. & Pub. Util. 90,100 0.5% 95,600 1.2%
Trade 289,000 0.7% 298,600 0.7%
F.I.R.E. 85,100 0.5% 86,900 0.4%
Services 384,300 2.6% 421,300 1.9%
Government 177,100 1.8% 195,300 2.0%
- --------------------------------------------------------------------------------
TOTAL 1,212,700 1.4% 1,287,600 1.2%
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* Compounded annual change from 1995-2000, and 2000-2005.
Source: Denver Regional Council of Governments and Colorado Department of
Labor and Employment
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Regional Analysis
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o Recent projections made by the Denver Regional Council of Governments
(DRCOG) indicates annual employment growth will average approximately 1.4
percent through 2000 (based on 1995 annual averages) and 1.2 percent from
2001 through 2005.
o Economic growth is expected to slow and the levels should more closely
mirror the national levels.
o The services sector (health care, legal, education, recreation, lodging,
etc.) will continue to exhibit the largest gains in employment, as has
been the case for the past 30 years; four in every 10 new jobs will be in
the services sector.
o The construction sector is projected to decline due to completion of major
public works projects and decreases in residential development.
o Transportation, communications and utilities are projected to continue to
grow, as a result of DIA, technological advances in communications, and
population growth. Retail trade is projected to experience modest growth.
o The government sector is projected to experience growth to service a
larger population and to accommodate an increasing elderly population.
Unemployment
o The unemployment rate for the Denver-Boulder Metropolitan Statistical Area
fluctuated between 3.0 and 7.0 percent from 1990 through September 1996.
o The most recent employment figures, as of August, 1997, indicate
unemployment rate of 2.8 percent in the Denver-Boulder MSA.
o Unemployment is projected to average approximately 4.0 to 5.0 percent over
the long term.
Inflation
o In 1994, Denver's CPI increased 4.4 percent, at a higher rate than the 2.6
percent level for the U.S.
o In 1995, Denver's index increased by 2.6 percent, while the national CPI
index increased by 2.5 percent during the same period.
o Compounded, annual, percentage changes in the national CPI are projected
to average 3.8 percent through 2005.(1)
o We project the Denver area CPI will increase by an average of 4.0 percent,
annually, during the next 10 years.
- ----------
(1) The WEFA Group Fall 1993 Regional Metro Area Long-Term Tables.
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Regional Analysis
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Population
The following table summarizes population estimates for the DMA.
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1995 Population Estimates
- --------------------------------------------------------------------------------
Area Population
- --------------------------------------------------------------------------------
Adams County 291,798
Arapahoe County 442,136
Boulder County 259,421
Arapahoe County 502,796
Douglas County 97,739
Adams County 491,446
- --------------------------------------------------------------------------------
Denver Metro Area 2,085,336
================================================================================
Source: Colorado Division of Local Governments
o Following stagnant population growth from the mid-1980s through 1990,
including a decline in 1988, population began to increase substantially in
the 1990s.
o The compounded, average annual increase from 1990 to 1995 equaled 2.4
percent; population growth averaged 1.3 percent annually from 1980 through
1990.
o Relatively strong population growth over the past several years has been
due to strong economic and employment growth.
o A relatively large proportion of population growth has been net migration.
A majority of new residents migrated from California, Texas, Arizona,
Florida and Illinois. The net migration slowed in 1995.
o Recent projections by the Colorado Division of Local Governments and DRCOG
indicate annual population increases in the Metropolitan Area will average
1.0 percent (projected declining growth rates in future years is directly
related to economic growth and varying population in certain age groups).
o Approximately 46.0 to 50.0 percent of the projected population growth
through 2005 is composed of net migration.
Retail Sales
o Metro area retail sales began to increase substantially in 1990, due to
economic and population growth.
o The DMA's compounded, average annual retail sales increased 9.65 percent
from 1990 through 1994.
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Regional Analysis
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o Retail sales growth is projected to moderate in direct correlation with
projected decreases in economic and population growth.
Housing
There has been substantial single family residential development in recent
years. Information regarding building permits issued is summarized as follows.
o Between 1988 and 1991, an average of 6,600 residential building permits
were issued, annually (includes single and multi-family).
o In 1993, 16,254 building permits were issued. In 1994, 19,917 permits were
issued, a 22.5 percent increase over 1993 levels.
o Through 1995, approximately 12,450 residential building permits issued,
exhibiting a decrease from the 1994 level. The 1996 levels are similar to
1995.
o New housing sales increased 22 percent, as 13,456 homes were sold through
1995, compared to 11,039 in 1994. Through the third quarter 1996, 11,958
home sales were reported, above the 1995 pace by over 10 percent.
o Through 1995, there were 13,188 housing starts (attached, detached and
custom), compared to 12,745 during 1994, a 3.5 percent increase. Through
the third quarter 1996, there has been 11,500 starts, above the 1995 pace.
o As of year-end 1996, the average price of a new production-built home was
$172,000.
o The average single-family residential sales price (new and used) equaled
$159,000 at the end of 1996, $154,000 at the end of 1995 and $140,000 at
the end of 1994.
Interest Rates and Financing
The ability to obtain financing and the level of interest rates impacts
the supply and demand for real estate. A summary of historical interest rates is
summarized as follows.
o Interest rates hit an historical low in mid to late 1993. The average
30-year, fixed-rate, single-family residential mortgage interest rate was
approximately 6.5 percent in late-1993. Rates increased significantly in
1994 but have decreased since the beginning of 1995.
o The average residential mortgage interest rate has recently fluctuated
near 8.0 percent in the DMA.(2)
o Due to substantial over-building in the 1980s, and high number of
foreclosures in the late-1980s and early-1990s, financial and banking
institutions are cautious to provide financing for speculative office,
retail, industrial and hotel development.
- ----------
(2) The Denver Post.
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Regional Analysis
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Economic Impact on Real Property Markets
Growth in population and employment has resulted in increased demand for
real property throughout the DMA. Residential real estate has experienced
sufficient demand to result in substantial, new speculative construction. There
are numerous multi-family residential projects planned or under construction
throughout the DMA. Single-family construction is at its highest levels since
the building boom of the early-1980s.
Office occupancy has reached stabilized levels in most markets, due to
improved economic conditions and population growth. Office rental rates have
increased substantially since 1993, and speculative construction is occurring in
prime market areas, including the Denver Tech Center and Boulder. Certain
submarkets continue to lag in improvement, including Denver's central business
district. There are numerous build-to-suit projects, as several large companies
have established regional or national headquarters in the Denver area.
Industrial market conditions have improved substantially since 1993,
resulting in the achievement of stabilized occupancy levels. Proforma rental
rates have been reached in prime market areas. Numerous speculative industrial
projects are under way near the Denver International Airport, with over 3
million square feet recently completed or under way. The developers of a
majority of these speculative projects require lease-up prior to breaking
ground. Build-to-suit construction has been substantial.
Build-to-suit retail construction has been substantial throughout the DMA,
involving predominately national retailers such as "big box" operations and
national chain restaurants. The new Park Meadows Town Center, a 1.3 million
square-foot regional mall, located in the southeast suburban portion of the DMA,
was completed in September 1996. There has been some speculative retail
development in prime market areas.
The Denver Metropolitan Area economy has exhibited one of the strongest
growth rates in the nation in the 1990s. The result has been an influx of
investors, national retailers, major corporations, and other investors and users
of real property. The growth is projected to continue, though at moderating
levels to recent years.
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NEIGHBORHOOD MAP
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NEIGHBORHOOD ANALYSIS
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City of Aurora
Aurora is located east of and adjacent to the City of Denver. Aurora is
the third largest city in Colorado, with approximately 248,000 residents and
covering 280 square miles of planning area.
Aurora employment has increased by 20,000 jobs since 1990, with a total of
86,000 people employed in Aurora.
Transportation in the Aurora area is excellent. Denver International
Airport is approximately 12 miles north of Aurora. Railway system interlinks
with all major markets throughout the country, including the following direct
service railroads: Union Pacific/Missouri Pacific, Denver & Rio Grande, and
Burlington Northern/Santa Fe. Major interstates and five U.S. Highways are also
accessible from Aurora.
Neighborhood Description
The subject property is situated along the east and west side of Sable
Boulevard, in the City of Aurora, Colorado. The subject property's neighborhood
is generally bounded by Smith Road to the north, Interstate 70 to the east, 6th
Avenue to the south and Interstate 225 to the west. This area is developed
primarily with residential and commercial uses, along with additional
manufactured housing communities.
Commercial developments are located to the south of the subject along East
Colfax Avenue (Highway 40), such as convenience stores, gas stations, fast food
restaurants and neighborhood shopping centers. Fitzsimons Army Medical Center is
located to the west of the subject property, a major employer in the City of
Aurora. Single-family residential houses are located to the north and south of
the subject property. Manufactured housing communities within the subject's
neighborhood include: Green Acres (to the west), The Meadows (to the southwest),
Friendly Village and Woodshire East (to the east). Comparison rental information
is provided in the Market Analysis section of this report.
Transportation in the subject's immediate area is good. The subject
property has access and visibility along Sable Boulevard, East Colfax Avenue,
Eagle Street, Altura Boulevard and Evergreen Avenue. The subject property's
primary access is along Sable Boulevard, a four-lane paved roadway, with turning
lanes. East Colfax Avenue is located along the southeast portion of the subject
site, and enjoys an interchange with Interstate 225 a few blocks to the west.
Interstate 70 is located approximately two miles north of the subject site, and
can be accessed via Interstate 225.
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Neighborhood Analysis
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In summary, the subject property is situated in an area well suited for
manufactured housing development. Real estate values are anticipated to increase
at a steady pace. The economy in the area is anticipated to be good, with
unemployment steadily decreasing and population anticipated to increase.
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MARKET ANALYSIS
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National Overview
Reportedly, the largest property owners of manufactured housing
communities in the United States are: ROC Communities, headquartered in
Colorado; MHC, Inc., headquartered in Illinois; Ellenburg Capital, headquartered
in Oregon; Lautrec Ltd., headquartered in Michigan; Clayton Homes, headquartered
in Tennessee; Clayton Williams and Sherwood, headquartered in California;
Chateau Properties, Sun Communities and UNIPROP, headquartered in Michigan.
The following represents the top ten manufactured housing community firms,
as reported by GFA Management, as of 1997.
<TABLE>
<CAPTION>
=========================================================================================
1997 Firm Name State No. of Sites No. of Communities
Rank Owned/Managed Owned/Managed
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Sun Communities Michigan 30,295/0 84/0
- -----------------------------------------------------------------------------------------
2 ROC Communities Colorado 22,441/7,167 77/36
- -----------------------------------------------------------------------------------------
3 Manufactured Home Communities Illinois 27,349/838 69/3
- -----------------------------------------------------------------------------------------
4 Ellenburg Capital Florida 25,173/0 63/0
- -----------------------------------------------------------------------------------------
5 Lautrec Ltd. Michigan 22,652/0 58/0
- -----------------------------------------------------------------------------------------
6 Chateau Properties Michigan 20,003/0 47/0
- -----------------------------------------------------------------------------------------
7 Clayton Homes Tennessee 18,000/0 66/0
- -----------------------------------------------------------------------------------------
8 Clayton, Williams and Sherwood California 16,946/0 44/0
- -----------------------------------------------------------------------------------------
9 UNIPROP Michigan 14,931/0 40/0
- -----------------------------------------------------------------------------------------
10 The Bloch Organization Michigan 14,379/0 37/0
=========================================================================================
</TABLE>
According to the U.S. Census Bureau, more than 8,521,000 people were
living in manufactured housing communities as of 1990 compared to 3,838,678 in
1980. This represents an increase in manufactured housing community living of
approximately 122.0 percent over the last ten years. Over the last ten years,
there has been a steady increase in manufactured housing community development
across the country. Among the demographic factors which account for the increase
in manufactured housing community living are: decreasing household size, a
growing demand for smaller housing, as well as an alternative to the increasing
cost of housing. Nationally, the largest percentage of manufactured housing
communities are located in California, Michigan, Colorado, Florida, New York,
Minnesota, Indiana, Arizona, Ohio, and Wisconsin.
The manufactured home industry has dramatically changed over the last 20
years. Manufactured homes are now designed and constructed to accommodate
spacious and attractive living requirements. Today, approximately one out of
sixteen families live in
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Market Analysis
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manufactured housing units. The manufactured housing market share has been
growing steadily over the last 10 years. In 1990, 6.7 percent of Americans lived
in manufactured housing units, up from 2.9 percent compared to 1970, according
to the U.S. Census Bureau, which represents 12.0 to 14.0 percent of all new
housing built since the mid-1980's, according to the Manufactured Housing
Institute in Arlington, Virginia.
In 1990, the average cost of a manufactured housing unit was $27,800
compared to $149,000 for a new house (including land), according to the
Manufactured Housing Institute. This reflects a 28.0 percent increase in the
cost of manufactured housing since 1980 versus a 49.0 percent increase in
conventional housing. Industry experts estimate that a single-family home
selling for $150,000 would require an annual income of $52,671. To purchase a
$27,800 manufactured housing unit, only a $19,984 income level would be
required.
At Fleetwood Enterprises, the nation's largest manufacturer of
manufactured housing units, units may be purchased for up to $100,000, which
would include a three-bedroom, two-bath unit of 2,100 square feet, with vaulted
ceilings.
In 1990, approximately 10.0 percent of manufactured home owners lived in
units worth approximately $40,000, up from 4.0 percent compared to 1981,
according to a study conducted by Foremost Insurance Company in Grand Rapids,
Michigan. Also, according to the study, approximately 21.0 percent of the
manufactured housing households are occupied by people' 65 years of age or
older, slightly lower than the age group for conventional homes, as reported by
Foremost Insurance.
The demand for good quality institutional grade manufactured housing
communities has substantially increased over the last ten years. Manufactured
housing communities provide an affordable alternative to the increasing cost of
housing. Also, manufactured housing communities provide an alternative form of
living for the elderly and retirees, especially for those living on fixed
incomes.
Acquisitions of manufactured housing communities during 1993 and 1994 were
clearly dominated by Real Estate Investment Trusts. During 1994 and 1995
Manufactured Home Communities (MHC) and ROC communities lead the acquisition of
manufactured housing communities nationally. During 1996, Sun Communities
captured the lead and, together with ROC and MHC dominate the Real Estate
Investment Trust market.
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Market Analysis
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The following chart represents the largest Real Estate Investment Trusts,
from 1991 to 1996, as reported by GFA Management
================================================================================
HOME SITE GROWTH, DEVELOPMENT AMONG THE LARGEST
REAL ESTATE INVESTMENT TRUST (REITS)
- --------------------------------------------------------------------------------
Annual
Year ROC MHC Chateau Sun United Total Growth
- --------------------------------------------------------------------------------
1996 29,608 28,187 20,003 30,295 5,234 113,327 17.0%
- --------------------------------------------------------------------------------
1995 27,910 26,237 19,594 18,000 4,850 96,591 9.0%
- --------------------------------------------------------------------------------
1994 26,231 28,407 15,689 13,500 4,623 88,450 37.8%
- --------------------------------------------------------------------------------
1993 20,142 14,700 15,261 9,036 5,050 64,189 17.8%
- --------------------------------------------------------------------------------
1992 18,745 12,873 10,032 7,600 5,200 54,450 N/A
- --------------------------------------------------------------------------------
1991 9,030 13,079 9,759 N/R N/R N/A N/A
- --------------------------------------------------------------------------------
N/R = No report N/A = Not applicable
- --------------------------------------------------------------------------------
NOTE: The 113,327 sites counted for the top five REITs in 1996 make up 20
percent of the total sites surveyed in the 1997 Allen Report. These rental sites
are located in 339 communities, accounting for about 1 percent of some 50,000
existing manufactured housing communities nationwide. The community counts for
the five major REITs are: ROC (113), MHC (72), Chateau (47), Sun (84) and United
(23). The proportion of communities owned by each of the REITs compared to the
others is: ROC (33%), MHC (21%), Chateau (14%), Sun (25%) and United (7%).
================================================================================
Manufactured Home Communities (MHC) is expected to continue an aggressive
acquisition campaign through 1997 and beyond. As of September 1997, the MHC REIT
had a market cap of $632.0 million, and continues to pursue the acquisition of
manufactured home communities. Aside from the ELL-CAP $300.0 million
transaction, in September 1997 Manufactured Home Communities, Inc. completed a
$107.0 million purchase of 18 manufactured housing communities and two related
commercial properties from partnerships affiliated with Mobileparks West. The
communities, with 3,505 sites, were purchased with about $3.0 million
manufactured home operating units, $16.0 million in cash and $20.0 million of
installment notes and assumed debt. The communities have an average monthly
rental of $349.00. The communities are located in California, Utah, Oregon,
Washington and Nevada. MHC may be the first manufactured home community REIT to
reach $1.0 billion.
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Market Analysis
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The MHC REIT continues to perform and expand, and as of September 1997 was
trading at $25.625, with a current yield of 5.2 percent. The top traded REITs,
are presented as follows.
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REIT MARKET UPDATE
- --------------------------------------------------------------------------------
Company Price Current 52 Week 52 Week Annual 12 Mth
Symbol (9/19/97) Yield High Low Dividend Tot Rtn
- --------------------------------------------------------------------------------
CPJ $29.688 5.8% $31.125 $22.250 1.72 26.6%
- --------------------------------------------------------------------------------
MHC $25.625 5.2% $26.428 $18.875 1.32 30.7%
- --------------------------------------------------------------------------------
SUI $37.428 5.0% $ 38.00 $27.750 1.88 31.8%
- --------------------------------------------------------------------------------
UMH $11.625 6.0% $13.625 $10.875 0.70 -1.7%
- --------------------------------------------------------------------------------
Total return figures obtained through Standard & Poors and are for the period
through Sept 1997.
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The Southwest and Northwest Regions of the nation are the preferred
locations regarding recent and future manufactured housing community
acquisitions. However, investors seeking moderate, but consistent growth
expectations, are still looking at the midwest region. Also, southern portions
of Florida are still considered a prime area for investors seeking good quality
manufactured housing communities, with good up-side potential. What was once a
stagnant market, the northeast region is now being considered for future
acquisitions.
According to a recent study prepared by Merrill Lynch & Company, ownership
in the manufactured housing community industry is highly fragmented. The top 150
owner-operators account for less than 5.0 percent of the total industry, whereas
a host of "mom-and-pop" private companies account for the other 95.0 percent.
This unglamorous niche industry is ripe for consolidation, and an infusion of
professional management expertise is likely to yield significant economies of
scale. The four REIT's specializing in manufactured housing communities are
already among the top ten owner-operators, and are well positioned to facilitate
and hasten the industry's consolidation to the likely benefit of their
stockholders.
Manufactured homes are the fastest growing component of the nation's
housing inventory, due to their affordability, good quality design and safety
standards. According to the Merrill Lynch & Company Manufactured Housing
Community Industry Report, factory-built homes appeal especially to senior
citizens and to households with limited economic needs, two segments of the
population that are likely to grow rapidly in coming years.
Consistent returns in manufactured housing community investments have been
the mainstay of the industry. For this reason, as well as the amount of
acquisitions seen by Real
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Market Analysis
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Estate Investment Trusts (REITs) from 1991 to 1996, the availability of good
quality manufactured housing communities has been substantially reduced compared
to the 1980's. Good quality manufactured housing communities still command
premium prices, thus driving down overall capitalization rates.
Cushman & Wakefield's Valuation Advisory Services has tracked sale
transactions of manufactured housing communities since 1985. Overall
capitalization rates have consistently been within the 8.75 to 10.00 percent
range for communities located in moderate to increasing growth markets, and as
low as near 8.0 percent for those communities located in growing markets that
poses significant upside potential. Overall capitalization rates are clearly
affected and are differentiated among the properties relative to rent levels,
age, quality, condition, location, amenities, demographic characteristics,
resident profile, as well as the quality of management.
Manufactured housing communities fall within, and are categorized by their
overall appearance, age, and amenities, but more importantly the strength of the
local market. The various categories of manufactured housing communities,
according to the Woodall Directory, can be ranked as 1 to 5 Star Parks. These
rankings are defined as follows:
One Star Park
The most important consideration for a one star park is overall
appearance. If it is not a decent place to live, it will not be listed in
Woodall's Directory. The following are general requirements:
o Fair overall appearance;
o Patios on most lots. May be concrete, asphalt, wood, or some
suitable material;
o Grass, rock or shell to cover ground;
o Streets fair to good. May be dirt, asphalt or gravel in reasonable
condition;
o Restrooms clean, if any;
o Adequate laundry or laundromat nearby;
o If fences allowed, must be neat;
o Mail service;
o Homes may be old models, but show evidence of care; and,
o Manager available some hours of each day.
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Market Analysis
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Two Star Park
In addition to the requirements for a one star park, a two star park will
have the following:
o Landscaping - some lawns and shrubs;
o Streets in good condition. Must be dust free of crushed rock, gravel
or shell minimum;
o Neat storage;
o Well equipped laundry or laundromat nearby;
o 200 volt connections available;
o If children accepted, park should have play area;
o Park free of clutter, such as old cars and other abandoned
equipment; and,
o Well maintained and managed.
Three Star Park
What a three star park does it does well, but not as uniformly as higher
rated parks. Many three star parks were once higher rated, but original
construction does not allow for today's 10-foot, 12-foot, and double-wides
or the 55-foot and 60-foot lengths. If children are allowed, there should
be adequate play area. However, the disarray caused by children may at
times be the determining factor that keeps a three star park at that level
when it otherwise could be rated higher. In addition to the requirements
for one and two star parks, a three star park must have the following:
o Attractive entrance;
o All homes must be in good condition;
o Awnings and cabana rooms on some homes in southern areas;
o Some spaces for large mobile homes;
o Paved or hard surfaced streets;
o Off-street parking or streets wide enough for safe on-street
parking;
o Good lawns or substitute throughout, shade trees, some shrubs where
climate permits;
o Concrete patios or the equivalent on all lots;
o All lots neat and attractive;
o All park buildings in good repair; and,
o Good management.
Four Star Park
Four star parks are luxury parks. In addition to the requirements for one,
two and three star parks, a four star park must have the following:
o Good landscaping;
o Most homes skirted with metal skirts, concrete block, ornamental
wood or stone;
o Paved streets, edged or curbed.
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Market Analysis
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o Uncrowded lots;
o Underground utilities if permitted by local conditions and
authorities;
o Most tanks, if present, concealed;
o Any hedges or fences must be attractive and uniform;
o Awnings, cabanas, or porches on most homes in southern areas.
(Excepting double-wide units.);
o Most lots to accommodate large mobile homes;
o Where row parking of homes exists, all must be lined up uniformly;
o Community hall and/or swimming pool and/or recreation programs. If a
park is four star in all but this requirement, the fourth star will
be printed as an open star indicating a four star park without
park-centered recreation; and,
o Excellent management.
Five Star Park
Five star parks are the finest. They should be nearly impossible to
improve. In addition to the requirements for one, two, three, and four
star parks, a five star park must have the following:
o Well planned and laid out spacious appearance;
o Good location in regard to accessibility and desirable neighborhood.
In some locations, park should be enclosed by high hedges or
ornamental fence;
o Wide paved streets in perfect condition. Curbs or lawns edged to
streets, sidewalks, street lights, street signs;
o Homes set back from street;
o Exceptionally attractive entrance and park sign;
o Patios at least 8 x 30 feet. (Excepting double-wide units.);
o Paved off-street parking such as carports or planned parking;
o All homes skirted; All hitches concealed. Any existing tanks
concealed;
o Recreation, some or all of the following: swimming pool (excepting
areas with long, cold winters), shuffleboards, horseshoe pitching,
golf course, hobby shop, hobby classes, games, potlucks, dances or
natural recreational facilities;
o Beautifully equipped recreation hall with kitchen. Room for
community gatherings, tiled restrooms, etc.;
o Uniform storage sheds or central storage facilities;
o All late model homes in excellent condition;
o At least 60 percent occupancy in order to judge quality of residents
which indicates park's ability to maintain a five star rating
between inspections;
o All empty lots grassed, graveled or otherwise well maintained;
o If pets or children allowed, there must be a place for them to run
and play without cluttering the streets and yards. Most five star
parks are for adults only; and,
o Superior management interested in comfort of residents and
maintenance of park.
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Market Analysis
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The demand for good quality institutional grade manufactured housing
communities is anticipated to increase throughout the 1990's, since manufactured
housing communities provide an alternative form of living for the elderly and
retirees, especially for those living on fixed income. Manufactured home
shipments continue to be strong. Shipments rose 20.0 percent in 1992 and 1994,
and 12.0 percent in 1995. The market for good quality manufactured housing
communities is expected to be strong, with yield and capitalization rates and
prices expected to continue to be competitive, with the REITs leading the way.
Competition
We have surveyed six manufactured housing communities located within the
subject's primary market, including the subject property, containing a total of
2,275 sites. The combined occupancy rate of these six manufactured housing
communities, including the subject property, is approximately 98.0 percent.
Excluding the subject property in our survey, the combined occupancy rate is
also approximately 98.0 percent, based on 1,671 sites.
The name and location of the subject property's primary competition, as
well as the number of sites, occupancy levels, amenities offered, monthly rental
rates and services provided in the monthly rental rate, are presented on the
following facing page, along with a map which identifies the location of each
competing park.
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<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- ------------------------------------------------------------------------------------------------------------------------------------
Age
Number ---------
Of Sites Condition 3-Year
--------- --------- Services Date Of Average
Comp. Name Occupancy Park Monthly Provided Last Rental Annual Rental
No. Location Level Amenities Rating(1) Rent in Rent Increase Increase
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R-1 Green Acres 210 Clubhouse 1966 $310.00/Mo. Water August, 1997 $10.00/Mo.
1540 Billings Street ---- Laundry ---- To Sewer
Aurora, Colorado 100% Average $320.00/Mo. Refuse
-------
3*
- ------------------------------------------------------------------------------------------------------------------------------------
R-2 The Meadows 303 Clubhouse 1964 $325.00/Mo. Refuse January, 1997 $11.00/Mo.
14470 E. 13th Avenue --- Pool ---- To
Aurora, Colorado 97% Laundry Good $335.00/Mo.
----
4*
- ------------------------------------------------------------------------------------------------------------------------------------
R-3 Friendly Village of Aurora 439 Clubhouse 1969 $312.00/Mo. Refuse April, 1997 $12.00/Mo.
1711 Roosevelt Way ---- Pool ---- To
Aurora, Colorado 100% Billiard Room Good $327.00/Mo.
Tennis Court ----
Playground 4*
Laundry
Storage
- ------------------------------------------------------------------------------------------------------------------------------------
R-4 Woodshire East 238 Clubhouse 1974 $290.00/Mo. Water Annual $15.00/Mo.
17501 E. Colfax Avenue ---- Pool ---- To Sewer
Aurora, Colorado 100% Playground Good $300.00/Mo. Refuse
Laundry ----
Storage 4*
- ------------------------------------------------------------------------------------------------------------------------------------
R-5 Foxridge Farms 481 Clubhouse 1974 $315.00/Mo. Water January, 1997 $15.00/Mo.
26900 E. Colfax Avenue --- Pool ---- To Sewer
Aurora, Colorado 94% Playground Good $335.00/Mo. Refuse
Tennis Court ----
Laundry 4*
Storage
- ------------------------------------------------------------------------------------------------------------------------------------
Subject Hillcrest Village 604 Clubhouse 1960 $353.00/Mo. Water January, 1997 $15.00/Mo.
1600 Sable Boulevard --- Pool/Spa ---- To Sewer
Aurora, Colorado 95% Exercise Room Good $363.00/Mo. Refuse
Billiard Room ----
Playground 4*
Laundry
Storage
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Ratings from One Star to Five Star Parks are defined in the National Overview section of this report.
====================================================================================================================================
</TABLE>
<PAGE>
COMPETING MANUFACTURED HOUSING MAP
[MAP OMITTED]
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Market Analysis
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Rental rates of manufactured housing communities located within the
subject's primary market range from $290.00 to $335.00 per site, on a monthly
basis. The subject property is currently quoting monthly rental rates above the
market range, or at $353.00 to $363.00 per site, but is considered the market
leader. The last rental rate increase at the subject property was as of January,
1997, of $17.00 per month.
The enclosed comparable rentals are considered the most competitive to the
subject property regarding amenities offered, condition, location and overall
ranking.
Comparable R-1, Green Acres, is located at 1540 Billings Street, in
Aurora, Colorado. This comparable property contains 210 sites, and is
100.0 percent occupied. Aurora was developed in 1966, and is in overall
average condition. Over the last three years, the annual rental rate
increased approximately $10.00 per month. Monthly rental rates range from
$310.00 to $320.00, with water, sewer and refuse service included in
monthly rental payment. Amenities include a clubhouse and laundry
facility.
Comparable R-2, The Meadows, is located at 14470 E. 13th Avenue, in
Aurora, Colorado. This comparable property contains 303 sites, and is
approximately 97.0 percent occupied. The Meadows was developed in 1964,
and is in overall good condition. Over the last three years, the annual
rental rate increased approximately $11.00 per month. Monthly rental rates
range from $325.00 to $335.00, with refuse service included in monthly
rental payment. Amenities include a clubhouse, pool and laundry facility.
Comparable R-3, Friendly Village of Aurora, is located at 1711 Roosevelt
Way, in Aurora, Colorado. This comparable property contains 439 sites, and
is 100.0 percent occupied. Friendly Village of Aurora was developed in
1969, and is in overall good condition. Over the last three years, the
annual rental rate increased approximately $12.00 per month. Monthly
rental rates range from $312.00 to $327.00, with refuse service included
in monthly rental payment. Amenities include a clubhouse, two pools,
billiard room, tennis court, playground, laundry facility and recreational
vehicle storage.
Comparable R-4, Woodshire East, is located at 17501 E. Colfax Avenue, in
Aurora, Colorado. This comparable property contains 238 sites, and is
100.0 percent occupied. Woodshire East was developed in 1974, and is in
overall good condition. Over the last three years, the annual rental rate
increased approximately $15.00 per month. Monthly rental rates range from
$290.00 to $300.00, with water, sewer and refuse service included in
monthly rental payment. Amenities include a clubhouse, pool, playground,
laundry facility and recreational vehicle storage.
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Market Analysis
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Comparable R-5, Foxridge Farms, is located at 26900 E. Colfax Avenue, in
Aurora, Colorado. This comparable property contains 481 sites, and is
approximately 94.0 percent occupied. Foxridge Farms was developed in 1974,
and is in overall good condition. Over the last three years, the annual
rental rate increased approximately $15.00 per month. Monthly rental rates
range from $315.00 to $335.00, with water, sewer and refuse service
included in monthly rental payment. Amenities include a clubhouse, pool,
playground, tennis court, laundry facility and recreational vehicle
storage.
In our opinion, and based on conversations with the on-site manager,
properties R-2 and R-5 compete most favorably with the subject property, with
monthly rental rates ranging from $315.00 to $335.00 per site. The subject
property is currently quoting monthly rental rates ranging from $353.00 to
$363.00 per site, which is above the range of rental rates of our more
comparable competing properties. The subject property competes most effectively
with its primary competitors regarding amenities, condition and current rent
structure.
Comparable Manufactured Housing Community Sales
A search of the subject's market revealed six recent sales of manufactured
housing communities located in the Denver Metropolitan Area. The following is a
brief discussion of each of the manufactured housing sales located within the
subject's market. These sales are summarized on the following facing page.
Comparable Sale I-1, Pine Lakes, is located at 10201 Riverdale Road, in
Thornton, Colorado. This property contains 760 sites, situated on 183.67
acres of land area. The property was developed in 1972, and was in overall
good condition at the time of sale. Amenities include two clubhouses, two
pools, recreation room, tennis court, basketball court, and a playground.
The property was approximately 90.0 percent occupied at the time of sale.
The property was purchased for $12,500,000 as a combined transaction with
sale I-2, which equates to $16,447 per site,
Comparable Sale I-2, Redwood Estate II, is located at 9595 Pecos Street,
in Thornton, Colorado. This property contains 752 sites, situated on
128.22 acres of land area. Amenities include a clubhouse, pool, recreation
room, playground and recreational vehicle storage. The property was
approximately 93.0 percent occupied at the time of sale. The property was
purchased for $12,500,000 as a combined transaction with sale I-1, which
equates to $16,622 per site.
Comparable Sale I-3, Canyon Ridge, is located at 5150 Airport Road, in
Colorado Springs, Colorado. This property contains 250 sites, situated on
31.36 acres of land area. Canyon Ridge was developed in 1972, and was in
good condition at the time of sale. Amenities include a clubhouse, pool,
recreation room and laundry facility. The property was approximately 99.0
percent occupied
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<TABLE>
<CAPTION>
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SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- ------------------------------------------------------------------------------------------------------------------------------------
$EGI/Site
Sales Price --------------
Per Site $Expense/Site
Sales Date Land Area Density --------- EGIM -------------
Comp. Name ---------- --------- -------- Occupancy ---- Expense Ratio
No. Location Sales Price No. Sites Condition At Sale $NOI/Site OAR % Of EGI
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
I-1 Pine Lakes 7/96 183.67 4.14 $16,447 $1,563 N/A N/A
10201 Riverdale Road ----- ------ ---- ------- ---
Thornton, Colorado $12,500,000(1) 760 Good 90% 9.50%
- ------------------------------------------------------------------------------------------------------------------------------------
I-2 Redwood Estate II 7/96 128.22 5.86 $16,622 $1,579 N/A N/A
9595 Pecos Street ----- ------ ---- ------- ---
Thornton, Colorado $12,500,000(1) 752 Good 93% 9.50%
- ------------------------------------------------------------------------------------------------------------------------------------
I-3 Canyon Ridge 7/96 31.36 7.97 $16,800 $1,512 N/A N/A
5150 Airport Road ----- ----- ---- ------- ---
Colorado Springs, CO $4,200,000 250 Good 99% 9.00%
- ------------------------------------------------------------------------------------------------------------------------------------
I-4 Cottonwood Village 9/95 19.36 12.45 $19,917 $1,591 6.45x $3,089
11990 S. Boulder Road ---- ----- ----- ------- ----- ------
Lafayette, Colorado $4,800,000 241 Good 100% 7.99% $1,498
------
48.50%
- ------------------------------------------------------------------------------------------------------------------------------------
I-5 Canterbury Park 7/95 61.73 8.03 $18,750 $2,037 6.91x $2,714
3020 S. Powers Blvd. ---- ----- ---- ------- ----- ------
Colorado Springs, CO $9,300,000 496 Good 100% 10.87% $677
----
24.95%
- ------------------------------------------------------------------------------------------------------------------------------------
I-6 Woodland Hills 3/94 57.0 7.63 $18,391 $1,885 5.56x $3,310
1500 West Thornton ---- ---- ---- ------- ----- ------
Thornton, Colorado $8,000,000 435 Good 97% 10.25% $1,425
------
43.05%
- ------------------------------------------------------------------------------------------------------------------------------------
Subject Hillcrest Village - - - 72.392 8.34 - - - $2,904 N/A $4,103
2000 W. 92nd Avenue ------ ---- ------
Federal Heights, CO 604 Good 95% $1,198
------
29.20%
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Sale I-1 and I-2 were purchased as a combined transaction.
====================================================================================================================================
<CAPTION>
================================================================================================
SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- ------------------------------------------------------------------------------------------------
Comp. Name Comparability to
No. Location to the Subject Comments
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
I-1 Pine Lakes Similar Good condition; Amenities include
10201 Riverdale Road two clubhouses, two pools,
Thornton, Colorado recreation room, tennis,
basketball and playground.
- ------------------------------------------------------------------------------------------------
I-2 Redwood Estate II Similar Good condition; Amenities include
9595 Pecos Street a clubhouse, pool, recreation
Thornton, Colorado room, playground and RV storage.
- ------------------------------------------------------------------------------------------------
I-3 Canyon Ridge Inferior Developed in 1972;
5150 Airport Road Good condition; Amenities include
Colorado Springs, CO a clubhouse, pool, recreation
room and laundry facility.
- ------------------------------------------------------------------------------------------------
I-4 Cottonwood Village Inferior Developed in 1972; Good
11990 S. Boulder Road condition; Amenities include a
Lafayette, Colorado clubhouse, pool, recreation room,
playground and laundry facility.
- ------------------------------------------------------------------------------------------------
I-5 Canterbury Park Similar Developed in 1985; Good
3020 S. Powers Blvd. condition; Amenities include a
Colorado Springs, CO clubhouse, pool and RV storage.
- ------------------------------------------------------------------------------------------------
I-6 Woodland Hills Similar Developed in 1970; Good
1500 West Thornton condition; Amenities include a
Thornton, Colorado clubhouse, pool, playground and
barbecue pavilion.
- ------------------------------------------------------------------------------------------------
Subject Hillcrest Village Subject Property Developed in 1960; Good
2000 W. 92nd Avenue condition; Amenities include a
Federal Heights, CO clubhouse, pool, spa, exercise
room, billiard room, playground,
laundry facility and RV storage.
- ------------------------------------------------------------------------------------------------
(1) Sale I-1 and I-2 were purchased as a combined transaction.
================================================================================================
</TABLE>
<PAGE>
Market Analysis
================================================================================
at the time of sale. The property was purchased for $4,200,000, which
equates to $16,800 per site.
Comparable Sale I-4, Cottonwood Village, is located at 11990 S. Boulder
Road, in Layfayette, Colorado. This property contains 241 sites, situated
on 19.36 acres of land area. Cottonwood Village was developed in 1972, and
was in overall good condition at the time of sale. Amenities include a
clubhouse, pool, recreation room, playground and laundry facility. The
property was 100.0 percent occupied at the time of sale. The property was
purchased for $4,800,000, which equates to $19,917 per site.
Comparable Sale I-5, Canterbury Park, is located at 3020 S. Powers
Boulevard, in Colorado Springs, Colorado. This property contains 496
sites, situated on 61.73 acres of land area. Canterbury Park was developed
in 1985, and was in overall good condition at the time of sale. Amenities
include a clubhouse, pool and recreational vehicle storage. The property
was 100.0 percent occupied at the time of sale. The property was purchased
for $9,300,000, which equates to $18,750 per site.
Comparable Sale I-6, Woodland Hills, is located at 1500 West Thornton, in
Thornton, Colorado. This property contains 435 sites, situated on 57.0
acres of land area. Woodland Hills was developed in 1970, and was in
overall good condition at the time of sale. Amenities include a clubhouse,
pool, playground and barbecue pavilion. The property was 97.0 percent
occupied at the time of sale. The property was purchased for $8,000,000,
which equates to $18,391 per site.
It should be noted that comparability does not imply an identical or exact
duplicate, but rather the possession of a similar utility and affected by
similar supply and demand forces. Also, relative to the subject property,
differences include: time or date of the transactions; location, which
encompasses differences in accessibility; site characteristics, including
differences in size, topography, access, exposure and development capacities;
and improvement characteristics, which include differences in age, quality,
condition, size and amenities.
Demographic Trends
Based on information provided by National Decision Systems (NDS), the
populations within the subject's primary 5-mile and secondary 10-mile market
areas, as of 1997, are 222,219 and 676,013, respectively. The populations of the
subject's primary and secondary market areas are projected to increase to
242,4943 and 737,444, respectively, by the year 2002.
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Market Analysis
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According to NDS, the total number of households within the subject's
primary and secondary market areas, are 95,728 and 293,829, respectively, for
1997. The number of households within the subject's primary 5-mile and secondary
10-mile market areas are projected to increase to 103,527 and 310,655,
respectively, by the year 2002.
The average household income levels within the subject's primary and
secondary market areas, for 1997, are $48,475 and $56,952, respectively, and are
expected to increase to $61,164 and $74,870, respectively, by the year 2002. The
median household income levels within the subject's primary and secondary market
areas, for 1997, are $37,378 and $38,920, respectively, and are expected to
increase to $45,286 and $48,418, respectively, by the year 2002. Per capita
income within the subject's primary and secondary market areas, for 1997, are
$20,578 and $24,171, respectively, and are expected to increase to $26,089 and
$30,884, respectively, by the year 2002.
Based on the above levels, the demographics of the subject's primary
market area appear to indicate a positive growth trend, based on information
provided by NDS. For additional demographic information, please refer to the NDS
summary report in the Addenda of this report.
Expense Analysis
Expenses exhibited by manufactured housing communities nationally are
typically 35.0 to 45.0 percent of effective gross income. However, expense
ratios of manufactured housing communities located in the southeast and
southwest regions of the nation are typically lower by comparison, due to lower
real estate taxes and common area maintenance charges.
As presented in the Summary of Manufactured Housing Communities Sales,
operating expense ratios of competing parks range from 24.95 to 48.50 percent of
effective gross income levels, and $677 to $1,498 on a per site basis. The
subject property is currently reporting expenses, for the 12-month trailing
period of 1997, at 29.20 percent of effective gross income and $1,198 on a per
site basis. The operating expenses at the subject property are within the range
of comparable properties on both a percentage of effective gross income and on a
per site basis.
Market Supply and Demand
There are a total of five competing manufactured housing communities
located within the subject's market, which total 1,671 sites, with a
corresponding average occupancy rate of 98.0 percent. No specific absorption
statistics were available. The subject property, based on conversations with
management, has historically had occupancy rates consistent with
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Market Analysis
================================================================================
competing tparks, and is currently 95.0 percent occupied. We believe the current
occupancy rate of the subject property is stabilized, and has similar occupancy
rates of competing parks presently presented. Based on the subject's current
occupancy rate and occupancy rates at competing parks, demand appears to be
strong, with steady rental rate increases expected.
Conclusion
Historically, the subject's primary market has sustained occupancy levels
of 95.0 to 100 percent. Rental rates of similar manufactured housing communities
located within the subject's primary market generally range from $290.00 to
$335.00 per site, on a monthly basis. The subject property is currently quoting,
and is currently achieving (based on the most recent rent roll provided),
monthly rental rates above the range of competing parks, or at $353.00 to
$363.00 per site; however, the subject property is viewed as the market leader.
Based on our research, steady increases in rental rates are anticipated,
based on actual historical performance of competing parks and historical
increases seen at the subject property. Sales transactions of manufactured
housing communities located within the subject's region range from $16,447 to
$19,917 per site, with corresponding overall rates ranging from 7.99 to 10.87
percent. In our opinion, the subject property competes favorably with its
competition regarding amenities, condition, rent structure and overall market
rating.
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SITE PLAN
[GRAPHIC OMITTED]
<PAGE>
PROPERTY DESCRIPTION
================================================================================
Site Description
The subject site is located along the east and west side of Sable
Boulevard, in Aurora, Adams County, Colorado. The subject site is irregular in
shape and contains approximately 72.392 acres, or 3,153,385 square feet of land
area. Topographically, the site is generally level and at street grade.
Primary access to the subject site is available from Sable Boulevard.
According to Flood Insurance Rate Map, community panel number 080002-0180E,
effective date August 16, 1995, the subject site is located in flood Zone X,
which is outside the 500-year flood plain.
The streets within the park have two-lanes, with concrete curbs. Overall,
the subject site is typical of the area and is functionally well suited for its
current use.
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.
Improvements Description
The subject property was originally developed in 1960. The subject
improvements consist of a 604-site manufactured housing community, with a
community center, swimming pool, spa, exercise room, billiard room, playground,
laundry facility and recreational vehicle storage. Of the 604 sites,
approximately 60.0 percent are single-wide, or 362 sites, and 40.0 percent are
double-wide, or 242 sites.
The community center consists of a manager's office, restroom facilities,
open-space available for resident use, exercise room, billiard room, indoor spa
and a fully equipped kitchen. The swimming pool is located adjacent to the
community center.
Off-street parking is available for each resident. Site improvements
within the park include: paved streets, street lighting and signage. Overall,
the site improvements appeared to be in good condition at the time of
inspection.
Hillcrest Village is a functional manufactured housing community with
primary ingress and egress along Sable Boulevard. Overall, the subject community
appears to be well maintained and is in good condition. Hillcrest Village is a
functional manufactured housing community and competes favorably with other
existing manufactured housing communities in the area in terms of appearance and
amenities. The subject property would fit the profile of a
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Property Description
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Four Star Park, as defined in the National Overview section of this report.
Real Property Taxes and Assessments
Assessed value of commercial property in Adams County is assessed at 29.0
percent of the Assessor's opinion of market value. The subject property is
identified by tax parcel number 01821-31-3-01-002.
The total amount of real estate taxes for 1996 payable in 1997 for the
subject property amounts to $107,131. The total amount of real estate taxes for
1996 payable in 1997 equates to approximately $177.37 per site.
Zoning
According to the City of Aurora zoning officials, the subject property is
currently zoned MH, Manufactured Housing District, and is a legal and conforming
use for this zoned district.
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CONCLUSION
================================================================================
Conclusion
o The subject property, Hillcrest Village, is a functional
manufactured housing community, which competes at the top of the
market in relation to its competition;
o Competing manufactured housing communities located within the
subject's market range in monthly rental rates per site from $290.00
to $335.00;
o The subject property is currently quoting, and is currently
achieving (based on the most recent rent roll provided) monthly
rental rates of $353.00 to $363.00 per site, which is above the
range of competing parks; but consistent with the subject's position
in the market.
o Sale transactions of manufactured housings located within the
subject's region range in unit sales prices per site from $16,447 to
$19,917, with corresponding overall rates ranging from 7.99 to 10.87
percent;
o Operating expenses are within industry standards for a park located
in the mountain region of the country;
o The subject park appears to be operating at economic levels based on
our review of historical and budgeted 1998 income and expenses;
o The demographic characteristics of the area appear to be positive;
o The population profile of the subject property is 95 percent adult;
o The current occupancy rate at the subject property of 95.0 percent
is evident by a strong local market and demand;
o No significant manufactured housing communities are expected to be
developed in the near future;
o In our opinion, based on Woodall's criteria, the subject property is
a Four Star Park, and the reader's attention is directed to the
corresponding definition and criteria of a Four Star Park, presented
in the National Overview section of this report; and,
o Based on the subject's location, demographic, economic, market and
physical characteristics, we believe Hillcrest Village will continue
to be a viable manufactured housing community in the foreseeable
future, and is well positioned in the marketplace.
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ASSUMPTIONS AND LIMITING CONDITIONS
================================================================================
"Report" means the consulting report to which these Assumptions and Limiting
Conditions are annexed.
"Property" means the subject of the Report.
"C&W" means Cushman & Wakefield, Inc. or its subsidiary which issued the Report.
"Appraiser(s)" means the employee(s) of C&W who prepared and signed the Report.
This report is made subject to the following assumptions and limiting
conditions:
1. No responsibility is assumed for the legal description or for any matters
which are legal in nature. 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 Report or upon which the Report 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 Appraisers nor C&W shall be responsible for the
accuracy or completeness of such information, including the correctness of
estimates, opinions, dimensions, sketches, exhibits, and other factual
matters.
3. The information is effective as of the date stated in the Report. Changes
since that date in external and market factors or in the property itself
can significantly affect our analysis.
4. The report is to be used in whole and not in part. No part of the Report
shall be used in conjunction with any other report. Possession of the
Report, or a copy thereof, does not carry with it the right of
publication. Publication of the Report or any portion thereof without the
prior written consent of C&W is prohibited. Except as may be otherwise
expressly stated in the letter of engagement to prepare the Report, C&W
does not permit use of the Report by any person other than the party to
whom it is addressed or for purposes other than those for which it was
prepared. If written permission is given by C&W to use the Report, the
Report must be used in its entirety and only with proper written
qualification as approved by C&W. No part of the Report or the identity of
the Appraiser shall be conveyed to the public through advertising, public
relations, news, sales, or other media or used in any material without
C&W's prior written consent. Reference to the Appraisal Institute or to
the MAI designation is prohibited.
5. The Appraiser shall not be required to give testimony in any court or
administrative proceedings relating to the Property or the Report.
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Assumptions and Limiting Conditions
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6. The Report 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 Report; 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 Report is based.
7. The physical condition of the improvements considered by the Report is
based on visual inspection by the Appraiser or other person identified in
the Report. C&W assumes no responsibility for the soundness of structural
members nor for the condition of mechanical equipment, plumbing, or
electrical components.
8. Unless otherwise stated in the Report, the existence of potentially
hazardous or toxic materials which may have been used in the construction
or maintenance or operation of the improvements or may be located at or
about the Property was not considered in the Report. These materials (such
as formaldehyde foam insulation, asbestos insulation, various soil
contaminants, and other potentially hazardous materials) may affect the
value of the Property. The Appraisers are not qualified to detect such
substances, and C&W urges that an expert in this field be employed to
determine the economic impact of these matters, if any, on the property in
the Report.
9. Unless otherwise stated in the Report, compliance with the requirements of
the Americans With Disabilities Act of 1990 (ADA) has not been considered
in the Report. Failure to comply with the requirements of the ADA may
negatively affect the value of the property. C&W recommends that an expert
in this field be employed.
10. If the Report is submitted to a lender or investor with the prior approval
of C&W, such party should consider the Report as one factor, together with
its independent investment considerations and underwriting criteria, in
its overall investment decision.
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CERTIFICATION
================================================================================
We certify that, to the best of our knowledge and belief:
1. Jody L. Garbisch inspected the property, and Michael J. Schaeffer and
Stanley R. Dennis, Jr., MAI, have reviewed and approved the report, but
did not inspect 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 on an action or event (such as the
approval of a loan) resulting from the analyses, opinions, or conclusions
in, or the use of, this report.
6. 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 Ethics and Standards of Professional Practice of the Appraisal
Institute.
7. No one provided significant professional assistance to the persons signing
this 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. As of the date of this report, Stanley R. Dennis, Jr., MAI, has completed
the requirements of the continuing education program of the Appraisal
Institute.
/s/ Michael J. Schaeffer /s/ Jody L. Garbisch /s/ Stanley R. Dennis, Jr.
Michael J. Schaeffer Jody L. Garbisch Stanley R. Dennis, Jr., MAI
Director Associate Appraiser Director, Manager
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<PAGE>
ADDENDA
================================================================================
POP-FACT SHEETS
LEGAL DESCRIPTION
QUALIFICATIONS OF APPRAISERS
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42
<PAGE>
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POP-FACT SHEETS
================================================================================
<PAGE>
Tue Nov 25, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP FACTS: SUMMARY REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6510
PREPARED FOR
CUSHMAN & WAKEFIELD, INC
HILLCREST VILLAGE
AURORA, CO COORD: 39:44.53 104:49.13
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- --------------------------------------------------------------------------------
POPULATION
2002 PROJECTION 242,494 737,444
1997 ESTIMATE 222,219 676,013
1990 CENSUS 198,029 596,601
1980 CENSUS 169,320 534,728
GROWTH 1980 - 1990 16.96% 11.57%
HOUSEHOLDS
2002 PROJECTION 103,527 310,655
1997 ESTIMATE 95,728 293,829
1990 CENSUS 80,721 263,774
1980 CENSUS 63,318 224,889
GROWTH 1980 - 1990 27.49% 17.29%
1997 ESTIMATED POPULATION BY RACE 222,219 676,013
WHITE 71.50% 76.80%
BLACK 18.76% 12.47%
ASIAN & PACIFIC ISLANDER 5.45% 3.81%
OTHER RACES 4.29% 6.92%
1997 ESTIMATED POPULATION 222,219 676,013
HISPANIC ORIGIN 9.22% 12.83%
OCCUPIED UNITS 80,721 263,774
OWNER OCCUPIED 53.94% 51.80%
RENTER OCCUPIED 46.06% 48.20%
1990 AVERAGE PERSON PER HH 2.40 2.22
1997 ESTIMATED HH BY INCOME 95,728 293,829
$150,000 + 2.10% 4.81%
$100,000 TO $149,999 4.60% 5.44%
$ 75,000 TO $ 99,999 6.38% 7.67%
$ 50,000 TO $ 74,999 21.39% 19.73%
$ 35,000 TO $ 49,999 18.46% 16.71%
$ 25,000 TO $ 34,999 15.30% 13.58%
$ 15,000 TO $ 24,999 16.21% 14.35%
$ 5,000 TO $ 14,999 11.90% 13.12%
UNDER $ 5,000 3.66% 4.58%
1997 EST. AVERAGE HH INCOME $48,475 $56,952
1997 EST. MEDIAN HH INCOME $37,378 $38,920
1997 EST. PER CAPITA INCOME $20,578 $24,171
<PAGE>
Tue Nov 25, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP 80-02, HH 80-02, INC 80-02)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6510
PREPARED FOR
CUSHMAN & WAKEFIELD, INC
HILLCREST VILLAGE
AURORA, CO COORD: 39:44.53 104:49.13
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- --------------------------------------------------------------------------------
POP_80: TOTAL 169,320 534,728
POP_90: TOTAL 198,029 596,601
POP_97: TOTAL (EST.) 222,219 676,013
POP_02: TOTAL (PROJ.) 242,494 737,444
HH_80: TOTAL 63,318 224,889
HH_90: TOTAL 80,721 263,774
HH_97: TOTAL (EST.) 95,728 293,829
HH_02: TOTAL (PROJ.) 103,527 310,655
INC_80: PER CAPITA (EST.) $8,200 $9,267
INC_90: PER CAPITA $14,153 $17,175
INC_97: PER CAPITA (EST. $20,578 $24,171
INC_02: PER CAPITA (PROJ $26,089 $30,884
HH_90_BY INCOME_89: MEDIAN $29,627 $29,592
HH_97_BY INCOME: MEDIAN $37,378 $38,920
HH_02_BY INCOME: MEDIAN $45,286 $48,418
HH_80_BY INCOME_79: AVERAGE $21,927 $22,035
HH_90_BY INCOME_89: AVERAGE $33,562 $38,218
HH_97_BY INCOME: AVERAGE $48,475 $56,952
NH_02_BY INCOME: AVERAGE $61,164 $74,870
<PAGE>
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LEGAL DESCRIPTION
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<PAGE>
LEGAL DESCRIPTION
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PARCEL I:
THE EAST 260 FEET OF THE WEST 285 FEET OF PLOT 1, EXCEPT THAT PORTION THEREOF
CONVEYED T0 STATE HIGHWAY COMMISSION BY DEED RECORDED DECEMBER 17, 1954 IN BOOK
527 AT PAGE 251;
THE NORTH 268 FEET OF THE EAST 35 FEET OF PLOT 1;
THE NORTH 268 FEET OF PLOT 2 AND ALL OF PLOT 9, EXCEPT THE WEST 25 FEET OF SAID
PLOT 9;
EXCEPTING FROM THE ABOVE DESCRIPTION THAT PART PLATTED AS LOT 1, BLOCK 1,
CAREFREE MOBILE HOME SALES SUBDIVISION FILING NO. 1.
ALL IN ALTURA FARMS TRACT NO. 2, ACCORDING TO THE PLAT THEREOF RECORDED JANUARY
15, 1910 IN BOOK 1, PAGE 18,
COUNTY OF ADAMS, STATE OF COLORADO.
PARCEL II:
ALL OF HILLVIEW, ACCORDING TO THE PLAT THEREOF RECORDED UNDER RECEPTION NO.
858103, FILE NO. 12, MAP NO. 140, EXCEPT THAT PART THEREOF INCLUDED WITHIN
MONTVIEW BOULEVARD, SABLE BOULEVARD AND WITHIN EVERGREEN AVENUE AND EXCEPT THAT
PART DEEDED TO THE CITY OF AURORA, RECORDED MAY 8, 1985 IN BOOK 2997 AT PAGE 909
OF THE ADAMS COUNTY RECORDS,
COUNTY OF ADAMS, STATE OF COLORADO.
PARCEL III:
THE WEST 1/2 OF THE WEST 1/2 OF THE SOUTHEAST 1/4 OF SECTION 31, TOWNSHIP 3
SOUTH, RANGE 66 WEST OF THE 6TH P.M., EXCEPT THE SOUTH 492.54 FEET THEREOF, AND
EXCEPT THE WEST 30 FEET THEREOF, AND EXCEPT THE NORTH 25 FEET THEREOF, AND
EXCEPT THE EAST 25 FEET THEREOF,
COUNTY OF ADAMS, STATE OF COLORADO.
PARCEL, IV:
LOT 1, BLOCK 1,
CAREFREE MOBILE HOME SALES SUBDIVISION FILING NO. 1,
COUNTY OF ADAMS, STATE OF COLORADO.
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<PAGE>
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QUALIFICATIONS OF APPRAISERS
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<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
JODY L. GARBISCH
Education
Bachelor of Science Degree in Finance, concentration in Real Estate, from the
College of Commerce and Business Administration at the University of Illinois,
Urbana-Champaign, Illinois, 1997.
Real Estate Education
The following courses have been completed through the Real Estate Program at the
University of Illinois at Urbana-Champaign:
Urban Real Estate Valuation
Urban Economics
Real Estate Financial Markets
Real Estate Investments
Real Estate Law
Real Estate Fundamentals
Current Position
Associate Appraiser, Cushman & Wakefield of Illinois, Inc., Valuation Advisory
Services.
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
MICHAEL J. SCHAEFFER
Real Estate Experience
Mr. Schaeffer has been active in the appraisal of real estate since 1983.
Appraisal experience includes the valuation of income-producing real estate in
the Chicago area as well as many major cities and small towns throughout the
Midwest. The types of properties appraised include office buildings, regional
malls, shopping centers, country clubs, apartment complexes, subsidized housing
units, industrial buildings, nursing homes, retirement communities, automotive
dealerships, department stores, vacant land, proposed income-producing
properties, and various special purpose properties. Mr. Schaeffer also has had
over 10 years of experience in new construction and renovation of commercial,
industrial, residential and specialized real estate properties.
Education
Bachelor of Arts, University of Cincinnati, Cincinnati, Ohio MBA Graduate Course
Work in Economics and Management, Xavier University, Cincinnati, Ohio
Real Estate Education
The following courses sponsored by the Appraisal Institute have been
successfully completed:
Real Estate Appraisal Principles 1A-1
Basic Valuation Procedures 1A-2
Standards of Professional Practice
Capitalization Theory and Techniques 1BA
Capitalization Theory and Techniques IBB
Advanced Applications 550
Report Writing & Valuation Analysis 540
Mr. Schaeffer has also attended numerous lectures and seminars sponsored by the
Appraisal Institute.
Mr. Schaeffer is currently a candidate for the MAI designation of the Appraisal
Institute, and has completed the educational and experience requirements for the
MAI designation.
Current Position
Director, Appraisal Services, Cushman & Wakefield, Inc., Chicago, Illinois
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
STANLEY R. DENNIS, JR., MAI
Real Estate Experience
Director, Manager, Cushman & Wakefield Valuation Advisory Services, Chicago,
Illinois. Division is responsible for the appraisal and consultation function of
Cushman & Wakefield, Inc., a national full service real estate organization,
1989.
Vice President, Manager, Cushman & Wakefield Appraisal Services, Portland,
Oregon, 1983.
Principal, Stanley R. Dennis & Associates, Portland, Oregon, 1982.
Education
Portland State University, Portland, Oregon
Bachelor of Science Degree, 1977, Finance and Real Estate
Appraisal Institute
Course I-A Fundamentals and Principles of Real Estate Appraisal
Course I-B Capitalization Theory and Techniques
Course II-I Case Studies in Real Estate Valuation
Course II-2 Valuation Analysis and Report Writing
Course II-3 Standards of Professional Practice
Course IV Litigation/Condemnation Valuation
Course VI Investment Analysis
Course VIII Residential Case Studies
Course X Market Analysis
Seminar Feasibility Analysis and Highest and Best Use
Seminar Discounted Cash Flow Analysis
Seminar Cash Equivalency
Seminar Subdivision Analysis
Seminar Rates, Ratios and Reasonableness
Professional Affiliations
American Institute of Real Estate Appraisers, Member (Designation #6754)
Building Owners and Managers Association (BOMA)
National Association of Corporate Real Estate Executives (NACORE)
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MARKET STUDY OF REAL PROPERTY
Concord Cascade
245 Aria Drive
Pacheco, Contra Costa County, California
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As of December 3, 1997
Prepared For:
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Prepared By:
Cushman & Wakefield of Illinois, Inc.
Valuation Advisory Services
455 North Cityfront Plaza Drive, Suite 2800
Chicago, Illinois 60611-5555
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[Letterhead of Cushman & Wakefield of Illinois, Inc.]
December 9, 1997
Mr. Edward J. Welch
Director
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Re: Market Study of Real Property
Concord Cascade
245 Aria Drive
Pacheco, Contra Costa County, California 94553
Dear Mr. Welch:
In fulfillment of our agreement as outlined in the Letter of Engagement,
Cushman & Wakefield of Illinois, Inc., is pleased to transmit our market study
and consulting report evaluating the above referenced real property.
As specified in the Letter of Engagement, our market study and consulting
report is qualified by certain assumptions, limiting conditions, certifications,
and definitions, which are set forth in the report.
This consulting report was prepared for the Client, and it is intended only
for the specified use of the Client. It may not be distributed to or relied upon
by other persons or entities without written permission of Cushman & Wakefield,
Inc.
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the above
referenced real property, as of the date of our property inspection. The
function of the report is to assist the client, in evaluating the property for
underwriting and rating purposes.
<PAGE>
Mr. Edward J. Welch - 2 - December 9, 1997
This market study and consulting report was prepared in conformity with the
requirements of the Code of Ethics and Standards of Professional Appraisal
Practice of the Appraisal Institute and the Uniform Standards of Professional
Practice (USPAP) adopted by the Appraisal Standards Board of the Appraisal
Foundation.
This letter is invalid if detached from the report, which contains the
text, exhibits, and the Addenda.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF ILLINOIS, INC.
/s/ Nancy D. Piekos
Nancy D. Piekos
Associate Appraiser
/s/ Michael J. Schaeffer
Michael J. Schaeffer
Director
/s/ Stanley R. Dennis, Jr.
Stanley R. Dennis, Jr., MAI
Director, Manager
NDP/MJS:mmm
Revised 12/12/97
File No. 97-362-06
CUSHMAN &
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SUMMARY OF SALIENT FACTS
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Property Name: Concord Cascade
Location: 245 Aria Drive
Pacheco, Contra Costa County,
California
Assessor's Parcel Number: Based on information provided by
Contra Costa County records, the
subject property is identified by
Assessor's Parcel Number
125-020-058-9.
Date of Inspection: The property was inspected December 3,
1997.
Ownership: The subject property is legally
entitled to Goldland Vistas, Inc., an
Illinois Corporation, and MHC
Financing Limited Partnership, as
beneficiary.
Land Area: Based on information provided by the
property's legal plat of survey, the
subject property contains
approximately 31.0 acres of land area,
or 1,350,360 square feet.
Zoning: Based on information provided by the
Contra Costa County Zoning Department,
the subject property is zoned T-1,
Mobile Home Park District. The subject
property is a legal and conforming use
under the current zoning
classification.
Improvements
Type: A manufactured housing community.
Year Built: The subject property was originally
developed in approximately 1973.
Size: The subject property consists of a
283-site manufactured housing
community.
Condition: At the time of inspection, the subject
property was in good condition.
Property Rating: Four Star manufactured home community.
Special Assumptions: 1. Information regarding the subject
property, including its physical
characteristics, was provided to us by
the client and the on-site manager,
and is assumed to be accurate.
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Summary of Salient Facts
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2. The existence of potentially hazardous or
toxic materials, which may be located on or
about the property, was not considered in
our evaluation. The appraisers are not
qualified to detect such substances, and
Cushman & Wakefield urges that an expert in
this field be employed to determine the
existence, if any, of hazardous materials
located on or about the site.
3. Our market and consulting report
regarding the subject assumes the subject
property, as presently improved, represents
its highest and best use.
4. It is unknown to the appraiser if the
subject property complies with the Americans
with Disabilities Act (ADA). We recommend a
qualified specialist in the final
determination regarding any ADA compliance
deficiencies that may be present at the
subject property.
5. Please refer to the complete list of
assumptions and limiting conditions included
at the end of this report.
CUSHMAN &
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TABLE OF CONTENTS
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Page
PHOTOGRAPHS OF SUBJECT PROPERTY...........................................1
INTRODUCTION..............................................................6
REGIONAL ANALYSIS.........................................................9
NEIGHBORHOOD ANALYSIS....................................................15
MARKET ANALYSIS..........................................................17
PROPERTY DESCRIPTION.....................................................34
CONCLUSION...............................................................36
ASSUMPTIONS AND LIMITING CONDITIONS......................................37
CERTIFICATION............................................................39
ADDENDA..................................................................40
Pop-Fact Sheets
Legal Description
Qualifications of Appraisers
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PHOTOGRAPHS OF SUBJECT PROPERTY
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[PHOTO OMITTED]
Front Entrance of the Subject Property Along Marsh Drive
[PHOTO OMITTED]
Street Scene: Looking Northbound Along Marsh Drive
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Photographs of Subject Property
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[PHOTO OMITTED]
View of the Entrance to the Subject Park, Along Aria Drive
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Exterior of the Community Center
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Photographs of Subject Property
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[PHOTO OMITTED]
Interior View of the Community Center
[PHOTO OMITTED]
Interior View of the Community Center, Comprising the Billiard Room
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Photographs of Subject Property
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[PHOTO OMITTED]
Exterior View of the Community Center, Comprising the Pool Area
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Typical Street Scene within the Subject Park
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Photographs of Subject Property
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[PHOTO OMITTED]
Typical Street Scene within the Subject Park
[PHOTO OMITTED]
Typical Street Scene within the Subject Park
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INTRODUCTION
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Identification of Property
The subject property consists of a 283-site manufactured housing community,
situated on approximately 31.0 acres of land area, located west of its
intersection with Marsh Drive, along Aria Drive, within an unincorporated area
of the city of Pacheco, in Contra Costa County, California. The property's
street address is 245 Aria Drive. The property was constructed in 1973, and was
98.94 percent occupied at the time of inspection, with only three vacant sites
available.
Property Ownership and Recent History
The subject property is currently entitled to Goldland Vistas, Inc., an
Illinois corporation, and MHC Financing Limited Partnership, as beneficiary. The
subject property was originally developed in 1973, with 283 manufactured housing
sites.
Purpose and Function of the Market Study and Consulting Assignment
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the subject
property, as of the date of property inspection. The function of the consulting
report is to assist the client in evaluating the property for underwriting and
rating purposes.
Scope of the Market Study and Consulting Assignment
In the process of preparing this report, we inspected the property,
interviewed the on-site manager, conducted market research into asking rental
rates for comparable properties, conducted market investigations, and
ascertained sales prices of comparable properties. Additionally, we conducted
market research and evaluated demographic and economic trends; and, the market
position and rating of the subject property.
Date of Property Inspection
The property was inspected December 3, 1997.
Definitions and Other Pertinent Terms
Definitions of pertinent terms taken from the Dictionary of Real Estate
Appraisal, Third Edition (1993), published by the Appraisal Institute, is as
follows:
Market Rent
The rental income that a property would most probably command on the open
market; indicated by current rents paid and asked for comparable space as
of the date of the appraisal.
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Introduction
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Evaluation
Evaluation is a study of the nature, quality, or utility of a parcel of
real estate or interest in, or aspects of, real property, in which a value
estimate is not necessarily required.
Market Study
A macroeconomic analysis that examines the general market conditions of
supply, demand, and pricing or the demographics of demand for a specific
area or property type.
Legal Description
The subject property is located west of its intersection with Marsh Drive,
along Aria Drive, within an unincorporated area of Pacheco, Contra Costa County,
California. The street address of the subject property is 245 Aria Drive,
Pacheco, California. The property is identified by tax parcel number
125-020-058-9, according to Contra Costa County records. Due to the lengthy
metes and bounds legal description, the subject property's legal description is
presented in the Addenda of this report, and reference is made thereto.
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REGIONAL MAP
[MAP OMITTED]
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Regional Analysis
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Introduction
The subject property is located in an unincorporated area of the city of
Pacheco, Contra Costa County, California, and as such is part of a region
commonly known as the San Francisco Bay Area. The greater San Francisco Bay Area
consists of nine counties: Alameda, Contra Costa, Marin, Napa, San Francisco,
San Mateo, Santa Clara, Solano, and Sonoma. Please refer to the map on the
facing page, which shows the subject property's location in the region.
The market value of real property is influenced by the economic, political,
physical and social characteristics of the overall economic region of which it
is a part. Following is an overview of the San Francisco Bay Area Region
focusing on some of its more important characteristics.
Population
Historical and projected population trends between 1960 and 2000 for the
nine Bay Area counties, and for the State of California as a whole, as shown as
follows:
<TABLE>
<CAPTION>
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HISTORIC POPULATION
(Bay Area Region and State of California)
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1960 1970 1980 1990 2000
-----------------------------------------------------------------------------------------------
County Population Population Average Population Average Population Average Population Average
Annual Annual Annual Annual
Growth Growth Growth Growth
==============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Alameda 908,209 1,073,184 1.7% 1,105,379 0.3% 1,276,702 1.5% 1,364,600 1.4%
Contra Costa 409,030 558,389 3.2 656,380 1.6 803,732 2.0 882,700 2.0
Marin 146,820 206,038 3.4 222,568 0.8 230,096 0.3 234,600 1.3
Napa 65,890 79,140 1.8 99,199 2.3 110,765 1.1 121,150 1.9
San Francisco 740,316 715,674 (0.3) 678,974 (0.5) 723,959 0.6 759,900 1.0
Santa Mateo 444,387 556,234 2.3 587,329 0.5 649,623 1.0 696,450 1.4
Santa Clara 642,315 1,064,714 5.2 1,295,071 2.0 1,497,577 1.5 1,611,200 1.5
Solano 134,597 169,941 2.4 235,203 3.3 340,421 3.8 379,350 2.3
Sonoma 147,375 204,885 3.3 299,681 3.9 388,222 2.6 432,000 2.2
==============================================================================================================
Nine-County 3,638,939 4,628,199 2.4% 5,179,784 1.1% 6,021,097 1.5% 6,492,950 1.6%
California 15,717,200 19,953,100 2.4 23,668,600 1.7 29,760,000 2.3 32,344,000 1.7
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</TABLE>
The San Francisco Bay Area's current population is an estimated 6.5
million; the Bay Area is the nation's fourth largest metropolitan area. Growth
was most vigorous between 1960-1970 and occurred primarily in the suburbs
surrounding San Francisco.
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Regional Analysis
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From 1960 to 1980, the fastest growing counties were Santa Clara, Contra
Costa and Sonoma. During the 1980s, the fastest growing counties were Sonoma,
Solano, Napa and Contra Costa. Contra Costa and Santa Clara Counties showed the
largest gains in total number of persons. Between 1990 and 1995 the fastest
growing counties were Solano and Sonoma, with Santa Clara, Alameda, and Contra
Costa counties again showing the largest gain in total persons.
The following chart summarizes projected population figures for the nine
Bay Area counties through the year 2015. Santa Clara, Alameda, and Contra Costa
Counties are projected to experience the greatest increase in terms of absolute
numbers. Solano County is projected to experience the greatest percentage
increase over the next 20 years.
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PROJECTED POPULATION IN THE SAN FRANCISCO BAY REGION
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Actual Projected % Projected Average Annual
---------------------------------------------------- Change Growth
County 1995 2000 2005 2010 2015 1995-2015 1995-2015
=====================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Alameda 1,364,600 1,453,000 1,518,700 1,556,600 1,591,500 16.6% 0.8%
Contra Costa 882,700 962,900 1,059,500 1,120,000 1,169,400 32.5% 1.6%
Marin 245,600 255,650 263,250 271,950 278,150 13.2% 0.7%
Napa 121,150 132,700 138,800 144,700 152,500 25.9% 1.3%
San Francisco 759,900 780,400 789,100 800,600 795,800 4.7% 0.2%
San Mateo 696,450 727,300 754,750 746,950 755,350 8.4% 0.4%
Santa Clara 1,611,200 1,719,150 1,790,050 1,844,300 1880,650 16.7% 0.8%
Solano 379,350 423,300 472,200 513,400 531,700 40.2% 2.0%
Sonoma 432,000 476,900 509,900 541,100 565,900 31.0% 1.6%
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Region 6,492,950 6,931,300 7,539,600 7,539,600 7,720,950 18.9% 0.9%
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</TABLE>
Housing
Similar to many areas in the country, the Bay Area has experienced an
inverse relationship between residential and commercial real estate markets. The
housing supply has lagged behind demand, driving prices up beyond the reach of
most area residents and forcing them to find more affordable housing elsewhere.
San Francisco, Oakland, Sunnyvale, Santa Clara and Palo Alto top the Bay Area in
net commuters and conditions are unlikely to improve. ABAG reports that
"inadequate housing production and high housing prices remains the most serious
constraints to the economic health of the region." Although availability of land
would not appear to be a problem in most areas, public policy and infrastructure
constraints do pose limitations to residential development.
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Regional Analysis
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Economy
The Bay Area's economic base is constantly growing in size and diversity.
The economy is not oriented toward heavy manufacturing or mature industries;
these have moved out of the area in the last 10 years. High-technology
manufacturing and research now play significant roles in the economy. Although
industrial growth is cyclical, it should remain strong over the long term. San
Francisco, and the region as a whole, is shifting away from goods-production and
toward service-oriented activities and high-technology manufacturing, which
fosters economic stability.
A table illustrating historical employment growth, by county, in the San
Francisco Bay Area Region is presented below. Jobs growth in absolute terms
increased the most during the 1970s, followed by the 1980s.
<TABLE>
<CAPTION>
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HISTORICAL EMPLOYMENT GROWTH IN THE SAN FRANCISCO BAY REGION
- ---------------------------------------------------------------------------------------------------------------------
County 1960 1970 1980 1990 1995 % Change % Change % Change
1990-1995 1970-1980 1980-1990
=====================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alameda 310,700 404,000 513,800 620,980 608,770 -2.0% 27% 21%
Contra Costa 85,100 125,300 201,200 303,830 298,420 -1.8% 61% 51%
Marin 27,000 45,600 77,900 101,060 104,870 3.8% 71% 30%
Napa 15,500 21,700 35,800 47,710 50,000 4.8% 65% 33%
San 385,700 440,300 552,200 566,640 534,610 -5.6% 25% 3%
Francisco
San Mateo 113,300 183,700 259,800 311,600 318,350 2.2% 41% 20%
Santa Clara 222,800 380,900 702,900 852,080 827,350 -2.9% 85% 21%
Solano 35,700 53,600 103,400 149,890 164,030 9.4% 93% 45%
Sonoma 39,400 49,900 90,800 119,210 121,890 2.2% 82% 31%
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Region 1,235,200 1,705,000 2,537,800 3,073,000 3,028,920 -1.4% 49% 21%
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</TABLE>
The Bay Area economy and job market was negatively impacted in recent years
by the national recession, military base closures, and the trend in corporate
downsizing and mergers. The region as a whole lost over 44,000 jobs. Significant
job losses were experienced in the manufacturing, construction, wholesale and
retail trade. FIRE and government sectors. The service sector actually added
60,000 jobs during the time period.
According to the ABAG, the Bay Area experienced a net decline of 134,000
jobs between July 1990 and August 1993. From 1993 to 1995, only 70,000 jobs have
been added according to the Employment Development Department. ABAG projects
that the region will add approximately 54,000 jobs annually between 1995 and
2000. The projected growth is significantly lower than the historic job growth
during the previous decades
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Regional Analysis
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(57,000 new jobs annually during the 1980s and 81,000 new jobs annually during
the 1970s).
A table illustrating projected jobs by industry is displayed in the
following table. Growth will occur primarily in the service, wholesale trade,
and transportation/communication/utilities sectors. Overall, ABAG projects that
over 990,000 new jobs will become available during the next 20-year period
between 1995 and 2015. This is an average annual increase of 1.6 percent
compared to the projected population growth rate of 0.9 percent.
<TABLE>
<CAPTION>
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SAN FRANCISCO BAY AREA REGIONAL PROJECTIONS
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Industry 1990 1995 2000 2005 2010 2015
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Agriculture, Mining 35,220 34,200 33,030 31,780 31,090 28,230
Construction 141,970 135,420 160,610 176,430 181,410 181,960
Manufacturing 494,670 454,800 491,730 524,080 561,440 584,820
High Technology* 263,720 236,380 263,400 279,210 293,690 307,000
Transp., Comm., 182,130 185,910 210,970 225,530 244,350 264,670
Utilities
Wholesale Trade 184,130 172,170 193,100 223,750 239,060 252,810
Retail Trade 514,920 487,190 528,660 577,320 621,570 654,160
F.I.R.E. 220,040 208,740 224,910 237,730 245,070 259,430
Services 1,019,190 1,080,850 1,195,380 1,320,400 1,428,260 1,522,220
Business Services* 356,600 378,150 441,910 505,020 564,260 632,610
Government 280,730 268,990 260,410 268,620 274,270 273,480
- ---------------------------------------------------------------------------------------------------------------------
Total Jobs 3,073,000 3,028,290 3,298,800 3,585,640 3,826,520 4,021,780
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</TABLE>
Transportation
The Bay Area Rapid Transit (BART) system provides passenger rail service
throughout the Bay Area. The modern, high-speed BART system currently serves San
Francisco and the East Bay cities of Fremont, Union City, Hayward, San Leandro,
Oakland, Alameda, Berkeley, San Pablo, El Cerrito, Richmond, Orinda, Lafayette,
Walnut Creek, Pleasant Hill, and Concord. Eventually, the East Bay lines may be
expanded. The Concord line is currently being extended north to Antioch. Future
plans involve adding a new line which will connect Hayward, in southern Alameda
county, and Livermore, in eastern Alameda County. Additionally, a new BART line
is being planned for service between San Francisco and the airport in Burlingame
in San Mateo County.
Income
The Bay Area had the highest average household income in California in
1990; one reason is that the region also leads the state in the percentage of
women who work. About 70 percent of all Bay Area women are employed, compared
with a statewide average of 63 percent, according to the Center for Continuing
Study of California. Actual 1995 average household incomes for the Bay Area, and
projections for 2015, are shown in the table on the following page.
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Regional Analysis
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<TABLE>
<CAPTION>
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SAN FRANCISCO BAY REGION MEAN HOUSEHOLD INCOME
(IN CONSTANT 1995 DOLLARS)
=====================================================================================================================
1995-2015
Area 1995 2005 2015 Percent Change
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alameda County $58,800 $68,700 $78,000 33%
Contra Costa County 70,400 83,400 95,800 36%
Marin County 86,800 108,600 125,300 44%
Napa County 58,400 70,100 81,300 39%
San Francisco County 59,600 73,400 94,300 41%
San Mateo County 77,800 94,400 109,500 41%
Santa Clara County 73,800 87,200 98,700 34%
Solano County 54,900 64,700 72,500 32%
Sonoma County 58,100 69,700 79,500 37%
Total Region $66,900 $79,800 $90,900 36%
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</TABLE>
Source: Association of Bay Area Governments
Projections-96, December 1995
Summary
The subject property is located in the fourth largest metropolitan area in
the U.S. Historically, regional population and employment growth have out paced
the nation's. The Bay Area is the wealthiest region in California in terms of
average household income.
The area has recovered from recessionary economic conditions which plagued
the early-1990's. Job growth over the next five years is forecast to be moderate
given the weak recovery in high technology, continued restructuring of other
major job sectors including finance and business services, and local military
base closures.
On the other hand, the Bay Area benefits from a diverse economy which is
well positioned to remain the economic center for northern California, as well
as the western United States. The region is also well located to serve the
Pacific Rim. The Bay Area is faring better than the remainder of the state in
terms of economic growth.
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NEIGHBORHOOD MAP
[MAP OMITTED]
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NEIGHBORHOOD ANALYSIS
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The subject property is situated along Aria Drive, just west of its
intersection with Marsh Drive, within an unincorporated area of the city of
Pacheco, Contra Costa County, California. The subject's immediate neighborhood
is bordered by State Route 4 (John Muir Parkway) to the north, Willow Pass Road
to the south, Buchanan Air Field and State Route 242 to the east, and Interstate
680 to the west. The subject's immediate area along Marsh Drive is predominantly
developed with manufactured housing communities along the west side of Marsh
Drive and the Buchanan Air Field along the east side of Marsh Drive.
The subject property is immediately bounded by Marsh Drive to the east.
Marsh Drive is a secondary two-lane, north-south thoroughfare, within the
vicinity of the subject property. Marsh Drive provides access to Contra Costa
Boulevard, which in turn provides direct access to State Route 4 to the north
and Interstate 680 to the south, within one mile of the subject property.
Specifically, the subject park is accessed off of Marsh Drive via Aria Drive.
Aria Drive is considered to be a secondary, two-lane roadway, which primarily
provides access to the subject property.
The subject property enjoys good visibility along Marsh Drive, and primary
access to the subject's main entrance to the park is accessed directly off of
Marsh Drive. Other developments along Marsh Drive consist of at least two other
mobile home parks, in addition to the subject property, including: Sun Valley
and Rancho Diablo. Rancho Diablo is situated immediately north of the subject
property, along the west side of Marsh Drive. Rancho Diablo is a "senior park"
which is improved with 159-sites. At present, Rancho Diablo is 97.48 percent
occupied and the monthly rental rate reportedly ranges from $410.00 to $455.00
per site. Sun Valley is situated directly south of the subject property, along
the west side of Marsh Drive. Sun Valley is a family park which is improved with
263-sites. At present, Sun Valley is 98.86 percent occupied and the monthly
rental rate reportedly ranges from $525.00 to $570.00 per site.
As previously mentioned, the subject property is located within an
unincorporated area of the city of Pacheco. The majority of the commercial and
retail establishments serving the subject's immediate area are located within
one mile of the subject property, along Contra Costa Boulevard and Concord
Avenue, near downtown Pacheco. According to Equifax National Decision Systems
(ENDS), the 1997 estimated population of the city of Pacheco is 3,494. The local
population is projected to remain constant, or slightly decrease to 3,406 by the
year 2002. The 1997 estimated total number of households is 1,653, which is
projected to increase slightly to 1,695 households by the year 2002.
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Neighborhood Analysis
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The subject property is situated in an area well suited for manufactured
housing development. Real estate values are anticipated to increase at a steady
pace. The economy in the area is anticipated to be good, with unemployment
steadily decreasing. The growth in population is anticipated to remain stable.
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MARKET ANALYSIS
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National Overview
Reportedly, the largest property owners of manufactured housing communities
in the United States are: ROC Communities, headquartered in Colorado; MHC, Inc.,
headquartered in Illinois; Ellenburg Capital, headquartered in Oregon; Lautrec
Ltd., headquartered in California; Clayton Homes, headquartered in Tennessee;
Clayton Williams and Sherwood, headquartered in California; Chateau Properties,
Sun Communities and UNIPROP, headquartered in California.
The following represents the top ten manufactured housing community firms,
as reported by GFA Management, as of 1997.
<TABLE>
<CAPTION>
=================================================================================================================
1997 Firm Name State No. of Sites No. of Communities
Rank Owned/Managed Owned/Managed
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Sun Communities California 30,295/0 84/0
- -----------------------------------------------------------------------------------------------------------------
2 ROC Communities Colorado 22,441/7,167 77/36
- -----------------------------------------------------------------------------------------------------------------
3 Manufactured Home Communities Illinois 27,349/838 69/3
- -----------------------------------------------------------------------------------------------------------------
4 Ellenburg Capital Florida 25,173/0 63/0
- -----------------------------------------------------------------------------------------------------------------
5 Lautrec Ltd. California 22,652/0 58/0
- -----------------------------------------------------------------------------------------------------------------
6 Chateau Properties California 20,003/0 47/0
- -----------------------------------------------------------------------------------------------------------------
7 Clayton Homes Tennessee 18,000/0 66/0
- -----------------------------------------------------------------------------------------------------------------
8 Clayton, Williams and Sherwood California 16,946/0 44/0
- -----------------------------------------------------------------------------------------------------------------
9 UNIPROP California 14,931/0 40/0
- -----------------------------------------------------------------------------------------------------------------
10 The Bloch Organization California 14,379/0 37/0
=================================================================================================================
</TABLE>
According to the U.S. Census Bureau, more than 8,521,000 people were living
in manufactured housing communities as of 1990 compared to 3,838,678 in 1980.
This represents an increase in manufactured housing community living of
approximately 122.0 percent over the last ten years. Over the last ten years,
there has been a steady increase in manufactured housing community development
across the country. Among the demographic factors which account for the increase
in manufactured housing community living are: decreasing household size, a
growing demand for smaller housing, as well as an alternative to the increasing
cost of housing. Nationally, the largest percentage of manufactured housing
communities are located in California, California, Colorado, Florida, New York,
Minnesota, Indiana, Arizona, Ohio, and Wisconsin.
The manufactured home industry has dramatically changed over the last 20
years. Manufactured homes are now designed and constructed to accommodate
spacious and attractive living requirements. Today, approximately one out of
sixteen families live in
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Market Analysis
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manufactured housing units. The manufactured housing market share has been
growing steadily over the last 10 years. In 1990, 6.7 percent of Americans lived
in manufactured housing units, up from 2.9 percent compared to 1970, according
to the U.S. Census Bureau, which represents 12.0 to 14.0 percent of all new
housing built since the mid-1980's, according to the Manufactured Housing
Institute in Arlington, Virginia.
In 1990, the average cost of a manufactured housing unit was $27,800
compared to $149,000 for a new house (including land), according to the
Manufactured Housing Institute. This reflects a 28.0 percent increase in the
cost of manufactured housing since 1980 versus a 49.0 percent increase in
conventional housing. Industry experts estimate that a single-family home
selling for $150,000 would require an annual income of $52,671. To purchase a
$27,800 manufactured housing unit, only a $19,984 income level would be
required.
At Fleetwood Enterprises, the nation's largest manufacturer of manufactured
housing units, units may be purchased for up to $100,000, which would include a
three-bedroom, two-bath unit of 2,100 square feet, with vaulted ceilings.
In 1990, approximately 10.0 percent of manufactured home owners lived in
units worth approximately $40,000, up from 4.0 percent compared to 1981,
according to a study conducted by Foremost Insurance Company in Grand Rapids,
California. Also, according to the study, approximately 21.0 percent of the
manufactured housing households are occupied by people' 65 years of age or
older, slightly lower than the age group for conventional homes, as reported by
Foremost Insurance.
The demand for good quality institutional grade manufactured housing
communities has substantially increased over the last ten years. Manufactured
housing communities provide an affordable alternative to the increasing cost of
housing. Also, manufactured housing communities provide an alternative form of
living for the elderly and retirees, especially for those living on fixed
incomes.
Acquisitions of manufactured housing communities during 1993 and 1994 were
clearly dominated by Real Estate Investment Trusts. During 1994 and 1995
Manufactured Home Communities (MHC) and ROC communities lead the acquisition of
manufactured housing communities nationally. During 1996, Sun Communities
captured the lead and, together with ROC and MHC dominate the Real Estate
Investment Trust market.
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Market Analysis
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The following chart represents the largest Real Estate Investment Trusts,
from 1991 to 1996, as reported by GFA Management
================================================================================
HOME SITE GROWTH, DEVELOPMENT AMONG THE LARGEST
REAL ESTATE INVESTMENT TRUST (REITS)
- --------------------------------------------------------------------------------
Year ROC MHC Chateau Sun United Total Annual
Growth
- --------------------------------------------------------------------------------
1996 29,608 28,187 20,003 30,295 5,234 113,327 17.0%
- --------------------------------------------------------------------------------
1995 27,910 26,237 19,594 18,000 4,850 96,591 9.0%
- --------------------------------------------------------------------------------
1994 26,231 28,407 15,689 13,500 4,623 88,450 37.8%
- --------------------------------------------------------------------------------
1993 20,142 14,700 15,261 9,036 5,050 64,189 17.8%
- --------------------------------------------------------------------------------
1992 18,745 12,873 10,032 7,600 5,200 54,450 N/A
- --------------------------------------------------------------------------------
1991 9,030 13,079 9,759 N/R N/R N/A N/A
- --------------------------------------------------------------------------------
N/R = No report N/A = Not applicable
- --------------------------------------------------------------------------------
NOTE: The 113,327 sites counted for the top five REITs in 1996 make up 20
percent of the total sites surveyed in the 1997 Allen Report. These rental sites
are located in 339 communities, accounting for about 1 percent of some 50,000
existing manufactured housing communities nationwide. The community counts for
the five major REITs are: ROC (113), MHC (72), Chateau (47), Sun (84) and United
(23). The proportion of communities owned by each of the REITs compared to the
others is: ROC (33%), MHC (21%), Chateau (14%), Sun (25%) and United (7%).
================================================================================
Manufactured Home Communities (MHC) is expected to continue an aggressive
acquisition campaign through 1997 and beyond. As of September 1997, the MHC REIT
had a market cap of $632.0 million, and continues to pursue the acquisition of
manufactured home communities. Aside from the ELL-CAP $300.0 million
transaction, in September 1997 Manufactured Home Communities, Inc. completed a
$107.0 million purchase of 18 manufactured housing communities and two related
commercial properties from partnerships affiliated with Mobileparks West. The
communities, with 3,505 sites, were purchased with about $3.0 million
manufactured home operating units, $16.0 million in cash and $20.0 million of
installment notes and assumed debt. The communities have an average monthly
rental of $349.00. The communities are located in California, Utah, Oregon,
Washington and Nevada. MHC may be the first manufactured home community REIT to
reach $1.0 billion.
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Market Analysis
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The MHC REIT continues to perform and expand, and as of September 1997 was
trading at $25.625, with a current yield of 5.2 percent. The top traded REITs,
are presented as follows.
================================================================================
REIT MARKET UPDATE
- --------------------------------------------------------------------------------
Company Price Current 52 Week 52 Week Annual 12 Mth
Symbol (9/19/97) Yield High Low Dividend Tot Rtn
- --------------------------------------------------------------------------------
CPJ $29.688 5.8% $31.125 $22.250 1.72 26.6%
- --------------------------------------------------------------------------------
MHC $25.625 5.2% $26.428 $18.875 1.32 30.7%
- --------------------------------------------------------------------------------
SUI $37.428 5.0% $ 38.00 $27.750 1.88 31.8%
- --------------------------------------------------------------------------------
UMH $11.625 6.0% $13.625 $10.875 0.70 -1.7%
- --------------------------------------------------------------------------------
Total return figures obtained through Standard & Poors and are for the period
through Sept 1997.
================================================================================
The Southwest and Northwest Regions of the nation are the preferred
locations regarding recent and future manufactured housing community
acquisitions. However, investors seeking moderate, but consistent growth
expectations, are still looking at the midwest region. Also, southern portions
of Florida are still considered a prime area for investors seeking good quality
manufactured housing communities, with good up-side potential. What was once a
stagnant market, the northeast region is now being considered for future
acquisitions.
According to a recent study prepared by Merrill Lynch & Company, ownership
in the manufactured housing community industry is highly fragmented. The top 150
owner-operators account for less than 5.0 percent of the total industry, whereas
a host of "mom-and-pop" private companies account for the other 95.0 percent.
This unglamorous niche industry is ripe for consolidation, and an infusion of
professional management expertise is likely to yield significant economies of
scale. The four REIT's specializing in manufactured housing communities are
already among the top ten owner-operators, and are well positioned to facilitate
and hasten the industry's consolidation to the likely benefit of their
stockholders.
Manufactured homes are the fastest growing component of the nation's
housing inventory, due to their affordability, good quality design and safety
standards. According to the Merrill Lynch & Company Manufactured Housing
Community Industry Report, factory-built homes appeal especially to senior
citizens and to households with limited economic needs, two segments of the
population that are likely to grow rapidly in coming years.
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Market Analysis
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Consistent returns in manufactured housing community investments have been
the mainstay of the industry. For this reason, as well as the amount of
acquisitions seen by Real Estate Investment Trusts (REITs) from 1991 to 1996,
the availability of good quality manufactured housing communities has been
substantially reduced compared to the 1980's. Good quality manufactured housing
communities still command premium prices, thus driving down overall
capitalization rates.
Cushman & Wakefield's Valuation Advisory Services has tracked sale
transactions of manufactured housing communities since 1985. Overall
capitalization rates have consistently been within the 8.75 to 10.00 percent
range for communities located in moderate to increasing growth markets, and as
low as near 8.0 percent for those communities located in growing markets that
poses significant upside potential. Overall capitalization rates are clearly
affected and are differentiated among the properties relative to rent levels,
age, quality, condition, location, amenities, demographic characteristics,
resident profile, as well as the quality of management.
Manufactured housing communities fall within, and are categorized by their
overall appearance, age, and amenities, but more importantly the strength of the
local market. The various categories of manufactured housing communities,
according to the Woodall Directory, can be ranked as 1 to 5 Star Parks These
rankings are defined as follows:
One Star Park
The most important consideration for a one star park is overall appearance.
If it is not a decent place to live, it will not be listed in Woodall's
Directory. The following are general requirements:
o Fair overall appearance;
o Patios on most lots. May be concrete, asphalt, wood, or some
suitable material;
o Grass, rock or shell to cover ground;
o Streets fair to good. May be dirt, asphalt or gravel in
reasonable condition;
o Restrooms clean, if any;
o Adequate laundry or laundromat nearby;
o If fences allowed, must be neat;
o Mail service;
o Homes may be old models, but show evidence of care; and,
o Manager available some hours of each day.
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Market Analysis
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Two Star Park
In addition to the requirements for a one star park, a two star park will
have the following:
o Landscaping - some lawns and shrubs;
o Streets in good condition. Must be dust free of crushed rock, gravel
or shell minimum;
o Neat storage;
o Well equipped laundry or laundromat nearby;
o 200 volt connections available;
o If children accepted, park should have play area;
o Park free of clutter, such as old cars and other abandoned equipment;
and,
o Well maintained and managed.
Three Star Park
What a three star park does it does well, but not as uniformly as higher
rated parks. Many three star parks were once higher rated, but original
construction does not allow for today's 10-foot, 12-foot, and double-wides
or the 55-foot and 60-foot lengths. If children are allowed, there should
be adequate play area. However, the disarray caused by children may at
times be the determining factor that keeps a three star park at that level
when it otherwise could be rated higher. In addition to the requirements
for one and two star parks, a three star park must have the following:
o Attractive entrance;
o All homes must be in good condition;
o Awnings and cabana rooms on some homes in southern areas;
o Some spaces for large mobile homes;
o Paved or hard surfaced streets;
o Off-street parking or streets wide enough for safe on-street parking;
o Good lawns or substitute throughout, shade trees, some shrubs where
climate permits;
o Concrete patios or the equivalent on all lots;
o All lots neat and attractive;
o All park buildings in good repair; and,
o Good management.
Four Star Park
Four star parks are luxury parks. In addition to the requirements for one,
two and three star parks, a four star park must have the following:
o Good landscaping;
o Most homes skirted with metal skirts, concrete block, ornamental wood
or stone;
o Paved streets, edged or curbed.
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Market Analysis
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o Uncrowded lots;
o Underground utilities if permitted by local conditions and
authorities;
o Most tanks, if present, concealed;
o Any hedges or fences must be attractive and uniform;
o Awnings, cabanas, or porches on most homes in southern areas.
(Excepting double-wide units.);
o Most lots to accommodate large mobile homes;
o Where row parking of homes exists, all must be lined up uniformly;
o Community hall and/or swimming pool and/or recreation programs. If a
park is four star in all but this requirement, the fourth star will be
printed as an open star indicating a four star park without
park-centered recreation; and,
o Excellent management.
Five Star Park
Five star parks are the finest. They should be nearly impossible to
improve. In addition to the requirements for one, two, three, and four
star parks, a five star park must have the following:
o Well planned and laid out spacious appearance;
o Good location in regard to accessibility and desirable neighborhood.
In some locations, park should be enclosed by high hedges or
ornamental fence;
o Wide paved streets in perfect condition. Curbs or lawns edged to
streets, sidewalks, street lights, street signs; Homes set back from
street;
o Exceptionally attractive entrance and park sign;
o Patios at least 8 x 30 feet. (Excepting double-wide units.);
o Paved off-street parking such as carports or planned parking;
o All homes skirted;
o All hitches concealed. Any existing tanks concealed;
o Recreation, some or all of the following: swimming pool (excepting
areas with long, cold winters), shuffleboards, horseshoe pitching,
golf course, hobby shop, hobby classes, games, potlucks, dances or
natural recreational facilities;
o Beautifully equipped recreation hall with kitchen. Room for community
gatherings, tiled restrooms, etc.;
o Uniform storage sheds or central storage facilities;
o All late model homes in excellent condition;
o At least 60 percent occupancy in order to judge quality of residents
which indicates park's ability to maintain a five star rating between
inspections;
o All empty lots grassed, graveled or otherwise well maintained;
o If pets or children allowed, there must be a place for them to run and
play without cluttering the streets and yards.
o Most five star parks are for adults only; and,
o Superior management interested in comfort of residents and maintenance
of park.
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Market Analysis
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The demand for good quality institutional grade manufactured housing
communities is anticipated to increase throughout the 1990's, since manufactured
housing communities provide an alternative form of living for the elderly and
retirees, especially for those living on fixed income. Manufactured home
shipments continue to be strong. Shipments rose 20.0 percent in 1992 and 1994,
and 12.0 percent in 1995. The market for good quality manufactured housing
communities is expected to be strong, with yield and capitalization rates and
prices expected to continue to be competitive, with the REITs leading the way.
Competition
We have surveyed four manufactured housing communities located within the
subject's primary market, including the subject property, containing a total of
1,131 sites. The combined occupancy rate of these four manufactured housing
communities, including the subject property, is approximately 99.03 percent.
Excluding the subject property in our survey, the combined occupancy rate is
approximately 99.06 percent, based on 848 sites.
The name and location of the subject property's primary competition, as
well as the number of sites, occupancy levels, amenities offered, monthly rental
rates and services provided in the monthly rental rate, are presented on the
following facing page, along with a map which identifies the location of each
competing park.
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<PAGE>
SITE PLAN
[GRAPHIC OMITTED]
<PAGE>
COMPETING MANUFACTURED HOUSING MAP
[GRAPHIC OMITTED]
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Market Analysis
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Rental rates of manufactured housing communities located within the
subject's primary market range from $410.00 to $570.00 per site, on a monthly
basis. According to the most recent rent roll dated October 22, 1997, rents
currently being achieved at the subject property range from $461.49 for
single-wide homes and $472.10 for double wide homes. However, as of November 1,
1997, the monthly rental rates were increased to $473.12 for single-wide homes
and $482.72 for double-wide homes.
As the subject property is governed by Contra Costa County, the subject
property is subject to the "rent control" ordinance whereby the monthly rental
rate can only be increased (annually) by 75.0 percent of the change/increase of
the Consumer Price Index of the San Francisco Bay area, or a minimum of 2.0
percent, which ever is greater, and the rent increase is capped at 6.0 percent
per year.
The enclosed comparable rentals are considered the most competitive to the
subject property regarding amenities offered, condition, location and overall
ranking.
Comparable R-1, Sun Valley, is located at 125 Sahara Drive, in Pacheco,
California. This comparable property contains 263 sites, and is presently
98.86 percent occupied, with approximately three vacant sites available.
Sun Valley is a family park which was originally developed in 1969, and is
considered to be in overall very good condition. Reportedly, the monthly
rental payment has increased annually over the past three year period,
according to the CPI, pursuant to the rent control ordinance. At present,
the monthly rental rate for all sites within the park ranges from $525.00
to $570.00, depending upon location within the park. The monthly rental
rate does not include any utilities. Amenities at the property include a
clubhouse, two pools/spas, two saunas, laundry facility, playground,
shuffleboard, and RV storage.
Comparable R-2, Rancho Diablo, is located at 355 Vista Grande, in Pacheco,
California. This comparable property contains 159 sites, and is presently
97.48 percent occupied, with approximately four vacant sites available.
Rancho Diablo is a senior park for residents aged 55 years or older, and
was originally developed in 1974. Rancho Diablo is considered to be in
overall good condition. Reportedly, the monthly rental payment has
increased annually over the past three year period, according to the CPI,
pursuant to the rent control ordinance. At present, the monthly rental rate
for all sites within the park ranges from $410.00 to $455.00, depending
upon location within the park. The monthly rental rate only includes water
service. Amenities at the property include a clubhouse, pool/spa, sauna,
laundry facility, and RV storage.
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Market Analysis
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Comparable R-3, Dalis Gardens, is located at 3161 Terraza Del Sol, in
Concord, California. This comparable property contains 260 sites, and is
presently 99.62 percent occupied, with approximately one vacant site
available. Dalis Gardens is a senior park for residents aged 55 years or
older, and was originally developed in 1971. Dalis Gardens is considered to
be in overall good condition. Reportedly, the monthly rental payment has
increased annually over the past three year period, according to the CPI,
pursuant to the rent control ordinance. At present, the monthly rental rate
for all sites within the park ranges from $450.00 to $536.00, depending
upon location within the park. The monthly rental rate only includes water,
sewer, and refuse service. Amenities at the property include a clubhouse,
pool/spa, sauna, laundry facility, shuffleboard, and RV storage.
Comparable R-4, Town & County Mobile Village , is located at 1060 San
Miguel Road, in Concord, California. This comparable property contains 166
sites, and is presently 100 percent occupied. Town & Country Mobile Village
is a family park which was originally developed in 1963, and is considered
to be in overall good condition. Reportedly, the monthly rental payment has
increased annually over the past three year period, according to the CPI,
pursuant to the rent control ordinance. At present, the monthly rental rate
for all sites is $445.00. The monthly rental rate only includes water
service. Amenities at the property include a clubhouse, pool/spa, sauna,
and laundry facility.
In our opinion, and based on conversations with the on-site manager,
properties R-1 and R-4 competes most favorably with the subject property, with
monthly rental rates ranging from $445.00 to $570.00 per site. The subject
property is currently quoting a monthly rental rate of $473.12 for single-wide
sites and $482.72 for double-wide sites, which is within the range of rental
rates of our more comparable competing properties. The subject property competes
most effectively with its primary competitors regarding amenities, condition and
current rent structure.
Comparable Manufactured Housing Community Sales
A search of the subject's market revealed five recent sales of manufactured
housing communities located in the greater San Francisco-San Jose, California
area. The following is a brief discussion of each of the manufactured housing
sales located within the subject's market. These sales are summarized on the
following facing page.
Comparable Sale I-1, Rancho De Sonoma, is located at 19275 Sonoma Highway,
in Sonoma, California. This property contains 98 sites, situated on 15.34
acres of land area. The property was in average condition at the time of
sale and was developed in 1969. Amenities at the property include only a
pool and laundry facility. The property was approximately 95.0 percent
occupied at the time of sale. The property was purchased for $2,825,000,
which equates to $28,827 per site.
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<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- ------------------------------------------------------------------------------------------------------------------------------------
Number Age
Of Sites --------- 3-Year
--------- Condition Services Date Of Average
Comp. Name Occupancy --------- Monthly Provided Last Rental Annual Rental
No. Location Level Amenities Park Rating(1) Rent in Rent Increase Increase
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R-1 Sun Valley 263 Clubhouse 1969 $525.00/Mo. None 1997 Over the past
125 Sahara Drive --- 2 Pools/Spas ---- To 3 year
Pacheco, 98.86% Laundry Very Good $570.00/Mo. period, the
California 2 Saunas --------- monthly
Shuffleboard 4*-5* rental rate
Playground has increased
RV Storage by the CPI,
pursuant to
the rent
control
ordinance.(3)
- ------------------------------------------------------------------------------------------------------------------------------------
R-2 Rancho Diablo(2) 159 Clubhouse 1974 $410.00/Mo. Water 1997 Over the past
355 Vista Grande --- Pool/Spa ---- To 3 year
Pacheco, 97.48% Sauna/Laundry Good $455.00/Mo. period, the
California RV Storage ---- monthly
3*-4* rental rate
has increased
by the CPI,
pursuant to
the rent
control
ordinance.(3)
- ------------------------------------------------------------------------------------------------------------------------------------
R-3 Dalis Gardens(2) 260 Clubhouse 1971 $450.00/Mo. Water 1997 Over the past
3161 Terraza Del --- Pool/Spa ---- To Sewer 3 year
Sol 99.62% Sauna/Laundry Good $536.00/Mo. Refuse period, the
Concord, Shuffleboard ---- monthly
California 3*-4* rental rate
has increased
by the CPI,
pursuant to
the rent
control
ordinance.(3)
- ------------------------------------------------------------------------------------------------------------------------------------
R-4 Town & County 166 Clubhouse 1963 $445.00/Mo. Water 1997 Over the past
Mobile Village --- Pool/Spa ---- 3 year
1060 San Miguel 100% Sauna/Laundry Good period, the
Road ---- monthly
Concord, 3*-4* rental rate
California has increased
by the CPI,
pursuant to
the rent
control
ordinance.(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Subject Concord Cascade 283 Clubhouse 1973 $473.12/Mo. None November, 1997 The monthly
245 Aria Drive --- 2 Pools/Spas ---- (Single-Wide) rental rate
Pacheco, 98.94% Sauna/Laundry Good To has increased
California Shuffleboard ---- $482.72/Mo. by CPI over
RV Storage 4* (Double-Wide) the past
three year
period,
pursuant to
the rent
control
ordinance, or
approximately
2.0 to 3.0
percent per
year.(3)
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Ratings from One Star to Five Star Parks are defined in the National Overview section of this report.
(2) Senior park for residents 55 years of age or older.
(3) According to the rent control ordinance governed by Contra Costa County, the annual increase is equivalent
to 75.0% of the CPI increase or 2.0% minimum, which ever is greater.
====================================================================================================================================
</TABLE>
<PAGE>
Market Analysis
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Comparable Sale I-2, Quail Meadows, is located at 5901 Newbrook Drive, in
Riverbank, California. This property contains 147 sites, situated on 20.13
acres of land area. The property was in good condition at the time of sale
and was developed in 1988. Amenities at the property include a clubhouse,
pool/spa, playground, and laundry facility. The property was approximately
97.0 percent occupied at the time of sale. The property was purchased for
$4,300,000, which equates to $29,252 per site.
Comparable Sale I-3, California Hawaiian Mobile Estates, is located at 3637
Snell Avenue, in San Jose, California. This property contains 412 sites,
situated on 49.63 acres of land area. The property was in good condition at
the time of sale and was developed in 1970. Amenities at the property
include a clubhouse, pool/spa, sauna, shuffleboard, laundry facility and RV
storage. The property was 100 percent occupied at the time of sale. The
property was purchased for $23,300,000, which equates to $56,553 per site.
Comparable Sale I-4, Village of the Four Seasons, is located at 200 Ford
Road, in San Jose, California. This property contains 271 sites, situated
on 29.97 acres of land area. The park was in good condition at the time of
sale and was developed in approximately 1971. Amenities at the property
include a clubhouse, pool, playground, and a laundry facility. The property
was 97.0 percent occupied at the time of sale. The property was purchased
for $11,075,000, which equates to $40,867 per site.
Comparable Sale I-5, Casa Nova Mobile Home Park, is located at 2701 Martin
Road, in Fairfield, California. This property contains 131 sites, situated
on 18.95 acres of land area. The park was in average condition at the time
of sale and was developed in approximately 1972. Amenities at the property
include a clubhouse, pool, and laundry facility. The property was 98.0
percent occupied at the time of sale. The property was purchased for
$4,400,000, which equates to $33,588 per site.
It should be noted that comparability does not imply an identical or exact
duplicate, but rather the possession of a similar utility and affected by
similar supply and demand forces. Also, relative to the subject property,
differences include: time or date of the transactions; location, which
encompasses differences in accessibility; site characteristics, including
differences in size, topography, access, exposure and development capacities;
and improvement characteristics, which include differences in age, quality,
condition, size and amenities.
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Market Analysis
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Demographic Trends
Based on information provided by National Decision Systems (NDS), the
populations within the subject's primary 5-mile and secondary 10-mile market
areas, as of 1997, are 196,399 and 444,555, respectively. The populations of the
subject's primary and secondary market areas are projected to increase to
206,389 and 469,718, respectively, by the year 2002.
According to NDS, the total number of households within the subject's
primary and secondary market areas, are 81,753 and 180,418, respectively, for
1997. The number of households within the subject's primary 5-mile and secondary
10-mile market areas are projected to increase to 84,480 and 189,323,
respectively, by the year 2002.
The average household income levels within the subject's primary and
secondary market areas, for 1997, are $71,258 and $81,240, respectively. The
median household income levels within the subject's primary and secondary market
areas, for 1997, are $57,250 and $60,322, respectively. Per capita income within
the subject's primary and secondary market areas, for 1997, are $30,023 and
$33,329, respectively.
Based on the above levels, the demographics of the subject's primary market
area appear to indicate a positive growth trend, based on information provided
by NDS. A copy of the subject's NDS report is provided in the Addenda of this
report and reference is made thereto.
Expense Analysis
Expenses exhibited by manufactured housing communities nationally are
typically 35.0 to 45.0 percent of effective gross income. However, expense
ratios of manufactured housing communities located in the southeast and
southwest regions of the nation are typically lower by comparison, due to lower
real estate taxes and common area maintenance charges.
As presented in the Summary of Manufactured Housing Communities Sales,
operating expense ratios of competing parks range from 24.68 to 42.79 percent of
effective gross income levels, but typically from 29.48 to 42.79 percent. On a
per site basis, the comparable sales display operating expenses ranging from
$969 to $3,155, but typically from $1,144 to $3,155 per site. The subject
property is currently reporting expenses, for the 12-month trailing period of
1997, at 39.11 percent of effective gross income and $2,735 on a per site basis.
Operating expenses at the subject property appear to be within the range as
displayed by the comparable sales of manufactured housing communities within the
local area.
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Market Analysis
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Market Supply and Demand
There are a total of four competing manufactured housing communities
located within the subject's market, which total 848 sites, with a corresponding
average occupancy rate of 99.06 percent. No specific absorption statistics were
available, since the subject's competing parks have historically reported
occupancy rates at, or above 70.0 percent. The subject property, based on
conversations with management, has historically been slightly higher than
occupancy rates consistent with competing parks, and is currently 98.94 percent
occupied, with three vacant sites available. We believe the current occupancy
rate of the subject property is stabilized. Based on the subject's current
occupancy rate and occupancy rates at competing parks, demand appears to be
strong, with steady rental rate increases expected.
Conclusion
Historically, the subject's primary market has sustained high occupancy
levels of 95.0 to 100 percent. Rental rates of similar manufactured housing
communities located within the subject's primary market generally range from
$410.00 to $570.00 per site, on a monthly basis. The subject property is
currently quoting, and is currently achieving (based on the most recent rent
roll provided), a monthly rental rate of $473.12 for single-wide sites and
$482.72 for double-wide sites, which we believe is market-orientated, given the
high historical occupancy of the park, the amenities offered, and the overall
good condition of the subject park.
Based on our research, steady increases in rental rates are anticipated,
based on actual historical performance of competing parks and historical
increases seen at the subject property. Sales transactions of manufactured
housing communities located within the subject's region widely range from
$28,827 to $56,553 per site, with corresponding overall rates ranging from 8.15
to 10.46 percent. In our opinion, the subject property competes favorably with
its competition regarding amenities, condition, rent structure and overall
market rating.
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<TABLE>
<CAPTION>
=============================================================================================================================
SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- -----------------------------------------------------------------------------------------------------------------------------
Sales Price $EGI/Site
Per Site $Expense/Site
Sales Date Land Area Density ---------- EGIM -------------
Comp. Name ---------- --------- ------- Occupancy ---- Expense Ratio
No. Location Sales Price No. Sites Condition At Sale $NOI/Site OAR % Of EGI
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
I-1 Rancho De Sonoma 8/97 15.34 6.39 $28,827 $2,480 6.65x $4,335
19275 Sonoma Hwy ---- ----- ---- ------- ----- ------
Sonoma, California $2,825,000 98 Average 95.0% 8.60% $1,855
------
42.79%
- -----------------------------------------------------------------------------------------------------------------------------
I-2 Quail Meadows 5/97 20.13 7.30 $29,252 $2,736 7.54x $3,880
5901 Newbrook Drive ---- ----- ---- ------- ----- ------
Riverbank, California $4,300,000 147 Good 97.0% 9.35% $1,144
------
29.48%
- -----------------------------------------------------------------------------------------------------------------------------
I-3 California Hawaiian 3/97 49.63 8.30 $56,553 $4,612 7.28x $7,767
Mobile Estates(1) ---- ----- ---- ------- ----- ------
3637 Snell Ave. $23,300,000 412 Good 100% 8.15% $3,155
San Jose, California ------
40.62%
- -----------------------------------------------------------------------------------------------------------------------------
I-4 Village of the Four 12/96 29.97 9.04 $40,867 $4,273 6.03x $6,782
Seasons ----- ----- ---- ------- ----- ------
200 Ford Road $11,075,000 271 Good 97.0% 10.46% $2,509
San Jose, California ------
36.99%
- -----------------------------------------------------------------------------------------------------------------------------
I-5 Casa Nova MHP 4/96 18.95 6.91 $33,588 $2,958 8.55x $3,927
2701 Martin Road ---- ----- ---- ------- ----- ------
Fairfield, California $4,400,000 131 Average 98.0% 8.81% $969
----
24.68%
- -----------------------------------------------------------------------------------------------------------------------------
Subject Concord Cascade - - - 31.0 9.13 - - - $4,258 N/A $6,993
245 Aria Drive ---- ---- 98.94% ------
Pacheco, CA 283 Good $2,735
------
39.11%
- -----------------------------------------------------------------------------------------------------------------------------
(1) Financial information based on Actual 1996 Budget, provided by MHC, the buyer.
=============================================================================================================================
<CAPTION>
===============================================================================
- -------------------------------------------------------------------------------
Comp. Name Comparability
No. Location to the Subject Comments
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
I-1 Rancho De Sonoma Inferior Developed in 1969; Average
19275 Sonoma Hwy condition; Amenities
Sonoma, California include pool and laundry
facility.
- -------------------------------------------------------------------------------
I-2 Quail Meadows Similar Developed in 1988; Good
5901 Newbrook Drive condition; Amenities
Riverbank, California include: clubhouse, pool,
playground, and laundry
facility.
- -------------------------------------------------------------------------------
I-3 California Hawaiian Similar Developed in 1970;
Mobile Estates(1) Good condition; Amenities
3637 Snell Ave. include: clubhouse,
San Jose, California pool/spa, sauna,
shuffleboard, and laundry
facility.
- -------------------------------------------------------------------------------
I-4 Village of the Four Similar Developed in 1971;
Seasons Good condition; Amenities
200 Ford Road include: clubhouse, pool,
San Jose, California playground, and laundry
facility.
- -------------------------------------------------------------------------------
I-5 Casa Nova MHP Inferior Developed in 1972;
2701 Martin Road Average condition;
Fairfield, California Amenities include:
clubhouse, pool, and
laundry facility.
- -------------------------------------------------------------------------------
Subject Concord Cascade Subject Property Developed in 1973;
245 Aria Drive Good condition;
Pacheco, CA Amenities include:
Clubhouse, 2 pools/spas,
sauna, laundry,
shuffleboard, and RV
storage.
- -------------------------------------------------------------------------------
===============================================================================
</TABLE>
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PROPERTY DESCRIPTION
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Site Description
The subject site is located west of Marsh Drive, directly off of Aria
Drive, within an unincorporated area of Pacheco. The subject site is effectively
rectangular in shape and contains 31.0, acres or 1,350,360 square feet of land
area. Topographically, the site is level at street grade.
The Contra Costa Water District provides the water to the subject park,
while the Contra Costa Central Sanitary District provides sewer service to the
subject property. The Pacific Gas & Electric Company provides the gas and
electric service to the subject property. Primary access to the subject site is
provided by Marsh Drive via Aria Drive. Based on conversations with the Flood
Control Department of Contra Costa County, the subject property is located
within a flood hazard area (Zone A). However, we recommend a qualified engineer
to determine the existence of any flood hazard areas.
Each developed site is equipped with a dirt site and off-street parking.
The streets within the park have two-lanes, with concrete curbs. Overall, the
subject site is typical of the area and is functionally well suited for its
current use.
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.
Improvements Description
The subject property was originally developed in 1973. The subject
improvements consist of a 283-site manufactured housing community, with a
community center, swimming two pools/spas, sauna, laundry facility,
shuffleboard, and recreational vehicle and boat storage area. Of the 283 total
sites, 14 sites are single-wide, while the remaining 269 sites are double-wide,
however, approximately 95.0 percent of the sites, or 268 sites, can accommodate
a double-wide home. The average site size is approximately 40 feet by 70 feet.
The community center consists of a manager's office, restroom facilities,
and open-space available for resident use, with a fully-equipped kitchen area.
The exterior of the one-story community center is wood frame, with a Spanish
tile roof, and appeared to be in overall good condition at the time of
inspection.
The swimming pool/spa area is located adjacent to the community center.
The recreational vehicle and boat storage is located toward the north central
portion of the park. Wrought iron fencing surrounds the pool area and a chain
link fence surrounds the
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Property Description
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recreational vehicle and boat storage area. Off-street parking is available for
each resident. Site improvements within the park include: paved streets,
concrete sites, street lighting and signage. Overall, the site improvements
appeared to be in good condition at the time of inspection.
Concord Cascade is a functional manufactured housing community with good
ingress and egress along Aria Drive via Marsh Drive. Overall, the subject
community appears to be well maintained and is in good condition. Concord
Cascade is a functional manufactured housing community and competes favorably
with other existing manufactured housing communities in the area in terms of
appearance and amenities. The subject property would fit the profile of a Four
Star Park, as defined in the National Overview section of this report.
Real Property Taxes and Assessments
Since the passage of Proposition 13, or the Jarvis Gann Initiative in 1978,
real property taxes in the State of California are limited to 1.0 percent of
market value, as of a specified base year. The base year valuation is the
Assessor's 1975 market value estimate, unless there is a transfer of ownership
(sale), new construction, or the property is leased on a long-term basis.
Whenever this occurs, the property is reassessed at full market value. If a
reassessment is not triggered, the assessed value is trended upward at 2.0
percent annually.
According to the Contra Costa County Assessor's Office, the market value of
the subject property equates to $8,131,185. The subject property is identified
by tax parcel number 125-020-058-9.
The total amount of real estate taxes for fiscal year 1996, payable in 1997
for the subject property amounts to $147,348.38. The total amount of real estate
taxes for fiscal year 1996 payable in 1997 equates to approximately $520.67 per
site.
Zoning
According to zoning officials of Contra Costa County, the subject property
is currently zoned T-1, Mobile Home Park District. Based on conversations with
zoning officials, the subject property is a legal and conforming use under its
present zoning classification.
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CONCLUSION
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Conclusion
o The subject property, Concord Cascade, is a functional manufactured
housing community, which competes favorably in relation to its
competition;
o Comparable manufactured housing communities located within the
subject's market range in monthly rental rates per site from $410.00
to $570.00;
o The subject property is currently quoting, and is currently achieving
(based on the most recent rent roll provided) a monthly rental rate of
$473.12 for single-wide sites and $482.72 for double-wide sites, which
is within the range of competing parks, and appears to be
market-oriented;
o Sale transactions of manufactured housing communities located within
the subject's region range in unit sales prices per site from $28,827
to $56,553, with corresponding overall rates ranging from 8.15 to
10.46 percent;
o Operating expenses are within industry standards for a park located in
the western region of the country;
o The subject park appears to be operating at economic levels based on
our review of historical and budgeted 1998 income and expenses;
o The demographic characteristics of the area appear to be positive;
o The population profile of the subject property is 70 percent adult,
with the remaining 30 percent family oriented;
o The current occupancy rate at the subject property is 98.94 percent,
with three vacant sites presently available. This stabilized occupancy
rate is evident by a strong local market and demand;
o No significant manufactured housing communities are expected to be
developed in the near future;
o In our opinion, based on Woodall's criteria, the subject property is a
Four Star Park, and the reader's attention is directed to the
corresponding definition and criteria of a Four Star Park, presented
in the National Overview section of this report; and,
o Based on the subject's location, demographic, economic, market and
physical characteristics, we believe Concord Cascade will continue to
be a viable manufactured housing community in the foreseeable future,
and is well positioned in the marketplace.
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ASSUMPTIONS AND LIMITING CONDITIONS
================================================================================
"Report" means the consulting report to which these Assumptions and Limiting
Conditions are annexed.
"Property" means the subject of the Report.
"C&W" means Cushman & Wakefield, Inc. or its subsidiary which issued the Report.
"Appraiser(s)" means the employee(s) of C&W who prepared and signed the Report.
This report is made subject to the following assumptions and limiting
conditions:
1. No responsibility is assumed for the legal description or for any matters
which are legal in nature. 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 Report or upon which the Report 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 Appraisers nor C&W shall be responsible for the
accuracy or completeness of such information, including the correctness of
estimates, opinions, dimensions, sketches, exhibits, and other factual
matters.
3. The information is effective as of the date stated in the Report. Changes
since that date in external and market factors or in the property itself
can significantly affect our analysis.
4. The report is to be used in whole and not in part. No part of the Report
shall be used in conjunction with any other report. Possession of the
Report, or a copy thereof, does not carry with it the right of publication.
Publication of the Report or any portion thereof without the prior written
consent of C&W is prohibited. Except as may be otherwise expressly stated
in the letter of engagement to prepare the Report, C&W does not permit use
of the Report by any person other than the party to whom it is addressed or
for purposes other than those for which it was prepared. If written
permission is given by C&W to use the Report, the Report must be used in
its entirety and only with proper written qualification as approved by C&W.
No part of the Report or the identity of the Appraiser shall be conveyed to
the public through advertising, public relations, news, sales, or other
media or used in any material without C&W's prior written consent.
Reference to the Appraisal Institute or to the MAI designation is
prohibited.
5. The Appraiser shall not be required to give testimony in any court or
administrative proceedings relating to the Property or the Report.
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Assumptions and Limiting Conditions
================================================================================
6. The Report 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 Report; 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 Report is based.
7. The physical condition of the improvements considered by the Report is
based on visual inspection by the Appraiser or other person identified in
the Report. C&W assumes no responsibility for the soundness of structural
members nor for the condition of mechanical equipment, plumbing, or
electrical components.
8. Unless otherwise stated in the Report, the existence of potentially
hazardous or toxic materials which may have been used in the construction
or maintenance or operation of the improvements or may be located at or
about the Property was not considered in the Report. These materials (such
as formaldehyde foam insulation, asbestos insulation, various soil
contaminants, and other potentially hazardous materials) may affect the
value of the Property. The Appraisers are not qualified to detect such
substances, and C&W urges that an expert in this field be employed to
determine the economic impact of these matters, if any, on the property in
the Report.
9. Unless otherwise stated in the Report, compliance with the requirements of
the Americans With Disabilities Act of 1990 (ADA) has not been considered
in the Report. Failure to comply with the requirements of the ADA may
negatively affect the value of the property. C&W recommends that an expert
in this field be employed.
10. If the Report is submitted to a lender or investor with the prior approval
of C&W, such party should consider the Report as one factor, together with
its independent investment considerations and underwriting criteria, in its
overall investment decision.
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CERTIFICATION
================================================================================
We certify that, to the best of our knowledge and belief:
1. Nancy D. Piekos inspected the property, and Michael J. Schaeffer and
Stanley R. Dennis, Jr., MAI, Director and Manager, have reviewed and
approved the report, but did not inspect 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 on an action or event (such as the
approval of a loan) resulting from the analyses, opinions, or conclusions
in, or the use of, this report.
6. 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 Ethics and
Standards of Professional Practice of the Appraisal Institute.
7. No one provided significant professional assistance to the persons signing
this 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. As of the date of this report, Stanley R. Dennis, Jr., MAI, has completed
the requirements of the continuing education program of the Appraisal
Institute.
/s/ Michael J. Schaeffer /s/ Nancy D. Piekos /s/ Stanley R. Dennis, Jr.
Michael J. Schaeffer Nancy D. Piekos Stanley R. Dennis, Jr., MAI
Director Associate Appraiser Director and Manager
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MARKET STUDY OF REAL PROPERTY
Bonanza Village
3700 East Stewart Avenue
Las Vegas, Clark County, Nevada 89110
================================================================================
As of December 5, 1997
Prepared For:
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Prepared By:
Cushman & Wakefield of Illinois, Inc.
Valuation Advisory Services
455 North Cityfront Plaza Drive, Suite 2800
Chicago, Illinois 60611-5555
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[Letterhead of Cushman & Wakefield of Illinois, Inc.]
December 9, 1997
Mr. Edward J. Welch
Director
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Re: Market Study of Real Property
Bonanza Village
3700 East Stewart Avenue
Las Vegas, Clark County, Nevada 89110
Dear Mr. Welch:
In fulfillment of our agreement as outlined in the Letter of Engagement,
Cushman & Wakefield of Illinois, Inc., is pleased to transmit our market study
and consulting report evaluating the above referenced real property.
As specified in the Letter of Engagement, our market study and consulting
report is qualified by certain assumptions, limiting conditions, certifications,
and definitions, which are set forth in the report.
This consulting report was prepared for the Client, and it is intended
only for the specified use of the Client. It may not be distributed to or relied
upon by other persons or entities without written permission of Cushman &
Wakefield, Inc.
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the above
referenced real property, as of the date of our property inspection. The
function of the report is to assist the client, in evaluating the property for
underwriting and rating purposes.
<PAGE>
Mr. Edward J. Welch -2- December 9, 1997
This market study and consulting report was prepared in conformity with
the requirements of the Code of Ethics and Standards of Professional Appraisal
Practice of the Appraisal Institute and the Uniform Standards of Professional
Practice (USPAP) adopted by the Appraisal Standards Board of the Appraisal
Foundation.
This letter is invalid if detached from the report, which contains the
text, exhibits, and the Addenda.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF ILLINOIS, INC.
/s/ Nancy D. Piekos
Nancy D. Piekos
Associate Appraiser
/s/ Michael J. Schaeffer
Michael J. Schaeffer
Director
/s/ Stanley R. Dennis, Jr.
Stanley R. Dennis, Jr., MAI
Director, Manager
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SUMMARY OF SALIENT FACTS
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Property Name: Bonanza Village
Location: 3700 East Stewart Avenue
Las Vegas, Clark County, Nevada
Assessor's Parcel Number: Based on information provided by Clark County
records, the subject property is identified by
Assessor's Parcel Number 140-31-201-001-98.
Date of Inspection: The property was inspected December 5, 1997.
Ownership: The subject property is legally entitled to
Sandland Vistas, Inc., an Illinois Corporation,
and MHC Financing Limited Partnership, as
beneficiary.
Land Area: Based on information provided by the property's
legal plat of survey, the subject property contains
approximately 42.84 acres of land area, or
1,866,110 square feet.
Zoning: Based on information provided by the City of Las
Vegas, the subject property is zoned RMHP,
Residential Mobile Home Park District.
According to zoning officials, the subject property
is a legal and conforming use.
Improvements
Type: A manufactured housing community.
Year Built: Phase I of the subject property was originally
developed in 1971, which consisted of 182 sites.
Phase II, which consisted of 171 sites, was
developed in 1974.
Size: The subject property consists of a 353-site
manufactured housing community.
Condition: At the time of inspection, the subject property
was in average to good condition.
Property Rating: Three Star manufactured home community.
Special Assumptions: 1. Information regarding the subject property,
including its physical characteristics, was
provided to us by the client and the on-site
manager, and is assumed to be accurate.
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Summary of Salient Facts
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2. The existence of potentially hazardous or
toxic materials, which may be located on or
about the property, was not considered in our
evaluation. The appraisers are not qualified to
detect such substances, and Cushman &
Wakefield urges that an expert in this field be
employed to determine the existence, if any, of
hazardous materials located on or about the site.
3. Our market and consulting report regarding
the subject assumes the subject property, as
presently improved, represents its highest and
best use.
4. It is unknown to the appraiser if the subject
property complies with the Americans with
Disabilities Act (ADA). We recommend a
qualified specialist in the final determination
regarding any ADA compliance deficiencies that
may be present at the subject property.
5. Please refer to the complete list of
assumptions and limiting conditions included at
the end of this report.
CUSHMAN &
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TABLE OF CONTENTS
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Page
PHOTOGRAPHS OF SUBJECT PROPERTY................................................1
INTRODUCTION...................................................................5
Identification of Property..................................................5
Property Ownership and Recent History.......................................5
Purpose and Function of the Market Study and Consulting Assignment..........5
Scope of the Market Study and Consulting Assignment.........................5
Date of Property Inspection.................................................5
Definitions and Other Pertinent Terms.......................................5
REGIONAL ANALYSIS..............................................................8
NEIGHBORHOOD ANALYSIS.........................................................19
MARKET ANALYSIS...............................................................20
National Overview..........................................................20
Competition................................................................27
Comparable Manufactured Housing Community Sales............................31
Demographic Trends.........................................................34
Expense Analysis...........................................................34
Market Supply and Demand...................................................35
Conclusion.................................................................35
PROPERTY DESCRIPTION..........................................................37
Site Description...........................................................37
Improvements Description...................................................37
REAL PROPERTY TAXES AND ASSESSMENTS...........................................38
ZONING........................................................................38
CONCLUSION....................................................................39
ASSUMPTIONS AND LIMITING CONDITIONS...........................................40
CERTIFICATION.................................................................42
ADDENDA.......................................................................43
Pop-Fact Sheets
Legal Description
Qualifications of Appraisers
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PHOTOGRAPHS OF SUBJECT PROPERTY
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[PHOTO OMITTED]
Front Entrance of the Subject Property, Along East Stewart Avenue
[PHOTO OMITTED]
Exterior of Community Center
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Photographs of Subject Property
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[PHOTO OMITTED]
Interior of Community Center
[PHOTO OMITTED]
Exterior of the Community Center, Comprising the Pool Area
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Photographs of Subject Property
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[PHOTO OMITTED]
Typical Interior View of the Subject Park
[PHOTO OMITTED]
Typical Interior View of the Subject Park
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Photographs of Subject Property
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[PHOTO OMITTED]
Street Scene: Looking Eastbound Along East Stewart Avenue
[PHOTO OMITTED]
Street Scene: Looking Westbound Along East Stewart Avenue
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INTRODUCTION
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Identification of Property
The subject property consists of a 353-site manufactured housing
community, situated on approximately 42.84 acres of land area, located at the
northeast corner of Stewart Avenue and Pecos Road, in the city of Las Vegas,
Clark County, Nevada. The property's street address is 3700 East Stewart Avenue.
Phase I of the subject property was originally constructed in 1971, while Phase
II of the subject property was developed in 1974. At the time of property
inspection, the subject property was 99.15 percent occupied, with approximately
three vacant sites.
Property Ownership and Recent History
The subject property is currently entitled to Sandland Vistas, Inc., an
Illinois corporation, and MHC Financing Limited Partnership, as beneficiary.
Phase I of the subject property, which consists of 182 sites, was originally
developed in 1971. Phase II, which consists of 171 sites, was developed in 1974.
The subject property is currently improved with 353 manufactured housing sites.
Purpose and Function of the Market Study and Consulting Assignment
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the subject
property, as of the date of property inspection. The function of the consulting
report is to assist the client in evaluating the property for underwriting and
rating purposes.
Scope of the Market Study and Consulting Assignment
In the process of preparing this report, we inspected the property,
interviewed the on-site manager, conducted market research into asking rental
rates for comparable properties, conducted market investigations, and
ascertained sales prices of comparable properties. Additionally, we conducted
market research and evaluated demographic and economic trends; and, the market
position and rating of the subject property.
Date of Property Inspection
The property was inspected December 5, 1997.
Definitions and Other Pertinent Terms
Definitions of pertinent terms taken from the Dictionary of Real Estate
Appraisal, Third Edition (1993), published by the Appraisal Institute, is as
follows:
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Introduction
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Market Rent
The rental income that a property would most probably command on the open
market; indicated by current rents paid and asked for comparable space as
of the date of the appraisal.
Evaluation
Evaluation is a study of the nature, quality, or utility of a parcel of
real estate or interest in, or aspects of, real property, in which a value
estimate is not necessarily required.
Market Study
A macroeconomic analysis that examines the general market conditions of
supply, demand, and pricing or the demographics of demand for a specific
area or property type.
Legal Description
The subject property is located along the north side of East Stewart
Avenue, at the northeast corner of East Stewart Avenue and Pecos Road, within
the city limits of Las Vegas, Clark County, Nevada. The street address of the
subject property is 3700 East Stewart Avenue, Las Vegas, Nevada. The property is
identified by tax parcel number 140-31-201-001-98, according to Clark County
records. Due to the lengthy metes and bounds legal description, the subject
property's legal description is presented in the Addenda of this report, and
reference is made thereto.
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<PAGE>
REGIONAL MAP
[MAP OMITTED]
<PAGE>
REGIONAL ANALYSIS
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Location
The subject property is located within the city limits of Las Vegas, Clark
County, Nevada, in the midst of the Las Vegas Valley. Clark County encompasses
several communities, including the City of Las Vegas, Boulder City, Henderson,
Mesquite, and North Las Vegas, which revolve around and comprise the Las Vegas
Metropolitan Statistical Area (MSA). Recently, the MSA has been expanded to
include, in addition to Clark County, Nye County, Nevada to the west, and Mojave
County, Arizona to the southwest. Las Vegas Valley contains 95.0 percent of all
households and population inside Clark County and spans approximately 7,910
square miles.
Clark County is situated on the southern central tip of the state and is
bordered by three states: California, Arizona, and Utah. Ninety-five percent of
total land area within the County is owned by the federal government, including
vast stretches of desert, state parks, and military installations. The majority
of the County's development is centered in the Las Vegas Valley which has
witnessed heavy growth over the past decade and continues to lead most U.S.
cities in population growth trends. Its major industries include gaming,
tourism, services, and trade.
Background/History
Nevada's history as a gaming center dates back to the mid-1800s, when a
boom in precious metal mining attracted a new breed of population to the region.
Legalized gambling began during the Great Depression (1931) and created a small
but lucrative industry. The Hoover Dam project brought sustenance to the region
in the form of water and electrical power, while the Union Pacific Railroad's
selection of Las Vegas as a division point in its operation helped to insulate
the area.
Following World War II, Las Vegas became engulfed in the development of
the first generation of small Strip casinos. With close proximity to the
burgeoning population of Los Angeles, Las Vegas was propelled into an
unprecedented boom, becoming a world-famous resort destination with
around-the-clock entertainment.
The advent of the 1969 Corporate Gaming Act, which allowed companies with
publicly traded stock to own and operate casinos in the state, ushered in the
next phase of Las Vegas' evolution. The gaming industry soon became the focus of
such corporations as Hilton and Holiday, and homegrown companies as Caesars and
Mirage Resorts. Soon thereafter, convention business expanded rapidly as Las
Vegas became a primary contender with its sizable base of hotel rooms and
exhibition space. Even today, Las Vegas
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Regional Analysis
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is one of the largest convention markets in the world with over 3.0 million
square feet of exhibition space available.
More recently, Las Vegas has entered the third era of its evolution with
the emergence of the "Disney" phase. The introduction of new hotel concepts,
such as Excalibur and The Mirage, have changed the scope of the market and the
pulse of the industry. Their successors include the recent additions of Treasure
Island, Luxor, MGM Grand, and New York, New York. "Theme" entertainment has
become the focus of resorts seeking to broaden their image from mere adult
playgrounds, to acceptable family destinations.
Las Vegas is Nevada's largest and southernmost urban market. The
metropolitan area, which includes all of Clark County, is one of the strongest
job markets in the nation. Las Vegas tops the list as one of the nation's
fastest-growing areas in terms of both population and employment growth.
Population Trends
By virtually all measures, Las Vegas has been among the fastest growing
areas in the nation since the early-1980s. According to the 1980 Census,
population in Clark County totaled 463,087. This figure increased to 741,459 in
the 1990 Census, reflecting a 60.1 percent increase, with a compound annual
growth rate of 4.82 percent.
Equifax National Decision Systems (ENDS) reports that the Las Vegas MSA
has grown at a compound annual rate of 4.93 percent since 1980, bringing the
current 1996 population estimate to 1,140,250. Through 2001, ENDS projects
annual growth of 3.36 percent per year, an 18.0 percent increase in population
to 1,345,406. This rate of growth ranks from three to four times greater than
national trends which place population growth near 1.00 percent per year.
<TABLE>
<CAPTION>
==================================================================================================================
Population Growth
==================================================================================================================
% Change % Change
Area 1980 1996 2001 1980-1996 1996-2001
==================================================================================================================
<S> <C> <C> <C> <C> <C>
Las Vegas 528,000 1,140,250 1,345,406 + 4.93% + 3.36%
- ------------------------------------------------------------------------------------------------------------------
State of Nevada 800,493 1,547,200 1,785,714 + 4.20% + 2.91%
- ------------------------------------------------------------------------------------------------------------------
United States 226,545,856 265,038,000 277,157,000 + 0.99% + 0.91%
==================================================================================================================
Source: Equifax National Decision Systems
==================================================================================================================
</TABLE>
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Regional Analysis
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It is estimated that each month an average of approximately 5,000 people
move to Las Vegas. One-third of the newcomers are from the State of California.
The WEFA Group, an economic forecasting firm, projects annual population growth
of 3.53 percent per year for Las Vegas between 1995 and 2000. This forecast is
further supported by Woods & Poole Economics, who projects population growth of
3.07 percent per year through 2000 for the MSA. The desirability of the area is
seen in the fact that nearly 75 percent of the state's total population resides
in the Las Vegas MSA, while 95 percent of all of Clark County's population
reside in the Las Vegas Valley.
Households
Between 1980 and 1990, the number of households in the MSA grew from
198,435 to 330,490. The current 1996 estimate is 450,638 (127.1 percent increase
from 1980-1996). Projections by ENDS through 2001 suggest another 21.4 percent
increase to 547,180. These numbers generally comply with national trends which
show the household growth rate surpassing population growth rates. This trend
can be traced to such sociological factors as longer life expectancies, a rise
in divorce rates, and young professionals postponing marriage, all of which lead
to rises in single and two person households.
Age Distribution
Population statistics provided by CACI Marketing Systems show a fairly
even distribution of age throughout the MSA: 25-34 year old adults make up 18.8
percent of total population; 34-44, 15.6 percent; 45-54, 11.3 percent; 55-64,
9.1 percent; and 65 and older, 12 percent. Median age is reported to be 34.7
years. In 1980, Las Vegas had a median age of 29.7 which increased to 33.8 in
1990. The current median age is about 34.7 years. Like the nation as a whole,
the median population age is expected to grow as life expectancy rates increase
and a large influx of retirees migrate to the area.
Newcomers to the region have come primarily from California. A Las Vegas
Development Authority survey showed that 39 percent of all persons moving to Las
Vegas are from that state. Texas, New Mexico, Arizona, Colorado and Utah
comprise 19 percent of immigration from other states, while the northeastern
region accounts for 18 percent. It is estimated that 10 percent of all new
residents are retirees, 15 percent are transferred through employment, 11
percent come seeking jobs, and 13 percent seek a better quality of life.
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Income Trends
Between 1980 and 1990, the ENDS reports that the Las Vegas MSA's average
household income increased over 76 percent to $37,559, indicating a 5.84 percent
compound annual growth rate. This rate was lower than the national compound
growth rate of 6.62 percent, and slightly higher than the overall state rate of
5.78 percent. The MSA's household income is in-line with both state and national
levels.
<TABLE>
<CAPTION>
==================================================================================================================
Average Household Income
==================================================================================================================
Compound Compound
Annual Growth Annual Growth
Area 1980 1990 1996 1980-1990 1990-1996
==================================================================================================================
<S> <C> <C> <C> <C> <C>
Las Vegas $21,302 $37,559 $48,982 +5.84% +4.53%
- ------------------------------------------------------------------------------------------------------------------
State of Nevada $22,022 $38,611 $49,148 +5.78% +4.10%
- ------------------------------------------------------------------------------------------------------------------
United States $20,307 $38,543 $49,031 +6.62% +4.13%
==================================================================================================================
Source: Equifax National Decision Systems
==================================================================================================================
</TABLE>
Current estimates show continued growth in all categories, with compound
annual growth rates from 1990 to 1996 ranging from 4.10 percent in the State of
Nevada, to 4.13 percent for the United States. The Las Vegas MSA suggests a 4.5
percent annual growth rate between 1990 and 1996. Through 2001, ENDS forecasts
an increase of 4.95 percent per annum to $62,352. This growth rate is expected
to be well in excess of inflation.
Business & Industry
In the last several years, Las Vegas has had economic success over the
backdrop of the past national recession. Las Vegas led the nation in 1990 with
34,300 new jobs created and has enjoyed one of the highest job growth levels in
the country. Since 1980, job growth has increased at an average of 5.0 percent
per year. For the fifth consecutive year, it has been named one of the top 20
states conducive to manufacturing. Tourism remains the number one industry
followed by the trade and service industries.
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Regional Analysis
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It is clear, however, that the Las Vegas economy is driven by growth in
the hotel and gaming industry. As gaming grew throughout the 1970s and 1980s,
Las Vegas evolved as one of the country's major tourist and convention
destinations. Gaming and tourism have become the foundations on which its
economy has grown. Unfortunately, its uniqueness has both positive and negative
effects. A lopsided dependence on gaming may be subject to the same boom or bust
cycles that concerns every one-industry town. As such, Clark County (and Nevada)
have campaigned as pro-business regions with low tax rates and provision
incentives to attract new and diversified industries such as high technology,
manufacturing, trade and services. In 1996, 34 new companies relocated to the
MSA, bringing with them more than 2,900 new jobs.
Employment
According to the U.S. Department of Labor, as of October, 1997, the Las Vegas
MSA had a total civilian labor force of approximately 688,800 persons. As of
that date, approximately 660,400 people were employed, indicating an
unemployment rate of 4.10 percent. This figure is down from 5.5 percent as of
year-end 1996. The unemployment rate of Las Vegas has consistently followed that
of the state as a whole. The following table tracks the unemployment rate over
the years 1986 to October, 1997 for the former Las Vegas MSA definition (Clark
County).
<TABLE>
<CAPTION>
=======================================================================================================
Las Vegas Area Unemployment
=======================================================================================================
Rate (%) Rate (%)
Year Workforce Employed Unemployed Las Vegas Nevada
=======================================================================================================
<S> <C> <C> <C> <C> <C>
Oct. 1997 688.8 660.4 28.4 4.1% 4.0%
- -------------------------------------------------------------------------------------------------------
1996 634.6 599.7 34.9 5.5% 5.4%
- -------------------------------------------------------------------------------------------------------
1995 595.1 562.3 32.8 5.5% 5.4%
- -------------------------------------------------------------------------------------------------------
1994 564.7 529.6 35.1 6.2% 6.3%
- -------------------------------------------------------------------------------------------------------
1993 457.2 428.2 29.0 6.3% 6.4%
- -------------------------------------------------------------------------------------------------------
1992 422.7 394.0 28.7 6.8% 6.6%
- -------------------------------------------------------------------------------------------------------
1991 406.7 383.1 23.6 5.8% 5.5%
- -------------------------------------------------------------------------------------------------------
1990 385.6 366.6 19.0 4.9% 4.9%
- -------------------------------------------------------------------------------------------------------
1989 359.4 341.5 17.9 5.0% 5.0%
- -------------------------------------------------------------------------------------------------------
1988 342.0 323.6 18.4 5.4% 5.2%
- -------------------------------------------------------------------------------------------------------
1987 323.6 302.6 21.0 6.5% 6.3%
- -------------------------------------------------------------------------------------------------------
1986 305.4 286.3 19.1 6.3% 6.0%
=======================================================================================================
Source: U.S. Department of Labor, Bureau of Labor Statistics
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</TABLE>
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Regional Analysis
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The current distribution of employment in non-agricultural industries is
shown below.
===================================================
Employment Distribution
Year End 1996
===================================================
Category %
---------------------------------------------------
Mining 0.3%
---------------------------------------------------
Construction 10.1%
---------------------------------------------------
Manufacturing 3.5%
---------------------------------------------------
T.C.P.U. 5.0%
---------------------------------------------------
Wholesale & Retail Trade 20.7%
---------------------------------------------------
F.I.R.E. 4.8%
---------------------------------------------------
Services 45.0%
---------------------------------------------------
Government 10.6%
---------------------------------------------------
Total 100.0%
---------------------------------------------------
The employment figures also show that 3.5 percent of total
non-agricultural employment is in manufacturing of durable and non-durable
goods, while 96.5 percent are employed in non-manufacturing employment. Of the
non-manufacturing employment, the government sector accounts for 10.6 percent of
non-farm employment and wholesale and retail trade account for 20.7 percent.
Services account for 45.0 percent of non-farm employment. The construction
industry has increased each year due to booming demand for housing and new hotel
projects.
Economy
Because of its orientation toward tourism and conventions, Las Vegas's
economy is highly service oriented. Although Las Vegas is highly dependent upon
gaming and tourism, it has shown that it has the ability to withstand national
recession and rebound from difficult economic times. Tourism remains the number
one industry with new casinos opening each year. Trade, the second largest
industry, reflects the steady growth of taxable sales which have risen from $6.4
billion dollars in 1988 to $14.5 billion in 1996, a 9.8 percent increase over
1995. The increased demand for goods and services has brought numerous new
retailers into Las Vegas and sparked expansion at many others.
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<TABLE>
<CAPTION>
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Economic Indicators
===================================================================================================================
CAGR
1988 1989 1990 1991 1992 1993 1994 1995 1996 1988-96
===================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Visitor Volume 17.2 18.1 20.3 21.3 21.9 23.5 28.2 29.0 29.6 + 7.0%
(Millions)
- -------------------------------------------------------------------------------------------------------------------
Retail Sales $ 6.4 $ 7.6 $ 8.6 $ 8.3 $ 8.7 $ 9.9 $11.7 $13.2 14.5 +10.8%
(Billions)
- -------------------------------------------------------------------------------------------------------------------
Tourism & Gaming $10.0 $11.9 $14.0 $14.3 $14.7 $15.1 $19.2 $20.5 22.5 +10.7%
Revenue (Billions)
===================================================================================================================
Source: Las Vegas Perspective 1997; State Department of Taxation
===================================================================================================================
</TABLE>
The military presence at Nellis Air Force Base and the Nevada Test Site
employ some 12,600 people and has a significant economic impact on the Las Vegas
economy. The effect of base closings and a moratorium on nuclear testing are yet
to be fully seen in southern Nevada. There is cautious optimism with regard to
employment in this area. According to the Public Affairs Department at Nellis,
the base is not on any of the closing lists. In fact, personnel from other
facilities around the nation have been relocated to Nellis as other bases close.
As of this writing, no job cuts are expected at the base. The base, located
eight miles northeast of Las Vegas, is the home of the world famous
"Thunderbirds" Air Demonstration Squadron. The Nevada Operations office
maintains the capability at the Nevada Test Site to implement Department of
Energy initiatives regarding the 1,350 square mile Nevada Test Site. In 1996,
about 300 federal employees and 2,800 contractor employees worked there.
Attempts to diversify the economic base have met with some success. While
gaming, hotel and recreation industries account for only 30.0 percent of the
metropolitan area's employment, it is estimated that this sector is responsible
for close to 60.0 percent of all employment in Las Vegas. In the final analysis,
the Las Vegas service-oriented economy depends on gaming and, therefore, faces
more cyclical risk than more diversified markets.
Access/Transportation
Among the most vital links for the community is Interstate 15 (completed
in 1970) which was constructed to promote development of the southwestern United
States, becoming a lifeline to the Los Angeles basin. Travel time to Los Angeles
has been cut to less than five hours by car. Interstate 15 continues north to
Salt Lake City, Utah.
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Regional Analysis
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Route 93 connects with Interstate 40 which runs east/west providing access
to Flagstaff, Arizona and Albuquerque, New Mexico east and Los Angeles west. A
new beltway is planned that will stretch from the new housing developments in
Red Rock Canyon to the south, with McCarran Airport and Interstate 15 north. The
project will take approximately 20 years to complete.
Over $2 billion will be spent on transportation plans and mass transit
over the next 10 years. The Regional Transportation Commission of Clark County
reports that $605 million has been programmed for fiscal years 1996-1998.
Several recent/on-going projects include the Laughlin Connection of Route 163
and U.S. 95; a $34 million beltway approved by the Federal Highway
Administration that will begin near Tropicana Avenue and Durango Drive and
stretch southeast to U.S. 95 and Lake Wood Drive; and a monorail system which
has been proposed for several years by HSST-Nevada; the $100 million plan calls
for a magnetically levitated transit system from Tropicana Avenue to Desert Inn
Road, stopping at several points on the strip. Completed projects include the
I-15 to E. Sahara fly over ramp; the second section of the southern Nevada
Beltway and the Desert Inn Road super arterial.
McCarran Airport has a significant economic impact on the area, pumping an
estimated $17 million into the local economy each year. In 1995 the airport
expanded to include a second facility in addition to its existing 78,500 square
foot building. The McCarran 2000 Project is now in its fourth phase of expansion
and renovation. The project includes improvements to linkage on several of the
highways, interstates and local arterials. Passenger traffic has increased every
year despite downturns in the national economy. As of year-end 1996, the
passenger volume reached over the 30 million mark, an 8.7 percent increase from
1995. Since 1989, volume has increased at a compound annual rate of 8.6 percent.
Other plans include a high-speed rail system linking Las Vegas with
Anaheim, California, reducing travel time to about one hour. This privately
funded joint venture calls for a 280 mile per hour train which will run adjacent
to Interstate 15. No time-line has been announced for this potential
development.
McCarran International Air Cargo Center expanded to 170,000 square feet in
1993 and is planning an additional 100,000 square feet in 1998. During 1996, the
facility handled a record 124.1 million pounds of cargo. 160 acres have been
designated for an expansion of the foreign trade zone. This zone has grown from
just 5,000 square feet in 1986 to more than 300,000 square feet today. Freight
rail service is provided by Union Pacific Railroad which serves Southern Nevada.
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Regional Analysis
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Summary
Las Vegas continues to reach new heights by all economic measures. The
early 1990s experienced an in-migration of new workers and businesses. There
were expansions in retail and transportation. New construction progressed in the
hotel/casino and housing industries with some innovative concept developments.
Overall, the area witnessed one of the nation's largest growth patterns and did
exceptionally well in the early 1990s and 1980s. Nearing the end of the 1990s,
Las Vegas continues to prosper, at a steady and strong pace.
Las Vegas has dominated the gaming industry since the on-set of legalized
gambling in 1931. It has become the industry's largest single market (a market
that has rarely slipped) and biggest trendsetter. In part, the success of
companies in Las Vegas mirror the consumer's growing acceptance and interest in
gaming activities. To a more significant degree, the City's major companies have
nurtured and cultivated this demand by making Las Vegas a mecca for
middle-market vacations. It is the quintessential embodiment of "supply creates
its own demand". The entry of new participants only spurs new growth and supply
for demand. For example, the entry of Excalibur (1990) and The Mirage (1989)
swelled tourist traffic in the early 1990s. The more recent opening of Treasure
Island, MGM Grand, the Luxor, and New York, New York has galvanized demand even
further. Several more "mega" hotel/casino projects are either underway or in
active planning stages. These projects will help to further solidify the town's
remarketing campaign as a family vacation destination.
Because of recent and continued expansions and upgrades in the
hotel/casino/ convention facilities, there is good reason to be confident in the
long-term stability of the region. However, near term concerns continue to mount
as the area expands at rates which are taxing the infrastructure and the ability
with which the community can handle the sheer physical demands of such growth.
The negative associations of urban living (i.e., crime, pollution, lack of
quality public education), which are the very reasons people have been moving to
the area, are garnering increased attention from public officials. Such "growing
pains" are a necessary by-product of the tremendous expansion which has
occurred. These are issues which are being given priority attention.
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Regional Analysis
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The outlook for Las Vegas is positive. Growth projections in both
population and employment suggest a continued demand for all segments of the
economy. Relatively inexpensive rural land prices, the Sunbelt climate, and
favorable business conditions, particularly Nevada's tax structure, are
contributing factors to its growth. It must be stressed the extent to which the
Las Vegas MSA is affected by the hotel and gaming industry. Almost all other
employment sectors are either tied to or are a byproduct of the hotel/gaming
industry. To the extent that Las Vegas can further diversify its industries, the
area will be less susceptible to dramatic fluctuations in the local and national
economy.
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NEIGHBORHOOD MAP
[MAP OMITTED]
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NEIGHBORHOOD ANALYSIS
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The subject property is situated along the north side of East Stewart
Avenue, at the northeast corner of East Stewart Avenue and Pecos Road, within
the city of Las Vegas, Nevada. The subject's immediate neighborhood is bordered
by Bonanza Road to the north, Charleston Boulevard to the south, Nellis
Boulevard to the east, and Pecos Road to the west. This area is developed with
single-family homes, mid-rise apartment complexes, neighborhood shopping
centers, and mobile home park communities.
The subject property is immediately bounded by East Stewart Avenue to the
south. East Stewart Avenue is a primary four-lane, east-west thoroughfare, which
provides direct access to the subject's main entrance. Immediately west of the
subject park, East Stewart Avenue intersects with Pecos Road. Direct access to
Interstate 515 is available off of Eastern Avenue or Charleston Boulevard within
one mile of the subject property. Interstate 515 provides direct access to
Interstate 15 approximately three miles west of the subject property. Interstate
15 is the primary freeway providing north-south access through the Las Vegas
metropolitan area.
The subject property enjoys visibility along East Stewart Avenue, and
primary access to the subject's main entrance to the park is accessed directly
off of East Stewart Avenue. Other developments along East Stewart Avenue consist
of two other manufactured housing communities, in addition to the subject
property. Located across the street from the subject property, along the south
side of East Stewart Avenue, is a manufactured housing community known as the
Rulon A. Earl Mobile Manor, situated at 3901 East Stewart Avenue. At the
southeast corner of Pecos Road and East Stewart Avenue is the mobile home
community known as Pecos Park Coach Club situated at 200 North Pecos Road. This
135 site mobile home park is presently 100 percent occupied with a quoted
monthly rental rate of $370. Other developments located along East Stewart
Avenue consist of a single-family residential development situated immediately
east of the subject park, along the north side of East Stewart Avenue, and a
low-rise apartment complex situated across the street from the subject property,
along the south side of East Stewart Avenue.
The subject property is situated in an area well suited for manufactured
housing development. Real estate values are anticipated to increase at a steady
pace. The economy in the area is anticipated to be good, with unemployment
steadily decreasing. The growth in population is anticipated to increase
steadily.
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MARKET ANALYSIS
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National Overview
Reportedly, the largest property owners of manufactured housing
communities in the United States are: ROC Communities, headquartered in
Colorado; MHC, Inc., headquartered in Illinois; Ellenburg Capital, headquartered
in Oregon; Lautrec Ltd., headquartered in Michigan; Clayton Homes, headquartered
in Tennessee; Clayton Williams and Sherwood, headquartered in California;
Chateau Properties, Sun Communities and UNIPROP, headquartered in Michigan.
The following represents the top ten manufactured housing community firms,
as reported by GFA Management, as of 1997.
<TABLE>
<CAPTION>
=================================================================================================================
1997 Firm Name State No. of Sites No. of Communities
Rank Owned/Managed Owned/Managed
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Sun Communities Michigan 30,295/0 84/0
- -----------------------------------------------------------------------------------------------------------------
2 ROC Communities Colorado 22,441/7,167 77/36
- -----------------------------------------------------------------------------------------------------------------
3 Manufactured Home Communities Illinois 27,349/838 69/3
- -----------------------------------------------------------------------------------------------------------------
4 Ellenburg Capital Florida 25,173/0 63/0
- -----------------------------------------------------------------------------------------------------------------
5 Lautrec Ltd. Michigan 22,652/0 58/0
- -----------------------------------------------------------------------------------------------------------------
6 Chateau Properties Michigan 20,003/0 47/0
- -----------------------------------------------------------------------------------------------------------------
7 Clayton Homes Tennessee 18,000/0 66/0
- -----------------------------------------------------------------------------------------------------------------
8 Clayton, Williams and Sherwood California 16,946/0 44/0
- -----------------------------------------------------------------------------------------------------------------
9 UNIPROP Michigan 14,931/0 40/0
- -----------------------------------------------------------------------------------------------------------------
10 The Bloch Organization Michigan 14,379/0 37/0
=================================================================================================================
</TABLE>
According to the U.S. Census Bureau, more than 8,521,000 people were
living in manufactured housing communities as of 1990 compared to 3,838,678 in
1980. This represents an increase in manufactured housing community living of
approximately 122.0 percent over the last ten years. Over the last ten years,
there has been a steady increase in manufactured housing community development
across the country. Among the demographic factors which account for the increase
in manufactured housing community living are: decreasing household size, a
growing demand for smaller housing, as well as an alternative to the increasing
cost of housing. Nationally, the largest percentage of manufactured housing
communities are located in California, Michigan, Colorado, Florida, New York,
Minnesota, Indiana, Arizona, Ohio, and Wisconsin.
The manufactured home industry has dramatically changed over the last 20
years. Manufactured homes are now designed and constructed to accommodate
spacious and attractive living requirements. Today, approximately one out of
sixteen families live in
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Market Analysis
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manufactured housing units. The manufactured housing market share has been
growing steadily over the last 10 years. In 1990, 6.7 percent of Americans lived
in manufactured housing units, up from 2.9 percent compared to 1970, according
to the U.S. Census Bureau, which represents 12.0 to 14.0 percent of all new
housing built since the mid-1980's, according to the Manufactured Housing
Institute in Arlington, Virginia.
In 1990, the average cost of a manufactured housing unit was $27,800
compared to $149,000 for a new house (including land), according to the
Manufactured Housing Institute. This reflects a 28.0 percent increase in the
cost of manufactured housing since 1980 versus a 49.0 percent increase in
conventional housing. Industry experts estimate that a single-family home
selling for $150,000 would require an annual income of $52,671. To purchase a
$27,800 manufactured housing unit, only a $19,984 income level would be
required.
At Fleetwood Enterprises, the nation's largest manufacturer of
manufactured housing units, units may be purchased for up to $100,000, which
would include a three-bedroom, two-bath unit of 2,100 square feet, with vaulted
ceilings.
In 1990, approximately 10.0 percent of manufactured home owners lived in
units worth approximately $40,000, up from 4.0 percent compared to 1981,
according to a study conducted by Foremost Insurance Company in Grand Rapids,
Michigan. Also, according to the study, approximately 21.0 percent of the
manufactured housing households are occupied by people' 65 years of age or
older, slightly lower than the age group for conventional homes, as reported by
Foremost Insurance.
The demand for good quality institutional grade manufactured housing
communities has substantially increased over the last ten years. Manufactured
housing communities provide an affordable alternative to the increasing cost of
housing. Also, manufactured housing communities provide an alternative form of
living for the elderly and retirees, especially for those living on fixed
incomes.
Acquisitions of manufactured housing communities during 1993 and 1994 were
clearly dominated by Real Estate Investment Trusts. During 1994 and 1995
Manufactured Home Communities (MHC) and ROC communities lead the acquisition of
manufactured housing communities nationally. During 1996, Sun Communities
captured the lead and, together with ROC and MHC dominate the Real Estate
Investment Trust market.
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Market Analysis
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The following chart represents the largest Real Estate Investment Trusts,
from 1991 to 1996, as reported by GFA Management
<TABLE>
<CAPTION>
=================================================================================================================
HOME SITE GROWTH, DEVELOPMENT AMONG THE LARGEST
REAL ESTATE INVESTMENT TRUST (REITS)
- -----------------------------------------------------------------------------------------------------------------
Year ROC MHC Chateau Sun United Total Annual
Growth
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 29,608 28,187 20,003 30,295 5,234 113,327 17.0%
- -----------------------------------------------------------------------------------------------------------------
1995 27,910 26,237 19,594 18,000 4,850 96,591 9.0%
- -----------------------------------------------------------------------------------------------------------------
1994 26,231 28,407 15,689 13,500 4,623 88,450 37.8%
- -----------------------------------------------------------------------------------------------------------------
1993 20,142 14,700 15,261 9,036 5,050 64,189 17.8%
- -----------------------------------------------------------------------------------------------------------------
1992 18,745 12,873 10,032 7,600 5,200 54,450 N/A
- -----------------------------------------------------------------------------------------------------------------
1991 9,030 13,079 9,759 N/R N/R N/A N/A
- -----------------------------------------------------------------------------------------------------------------
N/R = No report N/A = Not applicable
- -----------------------------------------------------------------------------------------------------------------
NOTE: The 113,327 sites counted for the top five REITs in 1996 make up 20 percent of the total sites surveyed in
the 1997 Allen Report. These rental sites are located in 339 communities, accounting for about 1 percent of some
50,000 existing manufactured housing communities nationwide. The community counts for the five major REITs are:
ROC (113), MHC (72), Chateau (47), Sun (84) and United (23). The proportion of communities owned by each of the
REITs compared to the others is: ROC (33%), MHC (21%), Chateau (14%), Sun (25%) and United (7%).
=================================================================================================================
</TABLE>
Manufactured Home Communities (MHC) is expected to continue an aggressive
acquisition campaign through 1997 and beyond. As of September 1997, the MHC REIT
had a market cap of $632.0 million, and continues to pursue the acquisition of
manufactured home communities. Aside from the ELL-CAP $300.0 million
transaction, in September 1997 Manufactured Home Communities, Inc. completed a
$107.0 million purchase of 18 manufactured housing communities and two related
commercial properties from partnerships affiliated with Mobileparks West. The
communities, with 3,505 sites, were purchased with about $3.0 million
manufactured home operating units, $16.0 million in cash and $20.0 million of
installment notes and assumed debt. The communities have an average monthly
rental of $349.00. The communities are located in California, Utah, Oregon,
Washington and Nevada. MHC may be the first manufactured home community REIT to
reach $1.0 billion.
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Market Analysis
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The MHC REIT continues to perform and expand, and as of September 1997 was
trading at $25.625, with a current yield of 5.2 percent. The top traded REITs,
are presented as follows.
<TABLE>
<CAPTION>
=================================================================================================================
REIT MARKET UPDATE
- -----------------------------------------------------------------------------------------------------------------
Company Price Current 52 Week 52 Week Annual 12 Mth Tot
Symbol (9/19/97) Yield High Low Dividend Rtn
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CPJ $29.688 5.8% $31.125 $22.250 1.72 26.6%
- -----------------------------------------------------------------------------------------------------------------
MHC $25.625 5.2% $26.428 $18.875 1.32 30.7%
- -----------------------------------------------------------------------------------------------------------------
SUI $37.428 5.0% $ 38.00 $27.750 1.88 31.8%
- -----------------------------------------------------------------------------------------------------------------
UMH $11.625 6.0% $13.625 $10.875 0.70 -1.7%
- -----------------------------------------------------------------------------------------------------------------
Total return figures obtained through Standard & Poors and are for the period through Sept 1997.
=================================================================================================================
</TABLE>
The Southwest and Northwest Regions of the nation are the preferred
locations regarding recent and future manufactured housing community
acquisitions. However, investors seeking moderate, but consistent growth
expectations, are still looking at the midwest region. Also, southern portions
of Florida are still considered a prime area for investors seeking good quality
manufactured housing communities, with good up-side potential. What was once a
stagnant market, the northeast region is now being considered for future
acquisitions.
According to a recent study prepared by Merrill Lynch & Company, ownership
in the manufactured housing community industry is highly fragmented. The top 150
owner-operators account for less than 5.0 percent of the total industry, whereas
a host of "mom-and-pop" private companies account for the other 95.0 percent.
This unglamorous niche industry is ripe for consolidation, and an infusion of
professional management expertise is likely to yield significant economies of
scale. The four REIT's specializing in manufactured housing communities are
already among the top ten owner-operators, and are well positioned to facilitate
and hasten the industry's consolidation to the likely benefit of their
stockholders.
Manufactured homes are the fastest growing component of the nation's
housing inventory, due to their affordability, good quality design and safety
standards. According to the Merrill Lynch & Company Manufactured Housing
Community Industry Report, factory-built homes appeal especially to senior
citizens and to households with limited economic needs, two segments of the
population that are likely to grow rapidly in coming years.
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Market Analysis
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Consistent returns in manufactured housing community investments have been
the mainstay of the industry. For this reason, as well as the amount of
acquisitions seen by Real Estate Investment Trusts (REITs) from 1991 to 1996,
the availability of good quality manufactured housing communities has been
substantially reduced compared to the 1980's. Good quality manufactured housing
communities still command premium prices, thus driving down overall
capitalization rates.
Cushman & Wakefield's Valuation Advisory Services has tracked sale
transactions of manufactured housing communities since 1985. Overall
capitalization rates have consistently been within the 8.75 to 10.00 percent
range for communities located in moderate to increasing growth markets, and as
low as near 8.0 percent for those communities located in growing markets that
poses significant upside potential. Overall capitalization rates are clearly
affected and are differentiated among the properties relative to rent levels,
age, quality, condition, location, amenities, demographic characteristics,
resident profile, as well as the quality of management.
Manufactured housing communities fall within, and are categorized by their
overall appearance, age, and amenities, but more importantly the strength of the
local market. The various categories of manufactured housing communities,
according to the Woodall Directory, can be ranked as 1 to 5 Star Parks These
rankings are defined as follows:
One Star Park
The most important consideration for a one star park is overall
appearance. If it is not a decent place to live, it will not be listed in
Woodall's Directory. The following are general requirements:
o Fair overall appearance;
o Patios on most lots. May be concrete, asphalt, wood, or some
suitable material;
o Grass, rock or shell to cover ground;
o Streets fair to good. May be dirt, asphalt or gravel in reasonable
condition;
o Restrooms clean, if any;
o Adequate laundry or laundromat nearby;
o If fences allowed, must be neat;
o Mail service;
o Homes may be old models, but show evidence of care; and,
o Manager available some hours of each day.
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Market Analysis
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Two Star Park
In addition to the requirements for a one star park, a two star park will
have the following:
o Landscaping - some lawns and shrubs;
o Streets in good condition. Must be dust free of crushed rock, gravel
or shell minimum;
o Neat storage;
o Well equipped laundry or laundromat nearby;
o 200 volt connections available;
o If children accepted, park should have play area;
o Park free of clutter, such as old cars and other abandoned
equipment; and,
o Well maintained and managed.
Three Star Park
What a three star park does it does well, but not as uniformly as higher
rated parks. Many three star parks were once higher rated, but original
construction does not allow for today's 10-foot, 12-foot, and double-wides
or the 55-foot and 60-foot lengths. If children are allowed, there should
be adequate play area. However, the disarray caused by children may at
times be the determining factor that keeps a three star park at that level
when it otherwise could be rated higher. In addition to the requirements
for one and two star parks, a three star park must have the following:
o Attractive entrance;
o All homes must be in good condition;
o Awnings and cabana rooms on some homes in southern areas;
o Some spaces for large mobile homes;
o Paved or hard surfaced streets;
o Off-street parking or streets wide enough for safe on-street
parking;
o Good lawns or substitute throughout, shade trees, some shrubs where
climate permits;
o Concrete patios or the equivalent on all lots;
o All lots neat and attractive;
o All park buildings in good repair; and,
o Good management.
Four Star Park
Four star parks are luxury parks. In addition to the requirements for one,
two and three star parks, a four star park must have the following:
o Good landscaping;
o Most homes skirted with metal skirts, concrete block, ornamental
wood or stone;
o Paved streets, edged or curbed.
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Market Analysis
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o Uncrowded lots;
o Underground utilities if permitted by local conditions and
authorities;
o Most tanks, if present, concealed;
o Any hedges or fences must be attractive and uniform;
o Awnings, cabanas, or porches on most homes in southern areas.
(Excepting double-wide units.);
o Most lots to accommodate large mobile homes;
o Where row parking of homes exists, all must be lined up uniformly;
o Community hall and/or swimming pool and/or recreation programs. If a
park is four star in all but this requirement, the fourth star will
be printed as an open star indicating a four star park without
park-centered recreation; and,
o Excellent management.
Five Star Park
Five star parks are the finest. They should be nearly impossible to
improve. In addition to the requirements for one, two, three, and four
star parks, a five star park must have the following:
o Well planned and laid out spacious appearance;
o Good location in regard to accessibility and desirable neighborhood.
In some locations, park should be enclosed by high hedges or
ornamental fence;
o Wide paved streets in perfect condition. Curbs or lawns edged to
streets, sidewalks, street lights, street signs;
o Homes set back from street;
o Exceptionally attractive entrance and park sign;
o Patios at least 8 x 30 feet. (Excepting double-wide units.);
o Paved off-street parking such as carports or planned parking;
o All homes skirted;
o All hitches concealed. Any existing tanks concealed;
o Recreation, some or all of the following: swimming pool (excepting
areas with long, cold winters), shuffleboards, horseshoe pitching,
golf course, hobby shop, hobby classes, games, potlucks, dances or
natural recreational facilities;
o Beautifully equipped recreation hall with kitchen. Room for
community gatherings, tiled restrooms, etc.;
o Uniform storage sheds or central storage facilities;
o All late model homes in excellent condition;
o At least 60 percent occupancy in order to judge quality of residents
which indicates park's ability to maintain a five star rating
between inspections;
o All empty lots grassed, graveled or otherwise well maintained;
o If pets or children allowed, there must be a place for them to run
and play without cluttering the streets and yards. Most five star
parks are for adults only; and,
o Superior management interested in comfort of residents and
maintenance of park.
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Market Analysis
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The demand for good quality institutional grade manufactured housing
communities is anticipated to increase throughout the 1990's, since manufactured
housing communities provide an alternative form of living for the elderly and
retirees, especially for those living on fixed income. Manufactured home
shipments continue to be strong. Shipments rose 20.0 percent in 1992 and 1994,
and 12.0 percent in 1995. The market for good quality manufactured housing
communities is expected to be strong, with yield and capitalization rates and
prices expected to continue to be competitive, with the REITs leading the way.
Competition
We have surveyed six manufactured housing communities located within the
subject's primary market, including the subject property, containing a total of
1,988 sites. The combined occupancy rate of these six manufactured housing
communities, including the subject property, is approximately 99.14 percent.
Excluding the subject property in our survey, the combined occupancy rate is
approximately 99.14 percent, based on 1,635 sites.
The name and location of the subject property's primary competition, as
well as the number of sites, occupancy levels, amenities offered, monthly rental
rates and services provided in the monthly rental rate, are presented on the
following facing page, along with a map which identifies the location of each
competing park.
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<TABLE>
<CAPTION>
==============================================================================================================================
SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- ------------------------------------------------------------------------------------------------------------------------------
Number Age
Of Sites ---------
-------- Condition Services
Comp. Name Occupancy ------------- Monthly Provided
No. Location Level Amenities Park Rating(1) Rent in Rent
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
R-1 Heritage Village 114 Clubhouse 1979 $445.00/Mo. Water
1515 S. Mojave Road --- Pool/Spa ---- Sewer
Las Vegas, Nevada 100% Laundry Good Refuse
RV Storage ----
3*-4*
- ------------------------------------------------------------------------------------------------------------------------------
R-2 El Adobe Estates 367 Clubhouse 1972 $369.00/Mo Sewer
825 N. Lamb Blvd. --- Pool ---- (Single-wide) Refuse
Las Vegas, Nevada 99% Playground Average To Basic
Laundry ------- $384.00/Mo Cable
RV Storage 2*-3* (Double-wide)
- ------------------------------------------------------------------------------------------------------------------------------
R-3 Sunrise 186 Clubhouse 1974 $360.00/Mo. Water
1200 N. Lamb Blvd. --- Pool/Spa ---- Sewer
Las Vegas, Nevada 99% Average Refuse
-------
2*-3*
- ------------------------------------------------------------------------------------------------------------------------------
R-4 Ballerina Sunrise 199 Clubhouse 1984 $325.00/Mo. None
830 N. Lamb Blvd. ---- Pool ----
Las Vegas, Nevada 100% Tennis Courts Average
-------
2*-3*
- ------------------------------------------------------------------------------------------------------------------------------
R-5 Pueblo Del Sol 453 Clubhouse 1972 $380.00/Mo. None
3751 S. Nellis Blvd. --- 2 Pools/Spa ---- (Single-wide)
Las Vegas, Nevada 98% Playground Average To
Laundry ------- $405.00/Mo.
RV Storage 2*-3* (Double-wide)
- ------------------------------------------------------------------------------------------------------------------------------
R-6 LaJolla Family MHP 316 Clubhouse 1978, 1984, 1991 $345.00/Mo. Sewer
4400 E. Owens Ave. --- 2 Pools/Spa ---------------- To Refuse
Las Vegas, Nevada 99% Sauna Average $355.00/Mo.
Laundry -------
RV Storage 2*-3*
- ------------------------------------------------------------------------------------------------------------------------------
Subject Bonanza Village 353 2 Clubhouses 1971 & 1974 $418.00/Mo. Water
3700 E. Stewart Ave. --- 2 Pools/Spa ----------- Sewer
Las Vegas, NV 99% Playground Average to Good Refuse
Laundry ---------------
RV Storage 3*
- ------------------------------------------------------------------------------------------------------------------------------
(1) Ratings from One Star to Five Star Parks are defined in the National Overview section of this report.
==============================================================================================================================
</TABLE>
==========================================================================
- --------------------------------------------------------------------------
3-Year
Date Of Average
Comp. Name Last Rental Annual Rental
No. Location Increase Increase
- --------------------------------------------------------------------------
R-1 Heritage Village March, 1997 $9.00/Mo.
1515 S. Mojave Road
Las Vegas, Nevada
- --------------------------------------------------------------------------
R-2 El Adobe Estates June, 1997 $12.00/Mo.
825 N. Lamb Blvd.
Las Vegas, Nevada
- --------------------------------------------------------------------------
R-3 Sunrise July, 1997 $11.00/Mo.
1200 N. Lamb Blvd.
Las Vegas, Nevada
- --------------------------------------------------------------------------
R-4 Ballerina Sunrise June, 1997 $16.00/Mo.
830 N. Lamb Blvd.
Las Vegas, Nevada
- --------------------------------------------------------------------------
R-5 Pueblo Del Sol 1996 $5.00/Mo.
3751 S. Nellis Blvd.
Las Vegas, Nevada
- --------------------------------------------------------------------------
R-6 LaJolla Family MHP January, 1997 $13.00/Mo.
4400 E. Owens Ave.
Las Vegas, Nevada
- --------------------------------------------------------------------------
Subject Bonanza Village January, 1997 $19.00/Mo.
3700 E. Stewart Ave.
Las Vegas, NV
- --------------------------------------------------------------------------
================================================================================
<PAGE>
COMPETING MANUFACTURED HOUSING MAP
[MAP OMITTED]
CUSHMAN &
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Market Analysis
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Rental rates of manufactured housing communities located within the
subject's primary market range from $325.00 to $445.00 per site, on a monthly
basis. The subject property is currently quoting a monthly rental rate within
the market range, or $418.00 per site. The last rental rate increase at the
subject property was as of January 1, 1997, whereby the monthly rental payment
increased from $404.00 to $418.00 per site, an increase of $14.00 per month or
3.47 percent. Furthermore, the monthly rental payment is scheduled to increase
to $435.00 per site as of January, 1998, an increase of $17.00 per site, or 4.07
percent.
The enclosed comparable rentals are considered the most competitive to the
subject property regarding amenities offered, condition, location and overall
ranking.
Comparable R-1, Heritage Village, is located at 1515 South Mojave Road, in
Las Vegas, Nevada. This comparable property contains 114 sites, and is
100.0 percent occupied. Heritage Village was developed in 1979, and is
considered to be in overall good condition. The most recent rental
increase occurred in March, 1997. The monthly rental payment increased
from $428.00 to $445.00, representing an increase of $17.00 per month.
Amenities include a clubhouse, pool/spa, laundry facility, and RV storage.
The quoted monthly rental rate is reportedly $445.00, with water, sewer,
and refuse service included in monthly rental payment.
Comparable R-2, El Adobe Estates, is located at 825 North Lamb Boulevard,
in Las Vegas, Nevada. This comparable property contains 367 sites, and is
99.0 percent occupied, with only one site presently available. El Adobe
Estates was developed in 1972, and is considered to be in overall average
condition. The most recent rental increase occurred in June, 1997, and the
monthly rental payment increased by $15.00 per month. Amenities include a
clubhouse, pool, playground, laundry facility, and RV storage. The quoted
monthly rental rate is reportedly $369.00 per month for single-wide sites
and $384.00 per month for double-wide sites, with sewer, refuse service,
and basic cable service included in monthly rental payment.
Comparable R-3, Sunrise, is located at 1200 North Lamb Boulevard, in Las
Vegas, Nevada. This comparable property contains 186 sites, and is 99.0
percent occupied, with only one site presently available. Sunrise was
developed in 1974, and is considered to be in overall average condition.
The most recent rental increase occurred in July, 1997, and the monthly
rental payment increased by $11.00 per month. Amenities include a
clubhouse, pool, and spa. The quoted monthly rental rate is reportedly
$360.00 per month with water, sewer, and refuse service included in
monthly rental payment.
Comparable R-4, Ballerina Sunrise, is located at 830 North Lamb Boulevard,
in Las Vegas, Nevada. This comparable property contains 199 sites, and is
100.0 percent occupied. Ballerina Sunrise was developed in 1984, and is
considered to be in overall average condition. The most recent rental
increase occurred in
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Market Analysis
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June, 1997, and the monthly rental payment increased by $16.00 per month.
Amenities include a clubhouse, pool, and tennis courts. The quoted monthly
rental rate is reportedly $325.00 per month with no utilities included in
the monthly rental payment.
Comparable R-5, Pueblo Del Sol, is located at 3751 South Nellis Boulevard,
in Las Vegas, Nevada. This comparable property contains 453 sites, and is
98.0 percent occupied, with 10 vacant sites available. Pueblo Del Sol was
developed in 1972, and is considered to be in overall average condition.
The most recent rental increase occurred in 1996. There were reportedly no
rental increases in 1997. Amenities include a clubhouse, two pools/spas,
sauna, laundry facility, and RV storage. The quoted monthly rental rate is
reportedly $380.00 per month for single-wide sites and $405.00 per month
for double-wide sites, with no utilities included in the monthly rental
payment.
Comparable R-6, LaJolla Family Mobile Home Park, is located at 4400 East
Owens Avenue, in Las Vegas, Nevada. This comparable property contains 316
sites, and is 99.0 percent occupied, with only two vacant sites presently
available. LaJolla Family Mobile Home Park was developed in various stages
in 1978, 1984, and 1991, and is considered to be in overall average
condition. The most recent rental increase occurred in January, 1997, and
the monthly rental rate increased by $15.00 per month. Amenities include a
clubhouse, two pools/spas, sauna, laundry facility, and RV storage. The
quoted monthly rental rate is reportedly $345.00 to $355.00 per month,
depending upon location within the park. The monthly rental payment
includes water, sewer, and refuse service.
In our opinion, and based on conversations with the on-site manager,
properties R-1 and R-2 compete most favorably with the subject property, with
monthly rental rates ranging from $369.00 to $445.00 per site. The subject
property is currently quoting a monthly rental rate of $418.00 per month for all
sites located within the park, which is within the range of rental rates of our
more comparable competing properties. The subject property competes most
effectively with its primary competitors regarding amenities, condition and
current rent structure.
Comparable Manufactured Housing Community Sales
A search of the subject's market revealed five recent sales of
manufactured housing communities located in Las Vegas. The following is a brief
discussion of each of the manufactured housing sales located within the
subject's market. These sales are summarized on the following facing page.
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<TABLE>
<CAPTION>
================================================================================================================================
SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- --------------------------------------------------------------------------------------------------------------------------------
Sales Price $EGI/Site
Per Site $Expense/Site
Sales Date Land Area Density --------- EGIM -------------
Comp. Name ---------- --------- --------- Occupancy ---- Expense Ratio
No. Location Sales Price No. Sites Condition At Sale $NOI/Site OAR % Of EGI
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
I-1 Villa Borega 8/97 38.69 7.57 $40,981 $2,857 9.33x $4,392
1111 N. Lamb Blvd. ----------- ----- ---- ------- ----- ------
Las Vegas, Nevada $12,007,439 293 Good 99.0% 6.97% $1,536
------
34.97%
- --------------------------------------------------------------------------------------------------------------------------------
I-2 Pueblo Del Sol 7/97 54.43 8.32 $38,079 $3,091 9.14x $4,165
3751 N. Nellis Blvd. ----------- ----- ---- ------- ----- ------
Las Vegas, Nevada $17,250,000 453 Average 97.0% 8.12% $1,073
------
25.76%
- --------------------------------------------------------------------------------------------------------------------------------
I-3 Tropicana Palms 1/97 78.24 6.80 $40,413 $3,160 8.72x $4,635
6420 E. Tropicana Ave. ----------- ----- ---- ------- ----- ------
Las Vegas, Nevada $21,500,000 532 Excellent 97.25% 7.82% $1,474
------
31.80%
- --------------------------------------------------------------------------------------------------------------------------------
I-4 Three Crowns MHP 9/96 33.59 7.89 $36,509 $3,067 8.67x $4,211
867 N. Lamb Blvd. ---------- ----- ---- ------- ----- ------
Las Vegas, Nevada $9,675,019 265 Good 98.86% 8.40% $1,130
------
26.83%
- --------------------------------------------------------------------------------------------------------------------------------
I-5 Boulder Cascade MHP 6/96 38.83 7.70 $31,505 $2,896 6.38x $4,937
1601 S. Sandhill Road ---------- ----- ---- ------- ----- ------
Las Vegas, Nevada $9,420,000 299 Average 97.0% 9.19% $2,040
------
41.32%
- --------------------------------------------------------------------------------------------------------------------------------
Subject Bonanza Village - - - 42.84 8.24 - - - $3,395 N/A $4,978
3700 E. Stewart Ave. ----- ---- ------
Las Vegas, Nevada 353 Average 99.15% $1,583
------
31.80%
- --------------------------------------------------------------------------------------------------------------------------------
================================================================================================================================
</TABLE>
===============================================================================
- -------------------------------------------------------------------------------
Comp. Name Comparability
No. Location to the Subject Comments
- -------------------------------------------------------------------------------
I-1 Villa Borega Superior Developed in 1980; Good
1111 N. Lamb Blvd. condition; Amenities
Las Vegas, Nevada include a clubhouse, pool,
spa, and tennis courts.
All double-wide and
triple-wide spaces.
- -------------------------------------------------------------------------------
I-2 Pueblo Del Sol Similar Developed in 1972; Average
3751 N. Nellis Blvd. condition; Amenities
Las Vegas, Nevada include: clubhouse, two
pools/spas, playground,
laundry facility, and RV
storage.
- -------------------------------------------------------------------------------
I-3 Tropicana Palms Superior Developed in 1989;
6420 E. Tropicana Ave. Excellent condition;
Las Vegas, Nevada Amenities include: 2 gyms,
2 pools, 2 clubhouses,
tennis courts, sauna,
shuffleboard, and putting
green.
- -------------------------------------------------------------------------------
I-4 Three Crowns MHP Superior Developed in 1970;
867 N. Lamb Blvd. Good condition; Amenities
Las Vegas, Nevada include: clubhouse, pool;
spa, laundry facility, and
shuffleboard. This is a 55+
community.
- -------------------------------------------------------------------------------
I-5 Boulder Cascade MHP Similar Developed in 1971; Average
1601 S. Sandhill Road condition; Amenities
Las Vegas, Nevada include: clubhouse, pool,
and laundry facilities.
- -------------------------------------------------------------------------------
Subject Bonanza Village Subject Property Developed in 1971 and 1974;
3700 E. Stewart Ave. Average to good condition;
Las Vegas, Nevada Amenities include: 2
Clubhouses, 2 pools/spa
playground, laundry and
storage.
- -------------------------------------------------------------------------------
===============================================================================
<PAGE>
Market Analysis
================================================================================
Comparable Sale I-1, Villa Borega, is located at 1111 North Lamb
Boulevard, in Las Vegas, Nevada. This property contains 293 sites, and is
situated on 38.69 acres of land area. The property was in good condition
at the time of sale and was developed in 1980. Amenities include a
clubhouse, pool/spa, and tennis courts. The property was approximately
99.0 percent occupied at the time of sale. The property was purchased for
$12,007,439, which equates to $40,981 per site.
Comparable Sale I-2, Pueblo Del Sol, is located at 3751 North Nellis
Boulevard, in Las Vegas, Nevada. This property contains 453 sites,
situated on 54.43 acres of land area. The property was in average
condition at the time of sale and was developed in 1972. Amenities include
a clubhouse, two pools/spas, playground, laundry facility, and RV storage.
The property was approximately 97.0 percent occupied at the time of sale.
The property was purchased for $17,250,000, which equates to $38,079 per
site.
Comparable Sale I-3, Tropicana Palms, is located at 6420 East Tropicana
Avenue, in Las Vegas, Nevada. This property contains 532 sites, situated
on 78.24 acres of land area. The property was in excellent condition at
the time of sale and was developed in 1989. Amenities include two gyms,
two pools, two clubhouses, tennis courts, sauna, shuffleboard, and putting
green. The property was approximately 97.25 percent occupied at the time
of sale. The property was purchased for $21,500,000, which equates to
$40,413 per site.
Comparable Sale I-4, Three Crowns Mobile Home Park, is located at 867
North Lamb Boulevard, in Las Vegas, Nevada. This property contains 265
sites, situated on 33.59 acres of land area. The park was in good
condition at the time of sale and was developed in approximately 1970.
Amenities include a clubhouse, pool/spa, laundry facility, and
shuffleboard. The property was 97.0 percent occupied at the time of sale.
This property is considered to be a "senior park" for residents 55 and
older in age. The property was purchased for $9,675,019, which equates to
$36,509 per site.
Comparable Sale I-5, Boulder Cascade Mobile Home Park, is located at 1601
South Sandhill Road, in Las Vegas, Nevada. This property contains 299
sites, situated on 38.83 acres of land area. The park was in average
condition at the time of sale and was developed in 1971. Amenities include
a clubhouse, pool, and laundry facility. The property was 97.0 percent
occupied at the time of sale. The property was purchased for $9,420,000,
which equates to $31,505 per site.
It should be noted that comparability does not imply an identical or exact
duplicate, but rather the possession of a similar utility and affected by
similar supply and demand forces. Also, relative to the subject property,
differences include: time or date of the transactions; location, which
encompasses differences in accessibility; site characteristics, including
differences in size, topography, access, exposure and development capacities;
and
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Market Analysis
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improvement characteristics, which include differences in age, quality,
condition, size and amenities.
Demographic Trends
Based on information provided by National Decision Systems (NDS), the
populations within the subject's primary 5-mile and secondary 10-mile market
areas, as of 1997, are 428,035 and 874,768, respectively. The populations of the
subject's primary and secondary market areas are projected to increase to
497,899 and 1,055,117, respectively, by the year 2002.
According to NDS, the total number of households within the subject's
primary and secondary market areas, are 166,597 and 348,058, respectively, for
1997. The number of households within the subject's primary 5-mile and secondary
10-mile market areas are projected to increase to 197,338 and 429,158,
respectively, by the year 2002.
The average household income levels within the subject's primary and
secondary market areas, for 1997, are $48,106 and $54,080, respectively. The
median household income levels within the subject's primary and secondary market
areas, for 1997, are $33,396 and $37,893, respectively. Per capita income within
the subject's primary and secondary market areas, for 1997, are $18,979 and
$21,742, respectively.
Based on the above levels, the demographics of the subject's primary
market area appear to indicate a positive growth trend, based on information
provided by the NDS Report, a copy of which is provided in the Addenda to this
report.
Expense Analysis
Expenses exhibited by manufactured housing communities nationally are
typically 35.0 to 45.0 percent of effective gross income. However, expense
ratios of manufactured housing communities located in the southeast and
southwest regions of the nation are typically lower by comparison, due to lower
real estate taxes and common area maintenance charges.
As presented in the Summary of Manufactured Housing Communities Sales,
operating expense ratios of competing parks range from 25.76 to 41.32 percent of
effective gross income levels, and $1,073 to $2,040 on a per site basis. The
subject property is currently reporting expenses, for the 12-month trailing
period of 1997, at 31.80 percent of effective gross income and $1,583 on a per
site basis. Operating expenses appear to be within the range of comparable
properties on a per site basis, as well as on a percentage of effective gross
income basis.
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Market Analysis
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Market Supply and Demand
There are a total of six competing manufactured housing communities
located within the subject's market, which total 1,635 sites, with a
corresponding average occupancy rate of 99.14 percent. No specific absorption
statistics were available, since the subject's competing parks have historically
reported occupancy rates at, or above 90.0 percent. The occupancy rate of the
subject property, based on conversations with management, has historically been
slightly higher than occupancy rates of competing parks, and is currently 99.15
percent occupied, with only three vacant sites available. We believe the current
occupancy rate of the subject property is stabilized, as the subject property is
currently displaying an occupancy rate of 99.15 percent, which is similar to the
occupancy rates presently achieved at competing parks. Based on the subject's
current occupancy rate and occupancy rates at competing parks, demand appears to
be strong, with steady rental rate increases expected.
Conclusion
Historically, the subject's primary market has sustained high occupancy
levels of 95.0 to 100 percent. Rental rates of similar manufactured housing
communities located within the subject's primary market generally range from
$325.00 to $445.00 per site, on a monthly basis. The subject property is
currently quoting, and is currently achieving (based on the most recent rent
roll provided), a monthly rental rate within the range of competing parks, or at
$418.00 per site, which we believe is market-orientated.
Based on our research, steady increases in rental rates are anticipated,
based on actual historical performance of competing parks and historical
increases seen at the subject property. Sales transactions of manufactured
housing communities located within the subject's region range from $31,505 to
$40,981 per site, with corresponding overall rates ranging from 6.97 to 9.19
percent. In our opinion, the subject property competes favorably with its
competition regarding amenities, condition, rent structure and overall market
rating.
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SITE PLAN
[GRAPHIC OMITTED]
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PROPERTY DESCRIPTION
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Site Description
The subject site is located along the north side of East Stewart Avenue,
at the northeast corner of East Stewart Avenue and Pecos Road. The south side of
the site borders East Stewart Road. The subject site is rectangular in shape and
contains 42.84 acres, or 1,866,110 square feet of land area. Topographically,
the site is basically level and at street grade.
The Las Vegas Valley Water District provides the water to the subject
park, while Clark County Sanitation provides sewer service to the subject
property. Southwest Gas Company provides the gas service and Nevada Power
provides electricity to the subject property. Primary access to the subject site
is available from East Stewart Avenue. Based on conversations with the City of
Las Vegas, the subject property is not located in a flood hazard area. However,
we recommend a qualified engineer to determine the existence of any flood hazard
areas.
Each developed site is equipped with a dirt site and off-street parking.
The streets within the park have two-lanes, with concrete curbs. Overall, the
subject site is typical of the area and is functionally well suited for its
current use.
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.
Improvements Description
Phase I of the subject property was originally developed in 1971. Phase II
of the subject property was subsequently developed in 1974. The subject
improvements consist of a 353-site manufactured housing community, with two
community centers, two swimming pools/spas, playground area, laundry facility,
and RV storage area. Of the 353 total sites, 91 sites are single-wide, while the
remaining 262 sites are double-wide. The average site size is approximately 50
feet by 75 feet.
The community center consists of a manager's office, restroom facilities,
and open-space available for resident use, with a fully-equipped kitchen area.
The exteriors of the community centers are concrete block, and appeared to be in
overall good condition at the time of inspection.
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Property Description
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The swimming pools and playground area are located adjacent to the
community centers. As previously mentioned, the subject park is equipped with
two clubhouses and two swimming pools, located within the eastern and western
sections of the park. The recreational vehicle and boat storage area is located
at the northeastern section of the park. Wrought iron fencing surrounds the pool
areas and chain-link fencing borders the recreational vehicle and boat storage
area. Off-street parking is available for each resident. Site improvements
within the park include: paved streets, concrete sites, street lighting and
signage. Overall, the site improvements appeared to be in average condition at
the time of inspection.
Bonanza Village is a functional manufactured housing community with good
ingress and egress along East Stewart Avenue. Overall, the subject community
appears to be well maintained and is in average to good condition for its age.
Bonanza Village is a functional manufactured housing community and competes
favorably with other existing manufactured housing communities in the area in
terms of appearance and amenities. The subject property would fit the profile of
a Three Star Park, as defined in the National Overview section of this report.
Real Property Taxes and Assessments
Assessed value of commercial property in Clark County is assessed at 35.0
percent of the Assessor's opinion of market value. The subject property is
identified by tax parcel number 140-31-201-001-98.
The total amount of real estate taxes for fiscal year 1997 for the subject
property amounts to $64,903.67. The total amount of real estate taxes for fiscal
year 1997 equates to approximately $183.86 per site.
Zoning
According to zoning officials of the City of Las Vegas, the subject
property is currently zoned RMHP, Residential Mobile Home Park District. Based
on conversations with zoning officials of Las Vegas, the subject property is a
legal and conforming use under its present zoning classification.
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CONCLUSION
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Conclusion
o The subject property, Bonanza Village, is a functional manufactured
housing community, which competes favorably in relation to its
competition;
o Comparable manufactured housing communities located within the
subject's market range in monthly rental rates per site from $325.00
to $445.00;
o The subject property is currently quoting, and is currently
achieving (based on the most recent rent roll provided) a monthly
rental rate of $418.00 per site, which is within the range of
competing parks, and appears to be market-oriented;
o Sale transactions of manufactured housing communities located within
the subject's region range in unit sales prices per site from
$31,505 to $40,981, with corresponding overall rates ranging from
6.97 to 9.19 percent;
o Operating expenses are within industry standards for a park located
in the southwestern region of the country;
o The subject park appears to be operating at economic levels based on
our review of historical and budgeted 1998 income and expenses;
o The demographic characteristics of the area appear to be positive;
o The population profile of the subject property is 57 percent adult,
with the remaining 43 percent family oriented;
o The current occupancy rate at the subject property of 99.15 percent
is evident by a strong local market and demand;
o No significant manufactured housing communities are expected to be
developed in the near future;
o In our opinion, based on Woodall's criteria, the subject property is
a Three Star Park, and the reader's attention is directed to the
corresponding definition and criteria of a Three Star Park,
presented in the National Overview section of this report; and,
o Based on the subject's location, demographic, economic, market and
physical characteristics, we believe Bonanza Village will continue
to be a viable manufactured housing community in the foreseeable
future, and is well positioned in the marketplace.
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ASSUMPTIONS AND LIMITING CONDITIONS
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"Report" means the consulting report to which these Assumptions and Limiting
Conditions are annexed.
"Property" means the subject of the Report.
"C&W" means Cushman & Wakefield, Inc. or its subsidiary which issued the Report.
"Appraiser(s)" means the employee(s) of C&W who prepared and signed the Report.
This report is made subject to the following assumptions and limiting
conditions:
1. No responsibility is assumed for the legal description or for any matters
which are legal in nature. 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 Report or upon which the Report 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 Appraisers nor C&W shall be responsible for the
accuracy or completeness of such information, including the correctness of
estimates, opinions, dimensions, sketches, exhibits, and other factual
matters.
3. The information is effective as of the date stated in the Report. Changes
since that date in external and market factors or in the property itself
can significantly affect our analysis.
4. The report is to be used in whole and not in part. No part of the Report
shall be used in conjunction with any other report. Possession of the
Report, or a copy thereof, does not carry with it the right of
publication. Publication of the Report or any portion thereof without the
prior written consent of C&W is prohibited. Except as may be otherwise
expressly stated in the letter of engagement to prepare the Report, C&W
does not permit use of the Report by any person other than the party to
whom it is addressed or for purposes other than those for which it was
prepared. If written permission is given by C&W to use the Report, the
Report must be used in its entirety and only with proper written
qualification as approved by C&W. No part of the Report or the identity of
the Appraiser shall be conveyed to the public through advertising, public
relations, news, sales, or other media or used in any material without
C&W's prior written consent. Reference to the Appraisal Institute or to
the MAI designation is prohibited.
5. The Appraiser shall not be required to give testimony in any court or
administrative proceedings relating to the Property or the Report.
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Assumptions and Limiting Conditions
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6. The Report 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 Report; 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 Report is based.
7. The physical condition of the improvements considered by the Report is
based on visual inspection by the Appraiser or other person identified in
the Report. C&W assumes no responsibility for the soundness of structural
members nor for the condition of mechanical equipment, plumbing, or
electrical components.
8. Unless otherwise stated in the Report, the existence of potentially
hazardous or toxic materials which may have been used in the construction
or maintenance or operation of the improvements or may be located at or
about the Property was not considered in the Report. These materials (such
as formaldehyde foam insulation, asbestos insulation, various soil
contaminants, and other potentially hazardous materials) may affect the
value of the Property. The Appraisers are not qualified to detect such
substances, and C&W urges that an expert in this field be employed to
determine the economic impact of these matters, if any, on the property in
the Report.
9. Unless otherwise stated in the Report, compliance with the requirements of
the Americans With Disabilities Act of 1990 (ADA) has not been considered
in the Report. Failure to comply with the requirements of the ADA may
negatively affect the value of the property. C&W recommends that an expert
in this field be employed.
10. If the Report is submitted to a lender or investor with the prior approval
of C&W, such party should consider the Report as one factor, together with
its independent investment considerations and underwriting criteria, in
its overall investment decision.
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CERTIFICATION
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We certify that, to the best of our knowledge and belief:
1. Nancy D. Piekos inspected the property, and Michael J. Schaeffer and
Stanley R. Dennis, Jr., MAI, have reviewed and approved the report, but
did not inspect 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 on an action or event (such as the
approval of a loan) resulting from the analyses, opinions, or conclusions
in, or the use of, this report.
6. 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 Ethics and Standards of Professional Practice of the Appraisal
Institute.
7. No one provided significant professional assistance to the persons signing
this 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. As of the date of this report, Stanley R. Dennis, Jr., MAI, has completed
the requirements of the continuing education program of the Appraisal
Institute.
/s/ Michael J. Schaeffer /s/ Nancy D. Piekos /s/ Stanley R. Dennis, Jr.
Michael J. Schaeffer Nancy D. Piekos Stanley R. Dennis, Jr., MAI
Director Associate Appraiser Director, Manager
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ADDENDA
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POP-FACT SHEETS
LEGAL DESCRIPTION
QUALIFICATIONS OF APPRAISERS
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POP-FACT SHEETS
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<PAGE>
Tue Dec 2, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP FACTS: SUMMARY REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6511
PREPARED FOR
Cushman & Wakefield
3700 East Stewart Avenue
Las Vegas, Nevada COORD: 36:09.99 115:04.76
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- --------------------------------------------------------------------------------
POPULATION
2002 PROJECTION 497,899 1,055,117
1997 ESTIMATE 428,035 874,768
1990 CENSUS 327,994 624,031
1980 CENSUS 239,960 413,381
GROWTH 1980 - 1990 36.69% 50.96%
HOUSEHOLDS
2002 PROJECTION 197,338 429,158
1997 ESTIMATE 166,597 348,058
1990 CENSUS 127,293 244,745
1980 CENSUS 93,584 157,215
GROWTH 1980 - 1990 36.02% 55.67%
1997 ESTIMATED POPULATION BY RACE 428,035 874,768
WHITE 70.42% 77.11%
BLACK 11.90% 9.10%
ASIAN & PACIFIC ISLANDER 5.64% 5.11%
OTHER RACES 12.05% 8.68%
1997 ESTIMATE POPULATION 428,035 874,768
HISPANIC ORIGIN 19.95% 15.88%
OCCUPIED UNITS 127,293 244,745
OWNER OCCUPIED 47.86% 48.70%
RENTER OCCUPIED 52.14% 51.30%
1990 AVERAGE PERSON PER HH 2.53 2.51
1997 ESTIMATE HH BY INCOME 166,597 348,058
$150,000 + 3.06% 4.04%
$100,000 TO $149,999 4.28% 4.79%
$ 75,000 TO $ 99,999 6.14% 7.41%
$ 50,000 TO $ 74,999 16.69% 19.24%
$ 35,000 T0 $ 49,999 17.37% 17.98%
$ 25,000 TO $ 34,999 15.31% 14.76%
$ 15,000 TO $ 24,999 16.82% 14.95%
$ 5,000 TO $ 14,999 15.42% 12.85%
UNDER $ 5,000 4.91% 3.97%
1997 EST. AVERAGE HH INCOME $48,106 $54,080
1997 EST. MEDIAN HH INCOME $33,396 $37,893
1997 EST. PER CAPITA INCOME $18,979 $21,742
<PAGE>
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LEGAL DESCRIPTION
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<PAGE>
LEGAL DESCRIPTION
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LEGAL DESCRIPTION
PARCEL I:
A PORTION OF THE NORTHWEST QUARTER (NW 1/4) OF SECTION 31, TOWNSHIP 20 SOUTH,
RANGE 62 EAST, M.D.M. MORE PARTICULARLY DESCRIBED AS FOLLOWS:
COMMENCING AT THE SOUTHWEST CORNER OF SAID NORTHWEST QUARTER (NE 1/4) OF SECTION
31; THENCE NORTH 89(DEGREE) 32' 30" EAST ALONG THE SOUTH LINE THEREOF, A
DISTANCE OF 816.55 FEET TO THE TRUE POINT OF BEGINNING; THENCE CONTINUING NORTH
89(DEGREE) 32' 30" EAST, A DISTANCE OF 815.50 FEET TO A POINT; THENCE NORTH
0(DEGREE) 26' 25" WEST, A DISTANCE OF 935.74 FEET TO A POINT ON A NON-TANGENT
CURVE, A RADIAL LINE THROUGH SAID POINT BEARS NORTH 41(DEGREE) 22' 16" EAST;
THENCE THROUGH THE ARC OF THE LAST MENTIONED CURVE, CONCAVE NORTHEASTERLY HAVING
A RADIUS OF 180.00 FEET, SUBTENDING A CENTRAL ANGLE OF 48(DEGREE) 11' 19" AN ARC
DISTANCE OF 151.39 FEET TO A POINT; THENCE NORTH 0(DEGREE) 26' 25" WEST A
DISTANCE OF 254.06 FEET TO A POINT; THENCE NORTH 89(DEGREE) 50' 24" WEST, A
DISTANCE OF 755.54 FEET TO A POINT; THENCE SOUTH 0(DEGREE) 26' 25" EAST, A
DISTANCE OF 1,332.13 FEET TO THE TRUE POINT OF BEGINNING.
EXCEPTING THEREFROM THE INTEREST IN AND TO THE SOUTHERLY 50 FEET AS CONVEYED TO
THE CITY OF LAS VEGAS FOR ROAD AND INCIDENTAL PURPOSES BY DEED RECORDED NOVEMBER
4, 1970 AS DOCUMENT NO. 60700 OF OFFICIAL RECORDS, CLARK COUNTY, NEVADA.
ALSO EXCEPTING THEREFROM, THE INTEREST IN AND TO THE NORTHERLY 29 FEET AS
CONVEYED TO THE CITY OF LAS VEGAS FOR DRAINAGE CHANNEL BY DEED RECORDED NOVEMBER
4, 1970 AS DOCUMENT NO. 60700 OF OFFICIAL RECORDS, CLARK COUNTY, NEVADA.
PARCEL II:
A PORTION OF THE NORTHWEST QUARTER (NW 1/4) OF SECTION 31, TOWNSHIP 20 SOUTH,
RANGE 62 EAST, M.D.M., MORE PARTICULARLY DESCRIBED AS FOLLOWS:
BEGINNING AT THE SOUTHWEST CORNER OF THE NORTHWEST QUARTER (NW 1/4) THEREOF;
THENCE NORTH 89(DEGREE) 32' 05" EAST, ALONG THE SOUTH LINE OF THE NORTHWEST
QUARTER (NW 1/4) THEREOF, 816.65 FEET; THENCE NORTH 0(DEGREE) 26' 50" WEST,
1331.81 FEET; THENCE NORTH 89(DEGREE) 50' 49" WEST, 805.47 FEET TO A POINT ON
THE WEST LINE OF THE NORTHWEST QUARTER (NW 1/4) THEREOF; THENCE SOUTH 0(DEGREE)
02' 10" WEST, ALONG SAID WEST LINE 1,340.55 FEET TO THE POINT OF BEGINNING.
EXCEPTING THEREFROM THE FOLLOWING DESCRIBED PARCEL OF LAND:
BEING A PORTION OF THE WEST HALF (W 1/2) OF THE SOUTHWEST QUARTER (SW 1/4) OF
THE NORTHWEST QUARTER (NW 1/4) OF SECTION 31, TOWNSHIP 20 SOUTH, RANGE 62 EAST,
M.D.M., AND MORE FULLY DESCRIBED BY METES AND BOUNDS AS FOLLOWS, TO WIT:
BEGINNING AT A POINT ON THE RIGHT OR NORTHERLY RIGHT OF WAY LINE OF I-515
FREEWAY
SEE ATTACHED CONTINUATION OF LEGAL DESCRIPTION
(Continuation of Legal Description)
(PROJECT I-5-5-1(4)1), AT A POINT 78.48 FEET RIGHT OF AND MEASURED RADIALLY FROM
HIGHWAY ENGINEER'S STATION "A" (1185+93.56 P.O.C., SAID POINT OF BEGINNING
FURTHER DESCRIBED AS THE INTERSECTION OF THE RIGHT OR NORTHERLY RIGHT OF WAY
LINE OF I-515 FREEWAY (PROJECT I-515-1(4)1) AND THE NORTHERLY RIGHT OF WAY LINE
OF STEWART AVENUE (100.00 FEET WIDE), SAID POINT OF BEGINNING FURTHER DESCRIBED
AS BEARING NORTH 83(DEGREE) 45' 56" EAST A DISTANCE OF 544.76 FEET FROM THE EAST
QUARTER CORNER OF SECTION 36, TOWNSHIP 20 SOUTH, RANGE 61 EAST, M.D.M.; THENCE
SOUTH 89(DEGREE) 01' 53" WEST A DISTANCE OF 466.81 FEET ALONG SAID NORTHERLY
RIGHT OF WAY LINE OF STEWART AVENUE TO A POINT; THENCE FROM A TANGENT WHICH
BEARS THE LAST DESCRIBED COURSE, CURVING TO THE RIGHT WITH A RADIUS OF 25.00
FEET THROUGH AN ANGLE OF 90(DEGREE) 29' 49" AN ARC DISTANCE OF 39.49 FEET ALONG
SAID NORTHERLY RIGHT OF WAY LINE OF STEWART AVENUE TO A POINT ON THE EASTERLY
RIGHT OF WAY LINE OF PECOS DRIVE (100.00 FEET WIDE); THENCE NORTH 00(DEGREE) 28'
18" WEST A DISTANCE OF 258.24 FEET ALONG SAID EASTERLY RIGHT OF WAY LINE OF
PECOS DRIVE TO A POINT ON THE RIGHT OR NORTHERLY RIGHT OF WAY LINE OF I-515
FREEWAY (PROJECT I-515-1(4)1); THENCE NORTH 66(DEGREE) 45' 57" EAST A DISTANCE
OF 27.00 FEET ALONG SAID RIGHT OR NORTHERLY RIGHT OF WAY LINE OF I-515 FREEWAY
TO A POINT; THENCE FROM A TANGENT WHICH BEARS SOUTH 69(DEGREE) 17' 17" EAST,
CURVING TO THE RIGHT WITH A RADIUS OF 3132.00 FEET THROUGH AN ANGLE OF 10
DEGREES 06' 23" AN ARC DISTANCE OF 552.45 FEET ALONG SAID RIGHT OR NORTHERLY
RIGHT OF WAY LINE OF I-515 FREEWAY TO A POINT; THENCE SOUTH 30(DEGREE) 49' 06"
WEST A DISTANCE OF 53.52 FEET ALONG SAID RIGHT OR NORTHERLY RIGHT OF WAY LINE OF
I-515 FREEWAY TO THE POINT OF BEGINNING.
ALSO EXCEPTING THEREFROM, THE INTEREST IN AND TO THE WEST 50.00 FEET AND THE
SOUTH 50.00 FEET THEREOF, AS CONVEYED FOR ROAD PURPOSES.
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QUALIFICATIONS OF APPRAISERS
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STATEMENT OF QUALIFICATIONS
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NANCY D. PIEKOS
Real Estate Experience
Ms. Piekos has been active in the appraisal of real estate since 1993. The types
of properties appraised include office buildings, industrial buildings,
automotive dealerships, vacant land, and manufactured housing communities.
Education
Bachelor of Arts in Urban Planing from the University of Illinois,
Urbana-Champaign, Illinois, 1993.
Real Estate Education
The following courses have been completed through the Appraisal Institute:
Appraisal Procedures
Principles of Appraisal
Residential Case Studies
Standards of Professional Practice
License
Real Estate Salesperson - State of Illinois
Current Position
Associate Appraiser, Cushman & Wakefield of Illinois, Inc., Valuation Advisory
Serivces
<PAGE>
STATEMENT OF QUALIFICATIONS
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MICHAEL J. SCHAEFFER
Real Estate Experience
Mr. Schaeffer has been active in the appraisal of real estate since 1983.
Appraisal experience includes the valuation of income-producing real estate in
the Chicago area as well as many major cities and small towns throughout the
Midwest. The types of properties appraised include office buildings, regional
malls, shopping centers, country clubs, apartment complexes, subsidized housing
units, industrial buildings, nursing homes, retirement communities, automotive
dealerships, department stores, vacant land, proposed income-producing
properties, and various special purpose properties. Mr. Schaeffer also has had
over 10 years of experience in new construction and renovation of commercial,
industrial, residential and specialized real estate properties.
Education
Bachelor of Arts, University of Cincinnati, Cincinnati, Ohio MBA Graduate Course
Work in Economics and Management, Xavier University, Cincinnati, Ohio
Real Estate Education
The following courses sponsored by the Appraisal Institute have been
successfully completed:
Real Estate Appraisal Principles 1A-1
Basic Valuation Procedures 1A-2
Standards of Professional Practice
Capitalization Theory and Techniques 1BA
Capitalization Theory and Techniques IBB
Advanced Applications 550
Report Writing & Valuation Analysis 540
Mr. Schaeffer has also attended numerous lectures and seminars sponsored by the
Appraisal Institute.
Mr. Schaeffer is currently a candidate for the MAI designation of the Appraisal
Institute, and has completed the educational and experience requirements for the
MAI designation.
Current Position
Director, Appraisal Services, Cushman & Wakefield, Inc., Chicago, Illinois
<PAGE>
STATEMENT OF QUALIFICATIONS
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STANLEY R. DENNIS, JR., MAI
Real Estate Experience
Director, Manager, Cushman & Wakefield Valuation Advisory Services, Chicago,
Illinois. Division is responsible for the appraisal and consultation function of
Cushman & Wakefield, Inc., a national full service real estate organization,
1989.
Vice President, Manager, Cushman & Wakefield Appraisal Services, Portland,
Oregon, 1983.
Principal, Stanley R. Dennis & Associates, Portland, Oregon, 1982.
Education
Portland State University, Portland, Oregon
Bachelor of Science Degree, 1977, Finance and Real Estate
Appraisal Institute
Course I-A Fundamentals and Principles of Real Estate Appraisal
Course I-B Capitalization Theory and Techniques
Course II-I Case Studies in Real Estate Valuation
Course II-2 Valuation Analysis and Report Writing
Course II-3 Standards of Professional Practice
Course IV Litigation/Condemnation Valuation
Course VI Investment Analysis
Course VIII Residential Case Studies
Course X Market Analysis
Seminar Feasibility Analysis and Highest and Best Use
Seminar Discounted Cash Flow Analysis
Seminar Cash Equivalency
Seminar Subdivision Analysis
Seminar Rates, Ratios and Reasonableness
Professional Affiliations
American Institute of Real Estate Appraisers, Member (Designation #6754)
Building Owners and Managers Association (BOMA)
National Association of Corporate Real Estate Executives (NACORE)
<PAGE>
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MARKET STUDY OF REAL PROPERTY
Golden Terrace
17601 West Colfax Avenue
Golden, Jefferson County, Colorado
================================================================================
As of December 4, 1997
Prepared For:
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Prepared By:
Cushman & Wakefield of Illinois, Inc.
Valuation Advisory Services
455 North Cityfront Plaza Drive, Suite 2800
Chicago, Illinois 60611-5555
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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[Letterhead of Cushman & Wakefield of Illinois, Inc.]
December 17, 1997
Mr. Edward J. Welch
Director
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Re: Market Study of Real Property
Golden Terrace
17601 West Colfax Avenue
Golden, Jefferson County, Colorado 80401
Dear Mr. Welch:
In fulfillment of our agreement as outlined in the Letter of Engagement,
Cushman & Wakefield of Illinois, Inc., is pleased to transmit our market study
and consulting report evaluating the above referenced real property.
As specified in the Letter of Engagement, our market study and consulting
report is qualified by certain assumptions, limiting conditions, certifications,
and definitions, which are set forth in the report.
This consulting report was prepared for the Client, and it is intended
only for the specified use of the Client. It may not be distributed to or relied
upon by other persons or entities without written permission of Cushman &
Wakefield, Inc.
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the above
referenced real property, as of the date of our property inspection. The
function of the report is to assist the client, in evaluating the property for
underwriting and rating purposes.
<PAGE>
Mr. Edward J. Welch - 2 - December 17, 1997
This market study and consulting report was prepared in conformity with
the requirements of the Code of Ethics and Standards of Professional Appraisal
Practice of the Appraisal Institute and the Uniform Standards of Professional
Practice (USPAP) adopted by the Appraisal Standards Board of the Appraisal
Foundation.
This letter is invalid if detached from the report, which contains the
text, exhibits, and the Addenda.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF ILLINOIS, INC.
/s/ Jody L. Garbisch
Jody L. Garbisch
Associate Appraiser
/s/ Michael J. Schaeffer
Michael J. Schaeffer
Director
/s/ Stanley R. Dennis, Jr.
Stanley R. Dennis, Jr., MAI
Director, Manager
CUSHMAN &
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SUMMARY OF SALIENT FACTS
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Property Name: Golden Terrace
Location: 17601 West Colfax Avenue Golden, Jefferson
County, Colorado
Assessor's Parcel Number: Based on information provided by Jefferson
County Treasurer's Office, the subject
property is identified by Assessor's Parcel
Number 40-112-00-002 and Schedule Number
086124.
Date of Inspection: The property was inspected December 4, 1997.
Ownership: The subject property is legally entitled to
Snowland Vistas, Inc., an Illinois
corporation.
Land Area: Based on the property's legal plat of
survey, the subject property contains 33.091
acres of land area, or 1,441,458 square
feet.
Zoning: Based on information provided by the City of
Golden Zoning Department, the subject
property is zoned PUD, Planned Unit
Development, and is a legal and conforming
use.
Improvements
Type: A manufactured housing community.
Year Built: The subject property was originally
developed in approximately 1970.
Size: The subject property consists of a 262-site
manufactured housing community, of which
approximately 183 sites are single-wide and
79 sites are double-wide.
Condition: At the time of inspection, the subject
property was in good condition.
Property Rating: Four Star manufactured home community.
Special Assumptions: 1. Information regarding the subject
property, including its physical
characteristics, was provided to us by the
client and the on-site manager, and is
assumed to be accurate.
CUSHMAN &
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Summary of Salient Facts
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2. The existence of potentially hazardous or
toxic materials, which may be located on or
about the property, was not considered in
our evaluation. The appraisers are not
qualified to detect such substances, and
Cushman & Wakefield urges that an expert in
this field be employed to determine the
existence, if any, of hazardous materials
located on or about the site.
3. Our market and consulting report
regarding the subject assumes the subject
property, as presently improved, represents
its highest and best use.
4. It is unknown to the appraiser if the
subject property complies with the Americans
with Disabilities Act (ADA). We recommend a
qualified specialist in the final
determination regarding any ADA compliance
deficiencies that may be present at the
subject property.
5. Please refer to the complete list of
assumptions and limiting conditions included
at the end of this report.
CUSHMAN &
WAKEFIELD(R)
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TABLE OF CONTENTS
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Page
PHOTOGRAPHS OF SUBJECT PROPERTY................................................1
INTRODUCTION...................................................................5
Identification of Property...................................................5
Property Ownership and Recent History........................................5
Purpose and Function of the Market Study and Consulting Assignment...........5
Scope of the Market Study and Consulting Assignment..........................5
Date of Property Inspection..................................................5
Definitions and Other Pertinent Terms........................................5
REGIONAL ANALYSIS..............................................................8
NEIGHBORHOOD ANALYSIS.........................................................13
MARKET ANALYSIS...............................................................15
National Overview...........................................................15
Competition.................................................................22
Comparable Manufactured Housing Community Sales.............................26
Demographic Trends..........................................................29
Expense Analysis............................................................30
Market Supply and Demand....................................................30
Conclusion..................................................................30
PROPERTY DESCRIPTION..........................................................33
Site Description............................................................33
Improvements Description....................................................33
REAL PROPERTY TAXES AND ASSESSMENTS...........................................34
ZONING........................................................................34
CONCLUSION....................................................................35
ASSUMPTIONS AND LIMITING CONDITIONS...........................................36
CERTIFICATION.................................................................38
ADDENDA.......................................................................39
Pop-Fact Sheets
Legal Description
Qualifications of Appraisers
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PHOTOGRAPHS OF SUBJECT PROPERTY
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[PHOTO OMITTED]
Front Entrance of Subject Property
[PHOTO OMITTED]
Exterior of Community Center
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Photographs of Subject Property
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[PHOTO OMITTED]
Typical Interior View of the Subject Park
[PHOTO OMITTED]
Typical Interior View of the Subject Park
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Photographs of Subject Property
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[PHOTO OMITTED]
Typical Interior View of the Subject Park
[PHOTO OMITTED]
Typical Interior View of the Subject Park
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Photographs of Subject Property
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[PHOTO OMITTED]
Street Scene Facing Northeast Along West Colfax Avenue
[PHOTO OMITTED]
Street Scene Facing Southwest Along West Colfax Avenue
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INTRODUCTION
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Identification of Property
The subject property consists of a 262-site manufactured housing
community, situated on approximately 33.091 acres of land area. Golden Terrace
is located along the north side of West Colfax Avenue, in the City of Golden,
Jefferson County, Colorado. The property's street address is 17601 West Colfax
Avenue. The property was constructed in 1970, and was 99.0 percent occupied at
the time of inspection.
Property Ownership and Recent History
The subject property is currently entitled to Snowland Vistas, Inc., an
Illinois corporation, and was originally developed in 1970.
Purpose and Function of the Market Study and Consulting Assignment
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the subject
property, as of the date of property inspection. The function of the consulting
report is to assist the client in evaluating the property for underwriting and
rating purposes.
Scope of the Market Study and Consulting Assignment
In the process of preparing this report, we inspected the property,
interviewed the on-site manager, conducted market research into asking rental
rates for comparable properties, conducted market investigations, and
ascertained sales prices of comparable properties. Additionally, we conducted
market research and evaluated demographic and economic trends; and, the market
position and rating of the subject property.
Date of Property Inspection
The property was inspected December 4, 1997.
Definitions and Other Pertinent Terms
Definitions of pertinent terms taken from the Dictionary of Real Estate
Appraisal, Third Edition (1993), published by the Appraisal Institute, is as
follows:
Market Rent
The rental income that a property would most probably command on the open
market; indicated by current rents paid and asked for comparable space as
of the date of the appraisal.
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Introduction
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Evaluation
Evaluation is a study of the nature, quality, or utility of a parcel of
real estate or interest in, or aspects of, real property, in which a value
estimate is not necessarily required.
Market Study
A macroeconomic analysis that examines the general market conditions of
supply, demand, and pricing or the demographics of demand for a specific
area or property type.
Legal Description
The subject property is located along the north side of West Colfax
Avenue, in the City of Golden, Jefferson County, Colorado. The street address of
the subject property is 17601 West Colfax Avenue, Golden, Colorado. The property
is identified by parcel number 40-112-00-002 and schedule number 086124,
according to Jefferson County Treasurer's Office. Due to the lengthy metes and
bounds legal description, the subject property's legal description is presented
in the Addenda of this report, and reference is made thereto.
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LOCATION MAP
[MAP OMITTED]
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REGIONAL ANALYSIS
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Locational, economic, and population trends of the Denver-Boulder
Metropolitan Statistical Area are detailed in this section.
Location
o The DMA is a six-county region including Adams, Arapahoe, Boulder, Denver,
Douglas and Jefferson Counties.
o Primary cities within the DMA include: Denver, Arvada, Aurora, Broomfield,
Boulder, Commerce City, Englewood, Golden, Lakewood, Littleton,
Northglenn, Thornton, Westminster, and Wheat Ridge. There are various
secondary municipalities.
o The DMA is part of the Rocky Mountain Front Range, which includes the
Cities of Colorado Springs, Fort Collins, Greeley, Longmont, Loveland and
Pueblo, as well as the cities within the DMA and various smaller
municipalities.
Employment and the Economy
Employment
The non-agricultural wage & salary employment by sector in the
Denver-Boulder Metropolitan Statistical Area is summarized in the table below.
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Denver-Boulder MSA
Nonagricultural Wage & Salary Employment
July 1996
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Sector Employed
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Mining and Construction 74,000
Manufacturing 119,600
Transportation & Public Utilities 88,200
Trade 282,300
F.I.R.E. 84,100
Services 351,600
Government 157,800
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TOTAL 1,157,600
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Source: Colorado Department of Labor and Employment
o The DMA economy has grown since 1988, following substantial over-building
in the early-1980s and economic deterioration in the mid-1980s.
o The compounded, average annual increase in employment from 1990 through
1995 equaled 3.3 percent.
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Regional Analysis
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o The 1995 annual, average, non-agricultural wage and salary employment in
the Denver-Boulder MSA was 1,128,700. This represents an increase of 4.0
percent from the 1994 annual average of 1,084,800. The 1996 employment
level exhibited continued increase (2.6 percent above the year-end 1995
level).
o The strongest growth over the past year occurred in the trade and services
sectors. Growth in the construction sector has been strong, due to public
works projects, single-family construction and build-to-suit development.
Government has grown to service a larger population. Other sectors have
exhibited moderate growth.
Major Employers
o Several, major telecommunications companies are headquartered or have
major operations in the area, including TCI (largest cable-TV provider in
the country), US West (largest private employer in the DMA), MCI, Sprint
and AT&T.
o There are numerous, large high-tech manufacturing facilities in the DMA
and along the Rocky Mountain Front Range, including Lockheed Martin (3.2
million square feet in the Denver area), Eastman-Kodak (occupying 3.1
million square feet in Greeley), Hewlett Packard (occupying 3.0 million
square feet in Fort Collins, Loveland and Colorado Springs), IBM (2.5
million square feet in Boulder) and StorageTek (2.3 million square feet in
Louisville and Longmont).
o Other major employers include numerous hospitals and health care
organizations (HealthOne and Kaiser Permanente), retailers (K-Mart, King
Soopers and Safeway) and financial institutions (Colorado National Bank).
Coors Brewing Company is one of the largest employers, providing
approximately 5,300 jobs in the Denver area.
o Denver International Airport (DIA), which opened February 28, 1995,
employ's approximately 26,000; of which 21,000 employees were transferred
from Stapleton International Airport, which was closed. United Airlines
employs approximately 6,700 at the new airport.
o Rocky Flats, previously a producer of nuclear weapons trigger devices,
employs approximately 5,000. This facility is currently operated by EG&G,
a private employer. Production has been terminated and the facility will
be phased-out over a 10-year period, with labor reductions of
approximately 15 to 20 percent per year projected for the next three
years.
o Government downsizing and cutbacks in defense spending has resulted in
closure of Lowry Air Force Base in Denver and decreased operations of EG&G
Rocky Flats.
o Lowry Air Force Base was recently closed, resulting in the elimination of
1,900 civilian positions, transfer or elimination of 2,200 military
positions and 2,500 students. The vacated base is being converted to
educational, research, commercial and residential use. The new Higher
Education and Advanced Technology Center on 156 acres is operated by
several colleges in the area.
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Regional Analysis
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The 20 largest private employers in the Denver Metropolitan Area are
summarized in the following table.
<TABLE>
<CAPTION>
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20 Largest Private Employers in the Denver Metropolitan Area
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No. Company # Employed Primary Business Recent Announcements
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
*1 US West (All Operations) 15,400 Telecommunications Consolidating operations into Colorado
from throughout the Rocky Mountain
region.
*2 Columbia-HealthONE LLC 10,500 Hospitals, health care Recent merger of several hospitals
3 AT&T (All Operations) 8,000 Telecommunications services Numerous facilities in the area.
4 King Soopers 7,000 Grocery stores Largest grocer in the area with major
distribution facilities.
5 Lockheed Martin Corp. 7,000 Aerospace and Lockheed and Martin Marietta recently
defense-related systems merged. Largest defense contractor in the
nation.
6 United Airlines, Inc. 6,700 Airline, reservation center Major hub at new airport.
*7 Coors Brewing Company 5,300 Beverages Third-largest brewing company.
8 Rocky Flats Environmental 5,000 Clean-up and waste Will be phased-out over 10 years.
Technology Site management
9 Safeway 4,300 Grocery stores Largest grocer in nation.
*10 Public Service Company of Colorado 3,500 Natural gas and Major public utilities provider recently
electric utility cut 700 positions.
*11 StorageTek 3,500 Computer storage devices Recently cut 1,700 positions and placed a
550,000 SF facility on market.
*12 Provenant Health Partners 4,043 Health care Major hospital merger recently.
13 Kaiser Permanente of Colorado 3,055 Health care Numerous medical facilities throughout
region; major HMO.
14 Colorado National Bank 3,000 Bank services First Bank Systems recently acquired and
merged Bank Western, Central Bank and
Colorado National Bank.
*15 Lutheran Medical Center 2,800 Hospital, health care Large hospital.
16 Ball Corporation 2,650 Aerospace research & Recently won major contract with US
productions, containers Government.
17 IBM 2,500 Computer services Significant cuts totaling approx. 2,500
over past several years.
*18 St. Joseph Hospital 2,500 Hospital, health care Large hospital.
*19 University Hospital 2,450 Hospital, health care Large hospital.
20 K-Mart Stores 2,400 Retail stores Includes K-Mart, Super-K, Price Club,
Builder's Square.
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</TABLE>
* Headquarters in Denver Metropolitan Area
Source: The Business Development Group, Greater Denver Chamber of Commerce,
Cushman and Wakefield of Colorado, Inc.
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Regional Analysis
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o Merrill Lynch (financial services) plans to construct a one million
square-foot campus-type facility in the southeast quadrant of the DMA and
employ 3,000 to 5,000. The first 106,400 square-foot facility in the
Meridian International Business Center is nearing completion, and
construction is at its highest levels since the building boom of the
early-1980s.
o Office occupancy has reached stabilized levels in most markets, due to
improved economic conditions and population growth. Office rental rates
have increased substantially since 1993, and speculative construction is
occurring in prime market areas, including the Denver Tech Center and
Boulder. Certain submarkets continue to lag in improvement, including
Denver's central business district. There are numerous build-to-suit
projects, as several large companies have established regional or national
headquarters in the Denver area.
o Industrial market conditions have improved substantially since 1993,
resulting in the achievement of stabilized occupancy levels. Proforma
rental rates have been reached in prime market areas. Numerous speculative
industrial projects are under way near the Denver International Airport,
with over 3 million square feet recently completed or under way. The
developers of a majority of these speculative projects require lease-up
prior to breaking ground. Build-to-suit construction has been substantial.
o Build-to-suit retail construction has been substantial throughout the DMA,
involving predominately national retailers such as "big box" operations
and national chain restaurants. The new Park Meadows Town Center, a 1.3
million square-foot regional mall, located in the southeast suburban
portion of the DMA, was completed in September 1996. There has been some
speculative retail development in prime market areas.
o The Denver Metropolitan Area economy has exhibited one of the strongest
growth rates in the nation in the 1990s. The result has been an influx of
investors, national retailers, major corporations, and other investors and
users of real property. The growth is projected to continue, though at
moderating levels to recent years.
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NEIGHBORHOOD MAP
[MAP OMITTED]
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NEIGHBORHOOD ANALYSIS
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City of Golden
Golden is located 15 miles west of downtown Denver, and is in a valley at
the foot of the Rocky Mountains. Golden covers eight square miles, and is
elevated 5,676 feet. Five major highways, including Interstate 70, Colorado 470
and U.S. Highway 6, which provide a direct route to Denver, Boulder and the
Rocky Mountains, serve the city.
Golden is home to the Coors Brewery and several Coors subsidiaries
involved in manufacturing of high technology products, and is Golden's leading
industry. In addition to employing 5,000 people, its brewery tour attracts
roughly 300,000 visitors each year. The major employers in Golden are as
follows:
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Major Employers
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Company Number of Employees
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Jefferson County R-1 School 9,900
District
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Coors Industries 5,000
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Rocky Flats Environmental 4,000
Technology
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Jefferson County Government 2,000
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National Renewable Energy 750
Laboratory
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Ball Corporation 656
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Colorado School of Mines 655
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Mobile Premix Concrete 519
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Rocky Mountain Banknote 450
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Source: Greater Golden Chamber of Commerce
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Neighborhood Description
The subject property is located approximately three miles southeast of
downtown Golden, along the north side of West Colfax Avenue (State Highway 40),
in the City of Golden, Colorado.
The subject property's neighborhood is generally bounded by U.S. Highway 6
to the north, Interstate 70 to the east, State Highway 40 to the south and
County Road 93 to the west. This area is primarily developed with residential
and commercial uses.
Residential developments include single-family houses and manufactured
housing communities, which are located primarily to the north and west of the
subject property. Manufactured housing communities to the west of the subject
include Golden Terrace South and Golden Terrace West. Mountain Side manufactured
community is located to the
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Neighborhood Analysis
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northeast of the subject property. Comparison rental information is provided in
the Market Analysis section of this report. Commercial developments are located
to the south of the subject along West Colfax Avenue, such as convenience
stores, gas stations, fast food restaurants and neighborhood shopping centers.
Transportation in the subject's immediate area is excellent. The subject
property enjoys access and visibility along West Colfax Avenue, a
northeast/southwest, four-lane paved roadway. Interstate 70 lies approximately
one mile east of the subject property, and can be access from the subject site
via U.S. Highway 6. U.S. Highway 6 borders the northern portion of the subject
site, however, the subject can only be accessed from West Colfax Avenue.
In summary, the subject property is situated in an area well suited for
manufactured housing development, which benefits from the nearby manufactured
housing communities and accessibility to Interstate 70, U.S. Highway 6, and
State Highway 40. Real estate values are anticipated to increase at a steady
pace. The economy in the area is anticipated to be good, with unemployment
steadily decreasing and population anticipated to increase.
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MARKET ANALYSIS
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National Overview
Reportedly, the largest property owners of manufactured housing
communities in the United States are: ROC Communities, headquartered in
Colorado; MHC, Inc., headquartered in Illinois; Ellenburg Capital, headquartered
in Oregon; Lautrec Ltd., headquartered in Michigan; Clayton Homes, headquartered
in Tennessee; Clayton Williams and Sherwood, headquartered in California;
Chateau Properties, Sun Communities and UNIPROP, headquartered in Michigan.
The following represents the top ten manufactured housing community firms,
as reported by GFA Management, as of 1997.
<TABLE>
<CAPTION>
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1997 Firm Name State No. of Sites No. of Communities
Rank Owned/Managed Owned/Managed
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<S> <C> <C> <C> <C>
1 Sun Communities Michigan 30,295/0 84/0
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2 ROC Communities Colorado 22,441/7,167 77/36
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3 Manufactured Home Communities Illinois 27,349/838 69/3
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4 Ellenburg Capital Florida 25,173/0 63/0
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5 Lautrec Ltd. Michigan 22,652/0 58/0
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6 Chateau Properties Michigan 20,003/0 47/0
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7 Clayton Homes Tennessee 18,000/0 66/0
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8 Clayton, Williams and Sherwood California 16,946/0 44/0
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9 UNIPROP Michigan 14,931/0 40/0
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10 The Bloch Organization Michigan 14,379/0 37/0
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</TABLE>
According to the U.S. Census Bureau, more than 8,521,000 people were
living in manufactured housing communities as of 1990 compared to 3,838,678 in
1980. This represents an increase in manufactured housing community living of
approximately 122.0 percent over the last ten years. Over the last ten years,
there has been a steady increase in manufactured housing community development
across the country. Among the demographic factors which account for the increase
in manufactured housing community living are: decreasing household size, a
growing demand for smaller housing, as well as an alternative to the increasing
cost of housing. Nationally, the largest percentage of manufactured housing
communities are located in California, Michigan, Colorado, Florida, New York,
Minnesota, Indiana, Arizona, Ohio, and Wisconsin.
The manufactured home industry has dramatically changed over the last 20
years.
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Market Analysis
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Manufactured homes are now designed and constructed to accommodate spacious and
attractive living requirements. Today, approximately one out of sixteen families
live in manufactured housing units. The manufactured housing market share has
been growing steadily over the last 10 years. In 1990, 6.7 percent of Americans
lived in manufactured housing units, up from 2.9 percent compared to 1970,
according to the U.S. Census Bureau, which represents 12.0 to 14.0 percent of
all new housing built since the mid-1980's, according to the Manufactured
Housing Institute in Arlington, Virginia.
In 1990, the average cost of a manufactured housing unit was $27,800
compared to $149,000 for a new house (including land), according to the
Manufactured Housing Institute. This reflects a 28.0 percent increase in the
cost of manufactured housing since 1980 versus a 49.0 percent increase in
conventional housing. Industry experts estimate that a single-family home
selling for $150,000 would require an annual income of $52,671. To purchase a
$27,800 manufactured housing unit, only a $19,984 income level would be
required.
At Fleetwood Enterprises, the nation's largest manufacturer of
manufactured housing units, units may be purchased for up to $100,000, which
would include a three-bedroom, two-bath unit of 2,100 square feet, with vaulted
ceilings.
In 1990, approximately 10.0 percent of manufactured home owners lived in
units worth approximately $40,000, up from 4.0 percent compared to 1981,
according to a study conducted by Foremost Insurance Company in Grand Rapids,
Michigan. Also, according to the study, approximately 21.0 percent of the
manufactured housing households are occupied by people' 65 years of age or
older, slightly lower than the age group for conventional homes, as reported by
Foremost Insurance.
The demand for good quality institutional grade manufactured housing
communities has substantially increased over the last ten years. Manufactured
housing communities provide an affordable alternative to the increasing cost of
housing. Also, manufactured housing communities provide an alternative form of
living for the elderly and retirees, especially for those living on fixed
incomes.
Acquisitions of manufactured housing communities during 1993 and 1994 were
clearly dominated by Real Estate Investment Trusts. During 1994 and 1995
Manufactured Home Communities (MHC) and ROC communities lead the acquisition of
manufactured housing communities nationally. During 1996, Sun Communities
captured the lead and, together with ROC and MHC dominate the Real Estate
Investment Trust market.
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Market Analysis
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The following chart represents the largest Real Estate Investment Trusts,
from 1991 to 1996, as reported by GFA Management
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HOME SITE GROWTH, DEVELOPMENT AMONG THE LARGEST
REAL ESTATE INVESTMENT TRUST (REITS)
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Annual
Year ROC MHC Chateau Sun United Total Growth
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1996 29,608 28,187 20,003 30,295 5,234 113,327 17.0%
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1995 27,910 26,237 19,594 18,000 4,850 96,591 9.0%
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1994 26,231 28,407 15,689 13,500 4,623 88,450 37.8%
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1993 20,142 14,700 15,261 9,036 5,050 64,189 17.8%
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1992 18,745 12,873 10,032 7,600 5,200 54,450 N/A
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1991 9,030 13,079 9,759 N/R N/R N/A N/A
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N/R = No report N/A = Not applicable
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NOTE: The 113,327 sites counted for the top five REITs in 1996 make up 20
percent of the total sites surveyed in the 1997 Allen Report. These rental sites
are located in 339 communities, accounting for about 1 percent of some 50,000
existing manufactured housing communities nationwide. The community counts for
the five major REITs are: ROC (113), MHC (72), Chateau (47), Sun (84) and United
(23). The proportion of communities owned by each of the REITs compared to the
others is: ROC (33%), MHC (21%), Chateau (14%), Sun (25%) and United (7%).
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Manufactured Home Communities (MHC) is expected to continue an aggressive
acquisition campaign through 1997 and beyond. As of September 1997, the MHC REIT
had a market cap of $632.0 million, and continues to pursue the acquisition of
manufactured home communities. Aside from the ELL-CAP $300.0 million
transaction, in September 1997 Manufactured Home Communities, Inc. completed a
$107.0 million purchase of 18 manufactured housing communities and two related
commercial properties from partnerships affiliated with Mobileparks West. The
communities, with 3,505 sites, were purchased with about $3.0 million
manufactured home operating units, $16.0 million in cash and $20.0 million of
installment notes and assumed debt. The communities have an average monthly
rental of $349.00. The communities are located in California, Utah, Oregon,
Washington and Nevada. MHC may be the first manufactured home community REIT to
reach $1.0 billion.
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Market Analysis
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The MHC REIT continues to perform and expand, and as of September 1997 was
trading at $25.625, with a current yield of 5.2 percent. The top traded REITs,
are presented as follows.
================================================================================
REIT MARKET UPDATE
- --------------------------------------------------------------------------------
Company Price Current 52 Week 52 Week Annual 12 Mth
Symbol (9/19/97) Yield High Low Dividend Tot Rtn
- --------------------------------------------------------------------------------
CPJ $29.688 5.8% $31.125 $22.250 1.72 26.6%
- --------------------------------------------------------------------------------
MHC $25.625 5.2% $26.428 $18.875 1.32 30.7%
- --------------------------------------------------------------------------------
SUI $37.428 5.0% $ 38.00 $27.750 1.88 31.8%
- --------------------------------------------------------------------------------
UMH $11.625 6.0% $13.625 $10.875 0.70 -1.7%
- --------------------------------------------------------------------------------
Total return figures obtained through Standard & Poors and are for the period
through Sept 1997.
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The Southwest and Northwest Regions of the nation are the preferred
locations regarding recent and future manufactured housing community
acquisitions. However, investors seeking moderate, but consistent growth
expectations, are still looking at the midwest region. Also, southern portions
of Florida are still considered a prime area for investors seeking good quality
manufactured housing communities, with good up-side potential. What was once a
stagnant market, the northeast region is now being considered for future
acquisitions.
According to a recent study prepared by Merrill Lynch & Company, ownership
in the manufactured housing community industry is highly fragmented. The top 150
owner-operators account for less than 5.0 percent of the total industry, whereas
a host of "mom-and-pop" private companies account for the other 95.0 percent.
This unglamorous niche industry is ripe for consolidation, and an infusion of
professional management expertise is likely to yield significant economies of
scale. The four REIT's specializing in manufactured housing communities are
already among the top ten owner-operators, and are well positioned to facilitate
and hasten the industry's consolidation to the likely benefit of their
stockholders.
Manufactured homes are the fastest growing component of the nation's
housing inventory, due to their affordability, good quality design and safety
standards. According to the Merrill Lynch & Company Manufactured Housing
Community Industry Report, factory-built homes appeal especially to senior
citizens and to households with limited economic needs, two segments of the
population that are likely to grow rapidly in coming years.
Consistent returns in manufactured housing community investments have been
the mainstay of the industry. For this reason, as well as the amount of
acquisitions seen by Real
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Market Analysis
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Estate Investment Trusts (REITs) from 1991 to 1996, the availability of good
quality manufactured housing communities has been substantially reduced compared
to the 1980's. Good quality manufactured housing communities still command
premium prices, thus driving down overall capitalization rates.
Cushman & Wakefield's Valuation Advisory Services has tracked sale
transactions of manufactured housing communities since 1985. Overall
capitalization rates have consistently been within the 8.75 to 10.00 percent
range for communities located in moderate to increasing growth markets, and as
low as near 8.0 percent for those communities located in growing markets that
poses significant upside potential. Overall capitalization rates are clearly
affected and are differentiated among the properties relative to rent levels,
age, quality, condition, location, amenities, demographic characteristics,
resident profile, as well as the quality of management.
Manufactured housing communities fall within, and are categorized by their
overall appearance, age, and amenities, but more importantly the strength of the
local market. The various categories of manufactured housing communities,
according to the Woodall Directory, can be ranked as 1 to 5 Star Parks. These
rankings are defined as follows:
One Star Park
The most important consideration for a one star park is overall
appearance. If it is not a decent place to live, it will not be listed in
Woodall's Directory. The following are general requirements:
o Fair overall appearance;
o Patios on most lots. May be concrete, asphalt, wood, or some
suitable material;
o Grass, rock or shell to cover ground;
o Streets fair to good. May be dirt, asphalt or gravel in reasonable
condition;
o Restrooms clean, if any;
o Adequate laundry or laundromat nearby;
o If fences allowed, must be neat;
o Mail service;
o Homes may be old models, but show evidence of care; and,
o Manager available some hours of each day.
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Market Analysis
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Two Star Park
In addition to the requirements for a one star park, a two star park will
have the following:
o Landscaping - some lawns and shrubs;
o Streets in good condition. Must be dust free of crushed rock, gravel
or shell minimum;
o Neat storage;
o Well equipped laundry or laundromat nearby;
o 200 volt connections available;
o If children accepted, park should have play area;
o Park free of clutter, such as old cars and other abandoned
equipment; and,
o Well maintained and managed.
Three Star Park
What a three star park does it does well, but not as uniformly as higher
rated parks. Many three star parks were once higher rated, but original
construction does not allow for today's 10-foot, 12-foot, and double-wides
or the 55-foot and 60-foot lengths. If children are allowed, there should
be adequate play area. However, the disarray caused by children may at
times be the determining factor that keeps a three star park at that level
when it otherwise could be rated higher. In addition to the requirements
for one and two star parks, a three star park must have the following:
o Attractive entrance;
o All homes must be in good condition;
o Awnings and cabana rooms on some homes in southern areas;
o Some spaces for large mobile homes;
o Paved or hard surfaced streets;
o Off-street parking or streets wide enough for safe on-street
parking;
o Good lawns or substitute throughout, shade trees, some shrubs where
climate permits;
o Concrete patios or the equivalent on all lots;
o All lots neat and attractive;
o All park buildings in good repair; and,
o Good management.
Four Star Park
Four star parks are luxury parks. In addition to the requirements for one,
two and three star parks, a four star park must have the following:
o Good landscaping;
o Most homes skirted with metal skirts, concrete block, ornamental
wood or stone;
o Paved streets, edged or curbed.
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Market Analysis
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o Uncrowded lots;
o Underground utilities if permitted by local conditions and
authorities;
o Most tanks, if present, concealed;
o Any hedges or fences must be attractive and uniform;
o Awnings, cabanas, or porches on most homes in southern areas.
(Excepting double-wide units.);
o Most lots to accommodate large mobile homes;
o Where row parking of homes exists, all must be lined up uniformly;
o Community hall and/or swimming pool and/or recreation programs. If a
park is four star in all but this requirement, the fourth star will
be printed as an open star indicating a four star park without
park-centered recreation; and,
o Excellent management.
Five Star Park
Five star parks are the finest. They should be nearly impossible to
improve. In addition to the requirements for one, two, three, and four
star parks, a five star park must have the following:
o Well planned and laid out spacious appearance;
o Good location in regard to accessibility and desirable neighborhood.
In some locations, park should be enclosed by high hedges or
ornamental fence;
o Wide paved streets in perfect condition. Curbs or lawns edged to
streets, sidewalks, street lights, street signs;
o Homes set back from street;
o Exceptionally attractive entrance and park sign;
o Patios at least 8 x 30 feet. (Excepting double-wide units.);
o Paved off-street parking such as carports or planned parking;
o All homes skirted; All hitches concealed. Any existing tanks
concealed;
o Recreation, some or all of the following: swimming pool (excepting
areas with long, cold winters), shuffleboards, horseshoe pitching,
golf course, hobby shop, hobby classes, games, potlucks, dances or
natural recreational facilities;
o Beautifully equipped recreation hall with kitchen. Room for
community gatherings, tiled restrooms, etc.;
o Uniform storage sheds or central storage facilities;
o All late model homes in excellent condition;
o At least 60 percent occupancy in order to judge quality of residents
which indicates park's ability to maintain a five star rating
between inspections;
o All empty lots grassed, graveled or otherwise well maintained;
o If pets or children allowed, there must be a place for them to run
and play without cluttering the streets and yards. Most five star
parks are for adults only; and,
o Superior management interested in comfort of residents and
maintenance of park.
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Market Analysis
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The demand for good quality institutional grade manufactured housing
communities is anticipated to increase throughout the 1990's, since manufactured
housing communities provide an alternative form of living for the elderly and
retirees, especially for those living on fixed income. Manufactured home
shipments continue to be strong. Shipments rose 20.0 percent in 1992 and 1994,
and 12.0 percent in 1995. The market for good quality manufactured housing
communities is expected to be strong, with yield and capitalization rates and
prices expected to continue to be competitive, with the REITs leading the way.
Competition
We have surveyed six manufactured housing communities located within the
subject's primary market, including the subject property, containing a total of
1,409 sites. The combined occupancy rate of these six manufactured housing
communities, including the subject property, is approximately 99.0 percent.
Excluding the subject property in our survey, the combined occupancy rate is
also approximately 99.0 percent, based on 1,147 sites.
The name and location of the subject property's primary competition, as
well as the number of sites, occupancy levels, amenities offered, monthly rental
rates and services provided in the monthly rental rate, are presented on the
following facing page, along with a map which identifies the location of each
competing park.
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<TABLE>
<CAPTION>
====================================================================================================================================
SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- ------------------------------------------------------------------------------------------------------------------------------------
Age
Number ----------
Of Sites Condition 3-Year
--------- ---------- Services Date Of Average
Comp. Name Occupancy Park Monthly Provided Last Rental Annual Rental
No. Location Level Amenities Rating(1) Rent in Rent Increase Increase
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R-1 Golden Terrace South 80 Laundry(2) 1967 $330.00/Mo. Water May, 1997 $17.00/Mo.
17801 West Colfax Avenue ---- ---- To Sewer
Golden, Colorado 99% Good $360.00/Mo. Refuse
----
4*
- ------------------------------------------------------------------------------------------------------------------------------------
R-2 Golden Terrace West 316 Clubhouse 1969 $363.00/Mo. Refuse January, 1997 $23.00/Mo.
431 Zeta Street ---- Pool ---- To
Golden, Colorado 98% Billiard Room Good $388.00/Mo.
Playground ----
Storage 4*
- ------------------------------------------------------------------------------------------------------------------------------------
R-3 Mountain Side Estate 229 Clubhouse 1960 $330.00/Mo. Water May, 1997 $15.00/Mo.
17190 Mt. Vernon Road --- Pool ---- Sewer
Golden, Colorado 100% Laundry Good Refuse
Storage ----
4*
- ------------------------------------------------------------------------------------------------------------------------------------
R-4 Wolhurst 272 Clubhouse 1973 $355.00/Mo. Water December, 1997 $17.00/Mo.
8201 S. Santa Fe Drive ---- Pool ---- To Sewer
Littleton, Colorado 100% Activity Room Good $385.00/Mo. Refuse
Laundry ----
Storage 5*
- ------------------------------------------------------------------------------------------------------------------------------------
R-5 South Park 250 Clubhouse 1958 $303.00/Mo. Water August, 1997 $7.00/Mo.
3650 S. Federal Boulevard --- Pool ---- To Sewer
Denver, Colorado 100% Playground Good $331.00/Mo. Refuse
Activity Room ----
Laundry 4*
- ------------------------------------------------------------------------------------------------------------------------------------
Subject Golden Terrace 262 Clubhouse 1970 $374.00/Mo. Refuse January, 1997 $23.00/Mo.
17601 West Colfax Avenue --- Pool/Spa ----
Golden, Colorado 99% Billiard Room Good
Storage ----
4*
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Ratings from One Star to Five Star Parks are defined in the National Overview section of this report.
(2) Golden Terrace South tenants are permitted to use amenities at Golden Terrace and Golden Terrace West.
====================================================================================================================================
</TABLE>
<PAGE>
COMPETING MANUFACTURED HOUSING MAP
[MAP OMITTED]
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Market Analysis
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Rental rates of manufactured housing communities located within the
subject's primary market range from $303.00 to $388.00 per site, on a monthly
basis. The subject property is currently quoting a monthly rental rate within
the market range, or at $374.00 per site. The last rental rate increase at the
subject property was as of January, 1997, of $25.00 per month.
The enclosed comparable rentals are considered the most competitive to the
subject property regarding amenities offered, condition, location and overall
ranking.
Comparable R-1, Golden Terrace South, is located at 17801 West Colfax
Avenue, in Golden, Colorado. This comparable property contains 80 sites,
and is 99.0 percent occupied. Golden Terrace South was developed in 1967,
and is in overall good condition. Over the last three years, the annual
rental rate increased approximately $17.00 per month. Monthly rental rates
range from $330.00 to $360.00, with water, sewer and refuse service
included in monthly rental payment. Amenities includes only a laundry
facility, however, tenants are permitted to use amenities at Golden
Terrace and Golden Terrace West.
Comparable R-2, Golden Terrace West, is located at 431 Zeta Street, in
Golden, Colorado. This comparable property contains 316 sites, and is 98.0
percent occupied. Golden Terrace West was developed in 1969, and is in
overall good condition. Over the last three years, the annual rental rate
increased approximately $23.00 per month. Monthly rental rates range from
$363.00 to $388.00, with refuse service included in monthly rental
payment. Amenities include a clubhouse, pool, billiard room, playground
and recreational vehicle storage.
Comparable R-3, Mountain Side Estates, is located at 17190 Mt. Vernon
Road, in Golden, Colorado. This comparable property contains 229 sites,
and is 100.0 percent occupied. Mountain Side Estates was developed in
1960, and is in overall good condition. Over the last three years, the
annual rental rate increased approximately $15.00 per month. Monthly
rental rates are at $330.00, with water, sewer and refuse service included
in monthly rental payment. Amenities include a clubhouse, pool, laundry
facility and recreational vehicle storage.
Comparable R-4, Wolhurst, is located at 8201 S. Santa Fe Drive, in
Littleton, Colorado. This comparable property is a 55-year-old and greater
residential community, which contains 272 sites and is 100.0 percent
occupied. Wolhurst was developed in 1973, and is in overall good
condition. Over the last three years, the annual rental rate increased
approximately $17.00 per month. Monthly rental rates range from $355.00 to
$385.00, with water, sewer and refuse service included in monthly rental
payment. Amenities include a clubhouse, pool, activity room, laundry
facility and recreational vehicle storage.
Comparable R-5, South Park, is located at 3650 S. Federal Boulevard, in
Denver, Colorado. This comparable property is a 55-year-old and greater
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Market Analysis
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residential community, which contains 250 sites and is 100.0 percent
occupied. South Park was developed in 1958, and is in overall good
condition. Over the last three years, the annual rental rate increased
approximately $7.00 per month. Monthly rental rates range from $303.00 to
$331.00, with water, sewer and refuse service included in monthly rental
payment. Amenities include a clubhouse, pool, activity room and laundry
facility.
In our opinion, and based on conversations with the on-site manager,
properties R-1, R-2 and R-3 compete most favorably with the subject property,
with monthly rental rates ranging from $330.00 to $388.00 per site. The subject
property is currently quoting monthly rental rates at $374.00 per site, which is
within the range of rental rates of our more comparable competing properties.
The subject property competes most effectively with its primary competitors
regarding amenities, condition and current rent structure.
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Market Analysis
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Comparable Manufactured Housing Community Sales
A search of the subject's market revealed six recent sales of manufactured
housing communities located in the Denver Metropolitan Area. The following is a
brief discussion of each of the manufactured housing sales located within the
subject's market. These sales are summarized on the following facing page.
Comparable Sale I-1, Pine Lakes, is located at 10201 Riverdale Road, in
Thornton, Colorado. This property contains 760 sites, situated on 183.67
acres of land area. The property was developed in 1972, and was in overall
good condition at the time of sale. Amenities include two clubhouses, two
pools, recreation room, tennis court, basketball court, and a playground.
The property was approximately 90.0 percent occupied at the time of sale.
The property was purchased for $12,500,000 as a combined transaction with
sale I-2, which equates to $16,447 per site,
Comparable Sale I-2, Redwood Estate II, is located at 9595 Pecos Street,
in Thornton, Colorado. This property contains 752 sites, situated on
128.22 acres of land area. Amenities include a clubhouse, pool, recreation
room, playground and recreational vehicle storage. The property was
approximately 93.0 percent occupied at the time of sale. The property was
purchased for $12,500,000 as a combined transaction with sale I-1, which
equates to $16,622 per site.
Comparable Sale I-3, Canyon Ridge, is located at 5150 Airport Road, in
Colorado Springs, Colorado. This property contains 250 sites, situated on
31.36 acres of land area. Canyon Ridge was developed in 1972, and was in
good condition at the time of sale. Amenities include a clubhouse, pool,
recreation room and laundry facility. The property was approximately 99.0
percent occupied at the time of sale. The property was purchased for
$4,200,000, which equates to $16,800 per site.
Comparable Sale I-4, Cottonwood Village, is located at 11990 S. Boulder
Road, in Layfayette, Colorado. This property contains 241 sites, situated
on 19.36 acres of land area. Cottonwood Village was developed in 1972, and
was in overall good condition at the time of sale. Amenities include a
clubhouse, pool, recreation room, playground and laundry facility. The
property was 100.0 percent occupied at the time of sale. The property was
purchased for $4,800,000, which equates to $19,917 per site.
Comparable Sale I-5, Canterbury Park, is located at 3020 S. Powers
Boulevard, in Colorado Springs, Colorado. This property contains 496
sites, situated on 61.73 acres of land area. Canterbury Park was developed
in 1985, and was in overall good condition at the time of sale. Amenities
include a clubhouse, pool and recreational vehicle storage. The property
was 100.0 percent occupied at the time of sale. The property was purchased
for $9,300,000, which equates to $18,750 per site.
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SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- ------------------------------------------------------------------------------------------------------------------------------------
$EGI/Site
Sales Price --------------
Per Site $Expense/Site
Sales Date Land Area Density --------- EGIM -------------
Comp. Name ---------- --------- -------- Occupancy ---- Expense Ratio
No. Location Sales Price No. Sites Condition At Sale $NOI/Site OAR % Of EGI
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
I-1 Pine Lakes 7/96 183.67 4.14 $16,447 $1,563 N/A N/A
10201 Riverdale Road ---------- ------ ---- ------- ---
Thornton, Colorado $12,500,000(1) 760 Good 90% 9.50%
- ------------------------------------------------------------------------------------------------------------------------------------
I-2 Redwood Estate II 7/96 128.22 5.86 $16,622 $1,579 N/A N/A
9595 Pecos Street ---------- ------ ---- ------- ---
Thornton, Colorado $12,500,000(1) 752 Good 93% 9.50%
- ------------------------------------------------------------------------------------------------------------------------------------
I-3 Canyon Ridge 7/96 31.36 7.97 $16,800 $1,512 N/A N/A
5150 Airport Road --------- ----- ---- ------- ---
Colorado Springs, CO $4,200,000 250 Good 99% 9.00%
- ------------------------------------------------------------------------------------------------------------------------------------
I-4 Cottonwood Village 9/95 19.36 12.45 $19,917 $1,591 6.45x $3,089
11990 S. Boulder Road --------- ----- ----- ------- ----- ------
Lafayette, Colorado $4,800,000 241 Good 100% 7.99% $1,498
------
48.50%
- ------------------------------------------------------------------------------------------------------------------------------------
I-5 Canterbury Park 7/95 61.73 8.03 $18,750 $2,037 6.91x $2,714
3020 S. Powers Blvd. --------- ----- ---- ------- ----- ------
Colorado Springs, CO $9,300,000 496 Good 100% 10.87% $677
----
24.95%
- ------------------------------------------------------------------------------------------------------------------------------------
I-6 Woodland Hills 3/94 57.0 7.63 $18,391 $1,885 5.56x $3,310
1500 West Thornton --------- ---- ---- ------- ----- ------
Thornton, Colorado $8,000,000 435 Good 97% 10.25% $1,425
------
43.05%
- ------------------------------------------------------------------------------------------------------------------------------------
Subject Golden Terrace - - - 33.091 7.92 - - - $3,545 N/A $4,773
17601 West Colfax Avenue ------ ---- ------
Golden, CO 262 Good 95% $1,228
------
25.73%
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Sale I-1 and I-2 were purchased as a combined transaction.
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</TABLE>
<TABLE>
<CAPTION>
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SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- ------------------------------------------------------------------------------------------------
Comp. Name Comparability to
No. Location to the Subject Comments
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
I-1 Pine Lakes Similar Good condition; Amenities include
10201 Riverdale Road two clubhouses, two pools,
Thornton, Colorado recreation room, tennis,
basketball and playground.
- ------------------------------------------------------------------------------------------------
I-2 Redwood Estate II Similar Good condition; Amenities include
9595 Pecos Street a clubhouse, pool, recreation
Thornton, Colorado room, playground and RV storage.
- ------------------------------------------------------------------------------------------------
I-3 Canyon Ridge Inferior Developed in 1972;
5150 Airport Road Good condition; Amenities include
Colorado Springs, CO a clubhouse, pool, recreation
room and laundry facility.
- ------------------------------------------------------------------------------------------------
I-4 Cottonwood Village Inferior Developed in 1972; Good
11990 S. Boulder Road condition; Amenities include a
Lafayette, Colorado clubhouse, pool, recreation room,
playground and laundry facility.
- ------------------------------------------------------------------------------------------------
I-5 Canterbury Park Similar Developed in 1985; Good
3020 S. Powers Blvd. condition; Amenities include a
Colorado Springs, CO clubhouse, pool and RV storage.
- ------------------------------------------------------------------------------------------------
I-6 Woodland Hills Similar Developed in 1970; Good
1500 West Thornton condition; Amenities include a
Thornton, Colorado clubhouse, pool, playground and
barbecue pavilion.
- ------------------------------------------------------------------------------------------------
Subject Golden Terrace Subject Property Developed in 1970; Good
17601 West Colfax Avenue condition; Amenities include a
Golden, CO clubhouse, pool, spa, exercise
room, billiard room, playground,
laundry facility and RV storage.
- ------------------------------------------------------------------------------------------------
(1) Sale I-1 and I-2 were purchased as a combined transaction.
================================================================================================
</TABLE>
<PAGE>
Market Analysis
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Comparable Sale I-6, Woodland Hills, is located at 1500 West Thornton, in
Thornton, Colorado. This property contains 435 sites, situated on 57.0
acres of land area. Woodland Hills was developed in 1970, and was in
overall good condition at the time of sale. Amenities include a clubhouse,
pool, playground and barbecue pavilion. The property was 97.0 percent
occupied at the time of sale. The property was purchased for $8,000,000,
which equates to $18,391 per site.
It should be noted that comparability does not imply an identical or exact
duplicate, but rather the possession of a similar utility and affected by
similar supply and demand forces. Also, relative to the subject property,
differences include: time or date of the transactions; location, which
encompasses differences in accessibility; site characteristics, including
differences in size, topography, access, exposure and development capacities;
and improvement characteristics, which include differences in age, quality,
condition, size and amenities.
Demographic Trends
Based on information provided by National Decision Systems (NDS), the
populations within the subject's primary 5-mile and secondary 10-mile market
areas, as of 1997, are 91,224 and 494,783, respectively. The populations of the
subject's primary and secondary market areas are projected to increase to 97,412
and 529,170, respectively, by the year 2002.
According to NDS, the total number of households within the subject's
primary and secondary market areas, are 38,376 and 209,704, respectively, for
1997. The number of households within the subject's primary 5-mile and secondary
10-mile market areas are projected to increase to 42,225 and 234,545,
respectively, by the year 2002.
The average household income levels within the subject's primary and
secondary market areas, for 1997, are $67,102 and $54,999, respectively, and are
expected to increase to $86,184 and $69,440, respectively, by the year 2002. The
median household income levels within the subject's primary and secondary market
areas, for 1997, are $50,366 and $41,864, respectively, and are expected to
increase to $60,479 and $49,881, respectively, by the year 2002. Per capita
income within the subject's primary and secondary market areas, for 1997, are
$28,383 and $22,938, respectively, and are expected to increase to $37,742 and
$30,376, respectively, by the year 2002.
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Market Analysis
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Based on the above levels, the demographics of the subject's primary
market area appear to indicate a positive growth trend, based on information
provided by NDS. For additional demographic information, please refer to the NDS
summary report in the Addenda of this report.
Expense Analysis
Expenses exhibited by manufactured housing communities nationally are
typically 35.0 to 45.0 percent of effective gross income. However, expense
ratios of manufactured housing communities located in the southeast and
southwest regions of the nation are typically lower by comparison, due to lower
real estate taxes and common area maintenance charges.
As presented in the Summary of Manufactured Housing Communities Sales,
operating expense ratios of competing parks range from 24.95 to 48.50 percent of
effective gross income levels, and $677 to $1,498 on a per site basis. The
subject property is currently reporting expenses, for the 12-month trailing
period of 1997, at 25.73 percent of effective gross income and $1,228 on a per
site basis. The operating expenses at the subject property are within the range
of comparable properties on both a percentage of effective gross income and on a
per site basis.
Market Supply and Demand
There are a total of five competing manufactured housing communities
located within the subject's market, which total 1,147 sites, with a
corresponding average occupancy rate of 99.0 percent. No specific absorption
statistics were available. The subject property, based on conversations with
management, has historically had occupancy rates consistent with competing
parks, and is currently 99.0 percent occupied. We believe the current occupancy
rate of the subject property is stabilized, and has similar occupancy rates of
competing parks presently presented. Based on the subject's current occupancy
rate and occupancy rates at competing parks, demand appears to be strong, with
steady rental rate increases expected.
Conclusion
Historically, the subject's primary market has sustained occupancy levels
of 95.0 to 100 percent. Rental rates of similar manufactured housing communities
located within the subject's primary market generally range from $303.00 to
$388.00 per site, on a monthly basis. The subject property is currently quoting,
and is currently achieving (based on the most recent rent roll provided), a
monthly rental rate within the range of competing parks, or at $374.00 per site.
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Market Analysis
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Based on our research, steady increases in rental rates are anticipated,
based on actual historical performance of competing parks and historical
increases seen at the subject property. Sales transactions of manufactured
housing communities located within the subject's region range from $16,447 to
$19,917 per site, with corresponding overall rates ranging from 7.99 to 10.87
percent. In our opinion, the subject property competes favorably with its
competition regarding amenities, condition, rent structure and overall market
rating.
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SITE PLAN
[GRAPHIC OMITTED]
<PAGE>
PROPERTY DESCRIPTION
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Site Description
The subject site is located along the north side of West Colfax Avenue, in
Golden, Jefferson County, Colorado. The subject site is irregular in shape and
contains approximately 33.091 acres, or 1,441,458 square feet of land area.
Topographically, the site is sloping and above street grade.
Primary access to the subject site is available from West Colfax Avenue.
According to an environmental survey, as of November 30, 1990, by PEI
Associates, Inc., the subject property does not fall within any 25 or 100 year
flood plain. However, we recommend an opinion by a qualified engineer whether
the subject property is located in a flood hazard area in the final analysis.
The streets within the park have two-lanes, with concrete curbs. Overall,
the subject site is typical of the area and is functionally well suited for its
current use.
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.
Improvements Description
The subject property was originally developed in 1970. The subject
improvements consist of a 262-site manufactured housing community, with a
community center, swimming pool, spa, billiard room and recreational vehicle
storage. Of the 262 sites, approximately 183 sites are single-wide and the
remaining 79 are double-wide.
The community center consists of a manager's office, restroom facilities,
open-space available for resident use, billiard room, indoor spa and a
fully-equipped kitchen. The swimming pool is located adjacent to the community
center.
Off-street parking is available for each resident. Site improvements
within the park include: paved streets, street lighting and signage. Overall,
the site improvements appeared to be in good condition at the time of
inspection.
Golden Terrace is a functional manufactured housing community with primary
ingress and egress along West Colfax Avenue. Overall, the subject community
appears to be well
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<PAGE>
Property Description
================================================================================
maintained and is in good condition. Golden Terrace is a functional manufactured
housing community and competes favorably with other existing manufactured
housing communities in the area in terms of appearance and amenities. The
subject property would fit the profile of a Four Star Park, as defined in the
National Overview section of this report.
Real Property Taxes and Assessments
Assessed value of commercial property in Jefferson County is assessed at
29.0 percent of the Assessor's opinion of market value. The subject property is
identified by parcel number 40-112-00-002 and schedule number 086124.
The total amount of real estate taxes for 1996 payable in 1997 for the
subject property amounts to $39,267.88. The total amount of real estate taxes
for 1996 payable in 1997 equates to approximately $149.88 per site.
Zoning
According to the City of Golden zoning officials, the subject property is
currently zoned PUD, Planned Unit Development. The subject property is a legal
and conforming use for this zoned district.
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CONCLUSION
================================================================================
Conclusion
o The subject property, Golden Terrace, is a functional manufactured housing
community, which competes favorably in relation to its competition;
o Comparable manufactured housing communities located within the subject's
market range in monthly rental rates per site from $303.00 to $388.00;
o The subject property is currently quoting, and is currently achieving
(based on the most recent rent roll provided) a monthly rental rate at
$374.00 per site, which is within the range of competing parks;
o Sale transactions of manufactured housings located within the subject's
region range in unit sales prices per site from $16,447 to $19,917, with
corresponding overall rates ranging from 7.99 to 10.87 percent;
o Operating expenses are within industry standards for a park located in the
mountain region of the country;
o The subject park appears to be operating at economic levels based on our
review of historical and budgeted 1998 income and expenses;
o The demographic characteristics of the area appear to be positive;
o The population profile of the subject property is 95 percent adult;
o The current occupancy rate at the subject property of 99.0 percent is
evident by a strong local market and demand;
o No significant manufactured housing communities are expected to be
developed in the near future;
o In our opinion, based on Woodall's criteria, the subject property is a
Four Star Park, and the reader's attention is directed to the
corresponding definition and criteria of a Four Star Park, presented in
the National Overview section of this report; and,
o Based on the subject's location, demographic, economic, market and
physical characteristics, we believe Golden Terrace will continue to be a
viable manufactured housing community in the foreseeable future, and is
well positioned in the marketplace.
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<PAGE>
ASSUMPTIONS AND LIMITING CONDITIONS
================================================================================
"Report" means the consulting report to which these Assumptions and Limiting
Conditions are annexed.
"Property" means the subject of the Report.
"C&W" means Cushman & Wakefield, Inc. or its subsidiary which issued the Report.
"Appraiser(s)" means the employee(s) of C&W who prepared and signed the Report.
This report is made subject to the following assumptions and limiting
conditions:
1. No responsibility is assumed for the legal description or for any matters
which are legal in nature. 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 Report or upon which the Report 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 Appraisers nor C&W shall be responsible for the
accuracy or completeness of such information, including the correctness of
estimates, opinions, dimensions, sketches, exhibits, and other factual
matters.
3. The information is effective as of the date stated in the Report. Changes
since that date in external and market factors or in the property itself
can significantly affect our analysis.
4. The report is to be used in whole and not in part. No part of the Report
shall be used in conjunction with any other report. Possession of the
Report, or a copy thereof, does not carry with it the right of
publication. Publication of the Report or any portion thereof without the
prior written consent of C&W is prohibited. Except as may be otherwise
expressly stated in the letter of engagement to prepare the Report, C&W
does not permit use of the Report by any person other than the party to
whom it is addressed or for purposes other than those for which it was
prepared. If written permission is given by C&W to use the Report, the
Report must be used in its entirety and only with proper written
qualification as approved by C&W. No part of the Report or the identity of
the Appraiser shall be conveyed to the public through advertising, public
relations, news, sales, or other media or used in any material without
C&W's prior written consent. Reference to the Appraisal Institute or to
the MAI designation is prohibited.
5. The Appraiser shall not be required to give testimony in any court or
administrative proceedings relating to the Property or the Report.
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Assumptions and Limiting Conditions
================================================================================
6. The Report 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 Report; 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 Report is based.
7. The physical condition of the improvements considered by the Report is
based on visual inspection by the Appraiser or other person identified in
the Report. C&W assumes no responsibility for the soundness of structural
members nor for the condition of mechanical equipment, plumbing, or
electrical components.
8. Unless otherwise stated in the Report, the existence of potentially
hazardous or toxic materials which may have been used in the construction
or maintenance or operation of the improvements or may be located at or
about the Property was not considered in the Report. These materials (such
as formaldehyde foam insulation, asbestos insulation, various soil
contaminants, and other potentially hazardous materials) may affect the
value of the Property. The Appraisers are not qualified to detect such
substances, and C&W urges that an expert in this field be employed to
determine the economic impact of these matters, if any, on the property in
the Report.
9. Unless otherwise stated in the Report, compliance with the requirements of
the Americans With Disabilities Act of 1990 (ADA) has not been considered
in the Report. Failure to comply with the requirements of the ADA may
negatively affect the value of the property. C&W recommends that an expert
in this field be employed.
10. If the Report is submitted to a lender or investor with the prior approval
of C&W, such party should consider the Report as one factor, together with
its independent investment considerations and underwriting criteria, in
its overall investment decision.
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<PAGE>
CERTIFICATION
================================================================================
We certify that, to the best of our knowledge and belief:
1. Jody L. Garbisch inspected the property, and Michael J. Schaeffer and
Stanley R. Dennis, Jr., MAI, have reviewed and approved the report, but
did not inspect 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 on an action or event (such as the
approval of a loan) resulting from the analyses, opinions, or conclusions
in, or the use of, this report.
6. 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 Ethics and Standards of Professional Practice of the Appraisal
Institute.
7. No one provided significant professional assistance to the persons signing
this 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. As of the date of this report, Stanley R. Dennis, Jr., MAI, has completed
the requirements of the continuing education program of the Appraisal
Institute.
/s/ Michael J. Schaeffer /s/ Jody L. Garbisch /s/ Stanley R. Dennis, Jr.
Michael J. Schaeffer Jody L. Garbisch Stanley R. Dennis, Jr., MAI
Director Associate Appraiser Director, Manager
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<PAGE>
ADDENDA
================================================================================
POP-FACT SHEETS
LEGAL DESCRIPTION
QUALIFICATIONS OF APPRAISERS
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39
<PAGE>
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POP-FACT SHEETS
================================================================================
<PAGE>
Tue Nov 25, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP FACTS: SUMMARY REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6510
PREPARED FOR
CUSHMAN & WAKEFIELD, INC
GOLDEN TERRACE
GOLDEN, CO COORD: 39:43.26 105:11.92
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- --------------------------------------------------------------------------------
POPULATION
2002 PROJECTION 97,412 529,170
1997 ESTIMATE 91,224 494,783
1990 CENSUS 80,890 446,410
1980 CENSUS 75,082 413,144
GROWTH 1980 - 1990 7.73% 8.05%
HOUSEHOLDS
2002 PROJECTION 42,225 234,545
1997 ESTIMATE 38,376 209,704
1990 CENSUS 32,655 175,248
1980 CENSUS 26,432 151,191
GROWTH 1980 - 1990 23.54% 15.91%
1997 ESTIMATED POPULATION BY RACE 91,224 494,783
WHITE 94.32% 86.40%
BLACK 0.67% 0.87%
ASIAN & PACIFIC ISLANDER 2.39% 2.75%
OTHER RACES 2.62% 9.98%
1997 ESTIMATED POPULATION 91,224 494,783
HISPANIC ORIGIN 6.22% 17.27%
OCCUPIED UNITS 32,655 175,248
OWNER OCCUPIED 66.04% 63.52%
RENTER OCCUPIED 33.96% 36.48%
1990 AVERAGE PERSON PER HH 2.42 2.50
1997 ESTIMATED HH BY INCOME 38,376 209,704
$150,000 + 5.37% 3.28%
$100,000 TO $149,999 7.85% 5.70%
$ 75,000 TO $ 99,999 11.59% 8.85%
$ 50,000 TO $ 74,999 25.57% 22.62%
$ 35,000 TO $ 49,999 17.42% 17.61%
$ 25,000 TO $ 34,999 10.98% 13.03%
$ 15,000 TO $ 24,999 10.72% 13.03%
$ 5,000 TO $ 14,999 8.18% 12.53%
UNDER $ 5,000 2.33% 3.34%
1997 EST. AVERAGE HH INCOME $67,102 $54,999
1997 EST. MEDIAN HH INCOME $50,366 $41,864
1997 EST. PER CAPITA INCOME $28,383 $22,938
<PAGE>
Tue Nov 25, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP 80-02, HH 80-02, INC 80-02)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6510
PREPARED FOR
CUSHMAN & WAKEFIELD, INC
GOLDEN TERRACE
GOLDEN, CO COORD: 39:43.26 105:11.92
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- --------------------------------------------------------------------------------
POP_80: TOTAL 75,082 413,144
POP_90: TOTAL 80,890 446,410
POP_97: TOTAL (EST.) 91,224 494,783
POP_02: TOTAL (PROJ.) 97,412 529,170
HH_80: TOTAL 26,432 151,191
HH_90: TOTAL 32,655 175,248
HH_97: TOTAL (EST.) 38,376 209,704
HH_02: TOTAL (PROJ.) 42,225 234,545
INC_80: PER CAPITA (EST.) $10,166 $8,779
INC_90: PER CAPITA $19,135 $15,563
INC_97: PER CAPITA (EST. $28,383 $22,938
INC_02: PER CAPITA (PROJ $37,742 $30,376
HH_90_BY INCOME_89: MEDIAN $38,779 $32,693
HH_97_BY INCOME: MEDIAN $50,366 $41,864
HH_02_BY INCOME: MEDIAN $60,479 $49,881
HH_80_BY INCOME_79: AVERAGE $28,878 $23,988
HH_90_BY INCOME_89: AVERAGE $47,033 $39,099
HH_97_BY INCOME: AVERAGE $67,102 $54,999
HH 02_BY INCOME: AVERAGE $86,184 $69,440
<PAGE>
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LEGAL DESCRIPTION
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<PAGE>
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LEGAL DESCRIPTION
PARCEL I:
THAT PART OF THE NORTHWEST ONE-QUARTER OF SECTION 11, TOWNSHIP 4 SOUTH, RANGE 70
WEST OF SIXTH PRINCIPAL MERIDIAN, DESCRIBED AS FOLLOWS:
BEGINNING AT THE NORTHWEST CORNER OF SAID NORTHWEST ONE-QUARTER;
THENCE EASTERLY ALONG THE NORTH LINE OF SAID NORTHWEST ONE-QUARTER A DISTANCE OF
441.23 FEET TO THE SOUTHERLY LINE OF U.S. HIGHWAY NO. 6;
THENCE ON AN ANGLE TO THE RIGHT OF 33 DEGREES 24 MINUTES 51 SECONDS AND ALONG
THE SOUTHERLY LINE ON A CURVE TO THE LEFT HAVING A RADIUS OF 1557.69 FEET AND A
CENTRAL ANGLE OF 27 DEGREES 19 MINUTES 20 SECONDS AN ARC DISTANCE OF 742.80 FEET
TO A POINT ON THE WEST LINE OF THE PUBLIC SERVICE COMPANY RIGHT-OF-WAY DESCRIBED
IN BOOK 1699 AT PAGE 70, JEFFERSON COUNTY RECORDS;
THENCE ON AN ANGLE TO THE RIGHT OF 84 DEGREES 36 MINUTES 54 SECONDS AND ALONG
SAID WEST LINE A DISTANCE OF 942.20 FEET;
THENCE ON AN ANGLE TO THE LEFT OF 0 DEGREES 34 MINUTES 25 SECONDS AND ALONG SAID
WEST LINE A DISTANCE OF 159.22 FEET;
THENCE ON AN ANGLE TO THE RIGHT OF 90 DEGREES A DISTANCE OF 75.0 FEET;
THENCE ON AN ANGLE TO THE LEFT OF 24 DEGREES 54 MINUTES 38 SECONDS A DISTANCE OF
348.28 FEET;
THENCE ON AN ANGLE TO THE LEFT OF 90 DEGREES A DISTANCE OF 70.0 FEET;
THENCE ON AN ANGLE TO THE RIGHT OF 90 DEGREES A DISTANCE OF 120.0 FEET TO THE
EAST LINE OF THE WEST ONE-HALF OF THE WEST ONE-HALF OF SAID NORTHWEST
ONE-QUARTER;
THENCE ON AN ANGLE TO THE RIGHT OF 115 DEGREES 00 MINUTES 00 SECONDS AND ALONG
SAID EAST LINE A DISTANCE OF 292.07 FEET TO THE SOUTH LINE OF THE NORTHWEST
ONE-QUARTER OF SAID NORTHWEST ONE-QUARTER;
THENCE ON AN ANGLE TO THE LEFT OF 90 DEGREES 13 MINUTES 17 SECONDS AND ALONG
SAID SOUTH LINE A DISTANCE OF 658.06 FEET TO THE WEST LINE OF SAID NORTHWEST
ONE-QUARTER;
THENCE ON AN ANGLE TO THE RIGHT OF 90 DEGREES 15 MINUTES 40 SECONDS AND ALONG
SAID WEST LINE A DISTANCE OF 1317.58 FEET TO THE POINT OF BEGINNING,
JEFFERSON COUNTY,
STATE OF COLORADO.
PARCEL II:
AN EASEMENT FOR INGRESS AND EGRESS LYING IN THE NORTHWEST ONE-QUARTER OF SECTION
11, TOWNSHIP 4 SOUTH, RANGE 70 WEST OF THE SIXTH PRINCIPAL MERIDIAN, DESCRIBED
AS FOLLOWS:
COMMENCING AT A POINT ON THE SOUTH LINE OF U.S. HIGHWAY NO. 6 AND ON THE WEST
LINE OF THE PUBLIC SERVICE COMPANY RIGHT-OF-WAY DESCRIBED IN BOOK 1699 AT PAGE
70, JEFFERSON COUNTY RECORDS;
THENCE SOUTHERLY ALONG SAID WEST LINE A DISTANCE OF 942.00 FEET;
THENCE ON AN ANGLE TO THE LEFT 0 DEGREES 34 MINUTES 25 SECONDS AND ALONG SAID
WEST LINE A DISTANCE OF 159.22 FEET;
THENCE ON AN ANGLE TO THE RIGHT OF 90 DEGREES A DISTANCE OF 75.00 FEET;
THENCE ON AN ANGLE TO THE LEFT OF 24 DEGREES 54 MINUTES 38 SECONDS A DISTANCE OF
329.95 FEET TO THE TRUE POINT OF BEGINNING;
THENCE CONTINUING ALONG THE AFORESAID COURSE A DISTANCE OF 18.33 FEET;
THENCE ON AN ANGLE TO THE LEFT OF 90 DEGREES A DISTANCE OF 70.00 FEET;
THENCE ON AN ANGLE TO THE RIGHT OF 90 DEGREES A DISTANCE OF 19.21 FEET;
THENCE ON AN ANGLE TO THE LEFT OF 90 DEGREES A DISTANCE OF 179.89 FEET TO THE
NORTH LINE OF U.S. HIGHWAY NO. 40;
THENCE ON AN ANGLE TO THE LEFT OF 89 DEGREES 31 MINUTES 05 SECONDS AND ALONG
SAID NORTH LINE A DISTANCE OF 36.00 FEET;
THENCE ON AN ANGLE TO THE LEFT OF 90 DEGREES 28 MINUTES 55 SECONDS A DISTANCE OF
212.59 FEET TO A POINT OF CURVE;
THENCE ALONG A CURVE TO THE RIGHT HAVING A RADIUS OF 362.00 FEET AND A CENTRAL
ANGLE OF 5 DEGREES 57 MINUTES 43 SECONDS AN ARC DISTANCE OF 37.67 FEET TO THE
TRUE POINT OF BEGINNING,
JEFFERSON COUNTY,
STATE OF COLORADO.
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<PAGE>
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QUALIFICATIONS OF APPRAISERS
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<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
JODY L. GARBISCH
Education
Bachelor of Science Degree in Finance, concentration in Real Estate, from the
College of Commerce and Business Administration at the University of Illinois,
Urbana-Champaign, Illinois, 1997.
Real Estate Education
The following courses have been completed through the Real Estate Program at the
University of Illinois at Urbana-Champaign:
Urban Real Estate Valuation
Urban Economics
Real Estate Financial Markets
Real Estate Investments
Real Estate Law
Real Estate Fundamentals
Current Position
Associate Appraiser, Cushman & Wakefield of Illinois, Inc., Valuation Advisory
Services.
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
MICHAEL J. SCHAEFFER
Real Estate Experience
Mr. Schaeffer has been active in the appraisal of real estate since 1983.
Appraisal experience includes the valuation of income-producing real estate in
the Chicago area as well as many major cities and small towns throughout the
Midwest. The types of properties appraised include office buildings, regional
malls, shopping centers, country clubs, apartment complexes, subsidized housing
units, industrial buildings, nursing homes, retirement communities, automotive
dealerships, department stores, vacant land, proposed income-producing
properties, and various special purpose properties. Mr. Schaeffer also has had
over 10 years of experience in new construction and renovation of commercial,
industrial, residential and specialized real estate properties.
Education
Bachelor of Arts, University of Cincinnati, Cincinnati, Ohio MBA Graduate Course
Work in Economics and Management, Xavier University, Cincinnati, Ohio
Real Estate Education
The following courses sponsored by the Appraisal Institute have been
successfully completed:
Real Estate Appraisal Principles 1A-1
Basic Valuation Procedures 1A-2
Standards of Professional Practice
Capitalization Theory and Techniques 1BA
Capitalization Theory and Techniques IBB
Advanced Applications 550
Report Writing & Valuation Analysis 540
Mr. Schaeffer has also attended numerous lectures and seminars sponsored by the
Appraisal Institute.
Mr. Schaeffer is currently a candidate for the MAI designation of the Appraisal
Institute, and has completed the educational and experience requirements for the
MAI designation.
Current Position
Director, Appraisal Services, Cushman & Wakefield, Inc., Chicago, Illinois
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
STANLEY R. DENNIS, JR., MAI
Real Estate Experience
Director, Manager, Cushman & Wakefield Valuation Advisory Services, Chicago,
Illinois. Division is responsible for the appraisal and consultation function of
Cushman & Wakefield, Inc., a national full service real estate organization,
1989.
Vice President, Manager, Cushman & Wakefield Appraisal Services, Portland,
Oregon, 1983.
Principal, Stanley R. Dennis & Associates, Portland, Oregon, 1982.
Education
Portland State University, Portland, Oregon
Bachelor of Science Degree, 1977, Finance and Real Estate
Appraisal Institute
Course I-A Fundamentals and Principles of Real Estate Appraisal
Course I-B Capitalization Theory and Techniques
Course II-I Case Studies in Real Estate Valuation
Course II-2 Valuation Analysis and Report Writing
Course II-3 Standards of Professional Practice
Course IV Litigation/Condemnation Valuation
Course VI Investment Analysis
Course VIII Residential Case Studies
Course X Market Analysis
Seminar Feasibility Analysis and Highest and Best Use
Seminar Discounted Cash Flow Analysis
Seminar Cash Equivalency
Seminar Subdivision Analysis
Seminar Rates, Ratios and Reasonableness
Professional Affiliations
American Institute of Real Estate Appraisers, Member (Designation #6754)
Building Owners and Managers Association (BOMA)
National Association of Corporate Real Estate Executives (NACORE)
<PAGE>
================================================================================
MARKET STUDY OF REAL PROPERTY
Windmill Village
16131 North Cleveland Avenue
North Fort Myers, Lee County, Florida
================================================================================
As of December 5, 1997
Prepared For:
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Prepared By:
Cushman & Wakefield of Illinois, Inc.
Valuation Advisory Services
455 North Cityfront Plaza Drive, Suite 2800
Chicago, Illinois 60611-5555
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
[Letterhead of Cushman & Wakefield of Illinois, Inc.]
December 15, 1997
Mr. Edward J. Welch
Director
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Re: Market Study of Real Property
Windmill Village
16131 North Cleveland Avenue
North Fort Myers, Lee County, Florida 33903
Dear Mr. Welch:
In fulfillment of our agreement as outlined in the Letter of Engagement,
Cushman & Wakefield of Illinois, Inc., is pleased to transmit our market study
and consulting report evaluating the above referenced real property.
As specified in the Letter of Engagement, our market study and consulting
report is qualified by certain assumptions, limiting conditions, certifications,
and definitions, which are set forth in the report.
This consulting report was prepared for the Client, and it is intended
only for the specified use of the Client. It may not be distributed to or relied
upon by other persons or entities without written permission of Cushman &
Wakefield, Inc.
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the above
referenced real property, as of the date of our property inspection. The
function of the report is to assist the client, in evaluating the property for
underwriting and rating purposes.
<PAGE>
Mr. Edward J. Welch -2- December 15, 1997
This market study and consulting report was prepared in conformity with
the requirements of the Code of Ethics and Standards of Professional Appraisal
Practice of the Appraisal Institute and the Uniform Standards of Professional
Practice (USPAP) adopted by the Appraisal Standards Board of the Appraisal
Foundation.
This letter is invalid if detached from the report, which contains the
text, exhibits, and the Addenda.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF ILLINOIS, INC.
/s/ Jennifer L. Estrella
Jennifer L. Estrella
Associate Appraiser
/s/ Michael J. Schaeffer
Michael J. Schaeffer
Director
/s/ Stanley R. Dennis, Jr.
Stanley R. Dennis, Jr., MAI
Director, Manager
CUSHMAN &
WAKEFIELD(R)
---------------------------
VALUATION ADVISORY SERVICES
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<PAGE>
SUMMARY OF SALIENT FACTS
================================================================================
Property Name: Windmill Village
Location: 16131 North Cleveland Avenue
North Fort Myers, Lee County, Florida
Assessor's Parcel Number: Based on information provided by the client,
the subject property is identified by
Assessor's Parcel Number
27-43-24-00-00023.0030.
Date of Inspection: The property was inspected December 5, 1997.
Ownership: The subject property is legally entitled to
Orangeland Vistas, an Illinois Corporation,
and MHC Financing Limited Partnership, as
beneficiary.
Land Area: Based on information provided by the
property's legal plat of survey, the subject
property contains approximately 69.00 acres
of land area, or 3,005,640 square feet.
Zoning: Based on information provided by the Lee
County Zoning Department, the subject
property is zoned MH 2, Mobile Home 2. The
subject property is a legal and conforming
use in the MH 2 District.
Improvements
Type: A manufactured housing community.
Year Built: The subject property was originally developed
in approximately 1965.
Size: The subject property consists of a 306-site
manufactured housing community.
Condition: At the time of inspection, the subject
property was in good condition.
Property Rating: Four Star manufactured home community.
Special Assumptions: 1. Information regarding the subject
property, including its physical
characteristics, was provided to us by the
client and the on-site manager, and is
assumed to be accurate.
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
SUMMARY OF SALIENT FACTS
================================================================================
2. The existence of potentially hazardous or
toxic materials, which may be located on or
about the property, was not considered in our
evaluation. The appraisers are not qualified
to detect such substances, and Cushman &
Wakefield urges that an expert in this field
be employed to determine the existence, if
any, of hazardous materials located on or
about the site.
3. Our market and consulting report regarding
the subject assumes the subject property, as
presently improved, represents its highest and
best use.
4. It is unknown to the appraiser if the
subject property complies with the Americans
with Disabilities Act (ADA). We recommend a
qualified specialist in the final
determination regarding any ADA compliance
deficiencies that may be present at the
subject property.
5. Please refer to the complete list of
assumptions and limiting conditions included
at the end of this report.
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
TABLE OF CONTENTS
================================================================================
Page
PHOTOGRAPHS OF SUBJECT PROPERTY................................................1
INTRODUCTION...................................................................5
Identification of Property..................................................5
Property Ownership and Recent History.......................................5
Purpose and Function of the Market Study and Consulting Assignment..........5
Scope of the Market Study and Consulting Assignment.........................5
Date of Property Inspection.................................................5
Definitions and Other Pertinent Terms.......................................5
REGIONAL ANALYSIS..............................................................8
NEIGHBORHOOD ANALYSIS.........................................................12
MARKET ANALYSIS...............................................................13
National Overview..........................................................13
Competition................................................................20
Comparable Manufactured Housing Community Sales............................24
Demographic Trends.........................................................27
Expense Analysis...........................................................27
Market Supply and Demand...................................................28
Conclusion.................................................................28
PROPERTY DESCRIPTION..........................................................30
Site Description...........................................................30
Improvements Description...................................................30
REAL PROPERTY TAXES AND ASSESSMENTS...........................................31
ZONING........................................................................31
CONCLUSION....................................................................32
ASSUMPTIONS AND LIMITING CONDITIONS...........................................33
CERTIFICATION.................................................................35
ADDENDA.......................................................................36
Pop-Fact Sheets
Legal Description
Qualifications of Appraisers
CUSHMAN &
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PHOTOGRAPHS OF SUBJECT PROPERTY
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Front Entrance of the Subject Property
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Exterior View of the Clubhouse
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Photographs of Subject Property
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Interior View of the Clubhouse
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View of the Lake at the Subject Property
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Photographs of Subject Property
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Typical Interior View of the Subject Park
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Typical Interior View of the Subject Park
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Photographs of Subject Property
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Street Scene Facing North Along Cleveland Avenue
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Street Scene Facing South Along Cleveland Avenue
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INTRODUCTION
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Identification of Property
The subject property consists of a 306-site manufactured housing
community, situated on approximately 69.0 acres of land area, located at the
northwest corner of Littleton Road and Cleveland Avenue (U.S. Highway 41), in
North Fort Myers, Lee County, Florida. The property's street address is 16131
North Cleveland Avenue. The property was constructed in 1965, and was 99.2
percent occupied at the time of inspection.
Property Ownership and Recent History
The subject property is currently entitled to Orangeland Vistas, an
Illinois corporation, and MHC Financing Limited Partnership, as beneficiary. The
subject property was originally developed in 1965, with 306 manufactured housing
sites.
Purpose and Function of the Market Study and Consulting Assignment
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the subject
property, as of the date of property inspection. The function of the consulting
report is to assist the client in evaluating the property for underwriting and
rating purposes.
Scope of the Market Study and Consulting Assignment
In the process of preparing this report, we inspected the property,
interviewed the on-site manager, conducted market research into asking rental
rates for comparable properties, conducted market investigations, and
ascertained sales prices of comparable properties. Additionally, we conducted
market research and evaluated demographic and economic trends; and, the market
position and rating of the subject property.
Date of Property Inspection
The property was inspected December 5, 1997.
Definitions and Other Pertinent Terms
Definitions of pertinent terms taken from the Dictionary of Real Estate
Appraisal, Third Edition (1993), published by the Appraisal Institute, is as
follows:
Market Rent
The rental income that a property would most probably command on the open
market; indicated by current rents paid and asked for comparable space as
of the date of the appraisal.
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INTRODUCTION
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Evaluation
Evaluation is a study of the nature, quality, or utility of a parcel of
real estate or interest in, or aspects of, real property, in which a value
estimate is not necessarily required.
Market Study
A macroeconomic analysis that examines the general market conditions of
supply, demand, and pricing or the demographics of demand for a specific
area or property type.
Legal Description
The subject property is located at the northwest corner of Littleton Road
and Cleveland Avenue, in North Fort Myers, Lee County, Florida. The street
address of the subject property is 16131 North Cleveland Avenue. The property is
identified by tax parcel number 27-43-24-00-00023.0030, according to information
provided by the client. Due to the lengthy metes and bounds legal description,
the subject property's legal description is presented in the Addenda of this
report, and reference is made thereto.
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LOCATION MAP
[MAP OMITTED]
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REGIONAL ANALYSIS
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The subject property is located in the Fort Myers-Cape Coral metropolitan
area. Lee County encompasses the Fort Myers-Cape Coral metropolitan area, which
is located along the southwestern coast of Florida. According to Sales and
Marketing Management's 1997 Survey of Buying Power, the estimated 1996
population of the Fort Myers-Cape Coral metropolitan area (Lee County) is
389,100. The population of the cities of Fort Myers and Cape Coral are 54,300
and 90,200, respectively.
Lee County
Lee County includes the cities of Fort Myers, Cape Coral, Sanibel, and
Fort Myers Beach. Lee County encompasses an area of 804 square miles, and
includes 50 miles of beaches along the Gulf of Mexico. Temperatures in the Lee
County area range from an average 82 degrees in the summer and 64 degrees in the
winter. Lee County is approximately 71 miles from Sarasota, 123 miles from
Tampa, 141 miles from Miami, and 153 miles from Orlando. During the 1980's, Lee
County was for fourth fasting growing metropolitan area in the United States.
Population
According to Sales and Marketing Management's 1997 Survey of Buying Power,
the 1996 estimated population of Lee County was 389,100. The historical and
projected population characteristics of Lee County, based on U.S. Census Bureau
and Lee County Planning Department statistics, are presented in the table below.
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LEE COUNTY POPULATION
- --------------------------------------------------------------------------------
YEAR POPULATION % CHANGE
- --------------------------------------------------------------------------------
1970 105,216 ---
- --------------------------------------------------------------------------------
1980 205,266 95.01%
- --------------------------------------------------------------------------------
1990 335,113 63.26%
- --------------------------------------------------------------------------------
1995 374,398 11.72%
- --------------------------------------------------------------------------------
2000 410,229 9.57%
- --------------------------------------------------------------------------------
Source: Lee County Planning Department, U.S. Bureau of the Census.
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As indicated above, the population in Lee County grew significantly
between 1970 and 1980, and between 1980 and 1990. According to 1995 statistics,
the largest age groups in Lee County included those individuals between the age
of 25 to 44 years of age and the group aged 65 years or older, accounting for
26.1 and 24.7 percent of the population, respectively.
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REGIONAL ANALYSIS
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Income and Employment
The total labor force in 1995 in Lee County was 168,137. The largest
industries in Lee County were the services and retail trade industries,
accounting for 30.1 and 25.0 percent of employment in Lee County, respectively.
The major employers in Lee County are presented in the following table.
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MAJOR EMPLOYERS IN LEE COUNTY
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COMPANY/ORGANIZATION NUMBER OF EMPLOYEES
- --------------------------------------------------------------------------------
School Board of Lee County 6,595
- --------------------------------------------------------------------------------
Lee Memorial Health System 5,410
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Columbia/ HCA Healthcare 3,500
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Publix Super Markets 3,005
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South Seas Resort Company 1,900
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Lee County Board of Commissioners 1,850
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Health and Rehabilitative Services 1,510
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Walmart Corporation 1,480
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City of Cape Coral 1,340
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Winn Dixie Stores 1,200
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Source: Economic Development Office, Fort Myers, Florida.
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According to the Florida Department of Labor and Employment Security, the
1996 average unemployment rate in the State of Florida was 5.2 percent. The Lee
County 1996 average unemployment rate was 3.8 percent. As of October 1997, the
unemployment rates (not seasonally adjusted) in Lee County and the state was 3.2
percent and 4.6 percent, respectively. The Florida Department of Labor and
Employment Security and the U.S. Bureau of Labor and Statistics projects annual
employment growth to be approximately 3.4 percent through the year 2005.
According to 1995 statistics, per capita income in Lee County was $24,750. The
1995 median household income was $32,281.
Transportation
There is only one interstate highway serving the Lee County area,
Interstate 75. The other major highway serving the area includes U.S. Highway
41. State Roads serving the area include State Roads 31, 78, 80, and 82.
Commercial air service is available at the Southwest Florida International
Airport, which is located in Ft. Myers. Major commercial airlines serving the
Southwest Florida International Airport include United Airlines, TWA, Delta
Airlines, Southwest, US Air, Northwest, American TransAir, and American.
Seminole Gulf is the railroad company serving the area.
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REGIONAL ANALYSIS
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Recreation
There are a variety of cultural and recreational attractions available to
tourists and residents in the Lee County area. Cultural attractions include the
following: Barbara B. Mann Performing Arts Hall, Broadway Palm Dinner Theater,
Thomas Edison-Henry Ford Winter Estates, and the Southwest Florida Symphony
Orchestra and Chorus. The following islands in the area offer recreational
activities: Sanibel and Captiva Islands, Estero Islands, Boca Grande on
Gasparilla Island, Pine Island and Matlacha, Cayo Costa State Island Preserve,
and Lover's Key and Black Island. Residents and tourists can also watch the
Boston Red Sox and Minnesota Twins in Spring Training in March.
Summary and Conclusions
The Lee County area is a stable and well established area, which has
experienced significant growth in the 1970's and 1980's, and steady growth in
recent years. Population and employment in Lee County is expected to grow
steadily through the year 2005. In summary, the outlook for the Lee County area
is positive.
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NEIGHBORHOOD MAP
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NEIGHBORHOOD ANALYSIS
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The subject property is located at the northwest corner of Littleton Road
and Cleveland Avenue, in North Fort Myers, Lee County, Florida. Cleveland Avenue
is also known as U.S. Highway 41. The subject's immediate neighborhood is
roughly defined as the Charlotte County limits to the north, Pine Island Road to
the south, Slater Road to the east, and Del Prado Parkway to the west.
Development in the immediate neighborhood of the subject property consists of
manufactured housing communities, and service and retail oriented commercial
development.
Regional access to the subject property is excellent via State Highway 78
(Bayshore Road), which intersects with Cleveland Avenue and provides access to
Interstate 75. The subject property is located along Cleveland Avenue, which is
also known as U.S. Highway 41. U.S. Highway 41 runs north and south, along the
central and southern portion of western Florida. Major thoroughfares in the
immediate neighborhood of the subject property provide excellent access to the
subject property. Major thoroughfares in the subject's immediate neighborhood
include: Cleveland Avenue, Pine Island Road (State Highway 78), Del Prado
Parkway, State Highway 45, and Slater Road. The subject property enjoys
excellent visibility along Cleveland Avenue.
Development in the immediate neighborhood of the subject property consists
of manufactured housing communities, and service and retail oriented commercial
development. Commercial development near the subject property is located
primarily along Cleveland Avenue and Pine Island Road. Businesses in the
immediate neighborhood of the subject property include: The Shell Factory, Citgo
Gas Station, and A-1 Shelters Self-Storage. A strip commercial plaza is also
located near the subject property, and includes doctor's and dentist's offices,
and Bianca's Italian Restaurant. Manufactured housing communities in the area
include: Tamiami Village, Serendipity Mobile Home Park, Horizon Village, and Six
Lakes Country Club.
The subject property is situated in an area well suited for manufactured
housing development. Real estate values are anticipated to increase at a steady
pace. The economy in the area is anticipated to be good. The growth in
population is anticipated to remain constant.
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MARKET ANALYSIS
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National Overview
Reportedly, the largest property owners of manufactured housing
communities in the United States are: ROC Communities, headquartered in
Colorado; MHC, Inc., headquartered in Illinois; Ellenburg Capital, headquartered
in Oregon; Lautrec Ltd., headquartered in Michigan; Clayton Homes, headquartered
in Tennessee; Clayton Williams and Sherwood, headquartered in California;
Chateau Properties, Sun Communities and UNIPROP, headquartered in Michigan.
The following represents the top ten manufactured housing community firms,
as reported by GFA Management, as of 1997.
<TABLE>
<CAPTION>
=========================================================================================
1997 Firm Name State No. of Sites No. of Communities
Rank Owned/Managed Owned/Managed
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Sun Communities Michigan 30,295/0 84/0
- -----------------------------------------------------------------------------------------
2 ROC Communities Colorado 22,441/7,167 77/36
- -----------------------------------------------------------------------------------------
3 Manufactured Home Communities Illinois 27,349/838 69/3
- -----------------------------------------------------------------------------------------
4 Ellenburg Capital Florida 25,173/0 63/0
- -----------------------------------------------------------------------------------------
5 Lautrec Ltd. Michigan 22,652/0 58/0
- -----------------------------------------------------------------------------------------
6 Chateau Properties Michigan 20,003/0 47/0
- -----------------------------------------------------------------------------------------
7 Clayton Homes Tennessee 18,000/0 66/0
- -----------------------------------------------------------------------------------------
8 Clayton, Williams and Sherwood California 16,946/0 44/0
- -----------------------------------------------------------------------------------------
9 UNIPROP Michigan 14,931/0 40/0
- -----------------------------------------------------------------------------------------
10 The Bloch Organization Michigan 14,379/0 37/0
=========================================================================================
</TABLE>
According to the U.S. Census Bureau, more than 8,521,000 people were
living in manufactured housing communities as of 1990 compared to 3,838,678 in
1980. This represents an increase in manufactured housing community living of
approximately 122.0 percent over the last ten years. Over the last ten years,
there has been a steady increase in manufactured housing community development
across the country. Among the demographic factors which account for the increase
in manufactured housing community living are: decreasing household size, a
growing demand for smaller housing, as well as an alternative to the increasing
cost of housing. Nationally, the largest percentage of manufactured housing
communities are located in California, Michigan, Colorado, Florida, New York,
Minnesota, Indiana, Arizona, Ohio, and Wisconsin.
The manufactured home industry has dramatically changed over the last 20
years. Manufactured homes are now designed and constructed to accommodate
spacious and
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MARKET ANALYSIS
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attractive living requirements. Today, approximately one out of sixteen families
live in manufactured housing units. The manufactured housing market share has
been growing steadily over the last 10 years. In 1990, 6.7 percent of Americans
lived in manufactured housing units, up from 2.9 percent compared to 1970,
according to the U.S. Census Bureau, which represents 12.0 to 14.0 percent of
all new housing built since the mid-1980's, according to the Manufactured
Housing Institute in Arlington, Virginia.
In 1990, the average cost of a manufactured housing unit was $27,800
compared to $149,000 for a new house (including land), according to the
Manufactured Housing Institute. This reflects a 28.0 percent increase in the
cost of manufactured housing since 1980 versus a 49.0 percent increase in
conventional housing. Industry experts estimate that a single-family home
selling for $150,000 would require an annual income of $52,671. To purchase a
$27,800 manufactured housing unit, only a $19,984 income level would be
required.
At Fleetwood Enterprises, the nation's largest manufacturer of
manufactured housing units, units may be purchased for up to $100,000, which
would include a three-bedroom, two-bath unit of 2,100 square feet, with vaulted
ceilings.
In 1990, approximately 10.0 percent of manufactured home owners lived in
units worth approximately $40,000, up from 4.0 percent compared to 1981,
according to a study conducted by Foremost Insurance Company in Grand Rapids,
Michigan. Also, according to the study, approximately 21.0 percent of the
manufactured housing households are occupied by people' 65 years of age or
older, slightly lower than the age group for conventional homes, as reported by
Foremost Insurance.
The demand for good quality institutional grade manufactured housing
communities has substantially increased over the last ten years. Manufactured
housing communities provide an affordable alternative to the increasing cost of
housing. Also, manufactured housing communities provide an alternative form of
living for the elderly and retirees, especially for those living on fixed
incomes.
Acquisitions of manufactured housing communities during 1993 and 1994 were
clearly dominated by Real Estate Investment Trusts. During 1994 and 1995
Manufactured Home Communities (MHC) and ROC communities lead the acquisition of
manufactured housing communities nationally. During 1996, Sun Communities
captured the lead and, together with ROC and MHC dominate the Real Estate
Investment Trust market.
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MARKET ANALYSIS
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The following chart represents the largest Real Estate Investment Trusts,
from 1991 to 1996, as reported by GFA Management
================================================================================
HOME SITE GROWTH, DEVELOPMENT AMONG THE LARGEST
REAL ESTATE INVESTMENT TRUST (REITS)
- --------------------------------------------------------------------------------
Year ROC MHC Chateau Sun United Total Annual
Growth
- --------------------------------------------------------------------------------
1996 29,608 28,187 20,003 30,295 5,234 113,327 17.0%
- --------------------------------------------------------------------------------
1995 27,910 26,237 19,594 18,000 4,850 96,591 9.0%
- --------------------------------------------------------------------------------
1994 26,231 28,407 15,689 13,500 4,623 88,450 37.8%
- --------------------------------------------------------------------------------
1993 20,142 14,700 15,261 9,036 5,050 64,189 17.8%
- --------------------------------------------------------------------------------
1992 18,745 12,873 10,032 7,600 5,200 54,450 N/A
- --------------------------------------------------------------------------------
1991 9,030 13,079 9,759 N/R N/R N/A N/A
- --------------------------------------------------------------------------------
N/R = No report N/A = Not applicable
- --------------------------------------------------------------------------------
NOTE: The 113,327 sites counted for the top five REITs in 1996 make up 20
percent of the total sites surveyed in the 1997 Allen Report. These rental sites
are located in 339 communities, accounting for about 1 percent of some 50,000
existing manufactured housing communities nationwide. The community counts for
the five major REITs are: ROC (113), MHC (72), Chateau (47), Sun (84) and United
(23). The proportion of communities owned by each of the REITs compared to the
others is: ROC (33%), MHC (21%), Chateau (14%), Sun (25%) and United (7%).
================================================================================
Manufactured Home Communities (MHC) is expected to continue an aggressive
acquisition campaign through 1997 and beyond. As of September 1997, the MHC REIT
had a market cap of $632.0 million, and continues to pursue the acquisition of
manufactured home communities. Aside from the ELL-CAP $300.0 million
transaction, in September 1997 Manufactured Home Communities, Inc. completed a
$107.0 million purchase of 18 manufactured housing communities and two related
commercial properties from partnerships affiliated with Mobileparks West. The
communities, with 3,505 sites, were purchased with about $3.0 million
manufactured home operating units, $16.0 million in cash and $20.0 million of
installment notes and assumed debt. The communities have an average monthly
rental of $349.00. The communities are located in California, Utah, Oregon,
Washington and Nevada. MHC may be the first manufactured home community REIT to
reach $1.0 billion.
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The MHC REIT continues to perform and expand, and as of September 1997 was
trading at $25.625, with a current yield of 5.2 percent. The top traded REITs,
are presented as follows.
<TABLE>
<CAPTION>
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REIT MARKET UPDATE
- ------------------------------------------------------------------------------------------
Company Symbol Price Current Yield 52 Week High 52 Week Low Annual 12 Mth Tot
(9/19/97) Dividend Rtn
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CPJ $29.688 5.8% $31.125 $22.250 1.72 26.6%
- ------------------------------------------------------------------------------------------
MHC $25.625 5.2% $26.428 $18.875 1.32 30.7%
- ------------------------------------------------------------------------------------------
SUI $37.428 5.0% $ 38.00 $27.750 1.88 31.8%
- ------------------------------------------------------------------------------------------
UMH $11.625 6.0% $13.625 $10.875 0.70 -1.7%
- ------------------------------------------------------------------------------------------
Total return figures obtained through Standard & Poors and are for the period
through Sept 1997.
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</TABLE>
The Southwest and Northwest Regions of the nation are the preferred
locations regarding recent and future manufactured housing community
acquisitions. However, investors seeking moderate, but consistent growth
expectations, are still looking at the midwest region. Also, southern portions
of Florida are still considered a prime area for investors seeking good quality
manufactured housing communities, with good up-side potential. What was once a
stagnant market, the northeast region is now being considered for future
acquisitions.
According to a recent study prepared by Merrill Lynch & Company, ownership
in the manufactured housing community industry is highly fragmented. The top 150
owner-operators account for less than 5.0 percent of the total industry, whereas
a host of "mom-and-pop" private companies account for the other 95.0 percent.
This unglamorous niche industry is ripe for consolidation, and an infusion of
professional management expertise is likely to yield significant economies of
scale. The four REIT's specializing in manufactured housing communities are
already among the top ten owner-operators, and are well positioned to facilitate
and hasten the industry's consolidation to the likely benefit of their
stockholders.
Manufactured homes are the fastest growing component of the nation's
housing inventory, due to their affordability, good quality design and safety
standards. According to the Merrill Lynch & Company Manufactured Housing
Community Industry Report, factory-built homes appeal especially to senior
citizens and to households with limited economic needs, two segments of the
population that are likely to grow rapidly in coming years.
Consistent returns in manufactured housing community investments have been
the mainstay of the industry. For this reason, as well as the amount of
acquisitions seen by Real Estate Investment Trusts (REITs) from 1991 to 1996,
the availability of good quality
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manufactured housing communities has been substantially reduced compared to the
1980's. Good quality manufactured housing communities still command premium
prices, thus driving down overall capitalization rates.
Cushman & Wakefield's Valuation Advisory Services has tracked sale
transactions of manufactured housing communities since 1985. Overall
capitalization rates have consistently been within the 8.75 to 10.00 percent
range for communities located in moderate to increasing growth markets, and as
low as near 8.0 percent for those communities located in growing markets that
poses significant upside potential. Overall capitalization rates are clearly
affected and are differentiated among the properties relative to rent levels,
age, quality, condition, location, amenities, demographic characteristics,
resident profile, as well as the quality of management.
Manufactured housing communities fall within, and are categorized by their
overall appearance, age, and amenities, but more importantly the strength of the
local market. The various categories of manufactured housing communities,
according to the Woodall Directory, can be ranked as 1 to 5 Star Parks These
rankings are defined as follows:
One Star Park
The most important consideration for a one star park is overall
appearance. If it is not a decent place to live, it will not be listed in
Woodall's Directory. The following are general requirements:
o Fair overall appearance;
o Patios on most lots. May be concrete, asphalt, wood, or some
suitable material;
o Grass, rock or shell to cover ground;
o Streets fair to good. May be dirt, asphalt or gravel in reasonable
condition;
o Restrooms clean, if any;
o Adequate laundry or laundromat nearby;
o If fences allowed, must be neat;
o Mail service;
o Homes may be old models, but show evidence of care; and,
o Manager available some hours of each day.
Two Star Park
In addition to the requirements for a one star park, a two star park will
have the following:
o Landscaping - some lawns and shrubs;
o Streets in good condition. Must be dust free of crushed rock, gravel
or shell minimum;
o Neat storage;
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o Well equipped laundry or laundromat nearby;
o 200 volt connections available;
o If children accepted, park should have play area;
o Park free of clutter, such as old cars and other abandoned
equipment; and,
o Well maintained and managed.
Three Star Park
What a three star park does it does well, but not as uniformly as higher
rated parks. Many three star parks were once higher rated, but original
construction does not allow for today's 10-foot, 12-foot, and double-wides
or the 55-foot and 60-foot lengths. If children are allowed, there should
be adequate play area. However, the disarray caused by children may at
times be the determining factor that keeps a three star park at that level
when it otherwise could be rated higher. In addition to the requirements
for one and two star parks, a three star park must have the following:
o Attractive entrance;
o All homes must be in good condition;
o Awnings and cabana rooms on some homes in southern areas;
o Some spaces for large mobile homes;
o Paved or hard surfaced streets;
o Off-street parking or streets wide enough for safe on-street
parking;
o Good lawns or substitute throughout, shade trees, some shrubs where
climate permits;
o Concrete patios or the equivalent on all lots;
o All lots neat and attractive;
o All park buildings in good repair; and,
o Good management.
Four Star Park
Four star parks are luxury parks. In addition to the requirements for one,
two and three star parks, a four star park must have the following:
o Good landscaping;
o Most homes skirted with metal skirts, concrete block, ornamental
wood or stone;
o Paved streets, edged or curbed.
o Uncrowded lots;
o Underground utilities if permitted by local conditions and
authorities;
o Most tanks, if present, concealed;
o Any hedges or fences must be attractive and uniform;
o Awnings, cabanas, or porches on most homes in southern areas.
(Excepting double-wide units.);
o Most lots to accommodate large mobile homes;
o Where row parking of homes exists, all must be lined up uniformly;
o Community hall and/or swimming pool and/or recreation programs. If a
park is four star in all but this requirement, the fourth star will
be printed as an open star indicating a four star park without
park-centered recreation; and,
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o Excellent management.
Five Star Park
Five star parks are the finest. They should be nearly impossible to
improve. In addition to the requirements for one, two, three, and four
star parks, a five star park must have the following:
o Well planned and laid out spacious appearance;
o Good location in regard to accessibility and desirable neighborhood.
In some locations, park should be enclosed by high hedges or
ornamental fence;
o Wide paved streets in perfect condition. Curbs or lawns edged to
streets, sidewalks, street lights, street signs;
o Homes set back from street;
o Exceptionally attractive entrance and park sign;
o Patios at least 8 x 30 feet. (Excepting double-wide units.);
o Paved off-street parking such as carports or planned parking;
o All homes skirted;
o All hitches concealed. Any existing tanks concealed;
o Recreation, some or all of the following: swimming pool (excepting
areas with long, cold winters), shuffleboards, horseshoe pitching,
golf course, hobby shop, hobby classes, games, potlucks, dances or
natural recreational facilities;
o Beautifully equipped recreation hall with kitchen. Room for
community gatherings, tiled restrooms, etc.;
o Uniform storage sheds or central storage facilities;
o All late model homes in excellent condition;
o At least 60 percent occupancy in order to judge quality of residents
which indicates park's ability to maintain a five star rating
between inspections;
o All empty lots grassed, graveled or otherwise well maintained;
o If pets or children allowed, there must be a place for them to run
and play without cluttering the streets and yards. Most five star
parks are for adults only; and,
o Superior management interested in comfort of residents and
maintenance of park.
The demand for good quality institutional grade manufactured housing
communities is anticipated to increase throughout the 1990's, since manufactured
housing communities provide an alternative form of living for the elderly and
retirees, especially for those living on fixed income. Manufactured home
shipments continue to be strong. Shipments rose 20.0 percent in 1992 and 1994,
and 12.0 percent in 1995. The market for good quality manufactured housing
communities is expected to be strong, with yield and capitalization rates and
prices expected to continue to be competitive, with the REITs leading the way.
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MARKET ANALYSIS
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Competition
We have surveyed six manufactured housing communities located within the
subject's primary market, including the subject property, containing a total of
2,774 sites. The combined occupancy rate of these six manufactured housing
communities, including the subject property, is approximately 96.2 percent.
Excluding the subject property in our survey, the combined occupancy rate is
approximately 95.9 percent, based on 2,468 sites.
The name and location of the subject property's primary competition, as
well as the number of sites, occupancy levels, amenities offered, monthly rental
rates and services provided in the monthly rental rate, are presented on the
following facing page, along with a map which identifies the location of each
competing park.
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<TABLE>
<CAPTION>
======================================================================================================================
SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- ----------------------------------------------------------------------------------------------------------------------
Number Age
Of Sites ---
-------- Condition Services Date Of
Comp. Name Occupancy --------- Monthly Provided Last Rental
No. Location Level Amenities Park Rating(1) Rent in Rent Increase
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
R-1 Serendipity 338 Clubhouse 1967 $244.00/Mo. Water January, 1997
Mobile Home Park ----- Pool ---- To Sewer
8791 Littleton Road 99% Shuffleboard Good $264.00/Mo. Refuse
North Fort Myers, Tennis Courts ----
Florida Laundry 5*
Storage
- ----------------------------------------------------------------------------------------------------------------------
R-2 Horizon Village 619 Clubhouse 1985 $245.25/Mo. Refuse January, 1997
9200 Littleton Road ----- Pool ---- To Lawn
North Fort Myers, 100% Laundry Good $265.25/Mo. Basic Cable
Florida ----
5*
- ----------------------------------------------------------------------------------------------------------------------
R-3 Bayshore Village 266 Clubhouse 1986 $306.00/Mo. Refuse January, 1997
15711 Shoreline ----- Pool ---- To Lawn
Road 92% Laundry Good $307.00/Mo. Basic Cable
North Fort Myers, Storage ----
Florida 5*
- ----------------------------------------------------------------------------------------------------------------------
R-4 Tamiami Village 714 Clubhouse 1970 $225.00/Mo. Refuse January, 1997
16371 North ----- Pool ---- To
Cleveland Avenue 100% Laundry Good $237.00/Mo.
North Fort Myers, ----
Florida 4*
- ----------------------------------------------------------------------------------------------------------------------
R-5 Tara Woods 531 Clubhouse 1984 $287.07/Mo. Refuse January, 1997
19376 U.S. 41 North ----- Pool ---- To Lawn
North Fort Myers, 86% Tennis Courts Good $342.07/Mo. Basic Cable
Florida Laundry ----
5*
- ----------------------------------------------------------------------------------------------------------------------
Subject Windmill Village 306 Clubhouse 1965 $280.00/Mo. Water January, 1997
16131 North ----- Pool ---- To Sewer
Cleveland Avenue 99% Spa Good $289.00/Mo. Refuse
North Fort Myers, Shuffleboard ----
Florida Horseshoe Pit 4*
Laundry
Lake
Bus Service
Church
Service
Storage
- ----------------------------------------------------------------------------------------------------------------------
(1) Ratings from One Star to Five Star Parks are defined in the National Overview section of this report.
======================================================================================================================
</TABLE>
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SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- --------------------------------------------------------------------------------
3-Year
Average
Annual
Comp. Name Rental
No. Location Increase
- ------------------------------------------------
R-1 Serendipity $10.00/Mo.
Mobile Home Park
8791 Littleton Road
North Fort Myers,
Florida
- ------------------------------------------------
R-2 Horizon Village $10.00/Mo.
9200 Littleton Road
North Fort Myers,
Florida
- ------------------------------------------------
R-3 Bayshore Village $9.00/Mo.
15711 Shoreline (Approximately
Road 3.0%)
North Fort Myers,
Florida
- ------------------------------------------------
R-4 Tamiami Village $8.00/Mo.
16371 North
Cleveland Avenue
North Fort Myers,
Florida
- ------------------------------------------------
R-5 Tara Woods Based upon CPI
19376 U.S. 41 North (Approximately
North Fort Myers, 2.3%)
Florida
- ------------------------------------------------
Subject Windmill Village $8.00/Mo.
16131 North
Cleveland Avenue
North Fort Myers,
Florida
- ------------------------------------------------
================================================
<PAGE>
COMPETING MANUFACTURED HOUSING MAP
[MAP OMITTED]
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Market Analysis
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Rental rates of manufactured housing communities located within the
subject's primary market range from $225.00 to $342.07 per site, on a monthly
basis. The subject property is currently quoting monthly rental rates within the
market range, or $280.00 to $289.00 per site. The last rental rate increase at
the subject property was as of January 1, 1997. There are also two lots at the
subject property for which the manufactured homes on the lots are rented. Total
rent for each of these sites with home is $400.00 per month.
The enclosed comparable rentals are considered the most competitive to the
subject property regarding amenities offered, condition, location and overall
ranking.
Comparable R-1, Serendipity Mobile Home Park, is located at 8791 Littleton
Road, in North Fort Myers, Florida. This comparable property contains 338
sites, and is 99 percent occupied. Serendipity Mobile Home Park was
developed in 1967, and is in overall good condition. Amenities include a
clubhouse, pool, shuffleboard courts, tennis courts, laundry facilities,
and storage area. Over the last three years, the average annual rental
rate increase was approximately $10.00 per month. The monthly rental rates
range from $244.00 to $264.00, with water, sewer, and refuse included in
the monthly rental payment. Residents of Serendipity Mobile Home Park must
be 55 years of age or older.
Comparable R-2, Horizon Village, is located at 9200 Littleton Road, in
North Fort Myers, Florida. Horizon Village contains 619 sites, and is
100.0 percent occupied. Horizon Village was developed in 1985, and is in
overall good condition. Amenities include a clubhouse, pool, and laundry
facilities. Over the last three years, the average annual rental rate
increase was $10.00 per month. Monthly rental rates range from $245.25 to
$265.25, with refuse, lawn and basic cable, service included in the
monthly rental payment. Residents of Horizon Village must be 55 years of
age or older.
Comparable R-3, Bayshore Village, is located at 15711 Shoreline Road, in
North Fort Myers, Florida. Bayshore Village contains 266 sites, and is 92
percent occupied. Bayshore Village was developed in 1986, and is in
overall good condition. Amenities include a clubhouse, pool, laundry
facilities, and storage area. Over the last three years, the average
annual rental rate increase was approximately $9.00 per month. Monthly
rental rates range from $306.00 to $307.00 per month, with refuse, lawn
service, and basic cable included in the monthly rental payment. Residents
of Bayshore Village must be 55 years of age or older.
Comparable R-4, Tamiami Village, is located at 16371 North Cleveland
Avenue, in North Fort Myers, Florida. Tamiami Village contains 714 sites,
and is 100.0 percent occupied. Tamiami Village was developed in 1970, and
is in overall good condition. Amenities include a clubhouse, pool, and
laundry facilities. The last annual rental rate increase occurred in
January, 1997 and was $8.00 per month. The monthly rental rates range from
$225.00 to $237.00, with refuse service
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Market Analysis
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included in the monthly rental payment. Residents of Tamiami Village must
be 55 years of age or older.
Comparable R-5, Tara Woods, is located at 19376 U.S. 41 North, in North
Fort Myers, Florida. Tara Woods contains 531 sites, and is 86 percent
occupied. Tara Woods was developed in 1984, and is in overall good
condition. Amenities include a clubhouse, pool, tennis courts, and laundry
facilities. Over the last three years, the average annual rental rate
increase was based on the Consumer Price Index, and was approximately 2.3
percent. The monthly rental rates range from $287.07 to $342.07, with
refuse, lawn, and basic cable service included in monthly rental payment.
Residents of Tara Woods must be 55 years of age or older.
In our opinion, and based on conversations with the on-site manager,
properties R-1 and R-2 compete most favorably with the subject property, with
the monthly rental rates ranging from $244.00 to $265.25 per month per site. The
subject property is currently quoting monthly rental rates ranging from $280.00
to $289.00 per site, which is slightly above the range of rental rates of our
more comparable competing properties, but within the overall market range. The
subject property competes most effectively with its primary competitors
regarding amenities, condition and current rent structure.
Comparable Manufactured Housing Community Sales
A search of the subject's market revealed no sales of manufactured housing
communities in the immediate area. Therefore, we have presented sales of seven
manufactured housing communities located in the central and southern portions of
western Florida. The manufactured housing community sales presented are located
primarily in the Tampa-St. Petersburg area of Florida. The following is a brief
discussion of each of the manufactured housing sales located within the
subject's market. These sales are summarized on the following facing page.
Comparable Sale I-1, Sun Valley, is located at 39248 U.S. Highway 19, in
Tarpon Springs, Florida. This property contains 261 sites. The property
was in good condition at the time of sale and was developed in 1970.
Amenities include a clubhouse, pool, shuffleboard courts, and laundry
facilities. The property was approximately 99.0 percent occupied at the
time of sale. The property was purchased for $5,027,100, which equates to
$19,261 per site.
Comparable Sale I-2, Park Royal, is located at 10611 66th Street, in
Pinellas Park, Florida. This property contains 309 sites. The property was
in excellent condition at the time of sale and was developed in 1991.
Amenities include a clubhouse, pool, shuffleboard courts, and laundry. The
property was approximately 90.0 percent occupied at the time of sale. The
property was purchased for $5,695,260, which equates to $18,431 per site.
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<TABLE>
<CAPTION>
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SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- -----------------------------------------------------------------------------------------------------------------------
Sales Price
Per Site
Sales Date Land Area Density -------- EGIM
Comp. Name ---------- --------- -------- Occupancy ----
No. Location Sales Price No. Sites Condition At Sale $NOI/Site OAR
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
I-1 Sun Valley 5/97 N/A N/A $19,261 $2,137 4.99x
39248 U.S. Highway ----- --- --- ------- -----
19 $5,027,100 261 Good 99% 11.09%
Tarpon Springs,
Florida
- -----------------------------------------------------------------------------------------------------------------------
I-2 Park Royal 5/97 N/A N/A $18,431 $1,913 5.30
10611 66th Street ----- --- --- ------- ----
Pinellas Park, $5,695,260 309 Good 90% 10.38%
Florida
- -----------------------------------------------------------------------------------------------------------------------
I-3 Southern Comfort 4/96 21.56 8.35 $19,307 N/A N/A
24479 U.S. Highway ----- ----- ---- -------
19 North $3,475,200 180 Average N/A
Clearwater, Florida
- -----------------------------------------------------------------------------------------------------------------------
I-4 Southgate Mobile 4/96 24.00 6.96 $25,749 $2,306 6.92x
Home Park ----- ----- ---- ------- -----
20000 U.S. Highway $4,300,000 167 Good 90% 8.96%
19 North
Clearwater, Florida
- -----------------------------------------------------------------------------------------------------------------------
I-5 Serendipity 5/95 56.00 7.59 $31,118 $2,698 7.83x
29081 U.S. 19 North ---- ----- ---- ------- -----
Clearwater, Florida $13,225,000 425 Good 98% 8.67%
- -----------------------------------------------------------------------------------------------------------------------
I-6 Doral Mobile Home 5/95 70.00 7.53 $30,361 $2,995 6.72x
Park ----- ----- ---- ------- -----
29250 U.S. 19 North $16,000,000 527 Good 98% 9.87%
Clearwater, Florida
- -----------------------------------------------------------------------------------------------------------------------
I-7 Bay Indies 1/94 250.00 5.24 $32,086 $2,374 9.13x
Ridgewood Avenue ---- ------ ---- ------- -----
Near U.S. 41 $42,000,000 1,309 Good 98% 7.40%
Venice, Florida
- -----------------------------------------------------------------------------------------------------------------------
Subject Windmill Village - - - 69.00 4.43 - - - $3,012(1) N/A
16131 North ----- ---- 99%
Cleveland Avenue 306 Good
North Fort Myers,
Florida
- -----------------------------------------------------------------------------------------------------------------------
(1) 1997 Trailing 12 months
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<CAPTION>
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SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- -----------------------------------------------------------------------------------------------------
$EGI/Site
---------
$Expense/Site
-------------
Comp. Name Expense Ratio Comparability to
No. Location % Of EGI to the Subject Comments
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
I-1 Sun Valley $3,861 Similar Developed in 1970;
39248 U.S. Highway ------ Good condition;
Tarpon Springs, $1,724 Amenities include a
Florida ------ clubhouse, pool,
44.66% shuffleboard courts,
and laundry
facilities.
- -----------------------------------------------------------------------------------------------------
I-2 Park Royal $3,478 Superior Developed in 1991;
10611 66th Street ------ Excellent condition;
Pinellas Park, $1,565 Amenities include:
Florida ------ clubhouse, pool,
45.00% shuffleboard courts,
laundry.
- -----------------------------------------------------------------------------------------------------
I-3 Southern Comfort N/A Inferior Developed in 1955;
24479 U.S. Highway Average condition;
19 North Minimal amenities.
Clearwater, Florida
- -----------------------------------------------------------------------------------------------------
I-4 Southgate Mobile $3,720 Similar Developed in 1971;
Home Park ------ Good condition;
20000 U.S. Highway $1,414 Amenities include:
19 North ------ clubhouse, pool,
Clearwater, Florida 38.00% shuffleboard courts,
and laundry
facilities.
- -----------------------------------------------------------------------------------------------------
I-5 Serendipity $3,975 Superior Developed in 1975;
29081 U.S. 19 North ------ Good condition;
Clearwater, Florida $1,277 Amenities include:
------ clubhouse, pool,
32.13% shuffleboard courts,
and laundry
facilities.
- -----------------------------------------------------------------------------------------------------
I-6 Doral Mobile Home $4,516 Similar Developed in 1972;
Park ------ Good condition;
29250 U.S. 19 North $1,521 Amenities include:
Clearwater, Florida ------ clubhouse, pool,
33.67% shuffleboard courts,
and laundry
facilities.
- -----------------------------------------------------------------------------------------------------
I-7 Bay Indies $3,514 Similar Developed in 1972;
Ridgewood Avenue ------ Good condition;
Near U.S. 41 $1,140 Amenities include:
Venice, Florida ------ clubhouse, pools,
32.43% tennis courts,
shuffleboard courts,
and mini-putt golf
course.
- -----------------------------------------------------------------------------------------------------
Subject Windmill Village $5,382 Subject Developed in 1965;
16131 North ------ Property Good condition;
Cleveland Avenue $1,717 Amenities include:
North Fort Myers, ------ Clubhouse, pool, spa,
Florida 31.90% shuffleboard courts,
horseshoe pits,
laundry facilities,
lake, bus service,
church service, and
storage area.
- -----------------------------------------------------------------------------------------------------
(1) 1997 Trailing 12 months
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</TABLE>
<PAGE>
Market Analysis
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Comparable Sale I-3, Southern Comfort, is located at 24479 U.S. Highway 19
North, in Clearwater, Florida. This property contains 180 sites, situated
on 21.56 acres of land area. The property was in good condition at the
time of sale and was developed in 1955. Amenities include a laundry
facility. Information regarding the occupancy of the property at the time
of sale was unavailable. The property was purchased for $3,475,200, which
equates to $19,307 per site.
Comparable Sale I-4, Southgate Mobile Home Park, is located at 20000 U.S.
Highway 19 North, in Clearwater, Florida. This property contains 167
sites, situated on 24.0 acres of land area. The park was in good condition
at the time of sale and was developed in approximately 1971. Amenities
include a clubhouse, swimming pool, shuffleboard courts, and laundry
facilities. The property was 90.0 percent occupied at the time of sale.
The property was purchased for $4,300,000, which equates to $25,749 per
site.
Comparable Sale I-5, Serendipity, is located at 29081 U.S. 19 North, in
Clearwater, Florida. This property contains 425 sites, situated on 56.0
acres of land area. The park was in good condition at the time of sale and
was developed in 1975. Amenities include a clubhouse, pool, shuffleboard
courts, and laundry facilities. The property was 98.0 percent occupied at
the time of sale. The property was purchased for $13,225,000, which
equates to $31,118 per site.
Comparable Sale I-6, Doral Mobile Home Park, is located at 29250 U.S. 19
North, in Clearwater, Florida. This property contains 527 sites, situated
on 70.0 acres of land area. The park was in good condition at the time of
sale and was developed in 1972. Amenities include a clubhouse, pool,
shuffleboard courts, and laundry facilities. The property was 98.0 percent
occupied at the time of sale. The property was purchased for $16,000,000,
which equates to $30,361 per site.
Comparable Sale I-7, Bay Indies, is located on Ridgewood Avenue near U.S.
41, in Venice, Florida. This property contains 1,309 sites, situated on
250.0 acres of land area. The park was in good condition at the time of
sale and was developed in 1972. Amenities include a clubhouse, pool,
tennis courts, shuffleboard courts, and a nine-hole mini putt golf course.
The property was 98.0 percent occupied at the time of sale. The property
was purchased for $42,000,000, which equates to $32,086 per site.
It should be noted that comparability does not imply an identical or exact
duplicate, but rather the possession of a similar utility and affected by
similar supply and demand forces. Also, relative to the subject property,
differences include: time or date of the transactions; location, which
encompasses differences in accessibility; site characteristics, including
differences in size, topography, access, exposure and development capacities;
and improvement characteristics, which include differences in age, quality,
condition, size and amenities.
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Market Analysis
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Demographic Trends
Based on information provided by National Decision Systems (NDS), the
populations within the subject's primary 5-mile and secondary 10-mile market
areas, as of 1997, are 75,996 and 213,641, respectively. The populations of the
subject's primary and secondary market areas are projected to increase to 80,057
and 226,316, respectively, by the year 2002.
According to NDS, the total number of households within the subject's
primary and secondary market areas, are 34,864 and 95,001, respectively, for
1997. The number of households within the subject's primary 5-mile and secondary
10-mile market areas are projected to increase to 37,425 and 102,447,
respectively, by the year 2002.
The average household income levels within the subject's primary and
secondary market areas, for 1997, are $42,761 and $47,688, respectively, and are
expected to increase to $54,602 and $61,142, respectively, by the year 2002. The
median household income levels within the subject's primary and secondary market
areas, for 1997, are $29,869 and $32,467, respectively, and are expected to
increase to $34,501 and $38,092, respectively, by the year 2002. Per capita
income within the subject's primary and secondary market areas, for 1997, are
$19,798 and $21,497, respectively, and are expected to increase to $25,784 and
$28,159, respectively, by the year 2002.
Based on the above levels, the demographics of the subject's primary
market area appear to indicate a positive growth trend, based on information
provided by NDS. For additional demographic information, please refer to the NDS
summary report in the Addenda.
Expense Analysis
Expenses exhibited by manufactured housing communities nationally are
typically 35.0 to 45.0 percent of effective gross income. However, expense
ratios of manufactured housing communities located in the southeast and
southwest regions of the nation are typically lower by comparison, due to lower
real estate taxes and common area maintenance charges.
As presented in the Summary of Manufactured Housing Communities Sales,
operating expense ratios of competing parks range from 32.1 to 45.0 percent of
effective gross income levels, and $1,277 to $1,724 on a per site basis. The
subject property is currently reporting expenses, for the 12-month trailing
period of 1997, at 31.90 percent of effective gross income and $1,717 on a per
site basis. Operating expenses appear to be within the range of comparable
properties on a per site basis as well as on a percentage of effective gross
income.
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Market Analysis
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Market Supply and Demand
There are a total of five competing manufactured housing communities
located within the subject's market, which total 2,468 sites, with a
corresponding average occupancy rate of 95.4 percent. No specific absorption
statistics were available, since the subject's competing parks have historically
reported occupancy rates at, or above, 95.0 percent. The occupancy rate at the
subject property, based on conversations with management, has historically been
consistent with competing parks, and is currently 99.2 percent. We believe the
current occupancy rate of the subject property is stabilized, and is within the
range of the occupancy rates of competing parks presently presented. Based on
the subject's current occupancy rate and occupancy rates at competing parks,
demand appears to be strong, with steady rental rate increases expected.
Conclusion
Historically, the subject's primary market has sustained high occupancy
levels of 95.0 to 100 percent. Rental rates of similar manufactured housing
communities located within the subject's primary market range from $225.00 to
$342.07 per site, on a monthly basis. The subject property is currently quoting,
and is currently achieving (based on the most recent rent roll provided), a
monthly rental rate within the range of competing parks, or at $280.00 to
$289.00 per site, which we believe is market-orientated.
Based on our research, steady increases in rental rates are anticipated,
based on actual historical performance of competing parks and historical
increases seen at the subject property. Sales transactions of manufactured
housing communities located within the subject's region range from $18,431 to
$32,086 per site, with corresponding overall rates ranging from 7.40 to 11.09
percent. In our opinion, the subject property competes favorably with its
competition regarding amenities, condition, rent structure and overall market
rating.
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SITE PLAN
[GRAPHIC OMITTED]
<PAGE>
PROPERTY DESCRIPTION
================================================================================
Site Description
The subject site is located at the northwest corner of Littleton Road and
Cleveland Avenue. The subject site is irregular in shape and contains
approximately 69.00 acres, or 3,005,640 square feet of land area.
Topographically, the site is basically level and at street grade.
Sewer service is provided by North Fort Myers Utilities. Water service is
provided by Lee County Utilities. Electric Service is provided by the Lee County
Electric Cooperative. Gas service is unavailable at the subject property, and
GTE Company provides telephone service.
The subject property is accessible via Cleveland Avenue and Littleton
Road. Based on conversations with the Planning Department of Lee County, the
subject property is not located in a flood hazard area. However, we recommend a
qualified engineer to determine the existence of any flood hazard areas.
Each developed site has a concrete driveway. The streets within the park
have two-lanes. Overall, the subject site is typical of the area and is
functionally well suited for its current use.
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.
Improvements Description
The subject property was originally developed in 1965. The subject
improvements consist of a 306-site manufactured housing community, with a
clubhouse, pool, spa, shuffleboard courts, horseshoe pits, laundry facilities,
lake and storage area. The 306-total sites can fit both double-wide and
single-wide homes.
The clubhouse consists of open-space available for resident use, and a
kitchen. The exterior of the one-story clubhouse consists of painted concrete
block, and appeared to be in overall good condition at the time of inspection.
The shuffleboard courts, pool, spa, and horseshoe pits are adjacent to the
clubhouse. Off-street parking is available for each resident. Site improvements
within the park include:
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PROPERTY DESCRIPTION
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paved streets, concrete driveways, street lighting and signage. Overall, the
site improvements appeared to be in good condition at the time of inspection.
Windmill Village is a functional manufactured housing community with good
ingress and egress from Cleveland Avenue and Littleton Road. Overall, the
subject community appears to be well maintained and is in good condition.
Windmill Village is a functional manufactured housing community and competes
favorably with other existing manufactured housing communities in the area in
terms of appearance and amenities. The subject property would fit the profile of
a Four Star Park, as defined in the National Overview section of this report.
Real Property Taxes and Assessments
Assessed value of commercial property in Lee County is assessed at 100.0
percent of the Assessor's opinion of market value. The subject property is
identified by tax parcel number 27-43-24-00-00023.0030.
Real estate taxes in Lee County are assessed in arrears. Real estate taxes
for 1997 were billed in November of 1997. The total amount of real estate taxes
for 1997 for the subject property amounts to $133,874.11. Taxes are discounted
if paid in full before March 31, 1997. The total amount of real estate taxes for
1997 equates to approximately $437.50 per site.
Zoning
According to zoning officials of Lee County , the subject property is
currently zoned MH 2, Mobile Home 2. Based on conversations with zoning
officials Lee County, the subject property is a legal and conforming use in the
MH 2, Mobile Home 2 District.
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CONCLUSION
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Conclusion
o The subject property, Windmill Village, is a functional manufactured
housing community, which competes favorably in relation to its
competition;
o Comparable manufactured housing communities located within the
subject's market range in monthly rental rates per site from $225.00
to $342.07;
o The subject property is currently quoting, and is currently
achieving (based on the most recent rent roll provided) a monthly
rental rate ranging from $280.00 to $289.00 per site, which is
within the range of competing parks, and are market-oriented;
o Sale transactions of manufactured housings located within the
subject's region range in unit sales prices per site from $18,431 to
$32,086, with corresponding overall rates ranging from 7.40 to 11.09
percent;
o Operating expenses are within industry standards for a park located
in the southeastern region of the country;
o The subject park appears to be operating at economic levels based on
our review of historical and budgeted 1998 income and expenses;
o The demographic characteristics of the area appear to be positive;
o The population profile of the subject property is approximately 70
percent retired adults, and 30 percent working adults, 55 years of
age or older. The subject property is a retirement park, with
residents required to be 55 years of age or older.
o The current occupancy rate at the subject property of 99.2 percent
is evident by a strong local market and demand;
o No significant manufactured housing communities are expected to be
developed in the near future;
o In our opinion, based on Woodall's criteria, the subject property is
a Four Star Park, and the reader's attention is directed to the
corresponding definition and criteria of a Four Star Park, presented
in the National Overview section of this report.
o Based on the subject's location, demographic, economic, market and
physical characteristics, we believe Windmill Village will continue
to be a viable manufactured housing community in the foreseeable
future, and is well positioned in the marketplace.
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<PAGE>
ASSUMPTIONS AND LIMITING CONDITIONS
================================================================================
"Report" means the consulting report to which these Assumptions and Limiting
Conditions are annexed.
"Property" means the subject of the Report.
"C&W" means Cushman & Wakefield, Inc. or its subsidiary which issued the Report.
"Appraiser(s)" means the employee(s) of C&W who prepared and signed the Report.
This report is made subject to the following assumptions and limiting
conditions:
1. No responsibility is assumed for the legal description or for any matters
which are legal in nature. 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 Report or upon which the Report 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 Appraisers nor C&W shall be responsible for the
accuracy or completeness of such information, including the correctness of
estimates, opinions, dimensions, sketches, exhibits, and other factual
matters.
3. The information is effective as of the date stated in the Report. Changes
since that date in external and market factors or in the property itself
can significantly affect our analysis.
4. The report is to be used in whole and not in part. No part of the Report
shall be used in conjunction with any other report. Possession of the
Report, or a copy thereof, does not carry with it the right of
publication. Publication of the Report or any portion thereof without the
prior written consent of C&W is prohibited. Except as may be otherwise
expressly stated in the letter of engagement to prepare the Report, C&W
does not permit use of the Report by any person other than the party to
whom it is addressed or for purposes other than those for which it was
prepared. If written permission is given by C&W to use the Report, the
Report must be used in its entirety and only with proper written
qualification as approved by C&W. No part of the Report or the identity of
the Appraiser shall be conveyed to the public through advertising, public
relations, news, sales, or other media or used in any material without
C&W's prior written consent. Reference to the Appraisal Institute or to
the MAI designation is prohibited.
5. The Appraiser shall not be required to give testimony in any court or
administrative proceedings relating to the Property or the Report.
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Assumptions and Limiting Conditions
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6. The Report 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 Report; 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 Report is based.
7. The physical condition of the improvements considered by the Report is
based on visual inspection by the Appraiser or other person identified in
the Report. C&W assumes no responsibility for the soundness of structural
members nor for the condition of mechanical equipment, plumbing, or
electrical components.
8. Unless otherwise stated in the Report, the existence of potentially
hazardous or toxic materials which may have been used in the construction
or maintenance or operation of the improvements or may be located at or
about the Property was not considered in the Report. These materials (such
as formaldehyde foam insulation, asbestos insulation, various soil
contaminants, and other potentially hazardous materials) may affect the
value of the Property. The Appraisers are not qualified to detect such
substances, and C&W urges that an expert in this field be employed to
determine the economic impact of these matters, if any, on the property in
the Report.
9. Unless otherwise stated in the Report, compliance with the requirements of
the Americans With Disabilities Act of 1990 (ADA) has not been considered
in the Report. Failure to comply with the requirements of the ADA may
negatively affect the value of the property. C&W recommends that an expert
in this field be employed.
10. If the Report is submitted to a lender or investor with the prior approval
of C&W, such party should consider the Report as one factor, together with
its independent investment considerations and underwriting criteria, in
its overall investment decision.
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34
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
CERTIFICATION
================================================================================
We certify that, to the best of our knowledge and belief:
1. Jennifer L. Estrella inspected the property, and Michael J. Schaeffer and
Stanley R. Dennis, Jr., MAI, have reviewed and approved the report, but
did not inspect 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 on an action or event (such as the
approval of a loan) resulting from the analyses, opinions, or conclusions
in, or the use of, this report.
6. 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 Ethics and Standards of Professional Practice of the Appraisal
Institute.
7. No one provided significant professional assistance to the persons signing
this 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. As of the date of this report, Stanley R. Dennis, Jr., MAI, has completed
the requirements of the continuing education program of the Appraisal
Institute.
/s/ Michael J. Schaeffer /s/ Jennifer L. Estrella /s/ Stanley R. Dennis, Jr.
Michael J. Schaeffer Jennifer L. Estrella Stanley R. Dennis, Jr., MAI
Director Associate Appraiser Director, Manager
================================================================================
35
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
ADDENDA
================================================================================
POP-FACT SHEETS
LEGAL DESCRIPTION
QUALIFICATIONS OF APPRAISERS
================================================================================
36
<PAGE>
================================================================================
POP-FACT SHEETS
================================================================================
<PAGE>
Tue Nov 25, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP FACTS: SUMMARY REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6510
PREPARED FOR
CUSHMAN & WAKEFIELD, INC
LITTLETON RD & US 41
NORTH FORT MYERS, FL COORD: 26:41.78 81:54.06
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- --------------------------------------------------------------------------------
POPULATION
2002 PROJECTION 80,057 226,316
1997 ESTIMATE 75,996 213,641
1990 CENSUS 69,920 194,630
1980 CENSUS 46,657 128,379
GROWTH 1980- 1990 49.86% 51.61%
HOUSEHOLDS
2002 PROJECTION 37,425 102,447
1997 ESTIMATE 34,864 95,001
1990 CENSUS 29,332 78,664
1980 CENSUS 18,809 49,543
GROWTH 1980- 1990 55.94% 58.78%
1997 ESTIMATED POPULATION BY RACE 75,996 213,641
WHITE 87.94% 86.84%
BLACK 9.41% 10.20%
ASIAN & PACIFIC ISLANDER 0.77% 0.84%
OTHER RACES 1.88% 2.11%
1997 ESTIMATED POPULATION 75,996 213,641
HISPANIC ORIGIN 6.74% 7.54%
OCCUPIED UNITS 29,332 78,664
OWNER OCCUPIED 72.16% 68.14%
RENTER OCCUPIED 27.84% 31.86%
1990 AVERAGE PERSON PER HH 2.34 2.43
1997 ESTIMATED HH BY INCOME 34,864 95,001
$150,000 + 2.36% 3.37%
$100,000 TO $149,999 3.47% 3.64%
$ 75,000 TO $ 99,999 3.75% 4.42%
$ 50,000 TO $ 74,999 14.38% 15.95%
$ 35,000 TO $ 49,999 16.80% 18.14%
$ 25,000 TO $ 34,999 18.00% 17.70%
$ 15,000 TO $ 24,999 21.18% 19.18%
$ 5,000 TO $ 14,999 16.12% 14.08%
UNDER $ 5,000 3.93% 3.53%
1997 EST. AVERAGE HH INCOME $ 42,761 $ 47,688
1997 EST. MEDIAN HH INCOME $ 29,869 $ 32,467
1997 EST. PER CAPITA INCOME $ 19,798 $ 21,497
<PAGE>
Tue Nov 25, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP 80-02, HH 80-02, INC 80-02)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6510
PREPARED FOR
CUSHMAN & WAKEFIELD, INC
LITTLETON RD & US 41
NORTH FORT MYERS, FL COORD: 26:41.78 81:54.06
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- --------------------------------------------------------------------------------
POP_80: TOTAL 46,657 128,379
POP_90: TOTAL 69,920 194,630
POP_97: TOTAL (EST.) 75,996 213,641
POP_02: TOTAL (PROJ.) 80,057 226,316
HH_80: TOTAL 18,809 49,543
HH_90: TOTAL 29,332 78,664
HH_97: TOTAL (EST.) 34,864 95,001
HH_02: TOTAL (PROJ.) 37,425 102,447
INC_80: PER CAPITA (EST.) $ 6,617 $ 7,107
INC_90: PER CAPITA $ 12,834 $ 13,662
INC_97: PER CAPITA (EST. $ 19,798 $ 21,497
INC_02: PER CAPITA (PROJ $ 25,784 $ 28,159
HH_90_BY INCOME_89: MEDIAN $ 24,436 $ 27,130
HH_97_BY INCOME: MEDIAN $ 29,869 $ 32,467
HH_02_BY INCOME: MEDIAN $ 34,501 $ 38,092
HH_80_BY INCOME_79: AVERAGE $ 16,413 $ 18,416
HH_90_BY INCOME_89: AVERAGE $ 29,925 $ 33,352
HH_97_BY INCOME: AVERAGE $ 42,761 $ 47,688
HH_02_BY INCOME: AVERAGE $ 54,602 $ 61,142
<PAGE>
================================================================================
LEGAL DESCRIPTION
================================================================================
<PAGE>
LEGAL DESCRIPTION
- --------------------------------------------------------------------------------
EXHIBIT "A" TO SCHEDULE "A" Windmill
PARCEL NO.N24-21585-10 (Windmill. Ft. Myers):
PARCEL 1
A tract or parcel of land lying in the South half (S 1/2) of Sections 27 and 28,
Township 43 South, Range 24 East, Lee County, Florida, which tract or parcel is
described as follows:
From the Southeast corner of said Section 28 run N 00 degrees 18'40" W along the
Eastline of said section for 25 feet to a point on the North line of Littleton
Road (50 feet wide) and the point of beginning of the herein described parcel.
From said point of beginning run N 89 degrees 59'50" W parallel with the South
line of said section along the Northerly line of said road for 75 feet to a
concrete monument; thence run N 00 degrees 18'40" W parallel with and 75 feet
west from the east line of said section for 722.61 feet to a concrete monument
marking the intersection with the South line of the North 580.0 feet of the
Southeast quarter (SE 1/4) of the Southeast quarter (SE 1/4) of said Section 28;
thence run S 8 degrees 49'50" W parallel with the north line of said fraction of
a section for 175 feet to a concrete monument marking the intersection with a
line parallel with and 250 feet as measured on a perpendicular westerly, from
the east line of said section; thence run N 00 degrees 18'40" W along said
parallel line for 580 feet to a concrete monument marking the intersection with
the north line of said quarter-quarter section; thence run N 89 degrees 49'50" E
along said quarter-quarter section line for 250 feet to a concrete post marking
the northeast corner of said quarter-quarter section; thence run S 00 degrees
18'40" E along the section line common to said Sections 27 and 28 along the
centerline of the State Road Department outfall ditch right-of-way (50 feet
wide) for 5O6.6 feet to an intersection with a line parallel with and 821 feet
(as measured on a perpendicular) northerly from the south line of said Section
27; thence run S 89 degrees 53'40" E along said parallel line for 25 feet thence
run N 00 degrees 18'40" W parallel with said section line and along the easterly
line of said outfall ditch right-of-way for 679.02 feet to an intersection with
a line parallel with and 1500 feet (as measured on a perpendicular) northerly
from the south line of said section; thence run 89 degrees 53'40" E parallel
with and 1500 feet north of said section line for 1401.01 feet; thence run N 5
degrees 56'20" E parallel with the westerly right-of-way line of the Tamiami
Trail (State Road No. 45) and a northerly prolongation thereof for 518.77 feet;
thence run N 89 degrees 34'20" E for 613.68 feet to an intersection with a
northerly prolongation of a line parallel with and 290 feet (as measured on a
perpendicular) westerly from said westerly line of the Tamiami Trail (State Road
No. 45) thence run S 5 degrees 56'20" W along said prolongation and parallel
line for 2,007.14 feet to an intersection with the northerly line of Littleton
Road (50 feet wide); thence run N 89 degrees 53'40" W along said northerly line
parallel with and 25 feet north from the south line of said section for 1877.70
feet to the point of beginning.
CONTINUED ON NEXT PAGE
Page 3
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<PAGE>
LEGAL DESCRIPTION
- --------------------------------------------------------------------------------
EXHIBIT "A" TO SCHEDULE "A"
Legal Description (con't)
PARCEL 2
A tract or parcel of land lying in the SW 1/4 of Section 27, Township 43 South,
Range 24 East, which tract or parcel is described as follows: From the SW corner
of said fraction of a section run N 00(degree)18'40" West along the West line of
said Section for 25 feet to a point on the North line of Littleton Road (50 feet
wide); thence run South 89(degree)53'40" East along said North line parallel
with the South line of said section for 1377.70 feet to an intersection with a
Southerly prolongation of a line parallel with and 290 feet (as measured on a
perpendicular) from the Westerly line of the Tamiami Trail (State Road No. 45);
thence run North 5(degree)56'20" East along said prolongation and parallel line
for 719.97 feet to the point of beginning to the herein described parcel.
From said point of beginning continue North 5(degree)56'20" East along said
parallel line for 80.44 feet; thence run South 89(degree)53'40" East parallel
with the South line of said section 291.50 feet to an intersection with said
Westerly line of the Tamiami Trail; thence run South 5(degree)56'20" West along
said Westerly line for 80.44 feet; thence run North 89(degree)53'40" West
parallel with said South line for 291.50 feet to the point of beginning Lee
County, Florida.
PARCEL 3
The West 25 feet of the North 1475 feet of the South 1500 feet of the Southwest
quarter of Section 27, Township 43 South, Range 24 East, Lee County, Florida.
- --------------------------------------------------------------------------------
<PAGE>
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QUALIFICATIONS OF APPRAISERS
================================================================================
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
JENNIFER L. ESTRELLA
Education
Master of Urban Planning, Economic Development Concentration
University of Illinois at Urbana-Champaign, 1996
Bachelor of Business Administration, Finance Major
Loyola University Chicago, 1991
Real Estate Education
The following courses have been completed through the Real Estate Program at the
University of Illinois at Urbana-Champaign:
Real Estate Financial Market
Urban Real Estate Valuation
Real Estate and Urban Land Economics
Current Position
Associate Appraiser, Cushman & Wakefield of Illinois, Inc., Valuation Advisory
Services
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
MICHAEL J. SCHAEFFER
Real Estate Experience
Mr. Schaeffer has been active in the appraisal of real estate since 1983.
Appraisal experience includes the valuation of income-producing real estate in
the Chicago area as well as many major cities and small towns throughout the
Midwest. The types of properties appraised include office buildings, regional
malls, shopping centers, country clubs, apartment complexes, subsidized housing
units, industrial buildings, nursing homes, retirement communities, automotive
dealerships, department stores, vacant land, proposed income-producing
properties, and various special purpose properties. Mr. Schaeffer also has had
over 10 years of experience in new construction and renovation of commercial,
industrial, residential and specialized real estate properties.
Education
Bachelor of Arts, University of Cincinnati, Cincinnati, Ohio MBA Graduate Course
Work in Economics and Management, Xavier University, Cincinnati, Ohio
Real Estate Education
The following courses sponsored by the Appraisal Institute have been
successfully completed:
Real Estate Appraisal Principles 1A-1
Basic Valuation Procedures 1A-2
Standards of Professional Practice
Capitalization Theory and Techniques 1BA
Capitalization Theory and Techniques IBB
Advanced Applications 550
Report Writing & Valuation Analysis 540
Mr. Schaeffer has also attended numerous lectures and seminars sponsored by the
Appraisal Institute.
Mr. Schaeffer is currently a candidate for the MAI designation of the Appraisal
Institute, and has completed the educational and experience requirements for the
MAI designation.
Current Position
Director, Appraisal Services, Cushman & Wakefield, Inc., Chicago, Illinois
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
STANLEY R. DENNIS, JR., MAI
Real Estate Experience
Director, Manager, Cushman & Wakefield Valuation Advisory Services, Chicago,
Illinois. Division is responsible for the appraisal and consultation function of
Cushman & Wakefield, Inc., a national full service real estate organization,
1989.
Vice President, Manager, Cushman & Wakefield Appraisal Services, Portland,
Oregon, 1983.
Principal, Stanley R. Dennis & Associates, Portland, Oregon, 1982.
Education
Portland State University, Portland, Oregon
Bachelor of Science Degree, 1977, Finance and Real Estate
Appraisal Institute
Course I-A Fundamentals and Principles of Real Estate Appraisal
Course I-B Capitalization Theory and Techniques
Course II-I Case Studies in Real Estate Valuation
Course II-2 Valuation Analysis and Report Writing
Course II-3 Standards of Professional Practice
Course IV Litigation/Condemnation Valuation
Course VI Investment Analysis
Course VIII Residential Case Studies
Course X Market Analysis
Seminar Feasibility Analysis and Highest and Best Use
Seminar Discounted Cash Flow Analysis
Seminar Cash Equivalency
Seminar Subdivision Analysis
Seminar Rates, Ratios and Reasonableness
Professional Affiliations
American Institute of Real Estate Appraisers, Member (Designation #6754)
Building Owners and Managers Association (BOMA)
National Association of Corporate Real Estate Executives (NACORE)
<PAGE>
================================================================================
MARKET STUDY OF REAL PROPERTY
Lamplighter Village
10767 Jamacha Boulevard
Spring Valley, San Diego County, California
================================================================================
As of December 4, 1997
Prepared For:
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Prepared By:
Cushman & Wakefield of Illinois, Inc.
Valuation Advisory Services
455 North Cityfront Plaza Drive, Suite 2800
Chicago, Illinois 60611-5555
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
[Letterhead of Cushman & Wakefield of Illinois, Inc.]
December 9, 1997
Mr. Edward J. Welch
Director
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Re: Market Study of Real Property
Lamplighter Village
10767 Jamacha Boulevard
Spring Valley, San Diego County, California 91978-1831
Dear Mr. Welch:
In fulfillment of our agreement as outlined in the Letter of Engagement,
Cushman & Wakefield of Illinois, Inc., is pleased to transmit our market study
and consulting report evaluating the above referenced real property.
As specified in the Letter of Engagement, our market study and consulting
report is qualified by certain assumptions, limiting conditions, certifications,
and definitions, which are set forth in the report.
This consulting report was prepared for the Client, and it is intended
only for the specified use of the Client. It may not be distributed to or relied
upon by other persons or entities without written permission of Cushman &
Wakefield, Inc.
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the above
referenced real property, as of the date of our property inspection. The
function of the report is to assist the client, in evaluating the property for
underwriting and rating purposes.
<PAGE>
Mr. Edward J. Welch -2- December 9, 1997
This market study and consulting report was prepared in conformity with
the requirements of the Code of Ethics and Standards of Professional Appraisal
Practice of the Appraisal Institute and the Uniform Standards of Professional
Practice (USPAP) adopted by the Appraisal Standards Board of the Appraisal
Foundation.
This letter is invalid if detached from the report, which contains the
text, exhibits, and the Addenda.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF ILLINOIS, INC.
/s/ Nancy D. Piekos
Nancy D. Piekos
Associate Appraiser
/s/ Michael J. Schaeffer
Michael J. Schaeffer
Director
/s/ Stanley R. Dennis, Jr.
Stanley R. Dennis, Jr., MAI
Director, Manager
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
SUMMARY OF SALIENT FACTS
================================================================================
Property Name: Lamplighter Village
Location: 10767 Jamacha Boulevard
Spring Valley, San Diego County, California
Assessor's Parcel Number: Based on information provided by San Diego County
records, the subject property is identified by
Assessor's Parcel Number 580-020-10-00.
Date of Inspection: The property was inspected December 4, 1997.
Ownership: The subject property is legally entitled to
Goldland Vistas, Inc., an Illinois Corporation,
and MHC Financing Limited Partnership, as
beneficiary.
Land Area: Based on information provided by the property's
legal plat of survey, the subject property
contains approximately 32.0 acres of land area,
or 1,393,920 square feet.
Zoning: Based on information provided by the County of
San Diego, the subject property is zoned RMH-8,
Residential Mobile Home-8 District. The subject
property is a legal and conforming use.
Improvements
Type: A manufactured housing community.
Year Built: The subject property was originally developed in
approximately 1970.
Size: The subject property consists of a 270-site
manufactured housing community.
Condition: At the time of inspection, the subject property
was in good condition.
Property Rating: Four Star manufactured home community.
Special Assumptions: 1. Information regarding the subject property,
including its physical characteristics, was
provided to us by the client and the on-site
manager, and is assumed to be accurate.
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
Summary of Salient Facts
================================================================================
2. The existence of potentially hazardous or
toxic materials, which may be located on or about
the property, was not considered in our
evaluation. The appraisers are not qualified to
detect such substances, and Cushman & Wakefield
urges that an expert in this field be employed to
determine the existence, if any, of hazardous
materials located on or about the site.
3. Our market and consulting report regarding the
subject assumes the subject property, as
presently improved, represents its highest and
best use.
4. It is unknown to the appraiser if the subject
property complies with the Americans with
Disabilities Act (ADA). We recommend a qualified
specialist in the final determination regarding
any ADA compliance deficiencies that may be
present at the subject property.
5. Please refer to the complete list of
assumptions and limiting conditions included at
the end of this report.
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
TABLE OF CONTENTS
================================================================================
Page
PHOTOGRAPHS OF SUBJECT PROPERTY................................................1
INTRODUCTION...................................................................5
Identification of Property..................................................5
Property Ownership and Recent History.......................................5
Purpose and Function of the Market Study and Consulting Assignment..........5
Scope of the Market Study and Consulting Assignment.........................5
Date of Property Inspection.................................................5
Definitions and Other Pertinent Terms.......................................5
REGIONAL ANALYSIS..............................................................8
NEIGHBORHOOD ANALYSIS.........................................................13
MARKET ANALYSIS...............................................................15
National Overview..........................................................15
Competition................................................................22
Comparable Manufactured Housing Community Sales............................26
Demographic Trends.........................................................28
Expense Analysis...........................................................29
Market Supply and Demand...................................................29
Conclusion.................................................................29
PROPERTY DESCRIPTION..........................................................32
Site Description...........................................................32
Improvements Description...................................................32
REAL PROPERTY TAXES AND ASSESSMENTS...........................................33
ZONING .......................................................................33
CONCLUSION....................................................................34
ASSUMPTIONS AND LIMITING CONDITIONS...........................................35
CERTIFICATION.................................................................37
ADDENDA 1 ....................................................................38
Pop-Fact Sheets
Legal Description
Qualifications of Appraisers
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
PHOTOGRAPHS OF SUBJECT PROPERTY
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[PHOTO OMITTED]
Front Entrance of the Subject Property
[PHOTO OMITTED]
Exterior of the Community Center
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<PAGE>
Photographs of Subject Property
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[PHOTO OMITTED]
Interior of the Community Center
[PHOTO OMITTED]
Interior of the Community Center
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<PAGE>
Photographs of Subject Property
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[PHOTO OMITTED]
Typical Interior View of the Subject Park
[PHOTO OMITTED]
Typical Interior View of the Subject Park
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3
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WAKEFIELD(R)
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<PAGE>
Photographs of Subject Property
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[PHOTO OMITTED]
Typical Interior View of the Subject Park
[PHOTO OMITTED]
Typical Interior View of the Subject Park
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4
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WAKEFIELD(R)
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<PAGE>
INTRODUCTION
================================================================================
Identification of Property
The subject property consists of a 270-site manufactured housing
community, situated on approximately 32.0 acres of land area, located along the
east side of Jamacha Boulevard, within an unincorporated area of Spring Valley,
in San Diego County, California. The property's street address is 10767 Jamacha
Boulevard. The property was constructed in 1970, and was 95.56 percent occupied
at the time of inspection, with twelve sites vacant and currently available.
However, of the twelve available sites, nine of the sites are presently improved
with manufactured homes which are vacant and presently for sale.
Property Ownership and Recent History
The subject property is currently entitled to Goldland Vistas, Inc., an
Illinois corporation, and MHC Financing Limited Partnership, as beneficiary. The
subject property was originally developed in 1970, with 270 manufactured housing
sites.
Purpose and Function of the Market Study and Consulting Assignment
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the subject
property, as of the date of property inspection. The function of the consulting
report is to assist the client in evaluating the property for underwriting and
rating purposes.
Scope of the Market Study and Consulting Assignment
In the process of preparing this report, we inspected the property,
interviewed the on-site manager, conducted market research into asking rental
rates for comparable properties, conducted market investigations, and
ascertained sales prices of comparable properties. Additionally, we conducted
market research and evaluated demographic and economic trends; and, the market
position and rating of the subject property.
Date of Property Inspection
The property was inspected December 4, 1997.
Definitions and Other Pertinent Terms
Definitions of pertinent terms taken from the Dictionary of Real Estate
Appraisal, Third Edition (1993), published by the Appraisal Institute, is as
follows:
Market Rent
The rental income that a property would most probably command on the open
market; indicated by current rents paid and asked for comparable space as
of the date of the appraisal.
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5
CUSHMAN &
WAKEFIELD(R)
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<PAGE>
Introduction
================================================================================
Evaluation
Evaluation is a study of the nature, quality, or utility of a parcel of
real estate or interest in, or aspects of, real property, in which a value
estimate is not necessarily required.
Market Study
A macroeconomic analysis that examines the general market conditions of
supply, demand, and pricing or the demographics of demand for a specific
area or property type.
Legal Description
The subject property is located along the east side of Jamacha Boulevard,
within an unincorporated area of Spring Valley, San Diego County, California.
The street address of the subject property is 10767 Jamacha Boulevard, Spring
Valley, California. The property is identified by tax parcel number
580-020-10-00, according to San Diego County records. Due to the lengthy metes
and bounds legal description, the subject property's legal description is
presented in the Addenda of this report, and reference is made thereto.
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6
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WAKEFIELD(R)
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REGIONAL MAP
[MAP OMITTED]
<PAGE>
REGIONAL ANALYSIS
================================================================================
Introduction
The market value of real property is influenced by the economic,
political, physical and social characteristics of the overall economic region of
which it is a part. The subject property is located in an unincorporated area of
Spring Valley, San Diego County, California. The following is an overview of San
Diego County, focusing on some of its more important characteristics.
Information provided here was obtained from the Greater San Diego Chamber of
Commerce.
San Diego County
San Diego County is located in the southwest portion of California. San
Diego County encompasses an area of approximately 4,280 square miles, and is
bordered to the north by Riverside County, Imperial County on east, Mexico to
the south and the Pacific Ocean to the west. The largest city in San Diego
County is San Diego, with a 1996 estimated population of 1,183,102, which
represents approximately 44.0 percent of the total county's population.
Population
The estimated population of San Diego County in 1996 was 2,690,255. U.S.
Census statistics indicate that the population of San Diego County has
consistently increased since 1930. Historical and projected population
characteristics since 1930, are provided in the table on the following page.
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8
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WAKEFIELD(R)
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<PAGE>
Regional Analysis
================================================================================
================================================================================
HISTORICAL AND PROJECT POPULATION CHARACTERISTICS
SAN DIEGO COUNTY
- --------------------------------------------------------------------------------
Year Population % Change
- --------------------------------------------------------------------------------
1930 209,659 ---
- --------------------------------------------------------------------------------
1940 289,348 38.00%
- --------------------------------------------------------------------------------
1950 556,808 92.44%
- --------------------------------------------------------------------------------
1960 1,033,011 85.52%
- --------------------------------------------------------------------------------
1970 1,357,854 31.45%
- --------------------------------------------------------------------------------
1980 1,861,846 37.12%
- --------------------------------------------------------------------------------
1990 2,498,016 34.17%
- --------------------------------------------------------------------------------
1996 2,690,255 7.70%
- --------------------------------------------------------------------------------
Forecasts
- --------------------------------------------------------------------------------
2000 3,004,434 11.68%
- --------------------------------------------------------------------------------
2010 3,267,254 8.75%
- --------------------------------------------------------------------------------
2020 3,763,253 15.18%
- --------------------------------------------------------------------------------
Source: Greater San Diego Chamber of Commerce
================================================================================
As indicated above, the largest percentage change in population occurred
between 1940 and 1950, followed by 1950 to 1960. The percentage change in
population between 1940 and 1950 was 92.44 percent. The percentage change in
population between 1950 and 1960 was 85.52 percent. The population of San Diego
County is expected to reach 3,763,253, by the year 2020. The average age in San
Diego County is 30.8 years.
Income and Employment
The percentage of adults ages 25 years and older with a bachelor's degree
or higher is 29.3 percent. The greatest percentage of households, approximately
18.9 percent, are included in the income range between $35,000 to $49,999. The
median household income in San Diego County is $35,864. Overall, construction in
San Diego County has been increasing steadily in recent years. However,
residential permit requests have been sluggish compared to commercial permit
requests. Single-family homes in San Diego County cost an average of $204,500.
Employment in San Diego County has increased in the past few years. The
1996 average unemployment rate was 5.4 percent. Tourism and the
government/military are the biggest industry sectors in San Diego County.
Several military bases are located in the San Diego County limits, the largest
of which, is the Miramar Naval Air Station. The distribution of employment by
industry is provided in the table on the following page.
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Regional Analysis
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================================================================================
EMPLOYMENT BY INDUSTRY
SAN DIEGO COUNTY
- --------------------------------------------------------------------------------
Type of Industry San Diego County Percent of Total
- --------------------------------------------------------------------------------
Agriculture, Forestry, Fisheries, Mining 8,629 .8%
- --------------------------------------------------------------------------------
Construction 42,000 3.7%
- --------------------------------------------------------------------------------
Manufacturing 117,830 10.5%
- --------------------------------------------------------------------------------
Transportation, Communication, Utilities 34,675 3.1%
- --------------------------------------------------------------------------------
Wholesale Trade 46,391 4.1%
- --------------------------------------------------------------------------------
Retail Trade 187,673 16.7%
- --------------------------------------------------------------------------------
Finance, Insurance, Real Estate 66,320 5.9%
- --------------------------------------------------------------------------------
Services 311,783 27.7%
- --------------------------------------------------------------------------------
Government, Military 311,360 27.6%
================================================================================
Total 1,126,661 100.0%
- --------------------------------------------------------------------------------
Source: Greater San Diego Chamber of Commerce
================================================================================
As indicated above, the services and government/military industries each
employ over 27.0 percent of the population. The following is a list of the
largest area employers, with 10,000 or more employees.
================================================================================
MAJOR EMPLOYERS IN SAN DIEGO COUNTY
10,000+ EMPLOYEES
- --------------------------------------------------------------------------------
Employer City
- --------------------------------------------------------------------------------
San Diego Unified School District San Diego
- --------------------------------------------------------------------------------
Scripps Health La Jolla
- --------------------------------------------------------------------------------
Sharp Healthcare Corporation San Diego
- --------------------------------------------------------------------------------
University of California, San Diego La Jolla
- --------------------------------------------------------------------------------
County of San Diego San Diego
- --------------------------------------------------------------------------------
City of San Diego San Diego
- --------------------------------------------------------------------------------
U.S. Postal Service San Diego
- --------------------------------------------------------------------------------
Source: Greater San Diego Chamber of Commerce
================================================================================
Transportation
San Diego County is served by Interstate Highways 5, 805, 15, and 8. In
addition several State Highways serve the area. Commercial air-service is
available via the San Diego International Airport, which is served by major air
carriers, such as United Airlines, American Airlines, Southwest Airlines,
America West, and Northwest Airlines. Public transit is available through the
San Diego Transit Corporation and the San Diego Tijuana Trolley.
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Regional Analysis
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Quality of Life
Located within San Diego County are thirty licensed general hospitals,
twelve accredited senior colleges and universities, and nine accredited
community and junior colleges. Due to the areas generally warm climate,
residents can partake in various outdoor recreational activities year round.
Balboa Park, located in San Diego County, offers 1,400 acres of recreational
space. San Diego County is also home to the world famous San Diego Zoo. San
Diego Zoo is the habitat of 4,000 rare birds, mammals, reptiles, and amphibians;
and contains 100 acres of award-winning gardens.
Conclusion
San Diego County is a well established area that offers a good quality of
life. The population of San Diego County has increased consistently since 1930,
and steady growth is expected through the year 2020. Employment in the county
has also improved in the past few years. The majority of the workforce are
employed in the government/military and tourism industries. Exports and taxable
sales have increased in recent years. San Diego County is expected to have a
strong growing economy in the near future.
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<PAGE>
NEIGHBORHOOD MAP
[MAP OMITTED]
<PAGE>
NEIGHBORHOOD ANALYSIS
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The subject property is situated along the east side of Jamacha Boulevard,
approximately one-half mile south of its intersection with Route 94/Campo Road,
within an unincorporated area of Spring Valley, San Diego County, California.
The subject's immediate neighborhood is bordered by the Route 94/Campo Road to
the north, the Sweetwater Reservoir to the south, vacant land (mountains) to the
east, and Sweetwater Road to the west. The subject's immediate area along
Jamacha Boulevard is predominantly developed with manufactured housing
communities, and neighborhood service commercial establishments.
The subject property is immediately bounded by Jamacha Boulevard to the
west. Jamacha Boulevard, which is also known as State Route 54, is a primary
two-lane, north-south thoroughfare, within the vicinity of the subject property.
The subject's primary point of ingress and egress is provided by Jamacha
Boulevard. Jamacha Boulevard intersects with Campo Road approximately one-half
mile north of the subject property, which in turn provides direct access to
Highway 94. Highway 94 is the primary highway providing east-west access through
the central portion of the San Diego metropolitan area.
The subject property enjoys visibility along Jamacha Boulevard, and
primary access to the subject's main entrance to the park is accessed directly
off of Jamacha Boulevard. Other developments along Jamacha Boulevard consist of
at least two other manufactured home communities, in addition to the subject
property, including: Rancho Jamacha Mobile Estates and Sweetwater Lodge Mobile
Home Park. Rancho Jamacha Mobile Estates is situated directly across the street
from the subject property, along the west side of Jamacha Boulevard. Rancho
Jamacha Mobile Estates is a "senior park" which is improved with 125-sites. At
present, Rancho Jamacha Mobile Estates is 99.20 percent occupied and the monthly
rental rate is reportedly $337.00 per site. Sweetwater Lodge Mobile Home Park is
situated directly south of the subject property, along the east side of Jamacha
Boulevard. Sweetwater Lodge Mobile Home Park is a family park which is improved
with 261-sites. At present, Sweetwater Lodge Mobile Home Park is 100 percent
occupied and the monthly rental rate is reportedly $398.00 per site.
As previously mentioned, the subject property is located within an
unincorporated area of Spring Valley. The majority of the development situated
along Jamacha Boulevard, just south of the subject property, is developed with
commercial uses such as gas stations, shopping centers, and restaurants, as well
as single-family residential developments. Furthermore, Jamacha Boulevard
provides direct access to Highway 94, just one-half mile north of the subject
property.
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Neighborhood Analysis
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According to Equifax National Decision Systems (ENDS), the 1997 estimated
population of the city of Spring Valley is 59,417. The local population is
projected to increase to 59,935 by the year 2002. Similarly, the 1997 estimated
total number of households is 20,432, which is projected to increase slightly to
21,441 households by the year 2002.
The subject property is situated in an area well suited for manufactured
housing development. Real estate values are anticipated to increase at a steady
pace. The economy in the area is anticipated to be good, with unemployment
steadily decreasing. The growth in population is anticipated to increase.
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MARKET ANALYSIS
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National Overview
Reportedly, the largest property owners of manufactured housing
communities in the United States are: ROC Communities, headquartered in
Colorado; MHC, Inc., headquartered in Illinois; Ellenburg Capital, headquartered
in Oregon; Lautrec Ltd., headquartered in California; Clayton Homes,
headquartered in Tennessee; Clayton Williams and Sherwood, headquartered in
California; Chateau Properties, Sun Communities and UNIPROP, headquartered in
California.
The following represents the top ten manufactured housing community firms,
as reported by GFA Management, as of 1997.
<TABLE>
<CAPTION>
=====================================================================================
1997 Firm Name State No. of Sites No. of Communities
Rank Owned/Managed Owned/Managed
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Sun Communities California 30,295/0 84/0
- -------------------------------------------------------------------------------------
2 ROC Communities Colorado 22,441/7,167 77/36
- -------------------------------------------------------------------------------------
3 Manufactured Home Communities Illinois 27,349/838 69/3
- -------------------------------------------------------------------------------------
4 Ellenburg Capital Florida 25,173/0 63/0
- -------------------------------------------------------------------------------------
5 Lautrec Ltd. California 22,652/0 58/0
- -------------------------------------------------------------------------------------
6 Chateau Properties California 20,003/0 47/0
- -------------------------------------------------------------------------------------
7 Clayton Homes Tennessee 18,000/0 66/0
- -------------------------------------------------------------------------------------
8 Clayton, Williams and Sherwood California 16,946/0 44/0
- -------------------------------------------------------------------------------------
9 UNIPROP California 14,931/0 40/0
- -------------------------------------------------------------------------------------
10 The Bloch Organization California 14,379/0 37/0
=====================================================================================
</TABLE>
According to the U.S. Census Bureau, more than 8,521,000 people were
living in manufactured housing communities as of 1990 compared to 3,838,678 in
1980. This represents an increase in manufactured housing community living of
approximately 122.0 percent over the last ten years. Over the last ten years,
there has been a steady increase in manufactured housing community development
across the country. Among the demographic factors which account for the increase
in manufactured housing community living are: decreasing household size, a
growing demand for smaller housing, as well as an alternative to the increasing
cost of housing. Nationally, the largest percentage of manufactured housing
communities are located in California, California, Colorado, Florida, New York,
Minnesota, Indiana, Arizona, Ohio, and Wisconsin.
The manufactured home industry has dramatically changed over the last 20
years. Manufactured homes are now designed and constructed to accommodate
spacious and attractive living requirements. Today, approximately one out of
sixteen families live in
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Market Analysis
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manufactured housing units. The manufactured housing market share has been
growing steadily over the last 10 years. In 1990, 6.7 percent of Americans lived
in manufactured housing units, up from 2.9 percent compared to 1970, according
to the U.S. Census Bureau, which represents 12.0 to 14.0 percent of all new
housing built since the mid-1980's, according to the Manufactured Housing
Institute in Arlington, Virginia.
In 1990, the average cost of a manufactured housing unit was $27,800
compared to $149,000 for a new house (including land), according to the
Manufactured Housing Institute. This reflects a 28.0 percent increase in the
cost of manufactured housing since 1980 versus a 49.0 percent increase in
conventional housing. Industry experts estimate that a single-family home
selling for $150,000 would require an annual income of $52,671. To purchase a
$27,800 manufactured housing unit, only a $19,984 income level would be
required.
At Fleetwood Enterprises, the nation's largest manufacturer of
manufactured housing units, units may be purchased for up to $100,000, which
would include a three-bedroom, two-bath unit of 2,100 square feet, with vaulted
ceilings.
In 1990, approximately 10.0 percent of manufactured home owners lived in
units worth approximately $40,000, up from 4.0 percent compared to 1981,
according to a study conducted by Foremost Insurance Company in Grand Rapids,
California. Also, according to the study, approximately 21.0 percent of the
manufactured housing households are occupied by people' 65 years of age or
older, slightly lower than the age group for conventional homes, as reported by
Foremost Insurance.
The demand for good quality institutional grade manufactured housing
communities has substantially increased over the last ten years. Manufactured
housing communities provide an affordable alternative to the increasing cost of
housing. Also, manufactured housing communities provide an alternative form of
living for the elderly and retirees, especially for those living on fixed
incomes.
Acquisitions of manufactured housing communities during 1993 and 1994 were
clearly dominated by Real Estate Investment Trusts. During 1994 and 1995
Manufactured Home Communities (MHC) and ROC communities lead the acquisition of
manufactured housing communities nationally. During 1996, Sun Communities
captured the lead and, together with ROC and MHC dominate the Real Estate
Investment Trust market.
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Market Analysis
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The following chart represents the largest Real Estate Investment Trusts,
from 1991 to 1996, as reported by GFA Management
================================================================================
HOME SITE GROWTH, DEVELOPMENT AMONG THE LARGEST
REAL ESTATE INVESTMENT TRUST (REITS)
- --------------------------------------------------------------------------------
Year ROC MHC Chateau Sun United Total Annual
Growth
- --------------------------------------------------------------------------------
1996 29,608 28,187 20,003 30,295 5,234 113,327 17.0%
- --------------------------------------------------------------------------------
1995 27,910 26,237 19,594 18,000 4,850 96,591 9.0%
- --------------------------------------------------------------------------------
1994 26,231 28,407 15,689 13,500 4,623 88,450 37.8%
- --------------------------------------------------------------------------------
1993 20,142 14,700 15,261 9,036 5,050 64,189 17.8%
- --------------------------------------------------------------------------------
1992 18,745 12,873 10,032 7,600 5,200 54,450 N/A
- --------------------------------------------------------------------------------
1991 9,030 13,079 9,759 N/R N/R N/A N/A
- --------------------------------------------------------------------------------
N/R = No report N/A = Not applicable
- --------------------------------------------------------------------------------
NOTE: The 113,327 sites counted for the top five REITs in 1996 make up 20
percent of the total sites surveyed in the 1997 Allen Report. These rental sites
are located in 339 communities, accounting for about 1 percent of some 50,000
existing manufactured housing communities nationwide. The community counts for
the five major REITs are: ROC (113), MHC (72), Chateau (47), Sun (84) and United
(23). The proportion of communities owned by each of the REITs compared to the
others is: ROC (33%), MHC (21%), Chateau (14%), Sun (25%) and United (7%).
================================================================================
Manufactured Home Communities (MHC) is expected to continue an aggressive
acquisition campaign through 1997 and beyond. As of September 1997, the MHC REIT
had a market cap of $632.0 million, and continues to pursue the acquisition of
manufactured home communities. Aside from the ELL-CAP $300.0 million
transaction, in September 1997 Manufactured Home Communities, Inc. completed a
$107.0 million purchase of 18 manufactured housing communities and two related
commercial properties from partnerships affiliated with Mobileparks West. The
communities, with 3,505 sites, were purchased with about $3.0 million
manufactured home operating units, $16.0 million in cash and $20.0 million of
installment notes and assumed debt. The communities have an average monthly
rental of $349.00. The communities are located in California, Utah, Oregon,
Washington and Nevada. MHC may be the first manufactured home community REIT to
reach $1.0 billion.
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Market Analysis
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The MHC REIT continues to perform and expand, and as of September 1997 was
trading at $25.625, with a current yield of 5.2 percent. The top traded REITs,
are presented as follows.
================================================================================
REIT MARKET UPDATE
- --------------------------------------------------------------------------------
Company Price Current 52 Week 52 Week Annual 12 Mth
Symbol (9/19/97) Yield High Low Dividend Tot Rtn
- --------------------------------------------------------------------------------
CPJ $29.688 5.8% $31.125 $22.250 1.72 26.6%
- --------------------------------------------------------------------------------
MHC $25.625 5.2% $26.428 $18.875 1.32 30.7%
- --------------------------------------------------------------------------------
SUI $37.428 5.0% $ 38.00 $27.750 1.88 31.8%
- --------------------------------------------------------------------------------
UMH $11.625 6.0% $13.625 $10.875 0.70 -1.7%
- --------------------------------------------------------------------------------
Total return figures obtained through Standard & Poors and are for the period
through Sept 1997.
================================================================================
The Southwest and Northwest Regions of the nation are the preferred
locations regarding recent and future manufactured housing community
acquisitions. However, investors seeking moderate, but consistent growth
expectations, are still looking at the midwest region. Also, southern portions
of Florida are still considered a prime area for investors seeking good quality
manufactured housing communities, with good up-side potential. What was once a
stagnant market, the northeast region is now being considered for future
acquisitions.
According to a recent study prepared by Merrill Lynch & Company, ownership
in the manufactured housing community industry is highly fragmented. The top 150
owner-operators account for less than 5.0 percent of the total industry, whereas
a host of "mom-and-pop" private companies account for the other 95.0 percent.
This unglamorous niche industry is ripe for consolidation, and an infusion of
professional management expertise is likely to yield significant economies of
scale. The four REIT's specializing in manufactured housing communities are
already among the top ten owner-operators, and are well positioned to facilitate
and hasten the industry's consolidation to the likely benefit of their
stockholders.
Manufactured homes are the fastest growing component of the nation's
housing inventory, due to their affordability, good quality design and safety
standards. According to the Merrill Lynch & Company Manufactured Housing
Community Industry Report, factory-built homes appeal especially to senior
citizens and to households with limited economic needs, two segments of the
population that are likely to grow rapidly in coming years.
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Market Analysis
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Consistent returns in manufactured housing community investments have been
the mainstay of the industry. For this reason, as well as the amount of
acquisitions seen by Real Estate Investment Trusts (REITs) from 1991 to 1996,
the availability of good quality manufactured housing communities has been
substantially reduced compared to the 1980's. Good quality manufactured housing
communities still command premium prices, thus driving down overall
capitalization rates.
Cushman & Wakefield's Valuation Advisory Services has tracked sale
transactions of manufactured housing communities since 1985. Overall
capitalization rates have consistently been within the 8.75 to 10.00 percent
range for communities located in moderate to increasing growth markets, and as
low as near 8.0 percent for those communities located in growing markets that
poses significant upside potential. Overall capitalization rates are clearly
affected and are differentiated among the properties relative to rent levels,
age, quality, condition, location, amenities, demographic characteristics,
resident profile, as well as the quality of management.
Manufactured housing communities fall within, and are categorized by their
overall appearance, age, and amenities, but more importantly the strength of the
local market. The various categories of manufactured housing communities,
according to the Woodall Directory, can be ranked as 1 to 5 Star Parks These
rankings are defined as follows:
One Star Park
The most important consideration for a one star park is overall
appearance. If it is not a decent place to live, it will not be listed in
Woodall's Directory. The following are general requirements:
o Fair overall appearance;
o Patios on most lots. May be concrete, asphalt, wood, or some
suitable material;
o Grass, rock or shell to cover ground;
o Streets fair to good. May be dirt, asphalt or gravel in reasonable
condition;
o Restrooms clean, if any;
o Adequate laundry or laundromat nearby;
o If fences allowed, must be neat;
o Mail service;
o Homes may be old models, but show evidence of care; and,
o Manager available some hours of each day.
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Market Analysis
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Two Star Park
In addition to the requirements for a one star park, a two star park will
have the following:
o Landscaping - some lawns and shrubs;
o Streets in good condition. Must be dust free of crushed rock, gravel
or shell minimum;
o Neat storage;
o Well equipped laundry or laundromat nearby;
o 200 volt connections available;
o If children accepted, park should have play area;
o Park free of clutter, such as old cars and other abandoned
equipment; and,
o Well maintained and managed.
Three Star Park
What a three star park does it does well, but not as uniformly as higher
rated parks. Many three star parks were once higher rated, but original
construction does not allow for today's 10-foot, 12-foot, and double-wides
or the 55-foot and 60-foot lengths. If children are allowed, there should
be adequate play area. However, the disarray caused by children may at
times be the determining factor that keeps a three star park at that level
when it otherwise could be rated higher. In addition to the requirements
for one and two star parks, a three star park must have the following:
o Attractive entrance;
o All homes must be in good condition;
o Awnings and cabana rooms on some homes in southern areas;
o Some spaces for large mobile homes;
o Paved or hard surfaced streets;
o Off-street parking or streets wide enough for safe on-street
parking;
o Good lawns or substitute throughout, shade trees, some shrubs where
climate permits;
o Concrete patios or the equivalent on all lots;
o All lots neat and attractive;
o All park buildings in good repair; and,
o Good management.
Four Star Park
Four star parks are luxury parks. In addition to the requirements for one,
two and three star parks, a four star park must have the following:
o Good landscaping;
o Most homes skirted with metal skirts, concrete block, ornamental
wood or stone;
o Paved streets, edged or curbed.
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Market Analysis
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o Uncrowded lots;
o Underground utilities if permitted by local conditions and
authorities;
o Most tanks, if present, concealed;
o Any hedges or fences must be attractive and uniform;
o Awnings, cabanas, or porches on most homes in southern areas.
(Excepting double-wide units.);
o Most lots to accommodate large mobile homes;
o Where row parking of homes exists, all must be lined up uniformly;
o Community hall and/or swimming pool and/or recreation programs. If a
park is four star in all but this requirement, the fourth star will
be printed as an open star indicating a four star park without
park-centered recreation; and,
o Excellent management.
Five Star Park
Five star parks are the finest. They should be nearly impossible to
improve. In addition to the requirements for one, two, three, and four
star parks, a five star park must have the following:
o Well planned and laid out spacious appearance;
o Good location in regard to accessibility and desirable neighborhood.
In some locations, park should be enclosed by high hedges or
ornamental fence;
o Wide paved streets in perfect condition. Curbs or lawns edged to
streets, sidewalks, street lights, street signs;
o Homes set back from street;
o Exceptionally attractive entrance and park sign;
o Patios at least 8 x 30 feet. (Excepting double-wide units.);
o Paved off-street parking such as carports or planned parking;
o All homes skirted;
o All hitches concealed. Any existing tanks concealed;
o Recreation, some or all of the following: swimming pool (excepting
areas with long, cold winters), shuffleboards, horseshoe pitching,
golf course, hobby shop, hobby classes, games, potlucks, dances or
natural recreational facilities;
o Beautifully equipped recreation hall with kitchen. Room for
community gatherings, tiled restrooms, etc.;
o Uniform storage sheds or central storage facilities;
o All late model homes in excellent condition;
o At least 60 percent occupancy in order to judge quality of residents
which indicates park's ability to maintain a five star rating
between inspections;
o All empty lots grassed, graveled or otherwise well maintained;
o If pets or children allowed, there must be a place for them to run
and play without cluttering the streets and yards. Most five star
parks are for adults only; and,
o Superior management interested in comfort of residents and
maintenance of park.
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Market Analysis
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The demand for good quality institutional grade manufactured housing
communities is anticipated to increase throughout the 1990's, since manufactured
housing communities provide an alternative form of living for the elderly and
retirees, especially for those living on fixed income. Manufactured home
shipments continue to be strong. Shipments rose 20.0 percent in 1992 and 1994,
and 12.0 percent in 1995. The market for good quality manufactured housing
communities is expected to be strong, with yield and capitalization rates and
prices expected to continue to be competitive, with the REITs leading the way.
Competition
We have surveyed four manufactured housing communities located within the
subject's primary market, including the subject property, containing a total of
965 sites. The combined occupancy rate of these four manufactured housing
communities, including the subject property, is approximately 96.58 percent.
Excluding the subject property in our survey, the combined occupancy rate is
approximately 96.98 percent, based on 695 sites.
The name and location of the subject property's primary competition, as
well as the number of sites, occupancy levels, amenities offered, monthly rental
rates and services provided in the monthly rental rate, are presented on the
following facing page, along with a map which identifies the location of each
competing park.
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<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- ------------------------------------------------------------------------------------------------------------------------------------
Number Age
Of Sites --------- 3-Year
--------- Condition Services Date Of Average
Comp. Name Occupancy ---------- Monthly Provided Last Rental Annual Rental
No. Location Level Amenities Park Rating(1) Rent in Rent Increase Increase
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R-1 Terrace MHP 178 Clubhouse 1975 $373.00/Mo. None April, 1996 $3.33
1815 Sweetwater Road ------ Pool/Spa ----
Spring Valley, 91.57% Sauna Good
California Shuffleboard ----
RV Storage 3-4
- ------------------------------------------------------------------------------------------------------------------------------------
R-2 Rancho Jamacha 125 Clubhouse 1971 $337.00/Mo. None Anniversary Date Reportedly, the
Estates(2) ------ Pool/Spa ---- of Lease monthly rental
10770 Jamacha Blvd. 99.20% Laundry Good rate has not
Spring Valley, ---- increased over
California 3-4 the past 4 year
period. However,
an increase of
$13.24/month is
scheduled for
1998.
- ------------------------------------------------------------------------------------------------------------------------------------
R-3 Bonita Hill Estates 131 Clubhouse 1979 $509.00/Mo. Refuse January, 1997 $10.00/Mo.
275 Worthington ------ Pool/Spa ----
Spring Valley, 96.18% Shuffleboard Very Good
California Laundry ---------
RV Storage 4
- ------------------------------------------------------------------------------------------------------------------------------------
R-4 Sweetwater Lodge 261 Clubhouse 1964 $398.00/Mo. None August, 1995 $5.00/Mo.
10707 Jamacha Blvd. ---- Pool ----
Spring Valley, 100% Shuffleboard Average
California -------
3
- ------------------------------------------------------------------------------------------------------------------------------------
Subject Lamplighter Village 270 Clubhouse 1970 $478.00/Mo. Refuse November, 1997 $15.00/Mo.
10767 Jamacha Blvd. ------ Pool/Spa ----
Spring Valley, 95.56% Sauna/Laundry Good
California Shuffleboard ----
RV Storage 4
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Ratings from One Star to Five Star Parks are defined in the National Overview section of this report.
(2) Senior park for residents 55 years of age or older.
====================================================================================================================================
</TABLE>
<PAGE>
COMPETING MANUFACTURED HOUSING MAP
[MAP OMITTED]
<PAGE>
Market Analysis
================================================================================
Rental rates of manufactured housing communities located within the
subject's primary market range from $337.00 to $509.00 per site, on a monthly
basis. The subject property is currently quoting monthly rental rates within the
market range, or at $478.00 per site. The last rental rate increase at the
subject property was as of November 1, 1997, whereby the monthly rental payment
increased from $460.00 to $478.00 per site, an increase of $18.00 per month or
3.91 percent. Furthermore, the monthly rental payment is scheduled to increase
to $497.00 per site as of November, 1998, an increase of $19.00 per site, or
3.97 percent.
The enclosed comparable rentals are considered the most competitive to the
subject property regarding amenities offered, condition, location and overall
ranking.
Comparable R-1, Terrace Mobile Home Park, is located at 1815 Sweetwater
Road, in Spring Valley, California. This comparable property contains 178
sites, and is presently 91.57 percent occupied, with approximately 15
vacant sites available. Terrace Mobile Home Park was developed in 1975,
and is considered to be in overall good condition. Reportedly, the most
recent rental increase occurred in April, 1996, whereby the month rental
payment was increased by $10.00 per month. At present, the monthly rental
rate for all sites within the park is $373.00. The monthly rental rate
does not include any utilities. Amenities include a clubhouse, pool/spa,
shuffleboard, sauna, and RV storage.
Comparable R-2, Rancho Jamacha Estates, is located at 10770 Jamacha
Boulevard, in Spring Valley, California. This comparable property contains
125 sites, and is presently 99.20 percent occupied, with only one site
presently available. Rancho Jamacha Estates was developed in 1971, and is
considered to be in overall good condition. This is a "senior park" and
the residents are 55 years of age or older, and the monthly rental rate
has not been increased over the past four year period. However, it is
reported that an increase of $13.24 per month is scheduled for 1998.
Amenities include a clubhouse, pool/spa, and laundry facility. The quoted
monthly rental rate is $337.00 per site, with no utilities included in
monthly rental payment.
Comparable R-3, Bonita Hill Estates, is located at 275 Worthington, in
Spring Valley, California. This comparable property contains 131 sites,
and is 96.18 percent occupied, with five vacant sites available. Bonita
Hill Estates was developed in 1979, and is considered to be in overall
very good condition. The most recent rental increase occurred in January,
1997, whereby the monthly rental rate increased $10.70 per month.
Amenities include clubhouse, pool/spa, shuffleboard, laundry facility and
RV storage. The quoted monthly rental rate is $509.00 for all sites within
the park, and only refuse service is included in monthly rental payment.
Comparable R-4, Sweetwater Lodge, is located at 10707 Jamacha Boulevard,
in Spring Valley, California. This comparable property contains 261 sites,
and is 100.0 percent occupied. Sweetwater Lodge was developed in 1964, and
is
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Market Analysis
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considered to be in overall average condition. The most recent rental
increase occurred in August, 1995. Amenities include a clubhouse,
pool/spa, sauna, laundry facility, shuffleboard, and RV storage. The
quoted monthly rental rate is reportedly $398.00 per month with no
utilities included in the monthly rental payment.
In our opinion, and based on conversations with the on-site manager,
properties R-3 and R-4 compete most favorably with the subject property, with
monthly rental rates ranging from $398.00 to $509.00 per site. The subject
property is currently quoting a monthly rental rate of $478.00 per site, which
is within the range of rental rates of our more comparable competing properties.
The subject property competes most effectively with its primary competitors
regarding amenities, condition and current rent structure.
Comparable Manufactured Housing Community Sales
A search of the subject's market revealed four recent sales of
manufactured housing communities located in San Diego County, California. The
following is a brief discussion of each of the manufactured housing sales
located within the subject's market. These sales are summarized on the following
facing page.
Comparable Sale I-1, Vista Manor, is located at 200 Olive Avenue, in
Vista, California. This property contains 159 sites, situated on 16.0
acres of land area. The property was in good condition at the time of sale
and was developed in 1964. Amenities include a clubhouse, pool, and two
laundry facilities. The property was approximately 98.0 percent occupied
at the time of sale. The property was purchased for $5,000,000, which
equates to $31,447 per site.
Comparable Sale I-2, Rancho Mesa, is located at 450 East Bradley Avenue,
in El Cajon, California. This property contains 158 sites, situated on
19.10 acres of land area. The property was in good condition at the time
of sale and was developed in 1970. Amenities at this property include a
clubhouse, pool/spa, and laundry facility. The property was approximately
97.0 percent occupied at the time of sale. The property was purchased for
$6,000,000, which equates to $37,974 per site.
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<TABLE>
<CAPTION>
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SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- ---------------------------------------------------------------------------------------
Sales Price
Per Site
Sales Date Land Area Density -----------
Comp. Name ----------- --------- --------- Occupancy
No. Location Sales Price No. Sites Condition At Sale $NOI/Site
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
I-1 Vista Manor 8/97 16.00 9.94 $31,447 $3,270
200 Olive Avenue ---------- ----- ---- -------
Vista, California $5,000,000 159 Good 98.0%
- ---------------------------------------------------------------------------------------
I-2 Rancho Mesa 12/95 19.10 8.27 $37,974 $3,688
450 E. Bradley Avenue ---------- ----- ---- -------
El Cajon, California $6,000,000 158 Good 97.0%
- ---------------------------------------------------------------------------------------
I-3 Meadowbrook Mobile 8/95 42.68 7.78 $37,123 $3,996
Estates ----------- ----- ---- -------
8301 Mission Gorge $12,325,000 332 Good 96.0%
Road
Santee, California
- ---------------------------------------------------------------------------------------
I-4 Mission Valley 2/95 10.22 11.64 $33,205 $2,941
Village ---------- ----- ------- -------
6790-6912 Mission $3,951,500 119 Average 95.0%
Gorge Road
San Diego, California
- ---------------------------------------------------------------------------------------
Subject Lamplighter Village - - - 32.0 8.44 - - - $3,903
10767 Jamacha Blvd. ---- ---- ------
Spring Valley, CA 270 Good 95.56%
- ---------------------------------------------------------------------------------------
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</TABLE>
<TABLE>
<CAPTION>
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SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- ------------------------------------------------------------------------------------------------
$EGI/Site
---------
$Expense/Site
EGIM ------------
Comp. Name ---- Expense Ratio Comparability
No. Location OAR % Of EGI to the Subject Comments
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
I-1 Vista Manor 6.44x $4,880 Similar Developed in 1964; Good
200 Olive Avenue ------ ------ condition; Amenities
Vista, California 10.40% $1,609 include a clubhouse, pool,
------ and two laundry
32.97% facilities.
- ------------------------------------------------------------------------------------------------
I-2 Rancho Mesa 6.04x $6,285 Similar Developed in 1970; Good
450 E. Bradley Avenue ----- ------ condition; Amenities
El Cajon, California 9.71% $2,597 include: clubhouse,
------ pool/spa, and laundry
41.32% facility.
- ------------------------------------------------------------------------------------------------
I-3 Meadowbrook Mobile 5.38x $6,896 Similar Developed in 1970;
Estates ------ ------ Good condition; Amenities
8301 Mission Gorge 10.76% $2,900 include: clubhouse,
Road ------ pool/spa, sauna, putting
Santee, California 42.05% green, and shuffleboard.
This is a senior park for
residents 55 years of age
or older.
- ------------------------------------------------------------------------------------------------
I-4 Mission Valley 8.64x $3,842 Inferior Developed in 1960's;
Village ----- ------ Average condition;
6790-6912 Mission 8.86% $900 Amenities include:
Gorge Road ---- clubhouse, pool, and
San Diego, California 23.45% laundry facility.
- ------------------------------------------------------------------------------------------------
Subject Lamplighter Village N/A $6,384 Subject Property Developed in 1970;
10767 Jamacha Blvd. ------ Good condition;
Spring Valley, CA $2,481 Amenities include:
------ Clubhouse, pool/spa, sauna,
38.86% laundry, shuffleboard, and
RV storage.
- ------------------------------------------------------------------------------------------------
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</TABLE>
<PAGE>
Market Analysis
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Comparable Sale I-3, Meadowbrook Mobile Estates, is located at 8301
Mission Gorge Road, in Santee, California. This property contains 332
sites, situated on 42.68 acres of land area. The property was in good
condition at the time of sale and was developed in 1970. Amenities include
a clubhouse, pool/spa, sauna, putting green, and shuffleboard. The
property was approximately 96.0 percent occupied at the time of sale. This
property is considered to be a "senior park" for residents 55 years of age
or older. The property was purchased for $12,325,000, which equates to
$37,123 per site.
Comparable Sale I-4, Mission Valley Village, is located at 6790-6912
Mission Gorge Road, in San Diego, California. This property contains 119
sites, situated on 10.22 acres of land area. The park was in average
condition at the time of sale and was developed in approximately 1960.
Amenities include a clubhouse, pool and a laundry facility. The property
was 95.0 percent occupied at the time of sale. The property was purchased
for $3,951,500, which equates to $33,205 per site.
It should be noted that comparability does not imply an identical or exact
duplicate, but rather the possession of a similar utility and affected by
similar supply and demand forces. Also, relative to the subject property,
differences include: time or date of the transactions; location, which
encompasses differences in accessibility; site characteristics, including
differences in size, topography, access, exposure and development capacities;
and improvement characteristics, which include differences in age, quality,
condition, size and amenities.
Demographic Trends
Based on information provided by National Decision Systems (NDS), the
populations within the subject's primary 5-mile and secondary 10-mile market
areas, as of 1997, are 236,771 and 885,608, respectively. The populations of the
subject's primary and secondary market areas are projected to increase to
238,841 and 897,475, respectively, by the year 2002.
According to NDS, the total number of households within the subject's
primary and secondary market areas, are 88,381 and 322,006, respectively, for
1997. The number of households within the subject's primary 5-mile and secondary
10-mile market areas are projected to increase to 91,214 and 332,771,
respectively, by the year 2002.
The average household income levels within the subject's primary and
secondary market areas, for 1997, are $58,699 and $56,426, respectively. The
median household income levels within the subject's primary and secondary market
areas, for 1997, are $42,120
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Market Analysis
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and $41,482, respectively. Per capita income within the subject's primary and
secondary market areas, for 1997, are $22,203 and $20,821, respectively.
Based on the above levels, the demographics of the subject's primary
market area appear to indicate a positive growth trend, based on information
provided by the NDS Report, a copy of which is provided in the Addenda of this
report.
Expense Analysis
Expenses exhibited by manufactured housing communities nationally are
typically 35.0 to 45.0 percent of effective gross income. However, expense
ratios of manufactured housing communities located in the southeast and
southwest regions of the nation are typically lower by comparison, due to lower
real estate taxes and common area maintenance charges.
As presented in the Summary of Manufactured Housing Communities Sales,
operating expense ratios of competing parks range from 23.45 to 42.05 percent of
effective gross income levels, but typically from 32.97 to 42.05 percent. On a
per site basis, the comparable sales display operating expenses ranging from
$900 to $2,900, but typically from $1,609 to $2,900 per site. The subject
property is currently reporting expenses, for the 12-month trailing period of
1997, at 38.86 percent of effective gross income and $2,481 on a per site basis.
Operating expenses at the subject property appear to be within the range as
displayed by the comparable sales of manufactured housing communities within the
local area.
Market Supply and Demand
There are a total of four competing manufactured housing communities
located within the subject's market, which total 695 sites, with a corresponding
average occupancy rate of 96.98 percent. No specific absorption statistics were
available, since the subject's competing parks have historically reported
occupancy rates at, or above 90.0 percent. The occupancy rate at the subject
property, based on conversations with management, has historically been slightly
higher than occupancy rates of competing parks, and is currently 95.56 percent
occupied, with approximately twelve vacant available sites. We believe the
current occupancy rate of the subject property is stabilized. Based on the
subject's current occupancy rate and occupancy rates at competing parks, demand
appears to be strong, with steady rental rate increases expected.
Conclusion
Historically, the subject's primary market has sustained high occupancy
levels of 95.0 to 100 percent. Rental rates of similar manufactured housing
communities located within the subject's primary market generally range from
$337.00 to $509.00 per site, on a monthly
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Market Analysis
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basis. The subject property is currently quoting, and is currently achieving
(based on the most recent rent roll provided), a monthly rental rate of $478.00
per site, which we believe is market-orientated.
Based on our research, steady increases in rental rates are anticipated,
based on actual historical performance of competing parks and historical
increases seen at the subject property. Sales transactions of manufactured
housing communities located within the subject's region range from $31,447 to
$37,974 per site, with corresponding overall rates ranging from 8.86 to 10.76
percent. In our opinion, the subject property competes favorably with its
competition regarding amenities, condition, rent structure and overall market
rating.
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SITE PLAN
[GRAPHIC OMITTED]
<PAGE>
PROPERTY DESCRIPTION
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Site Description
The subject site is located along the east side of Jamacha Boulevard,
approximately one-half mile south of its intersection with Campo Road (Route
94), within an unincorporated area of Spring Valley. The west side of the site
borders Jamacha Boulevard. The subject site is irregular in shape and contains
32.0 acres, or 1,393,920 square feet of land area. Topographically, the site is
slightly sloping with the terrain of the surrounding area.
The Otay Mesa Water District provides the water to the subject park, while
San Diego County Sanitation provides sewer service to the subject property. The
San Diego Gas & Electric Company provides the gas and electric service to the
subject property. Primary access to the subject site is available from Jamacha
Boulevard. Based on conversations with San Diego County, the subject property is
not located in a flood hazard area. However, we recommend a qualified engineer
to determine the existence of any flood hazard areas.
Each developed site is equipped with a dirt site and off-street parking.
The streets within the park have two-lanes, with concrete curbs. Overall, the
subject site is typical of the area and is functionally well suited for its
current use.
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.
Improvements Description
The subject property was originally developed in 1970. The subject
improvements consist of a 270-site manufactured housing community, with a
community center, swimming pool/spa, shuffleboard area, laundry facility and
recreational vehicle and boat storage. Of the 270 total sites, 62 sites are
single-wide, while the remaining 208 sites are double-wide, however, all sites
can accommodate a double-wide home. The average site size is approximately 40
feet by 70 feet.
The community center consists of a manager's office, restroom facilities,
and open-space available for resident use, with a fully-equipped kitchen area,
and billiard room. The exterior of the one-story community center is a
combination of frame and brick with an asphalt shingle roof and appeared to be
in overall good condition at the time of inspection.
The swimming pool/spa, and shuffleboard areas are located adjacent to the
community center. The recreational vehicle and boat storage is located toward
the southwestern portion
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Property Description
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of the park. Wrought iron fencing surrounds the pool area and a chain link fence
surrounds the recreational vehicle and boat storage area. Off-street parking is
available for each resident. Site improvements within the park include: paved
streets, concrete sites, street lighting and signage. Overall, the site
improvements appeared to be in good condition at the time of inspection.
Lamplighter Village is a functional manufactured housing community with
good ingress and egress along Jamacha Boulevard. Overall, the subject community
appears to be well maintained and is in good condition. Lamplighter Village is a
functional manufactured housing community and competes favorably with other
existing manufactured housing communities in the area in terms of appearance and
amenities. The subject property would fit the profile of a Four Star Park, as
defined in the National Overview section of this report.
Real Property Taxes and Assessments
Since the passage of Proposition 13, or the Jarvis Gann Initiative in
1978, real property taxes in the State of California are limited to 1.0 percent
of market value, as of a specified base year. The base year valuation is the
Assessor's 1975 market value estimate, unless there is a transfer of ownership
(sale), new construction, or the property is leased on a long-term basis.
Whenever this occurs, the property is reassessed at full market value. If a
reassessment is not triggered, the assessed value is trended upward at 2.0
percent annually.
According to the San Diego County Assessor's Office, the market value of
the subject property equates to $4,739,321. The subject property is identified
by tax parcel number 580-020-10-00.
The total amount of real estate taxes for fiscal year 1996, payable in
1997 for the subject property amounts to $96,698.16. The total amount of real
estate taxes for fiscal year 1996 payable in 1997 equates to approximately
$358.14 per site.
Zoning
According to zoning officials of San Diego County, the subject property is
currently zoned RMH-8, Residential Mobile Home-8 District. Based on
conversations with zoning officials, the subject property is a legal and
conforming use under its present zoning classification.
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CONCLUSION
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Conclusion
o The subject property, Lamplighter Village, is a functional
manufactured housing community, which competes favorably in relation
to its competition;
o Comparable manufactured housing communities located within the
subject's market range in monthly rental rates per site from $337.00
to $509.00;
o The subject property is currently quoting, and is currently
achieving (based on the most recent rent roll provided) a monthly
rental rate of $478.00 per site, which is within the range of
competing parks, and appears to be market-oriented;
o Sale transactions of manufactured housing communities located within
the subject's region range in unit sales prices per site from
$31,447 to $37,974, with corresponding overall rates ranging from
8.86 to 10.76 percent;
o Operating expenses are within industry standards for a park located
in the southwestern region of the country;
o The subject park appears to be operating at economic levels based on
our review of historical and budgeted 1998 income and expenses;
o The demographic characteristics of the area appear to be positive;
o The population profile of the subject property is 50 percent adult,
with the remaining 50 percent family oriented;
o The current occupancy rate at the subject property is 95.56 percent,
with twelve vacant sites available. This stabilized occupancy rate
is evident by a strong local market and demand;
o No significant manufactured housing communities are expected to be
developed in the near future;
o In our opinion, based on Woodall's criteria, the subject property is
a Four Star Park, and the reader's attention is directed to the
corresponding definition and criteria of a Four Star Park, presented
in the National Overview section of this report; and,
o Based on the subject's location, demographic, economic, market and
physical characteristics, we believe Lamplighter Village will
continue to be a viable manufactured housing community in the
foreseeable future, and is well positioned in the marketplace.
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ASSUMPTIONS AND LIMITING CONDITIONS
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"Report" means the consulting report to which these Assumptions and Limiting
Conditions are annexed.
"Property" means the subject of the Report.
"C&W" means Cushman & Wakefield, Inc. or its subsidiary which issued the Report.
"Appraiser(s)" means the employee(s) of C&W who prepared and signed the Report.
This report is made subject to the following assumptions and limiting
conditions:
1. No responsibility is assumed for the legal description or for any matters
which are legal in nature. 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 Report or upon which the Report 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 Appraisers nor C&W shall be responsible for the
accuracy or completeness of such information, including the correctness of
estimates, opinions, dimensions, sketches, exhibits, and other factual
matters.
3. The information is effective as of the date stated in the Report. Changes
since that date in external and market factors or in the property itself
can significantly affect our analysis.
4. The report is to be used in whole and not in part. No part of the Report
shall be used in conjunction with any other report. Possession of the
Report, or a copy thereof, does not carry with it the right of
publication. Publication of the Report or any portion thereof without the
prior written consent of C&W is prohibited. Except as may be otherwise
expressly stated in the letter of engagement to prepare the Report, C&W
does not permit use of the Report by any person other than the party to
whom it is addressed or for purposes other than those for which it was
prepared. If written permission is given by C&W to use the Report, the
Report must be used in its entirety and only with proper written
qualification as approved by C&W. No part of the Report or the identity of
the Appraiser shall be conveyed to the public through advertising, public
relations, news, sales, or other media or used in any material without
C&W's prior written consent. Reference to the Appraisal Institute or to
the MAI designation is prohibited.
5. The Appraiser shall not be required to give testimony in any court or
administrative proceedings relating to the Property or the Report.
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Assumptions and Limiting Conditions
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6. The Report 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 Report; 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 Report is based.
7. The physical condition of the improvements considered by the Report is
based on visual inspection by the Appraiser or other person identified in
the Report. C&W assumes no responsibility for the soundness of structural
members nor for the condition of mechanical equipment, plumbing, or
electrical components.
8. Unless otherwise stated in the Report, the existence of potentially
hazardous or toxic materials which may have been used in the construction
or maintenance or operation of the improvements or may be located at or
about the Property was not considered in the Report. These materials (such
as formaldehyde foam insulation, asbestos insulation, various soil
contaminants, and other potentially hazardous materials) may affect the
value of the Property. The Appraisers are not qualified to detect such
substances, and C&W urges that an expert in this field be employed to
determine the economic impact of these matters, if any, on the property in
the Report.
9. Unless otherwise stated in the Report, compliance with the requirements of
the Americans With Disabilities Act of 1990 (ADA) has not been considered
in the Report. Failure to comply with the requirements of the ADA may
negatively affect the value of the property. C&W recommends that an expert
in this field be employed.
10. If the Report is submitted to a lender or investor with the prior approval
of C&W, such party should consider the Report as one factor, together with
its independent investment considerations and underwriting criteria, in
its overall investment decision.
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CERTIFICATION
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We certify that, to the best of our knowledge and belief:
1. Nancy D. Piekos inspected the property, and Michael J. Schaeffer and
Stanley R. Dennis, Jr., MAI, have reviewed and approved the report, but
did not inspect 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 on an action or event (such as the
approval of a loan) resulting from the analyses, opinions, or conclusions
in, or the use of, this report.
6. 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 Ethics and Standards of Professional Practice of the Appraisal
Institute.
7. No one provided significant professional assistance to the persons signing
this 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. As of the date of this report, Stanley R. Dennis, Jr., MAI, has completed
the requirements of the continuing education program of the Appraisal
Institute.
/s/ Michael J. Schaeffer /s/ Nancy D. Piekos /s/ Stanley R. Dennis, Jr.
Michael J. Schaeffer Nancy D. Piekos Stanley R. Dennis, Jr., MAI
Director Associate Appraiser Director, Manager
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<PAGE>
ADDENDA
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POP-FACT SHEETS
LEGAL DESCRIPTION
QUALIFICATIONS OF APPRAISERS
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38
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POP-FACT SHEETS
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<PAGE>
Tue Dec 2, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP FACTS: SUMMARY REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6511
PREPARED FOR
Cushman & Wakefield
10767 Jamacha Boulevard
Spring Valley, California COORD: 32:44.40 116:57.05
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- --------------------------------------------------------------------------------
POPULATION
2002 PROJECTION 238,841 897,475
1997 ESTIMATE 236,771 885,608
1990 CENSUS 224,609 838,085
1980 CENSUS 181,390 652,765
GROWTH 1980 - 1990 23.83% 28.39%
HOUSEHOLDS
2002 PROJECTION 91,214 332,771
1997 ESTIMATE 88,381 322,006
1990 CENSUS 80,605 292,047
1980 CENSUS 65,881 235,442
GROWTH 1980 - 1990 22.35% 24.04%
1997 ESTIMATED POPULATION BY RACE 236,771 885,608
WHITE 78.44% 63.99%
BLACK 6.03% 10.49%
ASIAN & PACIFIC ISLANDER 6.16% 12.44%
OTHER RACES 9.36% 13.07%
1997 ESTIMATED POPULATION 236,771 885,608
HISPANIC ORIGIN 20.59% 24.74%
OCCUPIED UNITS 80,605 292,047
OWNER OCCUPIED 53.17% 55.39%
RENTER OCCUPIED 46.83% 44.61%
1990 AVERAGE PERSON PER HH 2.74 2.82
1997 ESTIMATED HH BY INCOME 88,381 322,006
$150,000 + 4.45% 3.79%
$100,000 TO $149,999 5.99% 6.06%
$ 75,000 TO $ 99,999 8.53% 8.33%
$ 50,000 TO $ 74,999 21.53% 21.64%
$ 35,000 TO $ 49,999 18.06% 17.93%
$ 25,000 TO $ 34,999 13.89% 13.60%
$ 15,000 TO $ 24,999 13.61% 13.58%
$ 5,000 TO $ 14,999 11.98% 12.50%
UNDER $ 5,000 1.95% 2.57%
1997 EST. AVERAGE HH INCOME $58,699 $56,426
1997 EST. MEDIAN HH INCOME $42,120 $41,482
1997 EST. PER CAPITA INCOME $22,203 $20,821
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LEGAL DESCRIPTION
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<PAGE>
LEGAL DESCRIPTION
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DESCRIPTION
Page 1 Policy No. 943091 15
THAT PORTION OF TRACT "F" OF RANCHO JAMACHA, IN THE COUNTY OF SAN DIEGO, STATE
OF CALIFORNIA, ACCORDING TO PARTITION MAP THEREOF, FILED IN THE OFFICE OF THE
COUNTY CLERK OF SAN DIEGO COUNTY, CASE NO. 13, SUPERIOR COURT, ENTITLED WM. M.
KEIGHLER, ET AL. VS. MARY H. EDDY, ET AL, MORE PARTICULARLY DESCRIBED AS
FOLLOWS:
BEGINNING AT THE MOST WESTERLY CORNER OF LOT 107 OF CARRIAGE HILLS UNIT NO. 1,
ACCORDING TO MAP THEREOF NO. 6341 FILED IN THE OFFICE OF THE COUNTY RECORDER OF
SAN DIEGO COUNTY; THENCE ALONG THE SOUTHWESTERLY LINE OF SAID LOT TO AND ALONG
THE SOUTHWESTERLY BOUNDARY OF CARRIAGE HILLS UNIT NO. 2, ACCORDING TO MAP
THEREOF NO. 7250 FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY
SOUTH 46(DEGREES) 08' 32" EAST 176.71 FEET TO AN ANGLE POINT; THENCE CONTINUING
ALONG SAID BOUNDARY SOUTH 29(DEGREES) 49' 44" EAST 111.04 FEET; THENCE SOUTH
19(DEGREES) 42' 14" EAST TO AND ALONG THE BOUNDARY OF CARRIAGE HILLS UNIT NO. 3
ACCORDING TO MAP THEREOF NO. 7350 FILED IN THE OFFICE OF THE COUNTY RECORDER OF
SAN DIEGO COUNTY 657.02 FEET TO AN ANGLE POINT; THENCE CONTINUING ALONG SAID
BOUNDARY OF UNIT NO. 3 SOUTH 11(DEGREES) 06' 52" EAST 114.81 FEET; SOUTH
1(DEGREE) 56' 30" EAST 115.69 FEET; SOUTH 1(DEGREE) 17' 46" WEST 178.01 FEET;
SOUTH 14(DEGREES) 57' 14" WEST 167.87 FEET AND SOUTH 59(DEGREES) 01' 13" EAST
89.73 FEET; THENCE SOUTH 30(DEGREES) 59' 47" WEST, 78.61 FEET TO THE POINT OF
INTERSECTION WITH A LINE HAVING A BEARING OF SOUTH 52(DEGREES) 37' 21" WEST A
DISTANCE OF 556.40 FEET AS DESCRIBED IN DEED TO CARRIAGE HILLS, A PARTNERSHIP,
RECORDED DECEMBER 31, 1968, AS DOCUMENT NO. 229643 OF OFFICIAL RECORDS; THENCE
SOUTHWESTERLY ALONG SAID LINE SOUTH 52(DEGREES) 37' 21" WEST 554.97 FEET TO THE
SOUTHWESTERLY TERMINUS OF SAID LINE; THENCE CONTINUING ALONG A LINE AS DESCRIBED
IN SAID DEED NORTH 78(DEGREES) 46' 14" WEST 585.77FEET TO THE POINT OF
INTERSECTION WITH THE WESTERLY LINE OF SAID TRACT "F"; THENCE ALONG SAID
WESTERLY LINE NORTH 0(DEGREES) 15' 17" EAST 1220.64 FEET TO THE SOUTHWESTERLY
CORNER OF CARRIAGE HILLS CORNERS ACCORDING TO MAP THEREOF NO. 7112, FILED IN THE
OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY, THENCE ALONG THE BOUNDARY OF
SAID MAP NO. 7112 AS FOLLOWS:
SOUTH 89(DEGREES) 44' 49" EAST 147.51 FEET TO THE POINT OF INTERSECTION WITH A
329.50 FOOT RADIUS CURVE, CONCAVE SOUTHEASTERLY (A RADIAL LINE FROM SAID POINT
BEARS SOUTH 66(DEGREES) 23' 25" EAST; THENCE NORTHEASTERLY ALONG THE ARC OF SAID
CURVE THROUGH A CENTRAL ANGLE OF 27(DEGREES) 19' 42" A DISTANCE OF 157.16 FEET;
THENCE TANGENT TO SAID CURVE NORTH 50(DEGREES) 56' 17" EAST 78.28 FEET; THENCE
NORTH 34(DEGREES) 03' 56" WEST 245.10 FEET TO THE POINT OF TANGENCY OF A 20 FOOT
RADIUS CURVE, CONCAVE SOUTHWESTERLY; THENCE ALONG THE ARC OF SAID CURVE THROUGH
A CENTRAL ANGLE OF 88(DEGREES) 00' 00" A DISTANCE OF 30.72 FEET TO THE TANGENT
SOUTHEASTERLY LINE OF JAMACHA BOULEVARD AS DESCRIBED IN DOCUMENT NO. 15290 OF
OFFICIAL RECORDS RECORDED JANUARY 27, 1970; THENCE ALONG SAID SOUTHEASTERLY LINE
NORTH 57(DEGREES) 56' 04" EAST 49.37 FEET TO THE POINT OF TANGENCY OF A 2042
FOOT RADIUS CURVE, CONCAVE NORTHWESTERLY; THENCE NORTHEASTERLY ALONG THE ARC OF
SAID CURVE THROUGH A CENTRAL ANGLE OF 1(DEGREE) 37' 50" A DISTANCE OF 58.11 FEET
TO THE POINT OF CUSP OF A 20 FOOT RADIUS CURVE, CONCAVE SOUTHEASTERLY (A RADIAL
LINE FROM SAID POINT OF CUSP TO THE CENTER OF SAID 2042 FOOT CURVE BEARS NORTH
33(DEGREES) 41" 46" WEST); THENCE LEAVING SAID SOUTHEASTERLY LINE OF JAMACHA
BOULEVARD SOUTHWESTERLY ALONG THE ARC OF SAID CURVE THROUGH A CENTRAL ANGLE OF
90(DEGREES) 22" 10" A DISTANCE OF 31.54 FEET THENCE SOUTH 34(DEGREES) 03' 56"
EAST 264.81 FEET TO THE POINT OF INTERSECTION WITH A 299 FOOT RADIUS CURVE,
CONCAVE NORTHWESTERLY (A RADIAL LINE FROM SAID POINT BEARS NORTH 39(DEGREES) 43'
37" WEST); THENCE NORTHEASTERLY ALONG THE ARC OF SAID CURVE THROUGH A CENTRAL
ANGLE OF 35(DEGREES) 24' 55" A DISTANCE OF 184.92 FEET TO A POINT OF REVERSE
CURVATURE WITH A 301 FOOT RADIUS CURVE, CONCAVE SOUTHEASTERLY; THENCE
NORTHEASTERLY ALONG THE ARC OF SAID CURVE THROUGH A CENTRAL ANGLE OF 29(DEGREES)
00' 00" A DISTANCE OF 152.35 FEET; THENCE TANGENT TO SAID CURVE NORTH
43(DEGREES) 51' 28" EAST 65.08 FEET TO THE POINT OF INTERSECTION WITH THE
NORTHERLY PROLONGATION OF THE BEFORE MENTIONED
SOUTHWESTERLY LINE OF SAID LOT 107; THENCE ALONG SAID PROLONGATION SOUTH
46(DEGREES) 08' 32" EAST 3.05 FEET TO THE POINT OF BEGINNING.
- --------------------------------------------------------------------------------
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QUALIFICATIONS OF APPRAISERS
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<PAGE>
STATEMENT OF QUALIFICATIONS
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NANCY D. PIEKOS
Real Estate Experience
Ms. Piekos has been active in the appraisal of real estate since 1993. The types
of properties appraised include office buildings, industrial buildings,
automotive dealerships, vacant land, and manufactured housing communities.
Education
Bachelor of Arts in Urban Planing from the University of Illinois,
Urbana-Champaign, Illinois, 1993.
Real Estate Education
The following courses have been completed through the Appraisal Institute:
Appraisal Procedures
Principles of Appraisal
Residential Case Studies
Standards of Professional Practice
License
Real Estate Salesperson - State of Illinois
Current Position
Associate Appraiser, Cushman & Wakefield of Illinois, Inc., Valuation Advisory
Services
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STATEMENT OF QUALIFICATIONS
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MICHAEL J. SCHAEFFER
Real Estate Experience
Mr. Schaeffer has been active in the appraisal of real estate since 1983.
Appraisal experience includes the valuation of income-producing real estate in
the Chicago area as well as many major cities and small towns throughout the
Midwest. The types of properties appraised include office buildings, regional
malls, shopping centers, country clubs, apartment complexes, subsidized housing
units, industrial buildings, nursing homes, retirement communities, automotive
dealerships, department stores, vacant land, proposed income-producing
properties, and various special purpose properties. Mr. Schaeffer also has had
over 10 years of experience in new construction and renovation of commercial,
industrial, residential and specialized real estate properties.
Education
Bachelor of Arts, University of Cincinnati, Cincinnati, Ohio MBA Graduate Course
Work in Economics and Management, Xavier University, Cincinnati, Ohio
Real Estate Education
The following courses sponsored by the Appraisal Institute have been
successfully completed:
Real Estate Appraisal Principles 1A-1
Basic Valuation Procedures 1A-2
Standards of Professional Practice
Capitalization Theory and Techniques 1BA
Capitalization Theory and Techniques IBB
Advanced Applications 550
Report Writing & Valuation Analysis 540
Mr. Schaeffer has also attended numerous lectures and seminars sponsored by the
Appraisal Institute.
Mr. Schaeffer is currently a candidate for the MAI designation of the Appraisal
Institute, and has completed the educational and experience requirements for the
MAI designation.
Current Position
Director, Appraisal Services, Cushman & Wakefield, Inc., Chicago, Illinois
<PAGE>
STATEMENT OF QUALIFICATIONS
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STANLEY R. DENNIS, JR., MAI
Real Estate Experience
Director, Manager, Cushman & Wakefield Valuation Advisory Services, Chicago,
Illinois. Division is responsible for the appraisal and consultation function of
Cushman & Wakefield, Inc., a national full service real estate organization,
1989.
Vice President, Manager, Cushman & Wakefield Appraisal Services, Portland,
Oregon, 1983.
Principal, Stanley R. Dennis & Associates, Portland, Oregon, 1982.
Education
Portland State University, Portland, Oregon
Bachelor of Science Degree, 1977, Finance and Real Estate
Appraisal Institute
Course I-A Fundamentals and Principles of Real Estate Appraisal
Course I-B Capitalization Theory and Techniques
Course II-I Case Studies in Real Estate Valuation
Course II-2 Valuation Analysis and Report Writing
Course II-3 Standards of Professional Practice
Course IV Litigation/Condemnation Valuation
Course VI Investment Analysis
Course VIII Residential Case Studies
Course X Market Analysis
Seminar Feasibility Analysis and Highest and Best Use
Seminar Discounted Cash Flow Analysis
Seminar Cash Equivalency
Seminar Subdivision Analysis
Seminar Rates, Ratios and Reasonableness
Professional Affiliations
American Institute of Real Estate Appraisers, Member (Designation #6754)
Building Owners and Managers Association (BOMA)
National Association of Corporate Real Estate Executives (NACORE)
<PAGE>
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MARKET STUDY OF REAL PROPERTY
The Meadows
2401 West Southern Avenue
Tempe, Maricopa County, Arizona
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As of December 1, 1997
Prepared For:
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Prepared By:
Cushman & Wakefield of Illinois, Inc.
Valuation Advisory Services
455 North Cityfront Plaza Drive, Suite 2800
Chicago, Illinois 60611-5555
CUSHMAN &
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[Letterhead of Cushman & Wakefield of Illinois, Inc.]
December 12, 1997
Mr. Edward J. Welch
Director
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Re: Market Study of Real Property
The Meadows
2401 West Southern Avenue
Tempe, Maricopa County, Arizona 49201
Dear Mr. Welch:
In fulfillment of our agreement as outlined in the Letter of Engagement,
Cushman & Wakefield of Illinois, Inc., is pleased to transmit our market study
and consulting report evaluating the above referenced real property.
As specified in the Letter of Engagement, our market study and consulting
report is qualified by certain assumptions, limiting conditions, certifications,
and definitions, which are set forth in the report.
This consulting report was prepared for the Client, and it is intended
only for the specified use of the Client. It may not be distributed to or relied
upon by other persons or entities without written permission of Cushman &
Wakefield, Inc.
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the above
referenced real property, as of the date of our property inspection. The
function of the report is to assist the client, in evaluating the property for
underwriting and rating purposes.
<PAGE>
Mr. Edward J. Welch -2- December 12, 1997
This market study and consulting report was prepared in conformity with
the requirements of the Code of Ethics and Standards of Professional Appraisal
Practice of the Appraisal Institute and the Uniform Standards of Professional
Practice (USPAP) adopted by the Appraisal Standards Board of the Appraisal
Foundation.
This letter is invalid if detached from the report, which contains the
text, exhibits, and the Addenda.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF ILLINOIS, INC.
/s/ Jody L. Garbisch
Jody L. Garbisch
Associate Appraiser
/s/ Michael J. Schaeffer
Michael J. Schaeffer
Director
/s/ Stanley R. Dennis, Jr., MAI
Stanley R. Dennis, Jr., MAI
Director, Manager
CUSHMAN &
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SUMMARY OF SALIENT FACTS
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Property Name: The Meadows
Location: 2401 West Southern Avenue
Tempe, Maricopa County, Arizona
Assessor's Parcel Number: Based on information provided by Maricopa County
Treasurer's Office, the subject property is
identified by Assessor's Parcel Numbers
123-27-007G 7.
Date of Inspection: The property was inspected December 1, 1997.
Ownership: The subject property is legally entitled to
Canyonland Vistas, Inc., an Illinois corporation.
Land Area: Based on the property's legal plat of survey, the
subject property contains approximately 60.352
acres of land area, or 2,628,933.12 square feet.
Zoning: Based on information provided by the City of Tempe
Zoning Department, the subject property is zoned
RMH, Residential Mobile Home, which is a legal and
conforming use.
Improvements
Type: A manufactured housing community.
Year Built: The subject property was originally developed in
approximately 1971.
Size: The subject property consists of a 391-site
manufactured housing community, of which 132 sites
are single-wide and 259 sites are double-wide.
Condition: At the time of inspection, the subject property
was in good condition.
Property Rating: Five Star manufactured home community.
Special Assumptions: 1. Information regarding the subject property,
including its physical characteristics, was
provided to us by the client and the on-site
manager, and is assumed to be accurate.
CUSHMAN &
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Summary of Salient Facts
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2. The existence of potentially hazardous or toxic
materials, which may be located on or about the
property, was not considered in our evaluation.
The appraisers are not qualified to detect such
substances, and Cushman & Wakefield urges that an
expert in this field be employed to determine the
existence, if any, of hazardous materials located
on or about the site.
3. Our market and consulting report regarding the
subject assumes the subject property, as presently
improved, represents its highest and best use.
4. It is unknown to the appraiser if the subject
property complies with the Americans with
Disabilities Act (ADA). We recommend a qualified
specialist in the final determination regarding
any ADA compliance deficiencies that may be
present at the subject property.
5. Please refer to the complete list of
assumptions and limiting conditions included at
the end of this report.
CUSHMAN &
WAKEFIELD(R)
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TABLE OF CONTENTS
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Page
PHOTOGRAPHS OF SUBJECT PROPERTY................................................1
INTRODUCTION...................................................................5
Identification of Property.................................................5
Property Ownership and Recent History......................................5
Purpose and Function of the Market Study and Consulting Assignment.........5
Scope of the Market Study and Consulting Assignment........................5
Date of Property Inspection................................................5
Definitions and Other Pertinent Terms......................................5
REGIONAL ANALYSIS..............................................................8
NEIGHBORHOOD ANALYSIS.........................................................33
MARKET ANALYSIS...............................................................35
National Overview.........................................................35
Competition...............................................................42
Comparable Manufactured Housing Community Sales...........................49
Demographic Trends........................................................51
Expense Analysis..........................................................52
Market Supply and Demand..................................................52
Conclusion................................................................52
PROPERTY DESCRIPTION..........................................................55
Site Description..........................................................55
Improvements Description..................................................55
REAL PROPERTY TAXES AND ASSESSMENTS...........................................56
ZONING........................................................................56
CONCLUSION....................................................................57
ASSUMPTIONS AND LIMITING CONDITIONS...........................................58
CERTIFICATION.................................................................60
ADDENDA.......................................................................61
Pop-Fact Sheets
Legal Description
Qualifications of Appraisers
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PHOTOGRAPHS OF SUBJECT PROPERTY
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[PHOTO OMITTED]
Front Entrance of the Subject Property
[PHOTO OMITTED]
Exterior of Community Center
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Photographs of Subject Property
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[PHOTO OMITTED]
View of the Pool Area
[PHOTO OMITTED]
Typical Interior View of the Subject Park
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Photographs of Subject Property
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[PHOTO OMITTED]
Typical Interior View of the Subject Park
[PHOTO OMITTED]
Typical Interior View of the Subject Park
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Photographs of Subject Property
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[PHOTO OMITTED]
Street Scene Facing East Along West Southern Avenue
[PHOTO OMITTED]
Street Scene Facing West Along West Southern Avenue
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INTRODUCTION
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Identification of Property
The subject property consists of a 391-site manufactured housing
community, situated on approximately 60.352 acres of land area for 55-year-old
or greater residents. The Meadows is located approximately one mile east of
Phoenix, in the City of Tempe, Maricopa County, Arizona. The property's street
address is 2401 West Southern Avenue. The property was constructed in 1971, and
was 98.0 percent occupied at the time of inspection.
Property Ownership and Recent History
The subject property is currently entitled to Canyonland Vistas, Inc., an
Illinois corporation. The subject property was originally developed in 1971,
with 391 manufactured housing sites.
Purpose and Function of the Market Study and Consulting Assignment
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the subject
property, as of the date of property inspection. The function of the consulting
report is to assist the client in evaluating the property for underwriting and
rating purposes.
Scope of the Market Study and Consulting Assignment
In the process of preparing this report, we inspected the property,
interviewed the on-site manager, conducted market research into asking rental
rates for comparable properties, conducted market investigations, and
ascertained sales prices of comparable properties. Additionally, we conducted
market research and evaluated demographic and economic trends; and, the market
position and rating of the subject property.
Date of Property Inspection
The property was inspected December 1, 1997.
Definitions and Other Pertinent Terms
Definitions of pertinent terms taken from the Dictionary of Real Estate
Appraisal, Third Edition (1993), published by the Appraisal Institute, is as
follows:
Market Rent
The rental income that a property would most probably command on the open
market; indicated by current rents paid and asked for comparable space as
of the date of the appraisal.
Evaluation
Evaluation is a study of the nature, quality, or utility of a parcel of
real estate or interest in, or aspects of, real property, in which a value
estimate is not necessarily required.
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Introduction
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Market Study
A macroeconomic analysis that examines the general market conditions of
supply, demand, and pricing or the demographics of demand for a specific
area or property type.
Legal Description
The subject property is located along the south side of West Southern
Avenue, just west of Interstate 10 and U.S. Highway 10, in the City of Tempe,
Maricopa County, Arizona. The street address of the subject property is 2401
West Southern Avenue, Tempe, Arizona. The property is identified by tax parcel
number 123-27-007G 7, according to Maricopa County Treasurer's Office. Due to
the lengthy metes and bounds legal description, the subject property's legal
description is presented in the Addenda of this report, and reference is made
thereto.
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LOCATION MAP
[MAP OMITTED]
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REGIONAL ANALYSIS - PHOENIX-MESA MSA
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Introduction
The short- and long-term value of real estate is influenced by a variety
of factors and forces which interact within a given region. Regional analysis
serves to identify those forces which affect property value and the role they
play within the region. The four primary forces which influence real property
value include environmental characteristics, governmental forces, social
factors, and economic trends. These forces determine the supply and demand for
real property which, in turn, affect market value.
==================================
A. Environmental Characteristics
==================================
The primary environmental forces which influence the region include
physical location, geography, and infrastructure. These characteristics provide
a basis for the region's stability and describe the area's overall locational
bearing. Both natural and man-made environmental forces influence real property
values and are best understood in relation to the subject property's location.
General Overview
The Phoenix-Mesa MSA, which includes Maricopa and Pinal Counties, is the
nation's 12th largest MSA by population rank. Maricopa County comprises a
majority of the MSA, containing 23 incorporated cities and towns, and numerous
developed unincorporated areas within its 9,225 square miles. The urbanized area
of the county covers more than 2,000 square miles, making the Phoenix
metropolitan area one of the geographically largest, yet least densely
populated, metro areas in the country.
Over the past several years, Phoenix has been one of the nation's fastest
growing metropolitan areas. During this decade, it has trailed only Atlanta and
Las Vegas in terms of domestic immigration with over 33,000 U.S. residents
relocating here. The urbanized area has five distinct regions: central,
northeast, southeast, northwest, and southwest. The areas are divided by
mountains to the south and north of central Phoenix, by the Salt River Indian
Reservation to the east, and by Interstate 10 and Interstate 17 running north,
south, and west from the Salt River.
The central region contains the area's major office employment centers:
Downtown, the Central Avenue corridor, the Camelback corridor, and the 44th
Street/Sky Harbor International Airport area which is home to a significant
amount of warehouse/distribution and industrial employment.
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Regional Analysis
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The northeast region is characterized by an expanding services employment
sector concentrated in south-central Scottsdale, the Paradise Valley Mall area,
and the Scottsdale Airpark. The Scottsdale Airpark area contains a high
concentration of industrial and light manufacturing employment. There is also an
emerging medical service corridor along Shea Boulevard in north Scottsdale.
The northeast region is, perhaps, best known for its abundance of
high-quality resorts and golf courses and its affluent bedroom communities such
as Scottsdale, Paradise Valley, Fountain Hills, Carefree, Cave Creek, and
northern portions of the City of Phoenix.
The southeast region, often referred to as the East Valley, contains the
cities of Tempe, Mesa, Chandler, Gilbert, Guadalupe, Queen Creek, and the South
Mountain area of Phoenix. Major high-tech and aerospace employers are located in
this region of the MSA, as is the main campus of Arizona State University in
Tempe. Eastern portions of the southeast region contain many retirement
communities that host thousands of winter visitors, as well as year-round
retirees. Continued employment growth in high-tech industries, a diverse housing
market, and transportation improvements are expected to fuel continued
development in the southeast region.
The northwest region includes northwest Phoenix and the communities of
Glendale, Peoria, Youngtown, Surprise, El Mirage, and the unincorporated
retirement communities of Sun City and Sun City West. This region is rapidly
developing its own employment base, including service industries, agriculture,
and high-tech manufacturing. Recent development has tended to follow Bell Road
and the partially completed Agua Fria Freeway.
The rapidly growing southwest region is the least developed of the five
metropolitan areas, but its abundance of relatively inexpensive, developable
land and access to Interstate 10 make it attractive to both developers and
employers. The southwest region, which includes portions of the City of Phoenix,
as well as Goodyear, Litchfield Park, Avondale, Tolleson, and Buckeye, has
traditionally been agricultural in nature. In recent years, the area has
attracted considerable warehouse and distribution development.
Transportation
The Phoenix MSA is generally well served by an integrated transportation
network. The central portion of the MSA contains a majority of the area's
transportation links, supported by surrounding interstates, highways, and local
routes.
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Regional Analysis
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Highways & Interstates
The Phoenix region is served by two major interstates: Interstate 10 and
Interstate 17. Interstate 10 is the primary transportation thruway for the MSA,
linking with Southern California to the west, and Tucson and New Mexico to the
southeast. Interstate 17 runs northward, linking Phoenix with Flagstaff.
Superstition Freeway (U.S. Highway 60) runs east from Central Phoenix/Interstate
10 toward Mesa and Gilbert. Other major routes within the region include U.S.
Highways 80 and 89. Several new freeways, in various stages of competition, also
pass through the metro area.
Air Service
Air transportation is available at Phoenix Sky Harbor International
Airport, one of the 25 largest air traffic hubs in the nation. Airlines serving
Sky Harbor include Southwest Airlines, Air West, United, Delta, Northwest,
Alaska, American, USAir, and TWA. The Phoenix Sky Harbor International Airport
handled 30.4 million passengers in 1996, a 9.0 percent increase over 1995,
making it the 11th-busiest passenger airport in the country and the 16th-busiest
in the world. The airport moved 312,800 tons of cargo, which also represented a
9.0 percent increase.
The airport is in the midst of two major projects. The first is the
construction of a new, $169 million, 7,800-foot runway (which will be the
airport's third). It is scheduled to become operational in the Spring of 1999.
Construction has begun on a $30.0 million project that will add 14 more
passenger gates. Completion is expected next Spring.
Other Services
Rail transportation is provided by the Southern Pacific, Atchison, and
Topeka and Santa Fe lines. AMTRAK provides passenger service to the region. The
MSA is also serviced by bus lines and motor carriers. Most municipalities
provide local bus routes which run throughout the metropolitan area, while
Greyhound/Trailways provides more regional service.
==================================
B. Governmental Characteristics
==================================
Governmental influences on the region impact property values via political
and legal actions at all levels. The legal climate at a particular time or in a
particular place may overshadow the natural market forces of supply and demand.
Government provides many
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Regional Analysis
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necessary facilities and services that affect land use patterns, including
public utilities, refuse collection, transportation networks, zoning codes, and
fiscal policies.
Government Structure
Maricopa County contains 23 incorporated cities and towns, and numerous
unincorporated areas within its 9,225 square miles. Local governments provide a
variety of services, including law enforcement, fire safety, planning and
zoning, and other typical government services.
Services & Utilities
Arizona Public Service supplies electricity for most of the Valley,
including Ahwatukee, Foothills, Chandler, Gilbert, and Tempe. Salt River Project
is the other main electric supplier in the region, serving parts of Apache
Junction, Chandler, Mesa, and Tempe. Southwest Gas provides natural gas to the
region. US West Communications is the main telephone supplier in Maricopa
County. Water and sewer service is provided by the local municipalities.
Tax Structure
Tax burdens within the region include state and local sale taxes,
corporate income taxes, and ad valorem property taxes. Arizona's sales tax is
5.0 percent. Maricopa County adds an additional 0.05 percent on retail sales for
freeway construction. The Maricopa County Assessor's Office assesses taxes at
25.0 percent of full value for improved industrial and commercial properties.
Bond Rating
Moody's Bond Record places the State of Arizona's bond rating as "Aaa"
relative to investment qualities, while Maricopa County is "A". "Aaa" bonds are
judged to be the best quality and carry the smallest degree of investment risk.
"A" bonds are judged to possess many favorable investment attributes and are
considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
==================================
C. Social Forces
==================================
Real estate values can be influenced to a large degree by social issues
impacting the region, including population trends, income levels, the profile of
workers in the area, and
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Regional Analysis
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other quality of life issues. The demographic composition of the population
reveals the potential, basic demand for real estate services.
Population
The population and its geographic distribution are basic determinants of
the need for real estate. Aggregate population growth is distributed among
regions in response to changing economic opportunities, while the demand for
real estate is created by a population's demand for the goods and services to be
produced or distributed within the region. Thus, population and demographic
trends can influence the demand for services provided by property, thereby
affecting property value.
The Phoenix market is commonly perceived as a market composed primarily of
retirees. This view is valid to a limited extent, since Phoenix still ranks
among the top quartile nationwide in the proportion of residents over the age of
64. But the consumer base has changed as the in-migration of job seekers in
recent years has outpaced the influx of retirees. Members of the "baby boom"
generation (ages 25 through 44) now constitute a slightly higher proportion of
the Phoenix population than the national average. While strong transportation
and educational infrastructures are important assets, a major impetus to
Phoenix's rapid population growth has been its lower living costs relative to
MSAs in Southern California. Overall utility costs and tax collections are also
below national and regional levels.
Population in the Phoenix-Mesa MSA has grown at a relatively healthy pace
over the past decade, showing increases of 3.4 percent per year from 1980 to
1990, and 2.7 percent per year from 1990 to 1997. By comparison, Arizona has
also experienced population growth of 2.7 percent per year over the last seven
years, while the U.S. reports population growth of about 1.0 percent per year
for the same period. Estimates for 1997 place population in the Phoenix MSA at
2,695,900 +/-, an aggregate increase of 20.0 percent over 1990.
Through 2010, population growth in the MSA is forecasted to be 2.1 percent
per year according to Woods & Poole Economics, slightly higher than the rate of
growth projected for the state as a whole.
Households
Household formation is an important component of demographic analysis
which helps to identify changing patterns or shifts within the population. A
household consists of all
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Regional Analysis
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people occupying a single housing unit, thus providing significant sociological
information about the region. Household formation also has a significant
influence on demand for real estate. Households, combined with effective
purchasing power, provide the basic demand for housing units and household
needs, thereby transforming needs into effective demand for real estate
improvements.
Like the nation as a whole, household formation has occurred at a rate in
excess of population growth within the subject region. This acceleration has
been the result of several trends, namely the fact that the population is
generally living longer, divorce rates have been on the rise, and many younger
professionals are postponing marriage and/or leaving home at an earlier age, all
resulting in increases of one- and two-person households. The total number of
households in the Phoenix-Mesa MSA has increased from 580,190+/- in 1980 to
1,005,140+/- in 1997, a compound annual increase of about 3.3 percent per year.
Accordingly, the number of persons per household within the MSA has decreased
from 2.74 in 1980 to 2.64 in 1997.
Projections through 2010 by Woods & Poole Economics show household growth
in Phoenix at 2.1 percent per year, similar to population growth forecasts. This
rate of growth will lead the state and far surpass the household growth for the
nation.
Income
Income levels, either on a per capita, per family, or per household basis,
indicate the economic level of residents within the region and form an important
component of economic analysis. Average income has a direct impact on the
ability of residents to satisfy material desires for goods and services,
directly affecting the demand and price levels of real estate.
Phoenix's large retiree population consumes extensive amounts of goods and
services, but adds little to the overall income of the community. Coupled with
the relatively low wage levels in the MSA, this contributes to a slightly
below-average per capita personal income level. Although low costs of living
help to balance the below-average income, housing, taxes, and pension
expenditures claim an above-average percentage of personal income. This tends to
place Phoenix in the bottom quartile of Top 100 MSAs for consumer spending
potential.
On an average household basis (in real 1992 dollars), Phoenix-Mesa has an
average income of $56,337 for 1997, about 8.7 percent higher than the state
level of $51,817 and slightly below the national income level of $57,295.
Maricopa County has a higher average household income figure than the MSA with
$57,122.
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Real per capita income growth has generally kept pace with state and
national trends, experiencing annual growth of roughly 1.07 percent per year
(1980-90); 1.39 percent per year from 1990 to 1997 (not adjusted for inflation).
Income projections by Woods & Poole Economics show per capita income growth of
1.36 percent per year for the Phoenix-Mesa MSA. Areas on the northeast and a
portion of the southwest side of the MSA in Scottsdale and Phoenix are generally
more affluent than other sectors with average income levels between $100,000 and
$180,000.
Effective Buying Income
While income levels are above average for the state, and slightly below
the nation, lower taxes and housing costs also tend to improve the purchasing
power of area residents. As such, the effective disposable income of
residents--adjusted for tax payments, contributions to pension funds, and the
cost of new housing--ranks fairly comparable to other regions of the southeast.
Sales & Marketing Management places median household effective buying income at
$31,340 for Phoenix-Mesa as of 1996, higher than the state median of $28,923 but
lower than the U.S. median household EBI of $33,482.
==================================
D. Economic Trends
==================================
Economic forces are significant to real property value. The fundamental
relationships between current and anticipated supply and demand and the economic
ability of the population to satisfy its wants, needs, and demands through
purchasing power are tantamount to such an analysis. Some of the specific market
characteristics considered in economic analysis include employment trends, the
economic base of the region, expansion and new development, and the overall
economic health of the region.
Overview
The Phoenix-Mesa MSA has a relatively diverse economic base. Several
factors contribute to the strength and stability of the local economy, including
a good quality of life, a skilled labor force, low taxes, financial incentives
by government, and a good transportation network.
Over the past several years, the region has seen stable investment from
new companies, as well as expanding industries. Statistics on labor, employment,
investment, and construction show evidence of the region's dynamic economic
growth.
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For years, Phoenix has been one of the fastest growing metropolitan areas
in the nation. Low costs, a favorable climate, a well-educated workforce, and
proximity to key markets in Southern California and the Pacific Rim have all
contributed to the area's economic vigor. Despite an economic downturn in the
late-1980s/early-1990s, the factors that previously fueled the MSA's growth
remain in-place, giving Phoenix a positive outlook. The industry mix, although
heavily concentrated in electronics and aerospace, also favors the MSA's
long-term prospects.
With an improving economy, new growth has stimulated construction activity
and has also increased the movement of thousands of new companies, primarily
from California and the Midwest, into the Valley because of the readily
available work force, low cost of living, quality of living for their employees,
and the pro-business environment.
In terms of real estate, Arizona's phase-out of its sales tax on
commercial leases continues, dropping from 4.0 percent to 3.0 percent in 1994,
2.0 percent in 1995, and 1.0 percent in 1996. The 1.0 percent decrease will
continue until 1997, when the tax will be eliminated altogether.
Also contributing to the large number of companies choosing the Phoenix
metropolitan area are low corporate income tax rates, plus new state regulations
which allow corporations to file consolidated income tax returns. This
regulation allows corporations to claim losses from subsidiaries in other states
on their Arizona tax returns. The end result is the development of buildings for
new companies and existing companies expanding and/or relocating.
Among the Top 100 MSAs in the country, Phoenix ranks about 19th in
economic diversity, with goods and services for sale outside the MSA ranging
from high-tech manufacturing, communications, and tourism. Although only about
10.5 percent of the nation's urban markets lie within a 500-mile radius of the
region, the MSA's convenient access to major markets in Southern California
overshadows its distance from other U.S. regions. Key manufacturing industries
in Phoenix includes the electronics and aerospace sectors. Phoenix has become a
major regional center for communications and business services, providing
support for much of the Southwestern U.S. and Rocky Mountain region.
Tourism employment has continued to grow rapidly as the area's
recreational charms have not abated. Tourism is expected to continue to bolster
the local economy over the coming years as the number of visitors and winter
residents continue to increase.
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Employment
The largest sectors of non-agricultural employment in Phoenix are Services
(32.0 percent), Wholesale and Retail Trade (23.7 percent), and Government (12.5
percent). Although continuing to witness growth in manufacturing, this sector of
non-farm employment accounts for a lower percentage of employment than its 14.9
percent share in 1980. Services, on the other hand, have increased its share
from 23.0 percent in 1980 to 32.0 percent today. Finance, Insurance and Real
Estate sectors of employment have generally maintained their percentage of
non-farm employment, while Government has slipped. Both Construction and
Transportation, Communications and Public Utilities have also maintained their
distribution over the past fifteen years.
<TABLE>
<CAPTION>
=======================================================================================
Employment Distribution
=======================================================================================
Employment Sector 1980 % of Total 1997 % of Total
=======================================================================================
<S> <C> <C> <C> <C>
Total Non-Farm Employment 796,860 100.00% 1,516,260 100.00%
- ---------------------------------------------------------------------------------------
Mining 7,380 0.9% 6,290 0.4%
- ---------------------------------------------------------------------------------------
Construction 59,110 7.4% 99,470 6.6%
- ---------------------------------------------------------------------------------------
Manufacturing 118,740 14.9% 152,900 10.1%
- ---------------------------------------------------------------------------------------
T.C.P.U 33,800 4.2% 72,700 4.8%
- ---------------------------------------------------------------------------------------
Wholesale/Retail Trade 186,870 23.5% 358,600 23.7%
- ---------------------------------------------------------------------------------------
F.I.R.E 84,270 10.6% 149,100 9.8%
- ---------------------------------------------------------------------------------------
Services 183,000 23.0% 481,900 31.8%
- ---------------------------------------------------------------------------------------
Government 123,690 15.5% 189,700 12.5%
=======================================================================================
Source: Woods & Poole Economics, Inc.
=======================================================================================
</TABLE>
Between 1980 and 1997 (forecast) the Phoenix MSA added 719,400 jobs,
indicative of an astounding compound annual growth rate of 3.8 percent. During
1996 alone, the region added in excess of 73,000 jobs, or 5.7 percent. According
to Metro Market Facts, (second quarter 1997 report), this increase was the
second largest aggregate gain in the country behind Dallas, Ft. Worth, and the
second largest proportional gain behind Las Vegas.
The region's robustness produced gains in all major employment categories.
The service sector was the big leader in absolute terms, creating 30,800 net new
jobs. Retail trade had the second-largest gain (9,600 new jobs), followed by the
public sector (9,100). Finance, insurance and real estate (FIRE) and wholesale
trade grew by 7,800 and 6,800 new jobs, respectively. the transportation sector
created 4,400 net new jobs. The
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construction industry added 3,900 workers. Manufacturing had the least
impressive gain, 300 net new jobs.
Three sectors had percentage gains of over 8 percent. The largest (8.8
percent) occurred in wholesale trade. It was followed by FIRE and services.
Transportation expanded its employment base by 6.8 percent; government by 5.2
percent; construction by 4.3 percent; and retail trade by 3.9 percent.
Manufacturing's gain translated into a minuscule 0.2 percent advance.
Services now account for 31.8 percent of the area's workforce versus 28.6
percent for the nation and 23 percent of MSA employment in 1980. Retail trade,
the second largest employment category, with 23.7 percent, is generally
consistent with national averages. Phoenix has a much lower percentage of its
workers employed in manufacturing, 10.1 percent versus 15.1 percent for the
nation.
Owing to its status as the state capital, one of Phoenix's largest
employment categories is state and local government. This tends to mitigate some
of the volatile economic swings seen in regions which depend more heavily on one
particular industry. The construction sector has traditionally comprised a key
segment of the Phoenix economy. Despite faltering in the early-1990s with
overbuilding in most real estate markets, this sector continues to be an
important part of the local economy. As such, construction's 6.6 percent of
local employment is well above the national average of 4.5 percent. In recent
years, businesses selling goods and services outside the MSA have also been
expanding, including high-tech durable manufacturing, communications, and
tourism.
Based on data through the second quarter of 1997, Phoenix continued to
ride its recent wave of exuberant economic growth; payroll employment advanced
5.8 percent over year ago levels. Broad gains can be found in a number of key
areas: the growth of high-technology manufacturing, increases in the retirement
population, and the city's gains as a distribution hub. These improvements in
turn, produced increases in secondary and tertiary industries, for example
financial services, retail trade and professional services.
Greater Phoenix is home to an increasing number of high-tech companies.
One of the major high-tech players here is Intel, which has a $1.3 billion chip
manufacturing complex (Fab 12) in southwest Chandler. Two of the area's newest
high-tech developments involve Sumitomo and Microchip Technology. Sumitomo/Sitix
just opened a new $400 million, 550,000 square foot water fabrication plant in
northeast Phoenix. The plant employs 200 currently, with expected employment of
up to 500 by 1999.
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Microchip Technology has a $137 million expansion underway at its Fab2
manufacturing facility in Tempe that is expected to create 200 new jobs.
Completion is scheduled for early 1998. In addition, the company is planning to
add about 300,000 more square feet (divided between manufacturing and office
space) at its plant in Chandler. The $1 billion expansion is scheduled to take
place over the next eight years, with construction beginning in 1998. If built
out as currently envisioned, the company expects to hire another 2,000 workers
for the Chandler site by 2003.
Avnet, a distributor of electronics and computer products, which currently
employs 1,700 throughout greater Phoenix, has announced plans to move its
Electronic Marketing Group into a 176,000 square foot facility at Phoenix
Airport Center. The move is expected to create several hundred new jobs.
The growth of the area's high-tech industry has been part of the reason
for Phoenix's high ranking in Cognetics' annual survey of "Entrepreneurial Hot
Sports". The metropolitan area received the fourth-highest ranking in 1996
(behind Salt Lake City, Atlanta and Birmingham, Alabama).
Another industry, aerospace, is pumping new life into some quarters here.
The merger between McDonnel-Douglas and Boeing, is expected to have positive
ramifications for the area.
The metropolitan area continues to lure high-profile back-office
operations and many companies with existing facilities are looking for room to
grow. Excell Agent Services, a directory services firm that already has 2,400
employees in the area (in Phoenix, Tempe and Mesa), has announced plans to hire
500 more during the next six months.
Bank of America plans to hire about 1,000 more workers at its telephone
banking center in Tempe. Bank One Arizona has announced plans to add 1,000 new
jobs in a consolidation of the company's telephone operations.
Employment Growth
Over the past five years, it is clear that employment growth in the
Phoenix-Mesa MSA has slowed over the growth experienced between 1980 and 1990.
Total employment grew at a compound annual rate of 4.5 percent per year from
1980 to 1990, decreasing to an annual rate of 2.8 percent from 1990 to 1997.
Services, Transportation/Public Utilities,
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Finance, Insurance and Real Estate, Wholesale/Retail Trade, and Government have
led employment growth, while Manufacturing increases have slowed.
The consensus opinion is that while Phoenix's growth in employment will
slow over the next decade, it will remain one of the top performing areas in the
nation. Employment forecasts by a variety of econometric firms show a consensus
growth of approximately 2.5 to 3.0 percent per annum.
Major Employers
The relative diversity of the Phoenix economy can also be seen in the list
of major MSA employers. Motorola is greater Phoenix's largest private sector
employer, with 19,400 workers on its local payroll. Samaritan Health System is
next, with an employee roster of 10,800. AlliedSignal (engineering and aerospace
firm) employs 8,700. Pinnacle West Capital (the holding company for Arizona
Public Service), US West, American Express, and Bank of America employ over
7,000 each. Both Intel and Banc One locally employ approximately 6,500.
Other companies with more than 3,000 employees include: America West
Airlines, Fry's Food Stores, Wells Fargo Bank, Honeywell Inc., Tosco/Circle K,
Safeway, the Salt River Project (water and power utility), Bashas
(supermarkets), McDonnell-Douglas, TRW, AT&T, Southwest Airlines, and Gosnell
Builders.
Unemployment Rates
Unemployment rates in the Phoenix-Mesa MSA have historically been below
state and national figures. As of October 1997, the unadjusted unemployment rate
for Phoenix-Mesa was 2.5 percent, 110 basis points below year end 1996 and 140
points below the state unemployment rate of 3.9 percent. Mirroring national
trends, unemployment in the MSA peaked between 1992-1993, followed by a
declining trend through 1996.
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Historic Unemployment Rates
================================================================================
Year Phoenix MSA Arizona United States
================================================================================
Oct-97 2.5% 3.9% 4.7%
- --------------------------------------------------------------------------------
1996 3.7% 5.5% 5.4%
- --------------------------------------------------------------------------------
1995 3.5% 5.1% 5.6%
- --------------------------------------------------------------------------------
1994 5.0% 6.4% 6.1%
- --------------------------------------------------------------------------------
1993 5.1% 6.2% 6.8%
- --------------------------------------------------------------------------------
1992 6.4% 7.4% 7.4%
- --------------------------------------------------------------------------------
1991 4.9% 5.7% 6.7%
- --------------------------------------------------------------------------------
1990 4.3% 5.3% 5.5%
================================================================================
Source: Employment & Earnings; Bureau of Labor Statistics
================================================================================
Although it is too soon to know what the 1996 annual adjusted rate will be
for the Phoenix region, it appears that unemployment declines have slowed within
the MSA as a whole through the third quarter of this year.
Retail Sales
Another measure of the economic health of a region is retail sales
patterns. Consumers drive the economy by creating demand for goods and services
and, in turn, generate the need for housing, office space, retail centers, and
warehouse/distribution facilities. It is estimated that consumer spending
accounts for two-thirds of all economic activity in the United Sates today. As
such, retail sales patterns have become an important indicator of the economic
health of a region. The following table summarizes historic retail sales in the
Phoenix MSA and State of Arizona for the period 1985 - 1996.
================================================================================
Retail Sales (1985-1996)
================================================================================
Year Phoenix MSA (000) State of Arizona (000)
================================================================================
1985 $11,710,860 $18,401,358
- --------------------------------------------------------------------------------
1991 $17,241,381 $26,893,039
- --------------------------------------------------------------------------------
1996 $28,007,212 $42,748,487
- --------------------------------------------------------------------------------
CAGR 1985-1996 8.2% 8.0%
- --------------------------------------------------------------------------------
CAGR 1991-1996 10.2% 9.7%
================================================================================
Source: Sales and Marketing Management Survey of Buying Power
================================================================================
Retail sales growth has been very good in the Phoenix area, increasing at
a compound annual rate of 8.2 percent over the past 11 years. More recently,
growth has
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increased to 10.2 percent per annum which is higher than the 9.7 percent growth
experienced by the state as a whole. Going forward, Sales & Marketing Management
forecasts an increase of 31.9 percent in sales to $36.9 billion versus 30.5
percent for the state as a whole. The significance of the Phoenix market is
evidenced by the fact that with approximately 61.0 percent of the state's
population, it accounts for nearly 66.0 percent of total retail sales. Woods &
Poole Economics forecasts the MSA to see annual retail sales growth of 2.7
percent per year above inflation through 2010 (adjusted to 1987 dollars).
The purchasing profile of area residents tends to reflect the demographic
characteristics of the city. Drugs/Pharmaceuticals, and health and beauty aids
claim a disproportionately large share of retail sales, attributable in part to
the area's high proportion of retirees. Sporting goods and recreational vehicles
are also featured, reflecting the region's opportunities for leisure-time
activities and the favorable climate. Those categories expected to have the
greatest growth potential are seen in General Merchandise and Eating and
Drinking places.
==================================
E. Tourism/Visitor Profile
==================================
Overview
According to the Phoenix & Valley of the Sun Convention & Visitors Bureau,
Tourism represents the second largest industry in the metropolitan area, behind
high-technology. It is estimated that over 10.0 million people visit Phoenix
each year, while more than 24.0 million visit the State of Arizona as a whole.
Visitors to the Valley account for nearly $4.0 billion in total expenditures
annually, with retail sales comprising $400.0 million.
================================================================================
Visitor Economic Impact
================================================================================
Year: 1995
================================================================================
Estimated Number of Visitors: 10.86 Million
- --------------------------------------------------------------------------------
Average Length of Stay: 4.7 Nights
- --------------------------------------------------------------------------------
Mean Expenditure Per Trip: $476
- --------------------------------------------------------------------------------
Total Economic Impact for Maricopa County: $5.35 Billion
================================================================================
Source: Arizona Hospitality Research & Resource Center 1996
================================================================================
Expenditures
The majority of visitor expenditures go toward food & beverage which
accounts for 28.6 percent of all expenditures; lodging accounts for 21.5
percent, transportation 20.0
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percent, and retail sales 15.0 percent. The chart on the following page presents
a breakdown of visitor expenditures by category.
================================================================================
Visitor Expenditures
================================================================================
Category Percent 1995 Expenditures(000)
================================================================================
Food & Beverage: 28.6% $1,530,946
- --------------------------------------------------------------------------------
Lodging: 21.5% $1,150,886
- --------------------------------------------------------------------------------
Transportation: 20.0% $1,070,591
- --------------------------------------------------------------------------------
Retail Sales: 15.0% $ 802,944
- --------------------------------------------------------------------------------
Entertainment: 9.0% $ 481,766
- --------------------------------------------------------------------------------
Other: 5.9% $ 315,824
- --------------------------------------------------------------------------------
Total: 100.0% $5,352,957
================================================================================
Source: Arizona Hospitality Research & Resource Center 1996
================================================================================
Based upon the 11+/- million visitors in 1995, the direct economic impact
was calculated to be $5.35 billion. Business and convention travelers accounted
for 38.0 percent of all visitations in 1995.
Business/Convention Travelers
Business and convention-oriented travelers to the Phoenix area comprise
about 38.0 percent of all visitors to the region. The following chart summarizes
the profile of business and convention travelers to the region.
================================================================================
Business/Convention Traveler Profile
================================================================================
Average Age: 41.6 Years
- --------------------------------------------------------------------------------
Average Income: $74,700
- --------------------------------------------------------------------------------
Average Party Size: 1.51 People
- --------------------------------------------------------------------------------
Average Daily Spending: $193
- --------------------------------------------------------------------------------
Average Length of Stay: 3.8 Nights
- --------------------------------------------------------------------------------
Major Activities
- --------------------------------------------------------------------------------
Shopping: 52.0%
- --------------------------------------------------------------------------------
Sightseeing: 40.0%
- --------------------------------------------------------------------------------
Swimming/Sunbathing: 36.0%
- --------------------------------------------------------------------------------
Nightclubs: 25.0%
- --------------------------------------------------------------------------------
Golf: 19.0%
================================================================================
Source: Behavior Research, Inc.
================================================================================
From the data we see that the average business/convention visitor is 41.6
years of age with an average income of $74,700. According to Behavior Research,
52.0 percent of those surveyed cited shopping as one of their major activities
while visiting.
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Leisure Travelers/Winter Visitors
Leisure travelers to the Phoenix area comprise approximately 62.0 percent
of all visitors to the region. Their average age is slightly higher than the
business/convention traveler at 42.8 years, with a significantly lower average
income of $51,100. About 73.0 percent of all leisure travelers surveyed said
that shopping was one of their primary activities. The following chart
summarizes the profile of leisure travelers to the region.
================================================================================
Leisure Traveler Profile
================================================================================
Average Age: 42.8 Years
- --------------------------------------------------------------------------------
Average Income: $51,100
- --------------------------------------------------------------------------------
Average Party Size: 2.12 People
- --------------------------------------------------------------------------------
Average Daily Spending: $174
- --------------------------------------------------------------------------------
Average Length of Stay: 5.3 Nights
- --------------------------------------------------------------------------------
Major Activities
- --------------------------------------------------------------------------------
Shopping: 73.0%
- --------------------------------------------------------------------------------
Sightseeing: 74.0%
- --------------------------------------------------------------------------------
Swimming/Sunbathing: 46.0%
- --------------------------------------------------------------------------------
Museums: 39.0%
- --------------------------------------------------------------------------------
Golf: 16.0%
================================================================================
Source: Behavior Research, Inc.
================================================================================
In the table below, only visitors staying in mobile homes or travel
trailers were portrayed. In general, winter visitors arrive in the Valley by
October and return to their state of origin by May. Median length of stay is
estimated at slightly more than four months. In Metro Phoenix, approximately
113,000 winter visitors injected more than $340 million, while statewide,
approximately 201,200 winter visitors injected nearly $1.0 billion in direct
consumer expenditures during the 1995/96 season.
<TABLE>
<CAPTION>
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Motor Home & Travel Trailer Winter Visitors - Metro Phoenix
====================================================================================================
Mobile Home &
Travel Trailer Census 1992/93 1993/94 1994/95 1995/96
====================================================================================================
<S> <C> <C> <C> <C>
Number of Mobile Home Spaces 56,400 57,900 58,400 64,500
- ----------------------------------------------------------------------------------------------------
Number of Travel Trailer/R.V. Spaces 44,600 44,000 43,500 37,400
- ----------------------------------------------------------------------------------------------------
Total Spaces Available 101,000 101,900 101,900 101,900
- ----------------------------------------------------------------------------------------------------
Spaces Occupied 92,000 94,800 95,800 97,000
- ----------------------------------------------------------------------------------------------------
% of Space Occupied by Winter Visitors 58% 59% 58% 58%
- ----------------------------------------------------------------------------------------------------
Number of Winter Visitor Households 53,200 56,000 56,000 56,700
====================================================================================================
Source: Arizona State University, College of Business, Center for Business Research, August 1996
====================================================================================================
</TABLE>
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Summary
From this analysis, it is clear that the Phoenix region is greatly
impacted by the tourism and winter visitor industry. With over 10.0 million
visitors each year providing over $400.0 million in retail sales to the region
annually, there is clearly a competitive climate to attract these expenditures.
As noted by the American Express study, roughly 40.6 percent of all retail
expenditures in 1995 were from Non-Phoenix card members. In addition, 74.0
percent of all leisure travelers and 52.0 percent of all business travelers to
the area cited shopping as one of their primary activities while visiting. In
our opinion, the mall portfolio is well positioned to capture a strong market
share of this visitor spending potential upon completion.
==================================
F. Real Estate Markets
==================================
The real estate markets in Phoenix can be divided primarily into
commercial and residential segments. The commercial segment includes office,
industrial, and retail properties, while the residential market consists of
multi-family and single-family dwellings. The following is a brief overview of
each segment.
Office Market
The Phoenix office market is rebounding from several years of oversupply
which is being absorbed due to continued population and employment growth.
Recent declines in vacancy are attributable to a steady pattern of net
absorption and lack of new construction. As a result, effective rents have begun
to increase. The decline in the use of concessions, especially free rent, has
increased effective rent levels and, coupled with increased office space demand,
should continue to warrant rental rate improvement in all submarkets.
According to F.W. Dodge, the total inventory of office space in
metropolitan Phoenix was 103.5 million square feet at year end 1996. This was up
2.3 percent from 1995. Net absorption of 5.4 million square feet resulting in a
reduction in the vacancy rate to 11.1 percent from 14.4 percent. Koll Real
Estate reports that most of the net absorption was in the Class B sector.
Overall, vacancy in the Class A sector was slightly below 6 percent and 11.3
percent among Class B. In the more marginal Class C product, nearly one quarter
remained empty.
Approximately 1.2 million square feet of new suburban office space was
under construction in early 1997, and an additional 3.8 million square feet were
in the planning pipeline. According to Koll, most of the projects are located in
the active Camelback
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Corridor, Scottsdale, or Tempe submarkets. Scottsdale, with an inventory of 5.6
million square feet, had an overall vacancy rate of 5.6 percent at year end. In
the Class A sector, vacancy was particularly low at 3.4 percent.
The overall tightness in the market has caused prices to rise. According
to Koll, the value of Class A Central Business District space rose 7 percent to
$113.40 per square foot while suburban space rose 24 percent to $116.63 per
square foot. With such value increases, it would be expected that the pace of
new construction would accelerate.
F.W. Dodge forecasts that between 1998 and 1999, 7.5 million square feet
of new supply will be available in the market, forcing vacancies above 12
percent. The F.W. Dodge pipeline is currently tracking well over 2 million
square feet of new product which is expected to break ground before the close of
the fourth quarter. In subsequent years, developers will heed the warning
signals. They anticipate contract activity to average 2.1 million square feet
per year during the final five years of the forecast, compared with the average
of 1.7 million square feet for the 58 MSAs they surveyed. Fortunately, stable
office employment growth will keep the metro-wide office vacancy rate in the 11
to 12 percent range.
Industrial Market
Arguably the most active market segment, the industrial sector shows
little sign of slowing down. According to Koll, metropolitan Phoenix has an
industrial inventory of approximately 87.6 million square feet, about 9.4
percent of which were vacant in early 1997. Though vacancy was only slightly
below what it was a year earlier, that stability gains new significance when
considering that approximately eight million square feet (half of it
speculative) came on-line here during 1996. According to Koll, another 1.9
million square feet were under construction entering 1997, and 2.9 million more
square feet were in the planning stages. Areas seeing the most growth include
Chandler/Gilbert, Mesa, South Phoenix, and Tempe.
A breakdown by product type is shown below.
================================================================================
Type Inventory (mil SF) Vacancy
================================================================================
Distribution Warehouse 33.0 11.0%
- --------------------------------------------------------------------------------
Manufacturing 27.5 6.7%
- --------------------------------------------------------------------------------
Industrial Office 12.7 9.4%
- --------------------------------------------------------------------------------
High Tech 5.2 6.2%
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F.W. Dodge reports that the Phoenix industrial market is firmly entrenched
in the development phase of the real estate cycle. During the first six months
of 1997, the MSA has completed more new industrial facilities than any other
metropolitan area surveyed. Although the increase in capital availability has
been an impetus to higher contract activity, demand has been buoyant. The MSA's
gains in manufacturing and the growth in its retail markets together produced
strong demand for inventory storage and distribution centers. Total net
absorption reached a cyclical peak in 1996, but remains healthy in the current
year They do note however, that gains to inventory will force vacancies to rise,
ending the fourth quarter at 9 percent.
In the final five years of the forecast, supply-demand fundamentals will
remain firm and the market will experience above average returns on investment.
Net absorption in 1998 and 1999 will average 2.9 million square feet per year,
compared with 1.3 million square feet for the 58 MSAs Dodge surveys. However,
industrial properties are extremely sensitive to swings in the GDP. As growth in
the national economy decelerates in the latter portion of the forecast,
absorption will drop to a 2.2 million square feet annual average. Developers
will respond accordingly; after advancing at a 4 percent annual pace, inventory
gains will settle into a more manageable 2.4 percent annual rate for the first
three years of the forecast. Therefore, vacancies will end the period below the
survey average, at 8.2 percent.
Construction will be strongest in the near term, peaking in 1997. On
average, 3.1 million square feet of new warehouse space will be started each
year through 2002. The project pipeline contains over 5.0 million square feet.
The average price for Class A warehouse stood at $34.25 per square foot at
the end of 1996, up 16 percent over 1995.
Retail Market
By all accounts, the retail market remains robust. According to Koll, the
year end vacancy rate declined to 7.7 percent from 9 percent among the 80+/-
million square feet they survey. F.W. Dodge reports that since the first quarter
of 1996, the Phoenix market absorbed 5.9 million square feet, more than any
other western MSA. Dodge reports that during the past 6 quarters, 12 million
square feet of new space was completed, with only Atlanta and Philadelphia
experiencing higher inventory gains.
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Regional Analysis
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One of the reasons retail is so strong in Phoenix is due to tourism.
Tourists boost the spending totals there. According to Sales & Marketing
Management's 1997 Survey of Buying Power, retail sales in greater Phoenix
averaged $26,482 per household during 1996, while the national metropolitan
average was $24,992 per household and for the state sales were $25,391. Retail
sales were highest in Scottsdale ($45,152 per household).
By contrast, greater Phoenix's median household EBI for 1996 ($31,346 per
household) was well below the national median ($33,482 per household).
Nonetheless, with a lower cost of living, residents in Phoenix enjoy a higher
percentage of disposable income.
Most of the new construction was in the neighborhood centers segment which
accounts for 25.6 million square feet (32 percent of inventory) and had a
vacancy rate of approximately 7 percent. Power centers, with 6.7 million square
feet of total inventory report the lowest vacancy rate of slightly less than 1
percent. Net absorption was 400,000 square feet in the first quarter of 1997.
Community centers, with 12.2 million square feet had a vacancy rate of
just over 7.0 percent and regional malls had the highest vacancy rate of
approximately 10.0 percent among its 14.2 million square feet. Finally, Koll
reports that nearly all of the 4.8 million square feet of freestanding space was
occupied. Among all of the submarkets, Scottsdale had the lowest vacancy rate of
only 4.0 percent for its 15.2 million square feet of retail inventory.
F.W. Dodge expects that demand for retail space in Phoenix will remain
strong, averaging 3.2 million square feet annually through 2002. The key
determinants of demand are households and incomes, both of which will continue
to grow through the next six years. National chains and investors will respond
to the increasing demographic base by expanding their presence in the market.
Competition from various retail formats will place increasing pressure on profit
margins. However, Phoenix will weather the storm better than most markets.
Strong net absorption will force vacancies to trend downward, driving them to a
low 7.3 percent by 2002.
Phoenix will remain one of the most attractive retail markets in the
country for both institutional investors and new development. F.W. Dodge expects
retail inventory to expand at an average 2.1 percent annual rate over the next
six years. This level of construction will be maintained by the more than 8.0
million square feet in the planning pipeline.
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Regional Analysis
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The largest project in the market is the 1.2 million square foot Arizona
Mills scheduled to open in November 1997. The next largest is a 570,000 square
foot power center on Ray Road and 48th Street. Plans are being finalized for a
proposed regional mall in Chandler which could be on line in late 1999.
Hospitality/Lodging Market
F.W. Dodge reports that the building boom currently underway in the
Valley's hospitality industry is negatively affecting the bottom line for many
local area hotel operators. Since January, 639,000 SF of new hotel space has
been added to inventory and another 764,000 SF is slated to be completed in the
final six months of the year, adding more than 3,000 rooms to a marketplace that
is quickly becoming overbuilt. In an attempt to bolster occupancies, hoteliers
across all segments have cut room-rates, relative to last summer. Despite
attractive price incentives, occupancies through June are a percentage point
below year-ago levels at 71.6 percent. Demand has fueled rate increases in the
average daily rate (ADR). In 1996 it stood at 95.34 percent, up 8.9 percent from
$87.56 in 1995 and 20 percent from the $79.18 reported for 1994.
In the near term, the Phoenix hotel market should experience favorable
demand conditions. Twenty-seven percent of Arizona's domestic out-of-state
visitors come from California; 17% of its international visitors are from
Mexico. Given the stabilization of Mexico's peso and California's rebounding
economy, leisure travel to the MSA should be robust. As a result, lodging demand
between 1998 and 2002 will be sturdy, totaling 4.3 msf; but average annual
increases of 4.5% in stock will hold occupancies in the 68% to 70% range.
With 7.5 msf in the planning pipeline it is quite evident that developers
will continue to enter the market at a rapid pace. F.W. Dodge is currently
tracking 17 projects which are scheduled to begin construction before year-end
1997, including: the 200-room Marriott Hotel, a 172-room Quality Suites Hotel,
a 120-room Holiday Inn Suites, and 160-room, Radisson facility. In 1997, contact
activity will exceed 2 msf for the first time in over a decade. However, rising
competition and downward pressure on daily room rates will limit new
construction to a more reasonable 910,000 SF per year between 1998 and 2002.
This rate of construction is still more than double the average of the 58 MSA's
Dodge surveys.
Residential Market
Phoenix continues to be one of the most active housing markets in the
nation. Huge population growth and a sharply revived economy have driven vibrant
new home
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Regional Analysis
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construction. In 1994, 28,784 single-family units were approved for
construction, the nation's highest total that year. In 1995, the sum in Phoenix
rose again, to 29,104 units. Still more, 29,892 units were authorized in 1996.
For the first half of 1997, 15,960 were permitted, according to preliminary data
from the bureau. Construction is active in a number of areas; the city of
Phoenix, Chandler and Scottsdale hold the lead, but Gilbert, Mesa, Glendale and
Peoria are also active. F.W. Dodge expects that single family construction is
expected to peak in 1997 at 29,800 units, before falling to an average of 24,200
over the next 5 years.
Prices remain low by national norms, but the gap seems to be quickly
narrowing. According to the National Association of Realtors, the second quarter
1997 median resale price in the metro market was $113,200, 8.5 percent below the
national median of $123,700, and 22.4 percent below the $145,900 median for the
Western U.S. A year earlier, these differences were respectively 14.7 percent
and 34.0 percent.
According to the 1997 Study of Housing Costs, conducted by E&Y Kenneth
Leventhal, Phoenix ranks as the 33rd least expensive housing market of the 75
major metropolitan markets surveyed. After factoring in tax deductions, owning a
home required approximately 22 percent of the median family income. According to
the study, housing costs were approximately the same for renters.
Apartment development in Phoenix has picked up markedly, particularly at
the high end, and particularly (but not only) in the North Phoenix-Scottsdale
area; Mesa, Chandler and Tempe have also been active. Indeed, building permit
numbers here are a good example of the steep cycles characteristic of Phoenix
area real estate markets. After averaging fewer than 1,900 units per year from
1989 through 1993, multi-family building permitting leapt to 5,991 units in
1994. It leapt again in 1995, to 8,220 units. And yet another substantial gain
was reported for 1996 with the authorization of 9,754 units.
As large as those numbers may seem, they pale beside the 34,580
multi-family units approved in 1984, and the 25,693 in 1985 (and the 17,821 of
1986). Through the first half of 1997, the pace appears to be cooling:
preliminary date from the U.S. Department of Commerce, Bureau of the Census,
report 3,832 units authorized, a 32 percent decline from the total for the
comparable period of 1996. In 1996, some 7,000 new units came on line, with a
higher total expected for the 1997 year-end tally. F.W. Dodge reports that since
1994, net absorption of 24,000 units was achieved, pushing vacancy rates to a
low of 6.1 percent.
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Regional Analysis
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Average vacancy, thus, has increased. Indeed, its been increasing since
1995--although as of first quarter 1997 the vacancy rate was still relatively
low at 5 percent (a far cry from the double-digit levels that persisted from
1985 to 1992). F.W. Dodge reports that since 1994 effective rents have risen at
an annual rate of 5.3 percent compared with 3.2 percent for the nation.
Despite the relatively large increases in inventory, the multi-family
sector continues to function efficiently. During the remainder of the decade the
supply-demand relationship for apartments should gradually improve. In the near
term, demand for market-rate and luxury condominiums will keep net absorption
above a 7,000-unit average per year through 2002. However, long-term demographic
trends indicate that elderly housing and assisted living facilities will be in
greater demand as the decade unfolds. Overall, F.W. Dodge expects Phoenix to
construct more multi-family facilities than any other western region city,
averaging 6,300 units per year between 1997 and 2002.
Summary
Most submarkets in Phoenix will continue to experience new development in
1997-98. Those areas not encountering new development will see increases in
rental rates as current space is absorbed and new construction takes place in
surrounding submarkets. The stimulated market has produced a tightening which
has improved overall vacancy rates and begun to push rental rates upward.
==================================
G. Critical Observations
==================================
The following bullet points summarize some of our general observations
relating to the subject's region:
o Economy - The Phoenix-Mesa economy is relatively diverse and has
seen strong growth over the past decade. The largest sectors of
employment include Services (32.0 percent), Wholesale/Retail Trade
(23.7 percent), Government (12.5 percent), Manufacturing (10.1
percent), and F.I.R.E. (9.8 percent).
o Employment - Employment growth is projected to be 2.6 percent per
year, led by F.I.R.E., Services, and Transportation, Communications,
and Public Utilities. The Manufacturing base will continue to lag
the other sectors and expand at an annual rate of 1.3 percent per
year through 2010.
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Regional Analysis
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o Population - Population growth in the MSA is forecasted to be 2.1
percent per year, while household formation will occur at an annual
rate of 2.1 percent per annum.
o Average Household Income - Income levels are projected to increase
at an annual rate of about 1.4 percent per year through 2010 above
inflation.
o Retail Sales - Sales are forecasted to grow by about 2.7 percent per
year for the MSA as a whole, in real (1992) dollars.
o Consumer Markets - The attractiveness of Phoenix's consumer markets
is mixed. Positive factors include the area's fundamentally strong
growth, both in terms of resident population and income. Conversely,
relatively low per capita disposable income and Phoenix's
historically high level of cyclically tend to detract slightly from
the appeal of its retail markets.
o Strengths - Strengths of the region include low living and operating
costs and proximity to Southern California and Pacific Rim markets.
The MSA also benefits from an efficient transportation network and a
good quality of life. Rapid growth in the working-age population
continues to boost the outlook for expansion in the retail sector.
With wages, energy rates, and construction costs relatively low, the
area continues to keep and attract firms, a trend that continues to
invigorate growth in business-to-business markets.
o Weaknesses - Weaknesses within the MSA include a strained physical
and educational infrastructure which has resulted from the area's
rapid growth, compromising the quality of life within the region.
These are typical growing pains, however, which continue to be a
focus of local government.
Conclusion
The short- and long-term outlook for the Phoenix-Mesa region and its
surrounding area is for good growth in employment and population. The economy is
well diversified, with a relatively low cost of living and good transportation
system. On balance, we are relatively optimistic about the short-term outlook of
the subject region. Long-term, the region should see stability and good growth,
with increasing real estate values.
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NEIGHBORHOOD MAP
[MAP OMITTED]
<PAGE>
NEIGHBORHOOD ANALYSIS
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The City of Tempe
According to the Tempe Chamber of Commerce, Tempe is the fifth largest
city in Arizona, and is the home of Arizona State University (ASU), the fifth
largest university in the U.S. ASU contributes to the economic success of Tempe,
with roughly 42,000 students and 10,000 employees, and a 323-acre Research and
Development Park. Tempe also has a multifaceted economic base, with
approximately 200 manufacturing firms with more than 11,000 employees.
Tempe is bordered on the west by Phoenix, on the east by Mesa, on the south by
Chandler and on the north by Phoenix and Scottsdale. The estimated population
for the City of Tempe, Maricopa County and the State of Arizona is shown below.
================================================================================
Population
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1980 1990 1995
================================================================================
Tempe 106,920 141,865 155,610
- --------------------------------------------------------------------------------
Maricopa County 1,509,175 2,122,101 2,454,525
- --------------------------------------------------------------------------------
Arizona 2,716,546 3,665,228 4,228,900
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Source: Arizona Department of Economic Security and U.S. Census Bureau.
================================================================================
Many of the major highways and interstate that run through Tempe include:
Interstate 10, U.S. Highway 60, State Highway 202 and State Highway 143. The
interstate and highways allow easy accessibility to the surrounding cities and
to the Sky Harbor International Airport. Sky Harbor International Airport is
located 10 miles west of Tempe, which is served by 16 major airlines and offers
non-stop flights to every major U.S. City.
Neighborhood Description
The subject property is situated along the south side of West Southern
Avenue, approximately one mile east of Phoenix, just west of Interstate 10, in
the City of Tempe, Arizona. The subject property's neighborhood is generally
bounded by Broadway Road to the north, Mill Avenue to the east, Baseline Road to
the south and 40th Street to the west. This area is primarily developed with
business parks, retail and residential uses.
Eaton Business Park and Fairlane Business Park are located directly north of the
subject site. A variety of fast food restaurants, such as McDonald's, Arby's,
Subway and Jack in the Box, surround the business parks to the west and
northwest of the subject property. Retail developments are located along West
Southern Avenue, with the majority of improvements to the east of the subject
property. Retail developments include community and neighborhood shopping
centers and convenient stores. Single-family houses are seen primarily to the
west
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Neighborhood Analysis
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and south of the subject property, with Contempo Tempe manufactured housing
community located adjacent to the subject site.
Transportation in the subject's immediate area is good. The subject
property enjoys access and visibility along West Southern Avenue, an east/west,
four-lane paved roadway, with a middle turning lane. The subject property has
approximately 842 feet of frontage along the south side of West Southern Avenue.
West Southern Avenue provides access to Phoenix to the west and Mesa to the
east. Interstate 10 and U.S. Highway 60 are located just east of the subject
property, but do not enjoy an interchange with West Southern Avenue. Interstate
10 and U.S. Highway 60 can be accessed approximately two miles north or two
miles south of the subject property.
In summary, the subject property is located within a well-established
area, which benefits from the accessibility and developments along West Southern
Avenue, and accessibility to Interstate 10, U.S. Highway 60 and the Sky Harbor
International Airport.
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MARKET ANALYSIS
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National Overview
Reportedly, the largest property owners of manufactured housing
communities in the United States are: ROC Communities, headquartered in
Colorado; MHC, Inc., headquartered in Illinois; Ellenburg Capital, headquartered
in Oregon; Lautrec Ltd., headquartered in Michigan; Clayton Homes, headquartered
in Tennessee; Clayton Williams and Sherwood, headquartered in California;
Chateau Properties, Sun Communities and UNIPROP, headquartered in Michigan.
The following represents the top ten manufactured housing community firms,
as reported by GFA Management, as of 1997.
<TABLE>
<CAPTION>
================================================================================================================
1997 Firm Name State No. of Sites No. of Communities
Rank Owned/Managed Owned/Managed
================================================================================================================
<S> <C> <C> <C> <C>
1 Sun Communities Michigan 30,295/0 84/0
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2 ROC Communities Colorado 22,441/7,167 77/36
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3 Manufactured Home Communities Illinois 27,349/838 69/3
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4 Ellenburg Capital Florida 25,173/0 63/0
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5 Lautrec Ltd. Michigan 22,652/0 58/0
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6 Chateau Properties Michigan 20,003/0 47/0
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7 Clayton Homes Tennessee 18,000/0 66/0
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8 Clayton, Williams and Sherwood California 16,946/0 44/0
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9 UNIPROP Michigan 14,931/0 40/0
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10 The Bloch Organization Michigan 14,379/0 37/0
================================================================================================================
</TABLE>
According to the U.S. Census Bureau, more than 8,521,000 people were
living in manufactured housing communities as of 1990 compared to 3,838,678 in
1980. This represents an increase in manufactured housing community living of
approximately 122.0 percent over the last ten years. Over the last ten years,
there has been a steady increase in manufactured housing community development
across the country. Among the demographic factors which account for the increase
in manufactured housing community living are: decreasing household size, a
growing demand for smaller housing, as well as an alternative to the increasing
cost of housing. Nationally, the largest percentage of manufactured housing
communities are located in California, Michigan, Colorado, Florida, New York,
Minnesota, Indiana, Arizona, Ohio, and Wisconsin.
The manufactured home industry has dramatically changed over the last 20
years. Manufactured homes are now designed and constructed to accommodate
spacious and attractive living requirements. Today, approximately one out of
sixteen families live in
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Market Analysis
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manufactured housing units. The manufactured housing market share has been
growing steadily over the last 10 years. In 1990, 6.7 percent of Americans lived
in manufactured housing units, up from 2.9 percent compared to 1970, according
to the U.S. Census Bureau, which represents 12.0 to 14.0 percent of all new
housing built since the mid-1980's, according to the Manufactured Housing
Institute in Arlington, Virginia.
In 1990, the average cost of a manufactured housing unit was $27,800
compared to $149,000 for a new house (including land), according to the
Manufactured Housing Institute. This reflects a 28.0 percent increase in the
cost of manufactured housing since 1980 versus a 49.0 percent increase in
conventional housing. Industry experts estimate that a single-family home
selling for $150,000 would require an annual income of $52,671. To purchase a
$27,800 manufactured housing unit, only a $19,984 income level would be
required.
At Fleetwood Enterprises, the nation's largest manufacturer of
manufactured housing units, units may be purchased for up to $100,000, which
would include a three-bedroom, two-bath unit of 2,100 square feet, with vaulted
ceilings.
In 1990, approximately 10.0 percent of manufactured home owners lived in
units worth approximately $40,000, up from 4.0 percent compared to 1981,
according to a study conducted by Foremost Insurance Company in Grand Rapids,
Michigan. Also, according to the study, approximately 21.0 percent of the
manufactured housing households are occupied by people' 65 years of age or
older, slightly lower than the age group for conventional homes, as reported by
Foremost Insurance.
The demand for good quality institutional grade manufactured housing
communities has substantially increased over the last ten years. Manufactured
housing communities provide an affordable alternative to the increasing cost of
housing. Also, manufactured housing communities provide an alternative form of
living for the elderly and retirees, especially for those living on fixed
incomes.
Acquisitions of manufactured housing communities during 1993 and 1994 were
clearly dominated by Real Estate Investment Trusts. During 1994 and 1995
Manufactured Home Communities (MHC) and ROC communities lead the acquisition of
manufactured housing communities nationally. During 1996, Sun Communities
captured the lead and, together with ROC and MHC dominate the Real Estate
Investment Trust market.
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Market Analysis
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The following chart represents the largest Real Estate Investment Trusts,
from 1991 to 1996, as reported by GFA Management
<TABLE>
<CAPTION>
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HOME SITE GROWTH, DEVELOPMENT AMONG THE LARGEST
REAL ESTATE INVESTMENT TRUST (REITS)
====================================================================================================================================
Year ROC MHC Chateau Sun United Total Annual Growth
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 29,608 28,187 20,003 30,295 5,234 113,327 17.0%
- ------------------------------------------------------------------------------------------------------------------------------------
1995 27,910 26,237 19,594 18,000 4,850 96,591 9.0%
- ------------------------------------------------------------------------------------------------------------------------------------
1994 26,231 28,407 15,689 13,500 4,623 88,450 37.8%
- ------------------------------------------------------------------------------------------------------------------------------------
1993 20,142 14,700 15,261 9,036 5,050 64,189 17.8%
- ------------------------------------------------------------------------------------------------------------------------------------
1992 18,745 12,873 10,032 7,600 5,200 54,450 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
1991 9,030 13,079 9,759 N/R N/R N/A N/A
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N/R = No report N/A = Not applicable
====================================================================================================================================
NOTE: The 113,327 sites counted for the top five REITs in 1996 make up 20 percent of the total sites surveyed in the 1997 Allen
Report. These rental sites are located in 339 communities, accounting for about 1 percent of some 50,000 existing manufactured
housing communities nationwide. The community counts for the five major REITs are: ROC (113), MHC (72), Chateau (47), Sun (84) and
United (23). The proportion of communities owned by each of the REITs compared to the others is: ROC (33%), MHC (21%), Chateau
(14%), Sun (25%) and United (7%).
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</TABLE>
Manufactured Home Communities (MHC) is expected to continue an aggressive
acquisition campaign through 1997 and beyond. As of September 1997, the MHC REIT
had a market cap of $632.0 million, and continues to pursue the acquisition of
manufactured home communities. Aside from the ELL-CAP $300.0 million
transaction, in September 1997 Manufactured Home Communities, Inc. completed a
$107.0 million purchase of 18 manufactured housing communities and two related
commercial properties from partnerships affiliated with Mobileparks West. The
communities, with 3,505 sites, were purchased with about $3.0 million
manufactured home operating units, $16.0 million in cash and $20.0 million of
installment notes and assumed debt. The communities have an average monthly
rental of $349.00. The communities are located in California, Utah, Oregon,
Washington and Nevada. MHC may be the first manufactured home community REIT to
reach $1.0 billion.
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Market Analysis
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The MHC REIT continues to perform and expand, and as of September 1997 was
trading at $25.625, with a current yield of 5.2 percent. The top traded REITs,
are presented as follows.
<TABLE>
<CAPTION>
====================================================================================================
REIT MARKET UPDATE
====================================================================================================
Company Price Current 52 Week 52 Week Annual 12 Mth Tot
Symbol (9/19/97) Yield High Low Dividend Rtn
====================================================================================================
<S> <C> <C> <C> <C> <C> <C>
CPJ $ 29.688 5.8% $ 31.125 $ 22.250 1.72 26.6%
- ----------------------------------------------------------------------------------------------------
MHC $ 25.625 5.2% $ 26.428 $ 18.875 1.32 30.7%
- ----------------------------------------------------------------------------------------------------
SUI $ 37.428 5.0% $ 38.00 $ 27.750 1.88 31.8%
- ----------------------------------------------------------------------------------------------------
UMH $ 11.625 6.0% $ 13.625 $ 10.875 0.70 -1.7%
====================================================================================================
Total return figures obtained through Standard & Poors and are for the period through Sept 1997.
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</TABLE>
The Southwest and Northwest Regions of the nation are the preferred
locations regarding recent and future manufactured housing community
acquisitions. However, investors seeking moderate, but consistent growth
expectations, are still looking at the midwest region. Also, southern portions
of Florida are still considered a prime area for investors seeking good quality
manufactured housing communities, with good up-side potential. What was once a
stagnant market, the northeast region is now being considered for future
acquisitions.
According to a recent study prepared by Merrill Lynch & Company, ownership
in the manufactured housing community industry is highly fragmented. The top 150
owner-operators account for less than 5.0 percent of the total industry, whereas
a host of "mom-and-pop" private companies account for the other 95.0 percent.
This unglamorous niche industry is ripe for consolidation, and an infusion of
professional management expertise is likely to yield significant economies of
scale. The four REIT's specializing in manufactured housing communities are
already among the top ten owner-operators, and are well positioned to facilitate
and hasten the industry's consolidation to the likely benefit of their
stockholders.
Manufactured homes are the fastest growing component of the nation's
housing inventory, due to their affordability, good quality design and safety
standards. According to the Merrill Lynch & Company Manufactured Housing
Community Industry Report, factory-built homes appeal especially to senior
citizens and to households with limited economic needs, two segments of the
population that are likely to grow rapidly in coming years.
Consistent returns in manufactured housing community investments have been
the mainstay of the industry. For this reason, as well as the amount of
acquisitions seen by Real
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Market Analysis
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Estate Investment Trusts (REITs) from 1991 to 1996, the availability of good
quality manufactured housing communities has been substantially reduced compared
to the 1980's. Good quality manufactured housing communities still command
premium prices, thus driving down overall capitalization rates.
Cushman & Wakefield's Valuation Advisory Services has tracked sale
transactions of manufactured housing communities since 1985. Overall
capitalization rates have consistently been within the 8.75 to 10.00 percent
range for communities located in moderate to increasing growth markets, and as
low as near 8.0 percent for those communities located in growing markets that
poses significant upside potential. Overall capitalization rates are clearly
affected and are differentiated among the properties relative to rent levels,
age, quality, condition, location, amenities, demographic characteristics,
resident profile, as well as the quality of management.
Manufactured housing communities fall within, and are categorized by their
overall appearance, age, and amenities, but more importantly the strength of the
local market. The various categories of manufactured housing communities,
according to the Woodall Directory, can be ranked as 1 to 5 Star Parks. These
rankings are defined as follows:
One Star Park
The most important consideration for a one star park is overall
appearance. If it is not a decent place to live, it will not be listed in
Woodall's Directory. The following are general requirements:
o Fair overall appearance;
o Patios on most lots. May be concrete, asphalt, wood, or some
suitable material;
o Grass, rock or shell to cover ground;
o Streets fair to good. May be dirt, asphalt or gravel in reasonable
condition;
o Restrooms clean, if any;
o Adequate laundry or laundromat nearby;
o If fences allowed, must be neat;
o Mail service;
o Homes may be old models, but show evidence of care; and,
o Manager available some hours of each day.
Two Star Park
In addition to the requirements for a one star park, a two star park will
have the following:
o Landscaping - some lawns and shrubs;
o Streets in good condition. Must be dust free of crushed rock, gravel
or shell minimum;
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Market Analysis
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o Neat storage;
o Well equipped laundry or laundromat nearby;
o 200 volt connections available;
o If children accepted, park should have play area;
o Park free of clutter, such as old cars and other abandoned
equipment; and,
o Well maintained and managed.
Three Star Park
What a three star park does it does well, but not as uniformly as higher
rated parks. Many three star parks were once higher rated, but original
construction does not allow for today's 10-foot, 12-foot, and double-wides
or the 55-foot and 60-foot lengths. If children are allowed, there should
be adequate play area. However, the disarray caused by children may at
times be the determining factor that keeps a three star park at that level
when it otherwise could be rated higher. In addition to the requirements
for one and two star parks, a three star park must have the following:
o Attractive entrance;
o All homes must be in good condition;
o Awnings and cabana rooms on some homes in southern areas;
o Some spaces for large mobile homes;
o Paved or hard surfaced streets;
o Off-street parking or streets wide enough for safe on-street
parking;
o Good lawns or substitute throughout, shade trees, some shrubs where
climate permits;
o Concrete patios or the equivalent on all lots;
o All lots neat and attractive; All park buildings in good repair;
and,
o Good management.
Four Star Park
Four star parks are luxury parks. In addition to the requirements for one,
two and three star parks, a four star park must have the following:
o Good landscaping;
o Most homes skirted with metal skirts, concrete block, ornamental
wood or stone;
o Paved streets, edged or curbed.
o Uncrowded lots;
o Underground utilities if permitted by local conditions and
authorities;
o Most tanks, if present, concealed;
o Any hedges or fences must be attractive and uniform;
o Awnings, cabanas, or porches on most homes in southern areas.
(Excepting double-wide units.);
o Most lots to accommodate large mobile homes;
o Where row parking of homes exists, all must be lined up uniformly;
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Market Analysis
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o Community hall and/or swimming pool and/or recreation programs. If a
park is four star in all but this requirement, the fourth star will
be printed as an open star indicating a four star park without
park-centered recreation; and,
o Excellent management.
Five Star Park
Five star parks are the finest. They should be nearly impossible to
improve. In addition to the requirements for one, two, three, and four
star parks, a five star park must have the following:
o Well planned and laid out spacious appearance;
o Good location in regard to accessibility and desirable neighborhood.
In some locations, park should be enclosed by high hedges or
ornamental fence;
o Wide paved streets in perfect condition. Curbs or lawns edged to
streets, sidewalks, street lights, street signs;
o Homes set back from street;
o Exceptionally attractive entrance and park sign;
o Patios at least 8 x 30 feet. (Excepting double-wide units.);
o Paved off-street parking such as carports or planned parking;
o All homes skirted;
o All hitches concealed. Any existing tanks concealed;
o Recreation, some or all of the following: swimming pool (excepting
areas with long, cold winters), shuffleboards, horseshoe pitching,
golf course, hobby shop, hobby classes, games, potlucks, dances or
natural recreational facilities;
o Beautifully equipped recreation hall with kitchen. Room for
community gatherings, tiled restrooms, etc.;
o Uniform storage sheds or central storage facilities;
o All late model homes in excellent condition;
o At least 60 percent occupancy in order to judge quality of residents
which indicates park's ability to maintain a five star rating
between inspections;
o All empty lots grassed, graveled or otherwise well maintained;
o If pets or children allowed, there must be a place for them to run
and play without cluttering the streets and yards. Most five star
parks are for adults only; and,
o Superior management interested in comfort of residents and
maintenance of park.
The demand for good quality institutional grade manufactured housing
communities is anticipated to increase throughout the 1990's, since manufactured
housing communities provide an alternative form of living for the elderly and
retirees, especially for those living on fixed income. Manufactured home
shipments continue to be strong. Shipments rose 20.0 percent in 1992 and 1994,
and 12.0 percent in 1995. The market for good quality manufactured housing
communities is expected to be strong, with yield and capitalization
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Market Analysis
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rates and prices expected to continue to be competitive, with the REITs leading
the way.
Competition
We have surveyed nine manufactured housing communities located within the
subject's primary market, including the subject property, containing a total of
3,192 sites. The combined occupancy rate of these nine manufactured housing
communities, including the subject property, is approximately 97.0 percent.
Excluding the subject property in our survey, the combined occupancy rate is
also approximately 97.0 percent, based on 2,801 sites.
The name and location of the subject property's primary competition, as
well as the number of sites, occupancy levels, amenities offered, monthly rental
rates and services provided in the monthly rental rate, are presented on the
following facing page, along with a map which identifies the location of each
competing park.
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<TABLE>
<CAPTION>
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SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
====================================================================================================================================
Number Age
Of Sites --- 3-Year
-------- Condition Services Date Of Average
Comp. Name Occupancy -------------- Monthly Provided Last Rental Annual Rental
No. Location Level Amenities Park Rating(1) Rent in Rent Increase Increase
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R-1 Contempo Tempe 454 Clubhouse 1974 $280.00/Mo. Water January, 1997 $8.00/Mo.
2609 W. Southern Avenue --- Pool/Spa ---- To Sewer
Tempe, Arizona 94% Library Good $303.00/Mo. Refuse
Exercise Room ----
Billiard Room 5*
Shuffleboard
Putting Green
Laundry
Storage
- ------------------------------------------------------------------------------------------------------------------------------------
R-2 Pueblo Sereno 224 Clubhouse 1972 $300.00/Mo. Water January, 1997 $8.00/Mo.
8350 E. McKellips Road --- Pool/Spa ---- To Sewer
Scottsdale, Arizona 100% Exercise Room Good $369.00/Mo. Refuse
Shuffleboard ----
Fishing Lake 5*
Laundry
Storage
- ------------------------------------------------------------------------------------------------------------------------------------
R-3 Shadow Mountain Village 589 Clubhouse 1973 $300.00/Mo. Water January, 1997 $8.00/Mo.
8780 E. McKellips Road --- Pool/Spa ---- To Sewer
Scottsdale, Arizona 100% Tennis Courts Good $325.00/Mo. Refuse
Shuffleboard ----
Laundry 5*
Storage
- ------------------------------------------------------------------------------------------------------------------------------------
R-4 Brentwood Southern 345 Clubhouse 1979 $316.64/Mo. Water January, 1997 $15.00/Mo.
8103 E. Southern Avenue --- Pool/Spa ---- To Sewer
Mesa, Arizona 93% Exercise Room Good $322.70/Mo. Refuse
Billiard Room ----
Craft Room 5*
Shuffleboard
Laundry
Storage
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</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
====================================================================================================================================
Number Age
Of Sites --- 3-Year
-------- Condition Services Date Of Average
Comp. Name Occupancy -------------- Monthly Provided Last Rental Annual Rental
No. Location Level Amenities Park Rating(1) Rent in Rent Increase Increase
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R-5 Hacienda de Valencia 366 Clubhouse 1972 $317.00/Mo. None December, 1997 $13.00/Mo.
201 South Greenfield Road --- Pool/Spa ----
Mesa, Arizona 96% Exercise Room Good
Billiard Room ----
Shuffleboard 5*
Laundry
Storage
- ------------------------------------------------------------------------------------------------------------------------------------
R-6 Sunrise Village 230 Clubhouse 1982 $334.00/Mo. None January, 1997 $13.00/Mo.
5502 E. McKellips Road --- Pool/Spa ---- To
Mesa, Arizona 99% Shuffleboard Good $350.00/Mo.
Laundry ----
Storage 5*
- ------------------------------------------------------------------------------------------------------------------------------------
R-7 Castillo Nuevo 302 Clubhouse 1972 $309.00/Mo. Refuse January, 1997 $10.00/Mo.
3300 E. Broadway Road --- Pool/Spa ---- To
Mesa, Arizona 98% Library Good $319.00/Mo.
Exercise Room ----
Shuffleboard 5*
Laundry
Storage
- ------------------------------------------------------------------------------------------------------------------------------------
R-8 Sunrise Vista 291 Clubhouse 1974 $308.05/Mo. Water October, 1997 $10.00/Mo.
300 S. Val Vista Drive --- Pool/Spa ---- To Sewer
Mesa, Arizona Shuffleboard Good $318.15/Mo. Refuse
Putting Green ----
Laundry 5*
Storage
====================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
====================================================================================================================================
Number Age
Of Sites --- 3-Year
-------- Condition Services Date Of Average
Comp. Name Occupancy -------------- Monthly Provided Last Rental Annual Rental
No. Location Level Amenities Park Rating(1) Rent in Rent Increase Increase
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Subject The Meadows 391 Clubhouse 1971 $330.74/Mo. Water January, 1997 $17.00/Mo.
2401 W. Southern Avenue --- Pool/Spa ---- To Sewer
Phoenix, Arizona 98% Billiard Room Good $396.29/Mo. Refuse
Craft Room ----
Exercise Room 5*
Shuffleboard
Laundry
Storage
====================================================================================================================================
(1) Ratings from One Star to Five Star Parks are defined in the National Overview section of this report.
====================================================================================================================================
</TABLE>
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COMPETING MANUFACTURED HOUSING MAP
[MAP OMITTED]
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Market Analysis
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Rental rates of manufactured housing communities located within the
subject's primary market range from $280.00 to $369.00 per site, on a monthly
basis. The subject property is currently quoting monthly rental rates within to
slightly above the market range, or $330.74 to $396.29 per site. The last rental
rate increase at the subject property was as of January, 1997, of approximately
$18.00 per month.
The enclosed comparable rentals are considered the most competitive to the
subject property regarding amenities offered, condition, location and overall
ranking.
Comparable R-1, Contempo Tempe, is located at 2609 W. Southern Avenue, in
Tempe, Arizona. This comparable property is a 55-year-old and greater
residential community, which contains 454 sites, and is approximately 94.0
percent occupied. Contempo Tempe was developed in 1974, and is in overall
good condition. Over the last three years, the annual rental rate
increased approximately $8.00 per month. Monthly rental rates range from
$280.00 to $303.00, with water, sewer and refuse service included in the
monthly rental payment. Amenities include a clubhouse, pool, spa, library,
exercise room, billiard room, shuffleboard, putting green, laundry
facility and recreational vehicle storage.
Comparable R-2, Pueblo Sereno, is located at 8350 E. McKellips Road, in
Scottsdale, Arizona. This comparable property is a 55-year-old and greater
residential community, which contains 224 sites, and is 100.0 percent
occupied. Pueblo Sereno was developed in 1972, and is in overall good
condition. Over the last three years, the annual rental rate increased
approximately $8.00 per month. Monthly rental rates range from $300.00 to
$369.00, with water, sewer and refuse service included in the monthly
rental payment. Amenities include a clubhouse, pool, spa, exercise room,
shuffleboard, fishing lake, laundry facility and recreational vehicle
storage.
Comparable R-3, Shadow Mountain Village, is located at 8780 E. McKellips
Road, in Scottsdale, Arizona. This comparable property is a 55-year-old
and greater residential community, which contains 589 sites, and is 100.0
percent occupied. Shadow Mountain Village was developed in 1973, and is in
overall good condition. Over the last three years, the annual rental rate
increased approximately $8.00 per month. Monthly rental rates range from
$300.00 to $325.00, with water, sewer and refuse service included in the
monthly rental payment. Amenities include three clubhouses, two pools, two
spas, a tennis courts, shuffleboard, laundry facility and recreational
vehicle storage.
Comparable R-4, Brentwood Southern, is located at 8103 E. Southern Avenue,
in Mesa, Arizona. This comparable property is a 55-year-old and greater
residential community, which contains 345 sites, and is approximately 93.0
percent occupied. Brentwood Southern was developed in 1979, and is in
overall good condition. Over the last three years, the annual rental rate
increased
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Market Analysis
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approximately $15.00 per month. Monthly rental rates range from $316.64 to
$322.70, with water, sewer and refuse service included in monthly rental
payment. Amenities include a clubhouse, two pools, two spas, a billiard
room, exercise room, craft room, shuffleboard, laundry facility and
recreational vehicle storage.
Comparable R-5, Hacienda de Valencia, is located at 201 South Greenfield
Road, in Mesa, Arizona. This comparable property is a 55-year-old and
greater residential community, which contains 366 sites, and is
approximately 96.0 occupied. Hacienda de Valencia was developed in 1972,
and is in overall good condition. Over the last three years, the annual
rental rate increased approximately $13.00 per month. Monthly rental rates
are $317.00, with no services provided in the monthly rental payment.
Amenities include two clubhouses, two pools, a spa, exercise room,
billiard room, shuffleboard, laundry facility and recreational vehicle
storage.
Comparable R-6, Sunrise Village, is located at 5502 E. McKellips Road, in
Mesa, Arizona. This comparable property is a 55-year-old and greater
residential community, which contains 230 sites, and is approximately 99.0
percent occupied. Sunrise Village was developed in 1982, and is in overall
good condition. Over the last three years, the annual rental rate
increased approximately $13.00 per month. Monthly rental rates range from
$334.00 to $350.00, with no services provided in the monthly rental
payment. Amenities include a clubhouse, pool, spa, shuffleboard, laundry
facility and recreational vehicle storage.
Comparable R-7, Castillo Nuevo, is located at 3300 E. Broadway Road, in
Mesa, Arizona. This comparable property is a 55-year-old and greater
residential community, which contains 302 sites, and is approximately 98.0
percent occupied. Castillo Nuevo was developed in 1972, and is in overall
good condition. Over the last three years, the annual rental rate
increased approximately $10.00 per month. Monthly rental rates range from
$309.00 to $319.00, with only refuse service provided in the monthly
rental payment. Amenities include a clubhouse, pool, spa, library,
exercise room, shuffleboard, laundry facility and recreational vehicle
storage.
Comparable R-8, Sunrise Vista, is located at 300 S. Val Vista Drive, in
Mesa, Arizona. This comparable property is a 55-year-old and greater
residential community, which contains 291 sites, and is approximately 99.0
percent occupied. Sunrise Vista was developed in 1974, and is in overall
good condition. Over the last three years, the annual rental rate
increased approximately $10.00 per month. Monthly rental rates range from
$308.05 to $318.15, with water, sewer and refuse service provided in the
monthly rental payment. Amenities include a clubhouse, pool, spa,
shuffleboard, putting green, laundry facility and recreational vehicle
storage.
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Market Analysis
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In our opinion, and based on conversations with the on-site manager,
properties R-1, R-2 and R-3 compete most favorably with the subject property,
with monthly rental rates ranging from $280.00 to $369.00 per site. The subject
property is currently quoting monthly rental rates ranging from $330.74 to
$396.29 per site, which is within to slightly above the range of rental rates of
our more comparable and competing properties. The subject property competes most
effectively with its primary competitors regarding amenities, condition and
current rent structure.
Comparable Manufactured Housing Community Sales
A search of the subject's market revealed six recent sales of manufactured
housing communities located in the Phoenix-Mesa MSA. The following is a brief
discussion of each of the manufactured housing sales located within the
subject's market. These sales are summarized on the following facing page.
Comparable Sale I-1, Mesa Village, is located at 2701 E. Allred Avenue, in
Mesa, Arizona. This property contains 201 sites, situated on 18.36 acres
of land area. The property was in good condition at the time of sale and
was developed in 1964. Amenities include a pool, laundry facility and
shuffleboard. The property was approximately 99.0 percent occupied at the
time of sale. The property was purchased for $5,000,000, which equates to
$24,876 per site.
Comparable Sale I-2, Chaparral Mobile Village, is located at 400 W.
Baseline Road, in Tempe, Arizona. This property contains 359 sites,
situated on 41.10 acres of land area. The property was in average
condition at the time of sale and was developed in 1971. Amenities
includes a pool. The property was 100.0 percent occupied at the time of
sale. The property was purchased for $7,800,000, which equates to $21,727
per site.
Comparable Sale I-3, Casa del Sol I Resort, is located at 11411 N. 91st
Avenue, in Peoria, Arizona. This property contains 246 sites, situated on
30.886 acres of land area. The property was in good condition at the time
of sale and was developed in 1972. Amenities include a clubhouse, pool,
spa, saunas, library, activity center, billiard room, exercise room,
shuffleboards, golf course and laundry facility. The property was
approximately 99.0 percent occupied at the time of sale. The property was
purchased for $8,610,000, which equates to $35,000 per site.
Comparable Sale I-4, Casa del Sol II Resort, is located at 10960 N. 67th
Avenue, in Peoria, Arizona. This property contains 239 sites, situated on
28.872 acres of land area. The property was in good condition at the time
of sale and was developed in 1977. Amenities include a clubhouse, pool,
spa, saunas, library, billiard room, exercise room, golf course, laundry
facility and recreational vehicle storage. The property was approximately
99.0 percent occupied at the
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<CAPTION>
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SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
====================================================================================================================================
Sales Price
Per Site
Sales Date Land Area Density Occupancy EGIM
Comp. Name ----------- --------- --------- ----------- ----
No. Location Sales Price No. Sites Condition At Sale $NOI/Site OAR
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
I-1 Mesa Village 1/97 18.36 10.95 $24,876 N/A N/A
2701 E. Allred Avenue ---- ----- ----- -------
Mesa, Arizona $5,000,000 201 Good 99%
- ------------------------------------------------------------------------------------------------------------------------------------
I-2 Chaparral Mobile Village 12/96 41.10 8.73 $21,727 N/A N/A
400 W. Baseline Road ----- ------ ----- -------
Tempe, Arizona $7,800,000 359 Average 100%
- ------------------------------------------------------------------------------------------------------------------------------------
I-3 Casa del Sol I Resort 10/96 30.886 7.96 $35,000 $2,642 9.16x
11411 N. 91st Avenue ----- ------ ----- ------- -----
Peoria, Arizona $8,610,000 246 Good 99% 7.55%
- ------------------------------------------------------------------------------------------------------------------------------------
I-4 Casa del Sol II Resort 10/96 28.872 8.28 $35,021 $3,096 8.13x
10960 N. 67th Avenue ----- ------ ----- ------- -----
Peoria, Arizona $8,370,000 239 Good 99% 8.84%
- ------------------------------------------------------------------------------------------------------------------------------------
I-5 Brentwood Southern 4/96 60.06 5.75 $30,551 $2,520 8.49x
8103 E. Southern Ave. ----- ------ ----- ------- -----
Mesa, Arizona $10,540,000 345 Good 100% 8.25%
- ------------------------------------------------------------------------------------------------------------------------------------
I-6 Sunrise Heights 2/94 28.0 7.14 $20,000 $1,680 7.38x
17801 N. 16th Street ----- ------ ----- ------- -----
Phoenix, Arizona $4,000,000 200 Good 95% 8.40%
- ------------------------------------------------------------------------------------------------------------------------------------
Subject The Meadows - - - 60.352 6.48 - - - $2,714 N/A
2401 W. Southern Ave. ------ -----
Tempe, Arizona 391 Good 98%
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<CAPTION>
=============================================================================================================
$EGI/Site
---------
$Expense/Site
-------------
Comp. Name Expense Ratio Comparability to
No. Location % Of EGI the Subject Comments
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
I-1 Mesa Village N/A Inferior Developed in 1964;
2701 E. Allred Avenue Good condition; Amenities
Mesa, Arizona include: pool, laundry facility
and shuffleboard.
- -------------------------------------------------------------------------------------------------------------
I-2 Chaparral Mobile Village N/A Inferior Developed in 1971; Average
400 W. Baseline Road condition; Amenities includes a
Tempe, Arizona pool.
- -------------------------------------------------------------------------------------------------------------
I-3 Casa del Sol I Resort $3,821 Similar Developed in 1972; Good
11411 N. 91st Avenue ------ condition; Amenities include a
Peoria, Arizona $1,179 clubhouse, pool, spa, saunas,
------ library, activity center,
30.86% billiard room, exercise room,
shuffleboards, golf course and
laundry facility.
- -------------------------------------------------------------------------------------------------------------
I-4 Casa del Sol II Resort $4,310 Similar Developed in 1977; Good
10960 N. 67th Avenue ------ condition; Amenities include:
Peoria, Arizona $1,213 clubhouse, pool, spa, saunas,
------ library, billiard room, exercise
28.14% room, golf course, laundry
facility and RV storage.
- -------------------------------------------------------------------------------------------------------------
I-5 Brentwood Southern $3,600 Similar Developed in 1983;
8103 E. Southern Ave. ------ Good condition; Amenities
Mesa, Arizona $1,080 include: clubhouse, two pools,
------ two spas, exercise room, billiard
30.0% room, craft room, shuffleboard,
laundry facility and RV storage.
- -------------------------------------------------------------------------------------------------------------
I-6 Sunrise Heights $2,710 Inferior Developed in 1981; Good
17801 N. 16th Street ------ condition; Amenities include:
Phoenix, Arizona $1,030 clubhouse, pool, spa and tennis
------ court.
38.01%
- -------------------------------------------------------------------------------------------------------------
Subject The Meadows $4,393 Subject Property Developed in 1971; Good
2401 W. Southern Ave. ------ condition; Amenities include:
Tempe, Arizona $1,680 clubhouse, pool, spa, billiard
------ room, craft room, exercise room,
38.24% shuffleboard, laundry facility
and RV storage.
=============================================================================================================
</TABLE>
<PAGE>
Market Analysis
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time of sale. The property was purchased for $8,370,000, which equates to
$35,021 per site.
Comparable Sale I-5, Brentwood Southern, is located at 8103 E. Southern
Avenue, in Mesa, Arizona. This property contains 345 sites, situated on
60.06 acres of land area. The property was in good condition at the time
of sale and was developed in 1983. Amenities include a clubhouse, two
pools, two spas, horseshoes and shuffleboard. The property was 100.0
percent occupied at the time of sale. The property was purchased for
$10,540,000, which equates to $30,551 per site.
Comparable Sale I-6, Sunrise Heights, is located at 17801 N. 16th Street,
in Phoenix, Arizona. This property contains 200 sites, situated on 28.0
acres of land area. The property was in good condition at the time of sale
and was developed in 1981. Amenities include a clubhouse, pool, spa and
tennis court. The property was approximately 95.0 percent occupied at the
time of sale. The property was purchased for $4,000,000, which equates to
$20,000 per site.
It should be noted that comparability does not imply an identical or exact
duplicate, but rather the possession of a similar utility and affected by
similar supply and demand forces. Also, relative to the subject property,
differences include: time or date of the transactions; location, which
encompasses differences in accessibility; site characteristics, including
differences in size, topography, access, exposure and development capacities;
and improvement characteristics, which include differences in age, quality,
condition, size and amenities.
Demographic Trends
Based on information provided by National Decision Systems (NDS), the
populations within the subject's primary 5-mile and secondary 10-mile market
areas, as of 1997, are 243,992 and 904,795, respectively. The populations of the
subject's primary and secondary market areas are projected to increase to
277,548 and 1,007,151, respectively, by the year 2002.
According to NDS, the total number of households within the subject's
primary and secondary market areas, are 98,437 and 356,999, respectively, for
1997. The number of households within the subject's primary 5-mile and secondary
10-mile market areas are projected to increase to 114,104 and 404,460,
respectively, by the year 2002.
The average household income levels within the subject's primary and
secondary market areas, for 1997, are $54,964 and $56,152, respectively. The
median household income levels within the subject's primary and secondary market
areas, for 1997, are $39,745
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Market Analysis
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and $38,723, respectively. Per capita income within the subject's primary and
secondary market areas, for 1997, are $22,297 and $22,258, respectively.
Based on the above levels, the demographics of the subject's primary
market area appear to indicate a positive growth trend, based on information
provided by NDS. For additional demographic information, please refer to the NDS
summary report in the Addenda of this report.
Expense Analysis
Expenses exhibited by manufactured housing communities nationally are
typically 35.0 to 45.0 percent of effective gross income. However, expense
ratios of manufactured housing communities located in the southeast and
southwest regions of the nation are typically lower by comparison, due to lower
real estate taxes and common area maintenance charges.
As presented in the Summary of Manufactured Housing Communities Sales,
operating expense ratios of competing parks range from 28.14 to 38.01 percent of
effective gross income levels, and $1,030 to $1,213 on a per site basis. The
subject property is currently reporting expenses, for the 12-month trailing
period of 1997, at 38.24 percent of effective gross income and $1,680 on a per
site basis. The operating expenses of the subject property are above the range
of comparable properties on a percentage of effective gross income and on a per
site basis.
Market Supply and Demand
There are a total of seven competing manufactured housing communities
located within the subject's market, which total 2,801 sites, with a
corresponding average occupancy rate of 97.0 percent. No specific absorption
statistics were available. The subject property, based on conversations with
management, has historically had occupancy rates consistent with competing
parks, and is currently 98.0 percent occupied. We believe the current occupancy
rate of the subject property is stabilized, and has similar occupancy rates of
competing parks presently presented. Based on the subject's current occupancy
rate and occupancy rates at competing parks, demand appears to be strong, with
steady rental rate increases expected.
Conclusion
Historically, the subject's primary market has sustained occupancy levels
of 95.0 to 100 percent. Rental rates of similar manufactured housing communities
located within the subject's primary market generally range from $280.00 to
$396.29 per site, on a monthly basis. The subject property is currently quoting,
and is currently achieving (based on the most
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Market Analysis
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recent rent roll provided), monthly rental rates within to slightly above the
range of competing parks, or at $330.74 to $396.29 per site.
Based on our research, steady increases in rental rates are anticipated,
based on actual historical performance of competing parks and historical
increases seen at the subject property. Sales transactions of manufactured
housing communities located within the subject's region range from $20,000 to
$35,021 per site, with corresponding overall rates ranging from 7.55 to 8.84
percent. In our opinion, the subject property competes favorably with its
competition regarding amenities, condition, rent structure and overall market
rating.
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SITE PLAN
[GRAPHIC OMITTED]
<PAGE>
PROPERTY DESCRIPTION
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Site Description
The subject site is located along the south side of West Southern Avenue,
approximately one mile east of Phoenix and just west of Interstate 10/U.S.
Highway 60, in Tempe, Maricopa County, Arizona. The subject site is irregular in
shape and contains approximately 60.352 acres, or 2,628,933.12 square feet of
land area. Topographically, the site is basically level and at street grade.
Sewer and water are provided by the city, while natural gas is supplied by
Southwest Gas Corporation, electricity by Arizona Public Service and telephone
by U.S. West Communications. Primary access to the subject site is available
from West Southern Avenue. Reported by the City of Tempe Engineering Department,
the subject property is located in Zone X, minimal flood hazard area, as stated
on the Flood Insurance Rate Map, Community Panel No. 2165S-040054, dated
September 30, 1995.
The streets within the park have two-lanes, with concrete curbs. Overall,
the subject site is typical of the area and is functionally well suited for its
current use.
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.
Improvements Description
The subject property was originally developed in 1971. The subject
improvements consist of a 391-site manufactured housing community, with a
community center, swimming pool, spa, billiard room, craft room, exercise room,
shuffleboards, laundry facility and recreational vehicle storage. Of the 391
total sites, 132 sites are single-wide, while the remaining 259 sites are
double-wide.
The community center consists of a manager's office, restroom facilities,
open-space available for resident use, billiard room and a fully equipped
kitchen area. The exterior of the one-story community center appeared to be in
overall good condition at the time of inspection.
The swimming pool is located adjacent to the community center, and the spa
is indoors. Off-street parking is available for each resident. Site improvements
within the park include: paved streets, street lighting and signage. Overall,
the site improvements appeared to be in
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Property Description
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good condition at the time of inspection.
The Meadows is a functional manufactured housing community with good
ingress and egress along West Southern Avenue. Overall, the subject community
appears to be well maintained and is in good condition. The Meadows is a
functional manufactured housing community and competes favorably with other
existing manufactured housing communities in the area in terms of appearance and
amenities. The subject property would fit the profile of a Five Star Park, as
defined in the National Overview section of this report.
Real Property Taxes and Assessments
Assessed value of commercial property in Maricopa County is assessed at
25.0 percent of the Assessor's opinion of market value. The subject property is
identified by tax parcel number 123-27-007G 7
The total amount of real estate taxes for 1996 payable in 1997 for the
subject property amounts to $69,039.44. The total amount of real estate taxes
for 1996 payable in 1997 equates to approximately $176.57 per site.
Zoning
According to the City of Tempe zoning officials, the subject property is
currently zoned RMH, Residential Mobile Home. The subject property is a legal
and conforming use for this zoned district.
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Property Description
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Conclusion
o The subject property, The Meadows, is a functional manufactured
housing community, which competes favorably in relation to its
competition;
o Comparable manufactured housing communities located within the
subject's market range in monthly rental rates per site from $280.00
to $369.00;
o The subject property is currently quoting, and is currently
achieving (based on the most recent rent roll provided) a monthly
rental rate ranging from $330.74 to $396.29 per site, which is
within the range of competing parks;
o Sale transactions of manufactured housings located within the
subject's region range in unit sales prices per site from $20,000 to
$35,021, with corresponding overall rates ranging from 7.55 to 8.84
percent;
o Operating expenses are within industry standards for a park located
in the southwestern region of the country;
o The subject park appears to be operating at economic levels based on
our review of historical and budgeted 1998 income and expenses;
o The demographic characteristics of the area appear to be positive;
o The population profile of the subject property is 100 percent adult;
o The current occupancy rate at the subject property of 98.0 percent
is evident by a strong local market and demand;
o No significant manufactured housing communities are expected to be
developed in the near future;
o In our opinion, based on Woodall's criteria, the subject property is
a Five Star Park, and the reader's attention is directed to the
corresponding definition and criteria of a Five Star Park, presented
in the National Overview section of this report; and,
o Based on the subject's location, demographic, economic, market and
physical characteristics, we believe The Meadows will continue to be
a viable manufactured housing community in the foreseeable future,
and is well positioned in the marketplace.
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ASSUMPTIONS AND LIMITING CONDITIONS
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"Report" means the consulting report to which these Assumptions and Limiting
Conditions are annexed.
"Property" means the subject of the Report.
"C&W" means Cushman & Wakefield, Inc. or its subsidiary which issued the Report.
"Appraiser(s)" means the employee(s) of C&W who prepared and signed the Report.
This report is made subject to the following assumptions and limiting
conditions:
1 No responsibility is assumed for the legal description or for any matters
which are legal in nature. 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 Report or upon which the Report 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 Appraisers nor C&W shall be responsible for the
accuracy or completeness of such information, including the correctness of
estimates, opinions, dimensions, sketches, exhibits, and other factual
matters.
3 The information is effective as of the date stated in the Report. Changes
since that date in external and market factors or in the property itself
can significantly affect our analysis.
4 The report is to be used in whole and not in part. No part of the Report
shall be used in conjunction with any other report. Possession of the
Report, or a copy thereof, does not carry with it the right of
publication. Publication of the Report or any portion thereof without the
prior written consent of C&W is prohibited. Except as may be otherwise
expressly stated in the letter of engagement to prepare the Report, C&W
does not permit use of the Report by any person other than the party to
whom it is addressed or for purposes other than those for which it was
prepared. If written permission is given by C&W to use the Report, the
Report must be used in its entirety and only with proper written
qualification as approved by C&W. No part of the Report or the identity of
the Appraiser shall be conveyed to the public through advertising, public
relations, news, sales, or other media or used in any material without
C&W's prior written consent. Reference to the Appraisal Institute or to
the MAI designation is prohibited.
5 The Appraiser shall not be required to give testimony in any court or
administrative proceedings relating to the Property or the Report.
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Assumptions and Limiting Conditions
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6 The Report 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 Report; 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 Report is based.
7 The physical condition of the improvements considered by the Report is
based on visual inspection by the Appraiser or other person identified in
the Report. C&W assumes no responsibility for the soundness of structural
members nor for the condition of mechanical equipment, plumbing, or
electrical components.
8 Unless otherwise stated in the Report, the existence of potentially
hazardous or toxic materials which may have been used in the construction
or maintenance or operation of the improvements or may be located at or
about the Property was not considered in the Report. These materials (such
as formaldehyde foam insulation, asbestos insulation, various soil
contaminants, and other potentially hazardous materials) may affect the
value of the Property. The Appraisers are not qualified to detect such
substances, and C&W urges that an expert in this field be employed to
determine the economic impact of these matters, if any, on the property in
the Report.
9 Unless otherwise stated in the Report, compliance with the requirements of
the Americans With Disabilities Act of 1990 (ADA) has not been considered
in the Report. Failure to comply with the requirements of the ADA may
negatively affect the value of the property. C&W recommends that an expert
in this field be employed.
10 If the Report is submitted to a lender or investor with the prior approval
of C&W, such party should consider the Report as one factor, together with
its independent investment considerations and underwriting criteria, in
its overall investment decision.
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CERTIFICATION
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We certify that, to the best of our knowledge and belief:
1 Jody L. Garbisch inspected the property, and Michael J. Schaeffer and
Stanley R. Dennis, Jr., MAI, have reviewed and approved the report, but
did not inspect 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 on an action or event (such as the
approval of a loan) resulting from the analyses, opinions, or conclusions
in, or the use of, this report.
6 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 Ethics and Standards of Professional Practice of the Appraisal
Institute.
7 No one provided significant professional assistance to the persons signing
this 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 As of the date of this report, Stanley R. Dennis, Jr., MAI, has completed
the requirements of the continuing education program of the Appraisal
Institute.
/s/ Michael J. Schaeffer /s/ Jody L. Garbisch /s/ Stanley R. Dennis, Jr.
Michael J. Schaeffer Jody L. Garbisch Stanley R. Dennis, Jr., MAI
Director Associate Appraiser Director, Manager
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<PAGE>
ADDENDA
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POP-FACT SHEETS
LEGAL DESCRIPTION
QUALIFICATIONS OF APPRAISERS
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POP-FACT SHEETS
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<PAGE>
Mon Nov 24, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP FACTS: SUMMARY REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6511
PREPARED FOR
Cushman & Wakefield
W. Southern Avenue & Interstate 10
Tempe, Arizona COORD: 33:23.58 111:58.02
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
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POPULATION
2002 PROJECTION 277,548 1,007,151
1997 ESTIMATE 243,992 904,795
1990 CENSUS 210,529 787,914
1980 CENSUS 159,178 616,999
GROWTH 1980 - 1990 32.26% 27.70%
HOUSEHOLDS
2002 PROJECTION 114,104 404,460
1997 ESTIMATE 98,437 356,999
1990 CENSUS 80,044 301,036
1980 CENSUS 54,721 228,551
GROWTH 1980 - 1990 46.28% 31.72%
1997 ESTIMATED POPULATION BY RACE 243,992 904,795
WHITE 76.78% 78.07%
BLACK 8.07% 5.37%
ASIAN & PACIFIC ISLANDER 4.14% 2.71%
OTHER RACES 11.01% 13.85%
1997 ESTIMATED POPULATION 243,992 904,795
HISPANIC ORIGIN 19.14% 23.18%
OCCUPIED UNITS 80,044 301,036
OWNER OCCUPIED 53.17% 51.04%
RENTER OCCUPIED 46.83% 45.96%
1990 AVERAGE PERSON PER HH 2.56 2.56
1997 ESTIMATED HH BY INCOME 98,437 356,999
$150,000 + 3.88% 4.57%
$100,000 TO $149,999 5.48% 5.40%
$ 75,000 TO $ 99,999 8.57% 7.93%
$ 50,000 TO $ 74,999 19.97% 19.11%
$ 35,000 TO $ 49,999 17.69% 17.27%
$ 25,000 TO $ 34,999 12.66% 13.16%
$ 15,000 TO $ 24,999 13.98% 14.72%
$ 5,000 TO $ 14,999 12.77% 13.11%
UNDER $ 5,000 5.00% 4.73%
1997 EST. AVERAGE HH INCOME $54,964 $56,152
1997 EST. MEDIAN HH INCOME $39,745 $38,723
1997 EST. PER CAPITA INCOME $22,297 $22,258
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LEGAL DESCRIPTION
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<PAGE>
LEGAL DESCRIPTION
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LEGAL DESCRIPTION
Escrow/Title No. 9319199 08
A parcel of land in the North half of Section 32, Township 1 North, Range 4 East
of the Gila and Salt River Base and Meridian, Maricopa County, Arizona, more
particularly described as follows:
COMMENCING at a point in the North Line of said North half of Section 32 that
bears North 89 degrees 37 minutes 00 seconds East, 1590.85 feet from the
Northwest corner thereof, said point also being in the centerline of Southern
Avenue;
Thence South 0 degrees 23 minutes 00 seconds East, 55.00 feet to a point on the
South line of the North 56 feet of said Section 32, and the point of beginning
of this description;
Thence North 89 degrees 37 minutes 00 seconds East along said South line,
parallel to said North line of the North half of Section 32, a distance of
841.97 feet to the Westerly line of the parcel condemned by the State of Arizona
in Docket 6675, page 966, records of Maricopa County, Arizona;
Thence along said Westerly line of the following courses: South 0 degrees 23
minutes 00 seconds East (0 degrees 22 minutes 35 seconds East, recorded), a
distance of 65.00 feet;
Thence North 89 degrees 37 minutes 00 seconds East, a distance of 480.23 feet
(480.0 feet recorded);
Thence South 0 degrees 18 minutes 02 seconds East, a distance of 87.22 feet
(South 0 degrees 23 minutes 00 seconds East, a distance of 87.11 feet recorded);
Thence South 31 degrees 11 minutes 14 seconds West, 81.19 feet (South 31 degrees
13 minutes 00 seconds West, 81.29 feet recorded); to the beginning of a tangent
curve, concave Southeasterly, having a radius of 958.69 feet (957.51 feet
recorded);
Thence Southwesterly along said curve through a central angle of 33 degrees 25
minutes 25 seconds (33 degrees 30 minutes 51 seconds recorded), an arc distance
of 559.25 feet (559.34 feet recorded);
Thence South 2 degrees 14 minutes 11 seconds East (2 degrees 17 minutes 07
seconds East recorded) tangent to last said curve a distance of 220.80 feet
(220.76 feet recorded) to a point in a non-tangent curve concave Northeasterly,
having a radius of 1089.56 feet (982.51 feet recorded), a radial of which said
curve through said point bears South 73 degrees 31 minutes 33 seconds West;
Thence Southeasterly along said curve through a central angle of 23 degrees 23
minutes 02 seconds an arc distance of 444.68 feet (445.33 feet recorded);
Thence South 39 degrees 51 minutes 29 seconds East (South 39 degrees 50 minutes
24 seconds East recorded) tangent to last said curve a distance of 229.34 feet
(229.51 feet recorded);
Thence South 1 degrees 10 minutes 27 seconds West, a distance of 289.97 feet
(South 1 degrees 13 minutes 00 seconds West 290.0 feet recorded);
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LEGAL DESCRIPTION
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LEGAL DESCRIPTION
Escrow/Title No. 9319199 08
Thence South 39 degrees 50 minutes 02 seconds West (South 39 degrees 52 minutes
35 seconds West recorded), a distance of 64.03 feet more or less to the North
toe of slope of the North Bank of the Western Canal;
Thence Westerly, along the North toe of slope being a curve to the left with a
radius of 8639.37 feet to a point on the East line of the Northwest quarter of
said Section 32 from which the Northeast corner of the South half of the
Northwest quarter of said Section 32 bears North 0 degrees 30 minutes East, a
distance of 606.00 feet;
Thence continuing Westerly along the North toe of slope being a curve to the
left, with a radius of 8639.37 feet a distance of 202.51 feet;
Thence South 87 degrees 34 minutes 05 seconds West (South 87 degrees 34 minutes
00 seconds West, recorded), a distance of 612.40 feet to a point in a
non-tangent curve; concave Southerly, having a radius of 5774.58 feet a radial
of which said curve through said point bears North 2 degrees 15 minutes 55
seconds West;
Thence Westerly along said curve through a central angle of 4 degrees 34 minutes
13 seconds an arc distance of 460.62 feet to a point through which a radial of
said curve bears North 6 degrees 50 minutes 08 seconds West said point being the
intersection of said curve with a curve concave Easterly having a radius of
3235.00 feet, a radial of which last said curve through said point of
intersection bears South 84 degrees 50 minutes 57 seconds West;
Thence Northerly along last said curve leaving said North toe of slope of the
North bank of the Western Canal, through a central angle of 11 degrees 10
minutes 04 seconds an arc distance of 630.55;
Thence North 6 degrees 01 minutes 01 seconds East tangent to last said curve, a
distance of 150.00 feet to the beginning of a tangent curve concave
Southeasterly having a radius of 1155.00 feet;
Thence Northeasterly, along said curve through a central angle of 16 degrees 00
minutes 00 seconds an arc distance of 322.54 feet;
Thence North 22 degrees 01 minutes 01 seconds East, tangent to last said curve a
distance of 90.00 feet to the beginning of a tangent curve, concave
Northwesterly, having a radius of 1035.00 feet;
Thence Northeasterly, along said curve through a central angle of 22 degrees 24
minutes 01 seconds an arc distance of 404.64 feet;
Thence North 0 degrees 23 minutes 00 seconds West, tangent to last said curve, a
distance of 371.32 feet to the point of beginning.
EXCEPT therefrom all property lying east of the following described line:
COMMENCING at the North quarter corner of said Section 32;
Thence along the North-South midsection line, South 0 degrees 42 minutes 59
seconds
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LEGAL DESCRIPTION
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LEGAL DESCRIPTION
Escrow/Title No. 9319199 08
West, a distance of 120.02 feet to the existing South right of way line of
Southern Avenue, coincident with the North line of the above described property;
Thence along said coincident line, North 89 degrees 37 minutes 00 seconds East,
a distance of 19.14 feet to the point of beginning;
Thence South 21 degrees 38 minutes 30 seconds West, a distance of 420.67 feet;
Thence South 60 degrees 19 minutes 10 seconds West, a distance of 38.70 feet;
Thence from a local tangent bearing of North 11 degrees 35 minutes 41 seconds
East, along a curve to the left, having a radius of 1204.11 feet, a length of
290.11 feet;
Thence South 2 degrees 12 minutes 33 seconds East, a distance of 175.12 feet;
Thence along a curve to the left having a radius of 580.00 feet, a length of
173.34 feet to a point of compound curve;
Thence along said compound curve, having a radius of 1335.00 feet, a length of
369.20 feet to a point of reverse curve;
Thence from a local tangent bearing of South 35 degrees [ILLEGIBLE] minutes 42
seconds East, along said reverse curve, having a radius of 1020.00 feet, a
length of 90.57 feet;
Thence South 30 degrees 05 minutes 26 seconds East, a distance of 169.55 feet;
Thence from a local tangent bearing of South 6 degrees 02 minutes 46 seconds
West along a curve to the left having a radius of 1178.92 feet, a length of
321.56 feet to the point of ending on the South toe of slope of the Western
Canal;
AND EXCEPT therefrom any portion lying within the right of way of the Western
Canal.
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QUALIFICATIONS OF APPRAISERS
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<PAGE>
STATEMENT OF QUALIFICATIONS
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JODY L. GARBISCH
Education
Bachelor of Science Degree in Finance, concentration in Real Estate, from the
College of Commerce and Business Administration at the University of Illinois,
Urbana-Champaign, Illinois, 1997.
Real Estate Education
The following courses have been completed through the Real Estate Program at the
University of Illinois at Urbana-Champaign:
Urban Real Estate Valuation
Urban Economics
Real Estate Financial Markets
Real Estate Investments
Real Estate Law
Real Estate Fundamentals
Current Position
Associate Appraiser, Cushman & Wakefield of Illinois, Inc., Valuation Advisory
Services.
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
MICHAEL J. SCHAEFFER
Real Estate Experience
Mr. Schaeffer has been active in the appraisal of real estate since 1983.
Appraisal experience includes the valuation of income-producing real estate in
the Chicago area as well as many major cities and small towns throughout the
Midwest. The types of properties appraised include office buildings, regional
malls, shopping centers, country clubs, apartment complexes, subsidized housing
units, industrial buildings, nursing homes, retirement communities, automotive
dealerships, department stores, vacant land, proposed income-producing
properties, and various special purpose properties. Mr. Schaeffer also has had
over 10 years of experience in new construction and renovation of commercial,
industrial, residential and specialized real estate properties.
Education
Bachelor of Arts, University of Cincinnati, Cincinnati, Ohio MBA Graduate Course
Work in Economics and Management, Xavier University, Cincinnati, Ohio
Real Estate Education
The following courses sponsored by the Appraisal Institute have been
successfully completed:
Real Estate Appraisal Principles 1A-1
Basic Valuation Procedures 1A-2
Standards of Professional Practice
Capitalization Theory and Techniques 1BA
Capitalization Theory and Techniques IBB
Advanced Applications 550
Report Writing & Valuation Analysis 540
Mr. Schaeffer has also attended numerous lectures and seminars sponsored by the
Appraisal Institute.
Mr. Schaeffer is currently a candidate for the MAI designation of the Appraisal
Institute, and has completed the educational and experience requirements for the
MAI designation.
Current Position
Director, Appraisal Services, Cushman & Wakefield, Inc., Chicago, Illinois
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
STANLEY R. DENNIS, JR., MAI
Real Estate Experience
Director, Manager, Cushman & Wakefield Valuation Advisory Services, Chicago,
Illinois. Division is responsible for the appraisal and consultation function of
Cushman & Wakefield, Inc., a national full service real estate organization,
1989.
Vice President, Manager, Cushman & Wakefield Appraisal Services, Portland,
Oregon, 1983.
Principal, Stanley R. Dennis & Associates, Portland, Oregon, 1982.
Education
Portland State University, Portland, Oregon
Bachelor of Science Degree, 1977, Finance and Real Estate
Appraisal Institute
Course I-A Fundamentals and Principles of Real Estate Appraisal
Course I-B Capitalization Theory and Techniques
Course II-I Case Studies in Real Estate Valuation
Course II-2 Valuation Analysis and Report Writing
Course II-3 Standards of Professional Practice
Course IV Litigation/Condemnation Valuation
Course VI Investment Analysis
Course VIII Residential Case Studies
Course X Market Analysis
Seminar Feasibility Analysis and Highest and Best Use
Seminar Discounted Cash Flow Analysis
Seminar Cash Equivalency
Seminar Subdivision Analysis
Seminar Rates, Ratios and Reasonableness
Professional Affiliations
American Institute of Real Estate Appraisers, Member (Designation #6754)
Building Owners and Managers Association (BOMA)
National Association of Corporate Real Estate Executives (NACORE)
<PAGE>
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MARKET STUDY OF REAL PROPERTY
Windmill Village North
4000 North Tuttle Avenue
Sarasota County, Florida
================================================================================
As of December 4, 1997
Prepared For:
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Prepared By:
Cushman & Wakefield of Illinois, Inc.
Valuation Advisory Services
455 North Cityfront Plaza Drive, Suite 2800
Chicago, Illinois 60611-5555
CUSHMAN &
WAKEFIELD(R)
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<PAGE>
[Letterhead of Cushman & Wakefield of Illinois, Inc.]
December 15, 1997
Mr. Edward J. Welch
Director
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Re: Market Study of Real Property
Windmill Village North
4000 North Tuttle Avenue
Sarasota County, Florida 34234
Dear Mr. Welch:
In fulfillment of our agreement as outlined in the Letter of Engagement,
Cushman & Wakefield of Illinois, Inc., is pleased to transmit our market study
and consulting report evaluating the above referenced real property.
As specified in the Letter of Engagement, our market study and consulting
report is qualified by certain assumptions, limiting conditions, certifications,
and definitions, which are set forth in the report.
This consulting report was prepared for the Client, and it is intended
only for the specified use of the Client. It may not be distributed to or relied
upon by other persons or entities without written permission of Cushman &
Wakefield, Inc.
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the above
referenced real property, as of the date of our property inspection. The
function of the report is to assist the client, in evaluating the property for
underwriting and rating purposes.
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
Mr. Edward J. Welch -2- December 15, 1997
This market study and consulting report was prepared in conformity with
the requirements of the Code of Ethics and Standards of Professional Appraisal
Practice of the Appraisal Institute and the Uniform Standards of Professional
Practice (USPAP) adopted by the Appraisal Standards Board of the Appraisal
Foundation.
This letter is invalid if detached from the report, which contains the
text, exhibits, and the Addenda.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF ILLINOIS, INC.
/s/ Jennifer L. Estrella
Jennifer L. Estrella
Associate Appraiser
/s/ Michael J. Schaeffer
Michael J. Schaeffer
Director
/s/ Stanley R. Dennis, Jr., MAI
Stanley R. Dennis, Jr., MAI
Director, Manager
<PAGE>
SUMMARY OF SALIENT FACTS
================================================================================
Property Name: Windmill Village North
Location: 4000 North Tuttle Avenue
Sarasota County, Florida
Assessor's Parcel Number: Based on information provided by the
client, the subject property is
identified by Assessor's Parcel Number
29040026.
Date of Inspection: The property was inspected December 4,
1997.
Ownership: The subject property is legally
entitled to Orangeland Vistas, an
Illinois Corporation, and MHC
Financing Limited Partnership, as
beneficiary.
Land Area: Based on information provided by the
property's legal plat of survey, the
subject property contains
approximately 74.14 acres of land
area, or 3,229,538 square feet.
Zoning: Based on information provided by the
Sarasota County Planning Department,
the subject property is zoned RMH,
Residential Mobile Home. The subject
property is a legal but,
non-conforming use.
Improvements
Type: A manufactured housing community.
Year Built: The subject property was originally
developed in approximately 1968.
Size: The subject property consists of a
471-site manufactured housing
community.
Condition: At the time of inspection, the subject
property was in good condition.
Property Rating: Five Star manufactured home community.
Special Assumptions: 1. Information regarding the subject
property, including its physical
characteristics, was provided to us by
the client and the on-site manager,
and is assumed to be accurate.
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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Summary of Salient Facts
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2. The existence of potentially hazardous or
toxic materials, which may be located on or
about the property, was not considered in
our evaluation. The appraisers are not
qualified to detect such substances, and
Cushman & Wakefield urges that an expert in
this field be employed to determine the
existence, if any, of hazardous materials
located on or about the site.
3. Our market and consulting report
regarding the subject assumes the subject
property, as presently improved, represents
its highest and best use.
4. It is unknown to the appraiser if the
subject property complies with the Americans
with Disabilities Act (ADA). We recommend a
qualified specialist in the final
determination regarding any ADA compliance
deficiencies that may be present at the
subject property.
5. Please refer to the complete list of
assumptions and limiting conditions included
at the end of this report.
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
TABLE OF CONTENTS
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Page
PHOTOGRAPHS OF SUBJECT PROPERTY...........................................1
INTRODUCTION..............................................................5
Identification of Property..............................................5
Property Ownership and Recent History...................................5
Purpose and Function of the Market Study and Consulting Assignment......5
Scope of the Market Study and Consulting Assignment.....................5
Date of Property Inspection.............................................5
Definitions and Other Pertinent Terms...................................5
REGIONAL ANALYSIS.........................................................8
NEIGHBORHOOD ANALYSIS....................................................11
MARKET ANALYSIS..........................................................12
National Overview......................................................12
Competition............................................................19
Comparable Manufactured Housing Community Sales........................23
Demographic Trends.....................................................26
Expense Analysis.......................................................26
Market Supply and Demand...............................................27
Conclusion.............................................................27
PROPERTY DESCRIPTION.....................................................29
Site Description.......................................................29
Improvements Description...............................................29
REAL PROPERTY TAXES AND ASSESSMENTS......................................30
ZONING...................................................................30
CONCLUSION...............................................................31
ASSUMPTIONS AND LIMITING CONDITIONS......................................32
CERTIFICATION............................................................34
ADDENDA..................................................................35
Pop-Fact Sheets
Legal Description
Qualifications of Appraisers
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PHOTOGRAPHS OF SUBJECT PROPERTY
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Front Entrance of the Subject Property
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Exterior View of the Clubhouse
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Photographs of Subject Property
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Interior View of the Clubhouse
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View of the Pool at the Subject Property
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Photographs of Subject Property
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Typical Interior View of the Subject Park
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Typical Interior View of the Subject Park
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Photographs of Subject Property
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Street Scene Facing North Along Tuttle Avenue
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Street Scene Facing South Along Tuttle Avenue
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INTRODUCTION
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Identification of Property
The subject property consists of a 471-site manufactured housing
community, situated on approximately 74.14 acres of land area, located on the
east side of Tuttle Road, just north of 27th Street, in Sarasota County,
Florida. The property's street address is 4000 North Tuttle Avenue. The property
was constructed in 1968, and was 100.0 percent occupied at the time of
inspection.
Property Ownership and Recent History
The subject property is currently entitled to Orangeland Vistas, an
Illinois corporation, and MHC Financing Limited Partnership, as beneficiary. The
subject property was originally developed in 1968, with 471 manufactured housing
sites.
Purpose and Function of the Market Study and Consulting Assignment
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the subject
property, as of the date of property inspection. The function of the consulting
report is to assist the client in evaluating the property for underwriting and
rating purposes.
Scope of the Market Study and Consulting Assignment
In the process of preparing this report, we inspected the property,
interviewed the on-site manager, conducted market research into asking rental
rates for comparable properties, conducted market investigations, and
ascertained sales prices of comparable properties. Additionally, we conducted
market research and evaluated demographic and economic trends; and, the market
position and rating of the subject property.
Date of Property Inspection
The property was inspected December 4, 1997.
Definitions and Other Pertinent Terms
Definitions of pertinent terms taken from the Dictionary of Real Estate
Appraisal, Third Edition (1993), published by the Appraisal Institute, is as
follows:
Market Rent
The rental income that a property would most probably command on the open
market; indicated by current rents paid and asked for comparable space as
of the date of the appraisal.
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Introduction
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Evaluation
Evaluation is a study of the nature, quality, or utility of a parcel of
real estate or interest in, or aspects of, real property, in which a value
estimate is not necessarily required.
Market Study
A macroeconomic analysis that examines the general market conditions of
supply, demand, and pricing or the demographics of demand for a specific
area or property type.
Legal Description
The subject property is located along the east side of Tuttle Avenue, in
Sarasota County, Florida. The street address of the subject property is 4000
North Tuttle Avenue. The subject property is located approximately one mile
northeast from the Sarasota city limits. The property is identified by tax
parcel number 29040026, according to information provided by the client. Due to
the lengthy metes and bounds legal description, the subject property's legal
description is presented in the Addenda of this report, and reference is made
thereto.
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LOCATION MAP
[MAP OMITTED]
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REGIONAL ANALYSIS
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The subject property is located in the Sarasota-Bradenton metropolitan
area. The Sarasota-Bradenton metropolitan area is located along the southwestern
coast of Florida. According to Sales and Marketing Management's 1997 Survey of
Buying Power, the estimated 1996 population of the Sarasota-Bradenton
metropolitan area is 547,000. The population of the cities of Bradenton and
Sarasota are 49,400 and 57,900, respectively. As the subject property is located
in Sarasota County the focus of this regional analysis is on the characteristics
of Sarasota County area.
Sarasota County
Sarasota County includes the cities of Sarasota, Venice, North Port,
Longboat Key, and the community of Englewood. Surrounding islands considered
part of Sarasota County include Longboat Key, St. Armand's Key, Lido Key, Siesta
Key, and Casey Key. Sarasota County encompasses an area of 573 square miles, and
includes 35 miles of beaches along the Gulf of Mexico. Temperatures in the
Sarasota area are generally tropical, with the average year-round temperature of
72 degrees.
There are tax advantages for individuals and businesses located in
Sarasota County. According to the Greater Sarasota Chamber of Commerce, the tax
structure is favorable with no personal income tax and a low corporate income
tax of 5.5 percent. The health care industry in Sarasota County is nationally
known, and the various beaches in the county bring a large number of tourists to
the area.
Population
The estimated 1996 population of Sarasota County is 301,000. Since 1990,
the population increased 8.36 percent, when the population was 277,776. The
historical and projected population characteristics of Sarasota County are
presented in the table below.
=============================================================================
SARASOTA COUNTY POPULATION
- -----------------------------------------------------------------------------
YEAR POPULATION % CHANGE
- -----------------------------------------------------------------------------
1980 202,251 ---
- -----------------------------------------------------------------------------
1990 277,776 37.34%
- -----------------------------------------------------------------------------
1996 301,000 8.36%
- -----------------------------------------------------------------------------
2000 331,472 10.12%
- -----------------------------------------------------------------------------
2005 357,417 7.82%
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Source: Greater Sarasota Chamber of Commerce
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As indicated above, the population of Sarasota County has consistently
increased since 1980. Population growth is expected to be positive through the
year 2005.
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Regional Analysis
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Income and Employment
As of 1994, the total Sarasota County civilian labor force was estimated
to be 129,481. The labor force including Sarasota surrounding counties was
154,625. According to the Florida Trend Economic Yearbook, analysts predict the
civilian labor force in Sarasota County will increase to 154,500 by the year
2005. The average 1996 unemployment rate was 3.1 percent. Per 1993 estimates,
the largest non-farm employing industries in the county were services and trade,
respectively. Estimated 1994 per capita personal income was $29,837. The major
employers in Sarasota County are presented in the following table.
=============================================================================
MAJOR EMPLOYERS IN SARASOTA COUNTY
- -----------------------------------------------------------------------------
COMPANY/ORGANIZATION NUMBER OF EMPLOYEES
- -----------------------------------------------------------------------------
School Board of Sarasota County 3,848
- -----------------------------------------------------------------------------
Publix Company 3,107
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Sarasota County Government 3,000
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Sarasota Memorial Hospital 2,900
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Bon Secours Venice Hospital 1,500
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Columbia Doctors Hospital 1,200
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Vinyl-Tech/PGT 800
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Winn-Dixie 750
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Sarasota Herald-Tribune 575
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Sun Hydraulics 450
- -----------------------------------------------------------------------------
Source: Greater Sarasota Chamber of Commerce
=============================================================================
As indicated above, the largest private company operating in Sarasota County is
Publix Company, a grocery store operator.
Transportation
There is only one interstate highway serving the Sarasota County area,
Interstate 75. Other major highways serving the area include U.S. Highways 41,
and 301. Major commercial airlines service the Sarasota Bradenton International
Airport, with an average number of daily flights of 90. Ten airlines service the
airport. Railroad serving the airport include Seminole Gulf, and CSX.
Summary and Conclusions
The Sarasota County area is a stable and well established area, which has
experienced steady growth in the past two decades. Population and employment in
Sarasota County is expected to grow steadily through the year 2005. In summary,
the outlook for the Sarasota region is positive.
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NEIGHBORHOOD MAP
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NEIGHBORHOOD ANALYSIS
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The subject property is situated along the east side of Tuttle Avenue,
between 27th Street and 47th Street in Sarasota County, Florida. The subject
property is located approximately one mile northeast of the City of Sarasota.
The subject's immediate neighborhood is roughly defined as Washington Boulevard
(also known as U.S. Highway 301) to the west, Lockwood Ridge Road to the east,
University Parkway to the north, and 27th Street (also known as County Highway
683) to the south. Development in the immediate neighborhood of the subject
property consists of manufactured housing communities, single-family housing,
and a golf course.
Regional access to the subject property is excellent via University
Parkway, which intersects with Tuttle Avenue and provides access to Interstate
75 South of the subject property is 27th Street which provides access to U.S.
Highway 41. U.S. Highway 41 runs north and south, along the central and southern
portion of western Florida. Major thoroughfares in the immediate neighborhood of
the subject property provide excellent access to the subject property. Major
thoroughfares in the subject's immediate neighborhood include: Lockwood Ridge
Road, Washington Boulevard, 27th Street, and University Parkway. The subject
property enjoys excellent visibility along Tuttle Avenue, which runs north and
south in the Sarasota area.
Development in the immediate neighborhood of the subject property consists
of manufactured housing communities, single-family housing, and a golf course.
Commercial development near the subject property is located primarily along
University Parkway, located north of the subject property. Windmill Village
South manufactured housing community is located directly south of the subject
property. The subject property is also conveniently located approximately two
miles southeast of the Sarasota-Bradenton International Airport.
The subject property is situated in an area well suited for manufactured
housing development. Real estate values are anticipated to increase at a steady
pace. The economy in the area is anticipated to be good. The growth in
population is anticipated to remain constant.
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MARKET ANALYSIS
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National Overview
Reportedly, the largest property owners of manufactured housing
communities in the United States are: ROC Communities, headquartered in
Colorado; MHC, Inc., headquartered in Illinois; Ellenburg Capital, headquartered
in Oregon; Lautrec Ltd., headquartered in Michigan; Clayton Homes, headquartered
in Tennessee; Clayton Williams and Sherwood, headquartered in California;
Chateau Properties, Sun Communities and UNIPROP, headquartered in Michigan.
The following represents the top ten manufactured housing community firms,
as reported by GFA Management, as of 1997.
=============================================================================
No. of
1997 No. of Sites Communities
Rank Firm Name State Owned/Managed Owned/Managed
- -----------------------------------------------------------------------------
1 Sun Communities Michigan 30,295/0 84/0
- -----------------------------------------------------------------------------
2 ROC Communities Colorado 22,441/7,167 77/36
- -----------------------------------------------------------------------------
3 Manufactured Home
Communities Illinois 27,349/838 69/3
- -----------------------------------------------------------------------------
4 Ellenburg Capital Florida 25,173/0 63/0
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5 Lautrec Ltd. Michigan 22,652/0 58/0
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6 Chateau Properties Michigan 20,003/0 47/0
- -----------------------------------------------------------------------------
7 Clayton Homes Tennessee 18,000/0 66/0
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8 Clayton, Williams and
Sherwood California 16,946/0 44/0
- -----------------------------------------------------------------------------
9 UNIPROP Michigan 14,931/0 40/0
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10 The Bloch Organization Michigan 14,379/0 37/0
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According to the U.S. Census Bureau, more than 8,521,000 people were
living in manufactured housing communities as of 1990 compared to 3,838,678 in
1980. This represents an increase in manufactured housing community living of
approximately 122.0 percent over the last ten years. Over the last ten years,
there has been a steady increase in manufactured housing community development
across the country. Among the demographic factors which account for the increase
in manufactured housing community living are: decreasing household size, a
growing demand for smaller housing, as well as an alternative to the increasing
cost of housing. Nationally, the largest percentage of manufactured housing
communities are located in California, Michigan, Colorado, Florida, New York,
Minnesota, Indiana, Arizona, Ohio, and Wisconsin.
The manufactured home industry has dramatically changed over the last 20
years. Manufactured homes are now designed and constructed to accommodate
spacious and
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Market Analysis
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attractive living requirements. Today, approximately one out of sixteen families
live in manufactured housing units. The manufactured housing market share has
been growing steadily over the last 10 years. In 1990, 6.7 percent of Americans
lived in manufactured housing units, up from 2.9 percent compared to 1970,
according to the U.S. Census Bureau, which represents 12.0 to 14.0 percent of
all new housing built since the mid-1980's, according to the Manufactured
Housing Institute in Arlington, Virginia.
In 1990, the average cost of a manufactured housing unit was $27,800
compared to $149,000 for a new house (including land), according to the
Manufactured Housing Institute. This reflects a 28.0 percent increase in the
cost of manufactured housing since 1980 versus a 49.0 percent increase in
conventional housing. Industry experts estimate that a single-family home
selling for $150,000 would require an annual income of $52,671. To purchase a
$27,800 manufactured housing unit, only a $19,984 income level would be
required.
At Fleetwood Enterprises, the nation's largest manufacturer of
manufactured housing units, units may be purchased for up to $100,000, which
would include a three-bedroom, two-bath unit of 2,100 square feet, with vaulted
ceilings.
In 1990, approximately 10.0 percent of manufactured home owners lived in
units worth approximately $40,000, up from 4.0 percent compared to 1981,
according to a study conducted by Foremost Insurance Company in Grand Rapids,
Michigan. Also, according to the study, approximately 21.0 percent of the
manufactured housing households are occupied by people' 65 years of age or
older, slightly lower than the age group for conventional homes, as reported by
Foremost Insurance.
The demand for good quality institutional grade manufactured housing
communities has substantially increased over the last ten years. Manufactured
housing communities provide an affordable alternative to the increasing cost of
housing. Also, manufactured housing communities provide an alternative form of
living for the elderly and retirees, especially for those living on fixed
incomes.
Acquisitions of manufactured housing communities during 1993 and 1994 were
clearly dominated by Real Estate Investment Trusts. During 1994 and 1995
Manufactured Home Communities (MHC) and ROC communities lead the acquisition of
manufactured housing communities nationally. During 1996, Sun Communities
captured the lead and, together with ROC and MHC dominate the Real Estate
Investment Trust market.
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Market Analysis
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The following chart represents the largest Real Estate Investment Trusts,
from 1991 to 1996, as reported by GFA Management
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HOME SITE GROWTH, DEVELOPMENT AMONG THE LARGEST
REAL ESTATE INVESTMENT TRUST (REITS)
- --------------------------------------------------------------------------------
Annual
Year ROC MHC Chateau Sun United Total Growth
- --------------------------------------------------------------------------------
1996 29,608 28,187 20,003 30,295 5,234 113,327 17.0%
- --------------------------------------------------------------------------------
1995 27,910 26,237 19,594 18,000 4,850 96,591 9.0%
- --------------------------------------------------------------------------------
1994 26,231 28,407 15,689 13,500 4,623 88,450 37.8%
- --------------------------------------------------------------------------------
1993 20,142 14,700 15,261 9,036 5,050 64,189 17.8%
- --------------------------------------------------------------------------------
1992 18,745 12,873 10,032 7,600 5,200 54,450 N/A
- --------------------------------------------------------------------------------
1991 9,030 13,079 9,759 N/R N/R N/A N/A
- --------------------------------------------------------------------------------
N/R = No report N/A = Not applicable
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NOTE: The 113,327 sites counted for the top five REITs in 1996 make up 20
percent of the total sites surveyed in the 1997 Allen Report. These rental sites
are located in 339 communities, accounting for about 1 percent of some 50,000
existing manufactured housing communities nationwide. The community counts for
the five major REITs are: ROC (113), MHC (72), Chateau (47), Sun (84) and United
(23). The proportion of communities owned by each of the REITs compared to the
others is: ROC (33%), MHC (21%), Chateau (14%), Sun (25%) and United (7%).
================================================================================
Manufactured Home Communities (MHC) is expected to continue an aggressive
acquisition campaign through 1997 and beyond. As of September 1997, the MHC REIT
had a market cap of $632.0 million, and continues to pursue the acquisition of
manufactured home communities. Aside from the ELL-CAP $300.0 million
transaction, in September 1997 Manufactured Home Communities, Inc. completed a
$107.0 million purchase of 18 manufactured housing communities and two related
commercial properties from partnerships affiliated with Mobileparks West. The
communities, with 3,505 sites, were purchased with about $3.0 million
manufactured home operating units, $16.0 million in cash and $20.0 million of
installment notes and assumed debt. The communities have an average monthly
rental of $349.00. The communities are located in California, Utah, Oregon,
Washington and Nevada. MHC may be the first manufactured home community REIT to
reach $1.0 billion.
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Market Analysis
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The MHC REIT continues to perform and expand, and as of September 1997 was
trading at $25.625, with a current yield of 5.2 percent. The top traded REITs,
are presented as follows.
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REIT MARKET UPDATE
- -----------------------------------------------------------------------------
Company Price Current 52 Week 52 Week Annual 12 Mth
Symbol (9/19/97) Yield High Low Dividend Tot Rtn
- -----------------------------------------------------------------------------
CPJ $29.688 5.8% $31.125 $22.250 1.72 26.6%
- -----------------------------------------------------------------------------
MHC $25.625 5.2% $26.428 $18.875 1.32 30.7%
- -----------------------------------------------------------------------------
SUI $37.428 5.0% $ 38.00 $27.750 1.88 31.8%
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UMH $11.625 6.0% $13.625 $10.875 0.70 -1.7%
- -----------------------------------------------------------------------------
Total return figures obtained through Standard & Poors and are for the period
through Sept 1997.
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The Southwest and Northwest Regions of the nation are the preferred
locations regarding recent and future manufactured housing community
acquisitions. However, investors seeking moderate, but consistent growth
expectations, are still looking at the midwest region. Also, southern portions
of Florida are still considered a prime area for investors seeking good quality
manufactured housing communities, with good up-side potential. What was once a
stagnant market, the northeast region is now being considered for future
acquisitions.
According to a recent study prepared by Merrill Lynch & Company, ownership
in the manufactured housing community industry is highly fragmented. The top 150
owner-operators account for less than 5.0 percent of the total industry, whereas
a host of "mom-and-pop" private companies account for the other 95.0 percent.
This unglamorous niche industry is ripe for consolidation, and an infusion of
professional management expertise is likely to yield significant economies of
scale. The four REIT's specializing in manufactured housing communities are
already among the top ten owner-operators, and are well positioned to facilitate
and hasten the industry's consolidation to the likely benefit of their
stockholders.
Manufactured homes are the fastest growing component of the nation's
housing inventory, due to their affordability, good quality design and safety
standards. According to the Merrill Lynch & Company Manufactured Housing
Community Industry Report, factory-built homes appeal especially to senior
citizens and to households with limited economic needs, two segments of the
population that are likely to grow rapidly in coming years.
Consistent returns in manufactured housing community investments have been
the mainstay of the industry. For this reason, as well as the amount of
acquisitions seen by Real Estate Investment Trusts (REITs) from 1991 to 1996,
the availability of good quality
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Market Analysis
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manufactured housing communities has been substantially reduced compared to the
1980's. Good quality manufactured housing communities still command premium
prices, thus driving down overall capitalization rates.
Cushman & Wakefield's Valuation Advisory Services has tracked sale
transactions of manufactured housing communities since 1985. Overall
capitalization rates have consistently been within the 8.75 to 10.00 percent
range for communities located in moderate to increasing growth markets, and as
low as near 8.0 percent for those communities located in growing markets that
poses significant upside potential. Overall capitalization rates are clearly
affected and are differentiated among the properties relative to rent levels,
age, quality, condition, location, amenities, demographic characteristics,
resident profile, as well as the quality of management.
Manufactured housing communities fall within, and are categorized by their
overall appearance, age, and amenities, but more importantly the strength of the
local market. The various categories of manufactured housing communities,
according to the Woodall Directory, can be ranked as 1 to 5 Star Parks These
rankings are defined as follows:
One Star Park
The most important consideration for a one star park is overall
appearance. If it is not a decent place to live, it will not be listed in
Woodall's Directory. The following are general requirements:
o Fair overall appearance;
o Patios on most lots. May be concrete, asphalt, wood, or some
suitable material;
o Grass, rock or shell to cover ground;
o Streets fair to good. May be dirt, asphalt or gravel in reasonable
condition;
o Restrooms clean, if any;
o Adequate laundry or laundromat nearby;
o If fences allowed, must be neat;
o Mail service;
o Homes may be old models, but show evidence of care; and,
o Manager available some hours of each day.
Two Star Park
In addition to the requirements for a one star park, a two star park will
have the following:
o Landscaping - some lawns and shrubs;
o Streets in good condition. Must be dust free of crushed rock, gravel
or shell minimum;
o Neat storage;
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Market Analysis
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o Well equipped laundry or laundromat nearby;
o 200 volt connections available;
o If children accepted, park should have play area;
o Park free of clutter, such as old cars and other abandoned
equipment; and,
o Well maintained and managed.
Three Star Park
What a three star park does it does well, but not as uniformly as higher
rated parks. Many three star parks were once higher rated, but original
construction does not allow for today's 10-foot, 12-foot, and double-wides
or the 55-foot and 60-foot lengths. If children are allowed, there should
be adequate play area. However, the disarray caused by children may at
times be the determining factor that keeps a three star park at that level
when it otherwise could be rated higher. In addition to the requirements
for one and two star parks, a three star park must have the following:
o Attractive entrance;
o All homes must be in good condition;
o Awnings and cabana rooms on some homes in southern areas;
o Some spaces for large mobile homes;
o Paved or hard surfaced streets;
o Off-street parking or streets wide enough for safe on-street
parking;
o Good lawns or substitute throughout, shade trees, some shrubs where
climate permits;
o Concrete patios or the equivalent on all lots;
o All lots neat and attractive;
o All park buildings in good repair; and,
o Good management.
Four Star Park
Four star parks are luxury parks. In addition to the requirements for one,
two and three star parks, a four star park must have the following:
o Good landscaping;
o Most homes skirted with metal skirts, concrete block, ornamental
wood or stone;
o Paved streets, edged or curbed.
o Uncrowded lots;
o Underground utilities if permitted by local conditions and
authorities;
o Most tanks, if present, concealed;
o Any hedges or fences must be attractive and uniform; Awnings,
cabanas, or porches on most homes in southern areas. (Excepting
double-wide units.);
o Most lots to accommodate large mobile homes;
o Where row parking of homes exists, all must be lined up uniformly;
o Community hall and/or swimming pool and/or recreation programs. If a
park is four star in all but this requirement, the fourth star will
be printed as an open star indicating a four star park without
park-centered recreation; and,
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Market Analysis
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o Excellent management.
Five Star Park
Five star parks are the finest. They should be nearly impossible to
improve. In addition to the requirements for one, two, three, and four
star parks, a five star park must have the following:
o Well planned and laid out spacious appearance;
o Good location in regard to accessibility and desirable neighborhood.
In some locations, park should be enclosed by high hedges or
ornamental fence;
o Wide paved streets in perfect condition. Curbs or lawns edged to
streets, sidewalks, street lights, street signs;
o Homes set back from street;
o Exceptionally attractive entrance and park sign;
o Patios at least 8 x 30 feet. (Excepting double-wide units.);
o Paved off-street parking such as carports or planned parking;
o All homes skirted;
o All hitches concealed. Any existing tanks concealed; Recreation,
some or all of the following: swimming pool (excepting areas with
long, cold winters), shuffleboards, horseshoe pitching, golf course,
hobby shop, hobby classes, games, potlucks, dances or natural
recreational facilities;
o Beautifully equipped recreation hall with kitchen. Room for
community gatherings, tiled restrooms, etc.;
o Uniform storage sheds or central storage facilities;
o All late model homes in excellent condition;
o At least 60 percent occupancy in order to judge quality of residents
which indicates park's ability to maintain a five star rating
between inspections;
o All empty lots grassed, graveled or otherwise well maintained;
o If pets or children allowed, there must be a place for them to run
and play without cluttering the streets and yards. Most five star
parks are for adults only; and,
o Superior management interested in comfort of residents and
maintenance of park.
The demand for good quality institutional grade manufactured housing
communities is anticipated to increase throughout the 1990's, since manufactured
housing communities provide an alternative form of living for the elderly and
retirees, especially for those living on fixed income. Manufactured home
shipments continue to be strong. Shipments rose 20.0 percent in 1992 and 1994,
and 12.0 percent in 1995. The market for good quality manufactured housing
communities is expected to be strong, with yield and capitalization rates and
prices expected to continue to be competitive, with the REITs leading the way.
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Market Analysis
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Competition
We have surveyed seven manufactured housing communities located within the
subject's primary market, including the subject property, containing a total of
2,421 sites. The combined occupancy rate of these seven manufactured housing
communities, including the subject property, is approximately 99.8 percent.
Excluding the subject property in our survey, the combined occupancy rate is
also approximately 99.8 percent, based on 1,950 sites.
The name and location of the subject property's primary competition, as
well as the number of sites, occupancy levels, amenities offered, monthly rental
rates and services provided in the monthly rental rate, are presented on the
following facing page, along with a map which identifies the location of each
competing park.
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<TABLE>
<CAPTION>
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SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- -------------------------------------------------------------------------------
Number Age
Of Sites ---
--------- Condition
Comp. Name Occupancy ------------
No. Location Level Amenities Park Rating(1)
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
R-1 Palm Terrace 223 Clubhouse 1967
3223 North Lockwood Ridge ---- Pool ----
Sarasota County, Florida 100% Shuffleboard Good
----
4*
- -------------------------------------------------------------------------------
R-2 Bahia Vista 251 Clubhouse 1962
3901 Bahia Vista --- Pool ----
Sarasota County, Florida 99% Laundry Good
Storage ----
4*
- -------------------------------------------------------------------------------
R-3 Saralake Estates 202 Clubhouse 1968
3190 Bahia Vista ---- Pool ----
Sarasota County, Florida 100% Pool Good
Shuffleboard ----
Spa 4*
- -------------------------------------------------------------------------------
R-4 Camelot Lakes 534 Clubhouse 1981
5700 Camelot Lakes ---- Pool ----
Sarasota County, Florida 99% Spa Good
Shuffleboard ----
Tennis Courts 5*
Laundry
Shuffleboard
Horseshoes
Storage
- -------------------------------------------------------------------------------
R-5 Camelot East 434 Clubhouse 1985
6300 Queensbury Road ---- Pool ----
Sarasota County, Florida 100% Tennis Courts Good
Laundry ----
Storage 5*
- -------------------------------------------------------------------------------
R-6 Windmill Village North 471 Clubhouse 1968
4000 North Tuttle Avenue ---- Pool ----
Sarasota County, Florida 100% Spa Good
Shuffleboard ----
Horseshoes 5*
Laundry
- -------------------------------------------------------------------------------
Subject Windmill Village South 306 Clubhouse 1980
3000 North Tuttle Avenue ---- Pool ----
Sarasota County, Florida 99% Spa Good
Shuffleboard ----
Horseshoes 5*
Lake
Laundry
- -------------------------------------------------------------------------------
(1) Ratings from One Star to Five Star Parks are defined in the National
Overview section of this report.
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<CAPTION>
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SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- -----------------------------------------------------------------------------------------------
Amount of
Services Date Of Last
Comp. Name Monthly Provided Last Rental Rental
No. Location Rent in Rent Increase Increase
- -----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
R-1 Palm Terrace $309.00/Mo. Water January, 1997 $7.70/Mo.
3223 North Lockwood Ridge (Average) Sewer
Sarasota County, Florida
- -----------------------------------------------------------------------------------------------
R-2 Bahia Vista $265.00/Mo. Water January, 1997 $13.00/Mo.
3901 Bahia Vista To Sewer
Sarasota County, Florida $272.00/Mo. Refuse
Lawn Service
- -----------------------------------------------------------------------------------------------
R-3 Saralake Estates $228.00/Mo. Lawn Service January, 1997 $10.00/Mo.
3190 Bahia Vista (Average)
Sarasota County, Florida
- -----------------------------------------------------------------------------------------------
R-4 Camelot Lakes $370.55/Mo. Refuse January, 1997 $15.00/Mo.
5700 Camelot Lakes To Lawn Service (3-years
Sarasota County, Florida $486.13/Mo. average annual
rent increase)
- -----------------------------------------------------------------------------------------------
R-5 Camelot East $361.00/Mo. Refuse January, 1997 $15.00/Mo.
6300 Queensbury Road To Lawn Service
Sarasota County, Florida
$475.00/Mo.
- -----------------------------------------------------------------------------------------------
R-6 Windmill Village North $286.50/Mo. Refuse January, 1997 $11.60/Mo.
4000 North Tuttle Avenue To Lawn Service (approximately
Sarasota County, Florida $292.20/Mo. 4.0 percent)
- -----------------------------------------------------------------------------------------------
Subject Windmill Village South $285.50/Mo. Refuse January, 1997 $11.60/Mo.
3000 North Tuttle Avenue To Lawn Service (approximately
Sarasota County, Florida $300.00/Mo. 4.0 percent)
- -----------------------------------------------------------------------------------------------
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</TABLE>
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COMPETING MANUFACTURED HOUSING MAP
[MAP OMITTED]
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Market Analysis
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Rental rates of manufactured housing communities located within the
subject's primary market range from $228.00 to $486.13 per site, on a monthly
basis. The subject property is currently quoting monthly rental rates within the
market range, or $286.50 to $292.20 per site. The last rental rate increase at
the subject property was as of January 1, 1997.
The enclosed comparable rentals are considered the most competitive to the
subject property regarding amenities offered, condition, location and overall
ranking.
Comparable R-1, Palm Terrace, is located at 3223 North Lockwood, Sarasota
County, Florida. This comparable property contains 223 sites, and is 100.0
percent occupied. Palm Terrace was developed in 1967, and is in overall
good condition. Amenities include a clubhouse, pool, and shuffleboard
courts. The last annual rental rate increase occurred in January, 1997,
for approximately $7.70 per month. The average monthly rental rates is
$309.00 per month, with water and sewer included in the monthly rental
payment. Residents of Palm Terrace must be 55 years of age or older.
Comparable R-2, Bahia Vista, is located at 3901 Bahia Vista, Sarasota
County, Florida. Bahia Vista contains 251 sites, and is 99.0 percent
occupied. Bahia Vista was developed in 1962, and is in overall good
condition. Amenities include a clubhouse, pool, laundry facility and
storage area. The last annual rental rate increase occurred in January,
1997, for approximately $13.00 per month. Monthly rental rates range from
$265.00 to $272.00, with water, sewer, refuse, and lawn service included
in the monthly rental payment. Residents of Bahia Vista must be 55 years
of age or older.
Comparable R-3, Saralake Estates, is located at 3190, Sarasota County
Florida. Saralake Estates contains 202 sites, and is 100.0 percent
occupied. Saralake Estates was developed in 1968, and is in overall good
condition. Amenities include a clubhouse, pool, shuffleboard courts, and a
spa. The last annual rental rate increase occurred in January, 1997, for
approximately $10.00 per month. The average monthly rental rate is
$228.00, with lawn service included in monthly rental payment. Residents
of Saralake Estates must be 55 years of age or older.
Comparable R-4, Camelot Lakes, is located at 5700 Camelot Lakes, Sarasota
County, Florida. Camelot Lakes contains 534 sites, and is 99.0 percent
occupied. Camelot Lakes was developed in 1981, and is in overall good
condition. Amenities include a clubhouse, pool, spa, shuffleboard, tennis
courts, laundry facilities, shuffleboard courts, horseshoe pits, and a
storage area. Over the last three years, the average annual rental rate
increase was approximately $15.00 per month. The monthly rental rates
range from $370.55 to $486.13, with refuse and lawn service included in
monthly rental payment. Residents of Camelot Lakes must be 55 years of age
or older.
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Market Analysis
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Comparable R-5, Camelot East, is located at 6300 Queensbury Road, in
Sarasota, Florida. Camelot East contains 434 sites, and is 100.0 percent
occupied. Camelot East was developed in 1985, and is in overall good
condition. Amenities include a clubhouse, pool, tennis courts, laundry
facilities, and a storage area. The last annual rental rate increase
occurred in January, 1997 and was $15.00 per month. The monthly rental
rates range from $361.00 to $475.00, with refuse and lawn service included
in the monthly rental payment. Residents of Camelot East must be 55 years
of age or older.
Comparable R-6, Windmill Village South, is located at 3000 North Tuttle
Avenue, in Sarasota County, Florida. Windmill Village South contains 306
sites, and is 99 percent occupied. Windmill Village South was developed in
1980, and is in overall good condition. Amenities include a clubhouse,
pool, spa, shuffleboard, horseshoes, lake and laundry facilities. The last
annual rental rate increase occurred in January, 1997 and was $11.60 per
month. The monthly rental rates range from $285.50 to $300.00 per month,
with refuse and lawn service included in the monthly rental payment.
Residents of Windmill Village South must be 55 years of age or older.
In our opinion, and based on conversations with the on-site manager,
properties R-4, R-5 and R-6 compete most favorably with the subject property,
with the monthly rental rates ranging from $285.50 to $486.13 per month per
site. The subject property is currently quoting monthly rental rates ranging
from $286.50 to $292.20 per site, which is within the range of rental rates of
our more comparable competing properties. The subject property competes most
effectively with its primary competitors regarding amenities, condition and
current rent structure.
Comparable Manufactured Housing Community Sales
A search of the subject's market revealed only one sale in the Sarasota
County area. The sale occurred in the City of Venice. Therefore we have also
presented sales of six manufactured housing communities in the Tampa-St.
Petersburg area, north of the subject property. The following is a brief
discussion of each of the manufactured housing sales located within the
subject's market. These sales are summarized on the following facing page.
Comparable Sale I-1, Sun Valley, is located at 39248 U.S. Highway 19, in
Tarpon Springs, Florida. This property contains 261 sites. The property
was in good condition at the time of sale and was developed in 1970.
Amenities include a clubhouse, pool, shuffleboard courts, and laundry
facilities. The property was approximately 99.0 percent occupied at the
time of sale. The property was purchased for $5,027,100, which equates to
$19,261 per site.
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SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- --------------------------------------------------------------------------------------------------------------------
Sales Price
Per Site
Sales Date Land Area Density ----- EGIM
Comp. Name ---------- --------- --------- Occupancy ----
No. Location Sales Price No. Sites Condition At Sale $NOI/Site OAR
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C> <C>
I-1 Sun Valley 5/97 N/A N/A $19,261 $2,137 4.99x
39248 U.S. Highway 19 ----- --- --- ------- -----
Tarpon Springs, Florida $5,027,100 261 Good 99% 11.09%
- --------------------------------------------------------------------------------------------------------------------
I-2 Park Royal 5/97 N/A N/A $18,431 $1,913 5.30
10611 66th Street ----- --- --- ------- ----
Pinellas Park, Florida $5,695,260 309 Good 90% 10.38%
- --------------------------------------------------------------------------------------------------------------------
I-3 Southern Comfort 4/96 21.56 8.35 $19,307 N/A N/A
24479 U.S. Highway 19 North ----- ----- ---- -------
Clearwater, Florida $3,475,200 180 Average N/A
- --------------------------------------------------------------------------------------------------------------------
I-4 Southgate Mobile Home Park 4/96 24.00 6.96 $25,749 $2,306 6.92x
20000 U.S. Highway 19 North ----- ----- ---- ------- -----
Clearwater, Florida $4,300,000 167 Good 90% 8.96%
- --------------------------------------------------------------------------------------------------------------------
I-5 Serendipity 5/95 56.00 7.59 $31,118 $2,698 7.83x
29081 U.S. 19 North ---- ----- ---- ------- -----
Clearwater, Florida $13,225,000 425 Good 98% 8.67%
- --------------------------------------------------------------------------------------------------------------------
I-6 Doral Mobile Home Park 5/95 70.00 7.53 $30,361 $2,995 6.72x
29250 U.S. 19 North ----- ----- ---- ------- -----
Clearwater, Florida $16,000,000 527 Good 98% 9.87%
- --------------------------------------------------------------------------------------------------------------------
I-7 Bay Indies 1/94 250.00 5.24 $32,086 $2,374 9.13x
Ridgewood Avenue ---- ------ ---- ------- -----
Near U.S. 41 $42,000,000 1,309 Good 98% 7.40%
Venice, Florida
- --------------------------------------------------------------------------------------------------------------------
Subject Windmill Village South - - - 61.29 4.99 - - - $2,211(1) N/A
3000 North Tuttle Avenue ------ ----
Largo, Florida 306 Good 99%
- --------------------------------------------------------------------------------------------------------------------
(1) 199 7 Trailing 12 months
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<CAPTION>
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SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- --------------------------------------------------------------------------------------------------
$EGI/Site
-------------
$Expense/Site
-------------
Comp. Name Expense Ratio Comparability
No. Location % Of EGI to the Subject Comments
- --------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
I-1 Sun Valley $3,861 Similar Developed in 1970; Good
39248 U.S. Highway 19 ------ condition; Amenities
Tarpon Springs, Florida $1,724 include a clubhouse, pool,
------ shuffleboard courts, and
44.66% laundry facilities.
- --------------------------------------------------------------------------------------------------
I-2 Park Royal $3,478 Superior Developed in 1991;
10611 66th Street ------ Excellent condition;
Pinellas Park, Florida $1,565 Amenities include:
------ clubhouse, pool,
45.00% shuffleboard courts,
laundry.
- --------------------------------------------------------------------------------------------------
I-3 Southern Comfort N/A Inferior Developed in 1955;
24479 U.S. Highway 19 North Average condition; Minimal
Clearwater, Florida amenities.
- --------------------------------------------------------------------------------------------------
I-4 Southgate Mobile Home Park $3,720 Similar Developed in 1971;
20000 U.S. Highway 19 North ------ Good condition; Amenities
Clearwater, Florida $1,414 include: clubhouse, pool,
------ shuffleboard courts, and
38.00% laundry facilities.
- --------------------------------------------------------------------------------------------------
I-5 Serendipity $3,975 Superior Developed in 1975; Good
29081 U.S. 19 North ------ condition; Amenities
Clearwater, Florida $1,277 include: clubhouse, pool,
------ shuffleboard courts, and
32.13% laundry facilities.
- --------------------------------------------------------------------------------------------------
I-6 Doral Mobile Home Park $4,516 Similar Developed in 1972; Good
29250 U.S. 19 North ------ condition; Amenities
Clearwater, Florida $1,521 include: clubhouse, pool,
------ shuffleboard courts, and
33.67% laundry facilities.
- --------------------------------------------------------------------------------------------------
I-7 Bay Indies $3,514 Similar Developed in 1972; Good
Ridgewood Avenue ------ condition; Amenities
Near U.S. 41 $1,140 include: clubhouse, pools,
Venice, Florida ------ tennis courts,
32.43% shuffleboard courts, and
mini-putt golf course.
- --------------------------------------------------------------------------------------------------
Subject Windmill Village South $3,612 Subject Developed in 1980;
3000 North Tuttle Avenue ------ Property Good condition;
Largo, Florida $1,402 Amenities include:
------ Clubhouse, pool, spa,
38.80% shuffleboard court,
laundry facilities, lake
and a
horseshoe pit.
- --------------------------------------------------------------------------------------------------
(1) 199 7 Trailing 12 months
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</TABLE>
<PAGE>
Market Analysis
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Comparable Sale I-2, Park Royal, is located at 10611 66th Street, in
Pinellas Park, Florida. This property contains 309 sites. The property was
in excellent condition at the time of sale and was developed in 1991.
Amenities include a clubhouse, pool, shuffleboard courts, and laundry. The
property was approximately 90.0 percent occupied at the time of sale. The
property was purchased for $5,695,260, which equates to $18,431 per site.
Comparable Sale I-3, Southern Comfort, is located at 24479 U.S. Highway 19
North, in Clearwater, Florida. This property contains 180 sites, situated
on 21.56 acres of land area. The property was in good condition at the
time of sale and was developed in 1955. Amenities include a laundry
facility. Information regarding the occupancy of the property at the time
of sale was unavailable. The property was purchased for $3,475,200, which
equates to $19,307 per site.
Comparable Sale I-4, Southgate Mobile Home Park, is located at 20000 U.S.
Highway 19 North, in Clearwater, Florida. This property contains 167
sites, situated on 24.0 acres of land area. The park was in good condition
at the time of sale and was developed in approximately 1971. Amenities
include a clubhouse, swimming pool, shuffleboard courts, and laundry
facilities. The property was 90.0 percent occupied at the time of sale.
The property was purchased for $4,300,000, which equates to $25,749 per
site.
Comparable Sale I-5, Serendipity, is located at 29081 U.S. 19 North, in
Clearwater, Florida. This property contains 425 sites, situated on 56.0
acres of land area. The park was in good condition at the time of sale and
was developed in 1975. Amenities include a clubhouse, pool, shuffleboard
courts, and laundry facilities. The property was 98.0 percent occupied at
the time of sale. The property was purchased for $13,225,000, which
equates to $31,118 per site.
Comparable Sale I-6, Doral Mobile Home Park, is located at 29250 U.S. 19
North, in Clearwater, Florida. This property contains 527 sites, situated
on 70.0 acres of land area. The park was in good condition at the time of
sale and was developed in 1972. Amenities include a clubhouse, pool,
shuffleboard courts, and laundry facilities. The property was 98.0 percent
occupied at the time of sale. The property was purchased for $16,000,000,
which equates to $30,361 per site.
Comparable Sale I-6, Bay Indies, is located on Ridgewood Avenue near U.S.
41, in Venice, Florida. This property contains 1,309 sites, situated on
250.0 acres of land area. The park was in good condition at the time of
sale and was developed in 1972. Amenities include a clubhouse, pool,
tennis courts, shuffleboard courts, and a nine-hole mini putt golf course.
The property was 98.0 percent occupied at the time of sale. The property
was purchased for $42,000,000, which equates to $32,086 per site.
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Market Analysis
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It should be noted that comparability does not imply an identical or exact
duplicate, but rather the possession of a similar utility and affected by
similar supply and demand forces. Also, relative to the subject property,
differences include: time or date of the transactions; location, which
encompasses differences in accessibility; site characteristics, including
differences in size, topography, access, exposure and development capacities;
and improvement characteristics, which include differences in age, quality,
condition, size and amenities.
Demographic Trends
Based on information provided by National Decision Systems (NDS), the
populations within the subject's primary 5-mile and secondary 10-mile market
areas, as of 1997, are 130,810 and 329,226, respectively. The populations of the
subject's primary and secondary market areas are projected to increase to
134,824 and 342,237, respectively, by the year 2002.
According to NDS, the total number of households within the subject's
primary and secondary market areas are 59,710 and 150,887, respectively, for
1997. The number of households within the subject's primary 5-mile and secondary
10-mile market areas are projected to increase to 62,438 and 159,056,
respectively, by the year 2002.
The average household income levels within the subject's primary and
secondary market areas, for 1997, are $56,415 and $55,440, respectively, and are
expected to increase to $73,377 and $71,409, respectively, by the year 2002. The
median household income levels within the subject's primary and secondary market
areas, for 1997, are $37,584 and $35,045, respectively, and are expected to
increase to $45,598 and $42,579, respectively, by the year 2002. Per capita
income within the subject's primary and secondary market areas, for 1997, are
$26,174 and $25,773, respectively, and are expected to increase to $34,556 and
$33,687, respectively, by the year 2002.
Based on the above levels, the demographics of the subject's primary
market area appear to indicate a positive growth trend, based on information
provided by NDS. For additional demographic information, please refer to the NDS
summary report in the Addenda.
Expense Analysis
Expenses exhibited by manufactured housing communities nationally are
typically 35.0 to 45.0 percent of effective gross income. However, expense
ratios of manufactured housing communities located in the southeast and
southwest regions of the nation are typically lower by comparison, due to lower
real estate taxes and common area maintenance charges.
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Market Analysis
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As presented in the Summary of Manufactured Housing Communities Sales,
operating expense ratios of competing parks range from 32.1 to 45.0 percent of
effective gross income levels, and $1,140 to $1,724 on a per site basis. The
subject property is currently reporting expenses, for the 12-month trailing
period of 1997, at 35.5 percent of effective gross income and $1,271 on a per
site basis. Operating expenses appear to be within the range of comparable
properties on both a per site basis as well as on a percentage of effective
gross income.
Market Supply and Demand
There are a total of six competing manufactured housing communities
located within the subject's market, which total 1,950 sites, with a
corresponding average occupancy rate of above 99.0 percent. No specific
absorption statistics were available, since the subject's competing parks have
historically reported occupancy rates at, or above 95.0 percent. The subject
property, based on conversations with management, has historically been slightly
higher than occupancy rates consistent with competing parks, and is currently
100.0 percent occupied. We believe the current occupancy rate of the subject
property is stabilized, and is within the range of the occupancy rates of
competing parks presently presented. Based on the subject's current occupancy
rate and occupancy rates at competing parks, demand appears to be strong, with
steady rental rate increases expected.
Conclusion
Historically, the subject's primary market has sustained high occupancy
levels of 95.0 to 100 percent. Rental rates of similar manufactured housing
communities located within the subject's primary market generally range from
$228.00 to $486.13 per site, on a monthly basis. The subject property is
currently quoting, and is currently achieving (based on the most recent rent
roll provided), a monthly rental rate within the range of competing parks, or at
$286.50 to $292.20 per site, which we believe is market-orientated.
Based on our research, steady increases in rental rates are anticipated,
based on actual historical performance of competing parks and historical
increases seen at the subject property. Sales transactions of manufactured
housing communities located within the subject's region range from $18,431 to
$32,086 per site, with corresponding overall rates ranging from 7.40 to 11.09
percent. In our opinion, the subject property competes favorably with its
competition regarding amenities, condition, rent structure and overall market
rating.
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SITE PLAN
[PLAN OMITTED]
<PAGE>
PROPERTY DESCRIPTION
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Site Description
The subject site is located on the east side of Tuttle Avenue between 27th
Street and 47th Street. The subject site is irregular in shape and contains
74.14 acres, or 3,229,538 square feet of land area. Topographically, the site is
basically level and at street grade.
Sewer and water service are provided by Kensington Park Utilities.
Electric Service is provided by Florida Power Company. Gas service is
unavailable at the subject property, and GTE Company provides telephone service.
The subject property is accessible via Tuttle Avenue. Based on conversations
with the Engineering Department of the County of Sarasota, the subject property
is not located in a flood hazard area. However, we recommend a qualified
engineer to determine the existence of any flood hazard areas.
Each developed site has a concrete driveway. The streets within the park
are two-lanes. Overall, the subject site is typical of the area and is
functionally well suited for its current use.
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.
Improvements Description
The subject property was originally developed in 1968. The subject
improvements consist of a 471-site manufactured housing community, with a
clubhouse, pool, spa, shuffleboard courts, horseshoe pits and laundry
facilities. The 471-total sites can fit both double-wide and single-wide homes.
The clubhouse consists of open-space available for resident use, and a
kitchen. The exterior of the one-story clubhouse is painted concrete block, and
appeared to be in overall good condition at the time of inspection.
The shuffleboard courts, pool, spa, shuffleboard courts, and horseshoe
pits are adjacent to the clubhouse. Off-street parking is available for each
resident. Site improvements within the park include: paved streets, concrete
driveways, street lighting and signage. Overall, the site improvements appeared
to be in good condition at the time of inspection.
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Property Description
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Windmill Village North is a functional manufactured housing community with
good ingress and egress from Tuttle Avenue. Overall, the subject community
appears to be well maintained and is in good condition. Windmill Village North
is a functional manufactured housing community and competes favorably with other
existing manufactured housing communities in the area in terms of appearance and
amenities. The subject property would fit the profile of a Five Star Park, as
defined in the National Overview section of this report.
Real Property Taxes and Assessments
Assessed value of commercial property in Sarasota County is assessed at
100.0 percent of the Assessor's opinion of market value. The subject property is
identified by tax parcel number 29040026.
Real estate taxes in Sarasota County are assessed in arrears. Real estate
taxes for 1997 were billed in November of 1997. The total amount of real estate
taxes for 1997 for the subject property amounts to $245,727.04. Taxes are
discounted if paid in full before March 31, 1997. The total amount of real
estate taxes for 1997 equates to approximately $521.71 per site.
Zoning
According to zoning officials of Sarasota County , the subject property is
currently zoned RMH, Residential Mobile Home. Based on conversations with zoning
officials Sarasota County, the subject property is a legal but non-conforming
use in the RMH, Residential Mobile Home district. The subject property does not
meet current density requirements for mobile home parks in the country. The
actual density is 6.35 sites per acre, compared to the subject's zoning
requirement of 5.0 sites per acre
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CONCLUSION
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Conclusion
o The subject property, Windmill Village North, is a functional
manufactured housing community, which competes favorably in relation
to its competition;
o Comparable manufactured housing communities located within the
subject's market range in monthly rental rates per site from $228.00
to $486.13;
o The subject property is currently quoting, and is currently
achieving (based on the most recent rent roll provided) a monthly
rental rate ranging from $286.50 to $292.20 per site, which is
within the range of competing parks, and appears to be
market-oriented;
o Sale transactions of manufactured housings located within the
subject's region range in unit sales prices per site from $18,431 to
$32,086, with corresponding overall rates ranging from 7.40 to 11.09
percent;
o Operating expenses are within industry standards for a park located
in the southeastern region of the country;
o The subject park appears to be operating at economic levels based on
our review of historical and budgeted 1998 income and expenses;
o The demographic characteristics of the area appear to be positive;
o The population profile of the subject property is approximately 99
percent retired adults, and 1 percent working adults, 55 years of
age or older. The subject property is a retirement park, with
residents required to be 55 years of age or older.
o The current occupancy rate at the subject property of 100 percent is
evident by a strong local market and demand;
o No significant manufactured housing communities are expected to be
developed in the near future;
o In our opinion, based on Woodall's criteria, the subject property is
a Five Star Park, and the reader's attention is directed to the
corresponding definition and criteria of a Five Star Park, presented
in the National Overview section of this report.
o Based on the subject's location, demographic, economic, market and
physical characteristics, we believe Windmill Village North will
continue to be a viable manufactured housing community in the
foreseeable future, and is well positioned in the marketplace.
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ASSUMPTIONS AND LIMITING CONDITIONS
================================================================================
"Report" means the consulting report to which these Assumptions and Limiting
Conditions are annexed.
"Property" means the subject of the Report.
"C&W" means Cushman & Wakefield, Inc. or its subsidiary which issued the Report.
"Appraiser(s)" means the employee(s) of C&W who prepared and signed the Report.
This report is made subject to the following assumptions and limiting
conditions:
1. No responsibility is assumed for the legal description or for any matters
which are legal in nature. 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 Report or upon which the Report 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 Appraisers nor C&W shall be responsible for the
accuracy or completeness of such information, including the correctness of
estimates, opinions, dimensions, sketches, exhibits, and other factual
matters.
3. The information is effective as of the date stated in the Report. Changes
since that date in external and market factors or in the property itself
can significantly affect our analysis.
4. The report is to be used in whole and not in part. No part of the Report
shall be used in conjunction with any other report. Possession of the
Report, or a copy thereof, does not carry with it the right of
publication. Publication of the Report or any portion thereof without the
prior written consent of C&W is prohibited. Except as may be otherwise
expressly stated in the letter of engagement to prepare the Report, C&W
does not permit use of the Report by any person other than the party to
whom it is addressed or for purposes other than those for which it was
prepared. If written permission is given by C&W to use the Report, the
Report must be used in its entirety and only with proper written
qualification as approved by C&W. No part of the Report or the identity of
the Appraiser shall be conveyed to the public through advertising, public
relations, news, sales, or other media or used in any material without
C&W's prior written consent. Reference to the Appraisal Institute or to
the MAI designation is prohibited.
5. The Appraiser shall not be required to give testimony in any court or
administrative proceedings relating to the Property or the Report.
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Assumptions and Limiting Conditions
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6. The Report 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 Report; 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 Report is based.
7. The physical condition of the improvements considered by the Report is
based on visual inspection by the Appraiser or other person identified in
the Report. C&W assumes no responsibility for the soundness of structural
members nor for the condition of mechanical equipment, plumbing, or
electrical components.
8. Unless otherwise stated in the Report, the existence of potentially
hazardous or toxic materials which may have been used in the construction
or maintenance or operation of the improvements or may be located at or
about the Property was not considered in the Report. These materials (such
as formaldehyde foam insulation, asbestos insulation, various soil
contaminants, and other potentially hazardous materials) may affect the
value of the Property. The Appraisers are not qualified to detect such
substances, and C&W urges that an expert in this field be employed to
determine the economic impact of these matters, if any, on the property in
the Report.
9. Unless otherwise stated in the Report, compliance with the requirements of
the Americans With Disabilities Act of 1990 (ADA) has not been considered
in the Report. Failure to comply with the requirements of the ADA may
negatively affect the value of the property. C&W recommends that an expert
in this field be employed.
10. If the Report is submitted to a lender or investor with the prior approval
of C&W, such party should consider the Report as one factor, together with
its independent investment considerations and underwriting criteria, in
its overall investment decision.
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33
CUSHMAN &
WAKEFIELD(R)
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<PAGE>
CERTIFICATION
================================================================================
We certify that, to the best of our knowledge and belief:
1. Jennifer L. Estrella inspected the property, and Michael J. Schaeffer and
Stanley R. Dennis, Jr., MAI, have reviewed and approved the report, but did
not inspect 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 on an action or event (such as the
approval of a loan) resulting from the analyses, opinions, or conclusions in,
or the use of, this report.
6. 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 Ethics and
Standards of Professional Practice of the Appraisal Institute.
7. No one provided significant professional assistance to the persons signing
this 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. As of the date of this report, Stanley R. Dennis, Jr., MAI, has completed the
requirements of the continuing education program of the Appraisal Institute.
/s/ Michael J. Schaeffer /s/ Jennifer L. Estrella /s/ Stanley R. Dennis, Jr.
Michael J. Schaeffer Jennifer L. Estrella Stanley R. Dennis, Jr., MAI
Director Associate Appraiser Director, Manager
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34
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WAKEFIELD(R)
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<PAGE>
ADDENDA
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POP-FACT SHEETS
LEGAL DESCRIPTION
QUALIFICATIONS OF APPRAISERS
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35
<PAGE>
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POP-FACT SHEETS
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<PAGE>
Tue Nov 25, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP FACTS: SUMMARY REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6510
PREPARED FOR
CUSHMAN & WAKEFIELD, INC.
27TH ST & NORTH TUTTLE AVE
SARASOTA, FL COORD: 27:21.56 82:30.83
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- --------------------------------------------------------------------------------
POPULATION
2002 PROJECTION 134,824 342,237
1997 ESTIMATE 130,810 329,226
1990 CENSUS 123,694 304,013
1980 CENSUS 96,657 225,262
GROWTH 1980- 1990 27.97% 34.96%
HOUSEHOLDS
2002 PROJECTION 62,438 159,056
1997 ESTIMATE 59,710 150,887
1990 CENSUS 53,438 133,275
1980 CENSUS 40,933 96,671
GROWTH 1980-1990 30.55% 37.86%
1997 ESTIMATED POPULATION BY RACE 130,810 329,226
WHITE 89.53% 90.60%
BLACK 8.78% 7.24%
ASIAN & PACIFIC ISLANDER 0.83% 0.83%
OTHER RACES 0.86% 1.33%
1997 ESTIMATED POPULATION 130,810 329,226
HISPANIC ORIGIN 4.48% 4.97%
OCCUPIED UNITS 53,438 133,275
OWNER OCCUPIED 69.24% 69.77%
RENTER OCCUPIED 30.76% 30.23%
1990 AVERAGE PERSON PER HH 2.27 2.24
1997 ESTIMATED HH BY INCOME 59,710 150,887
$150,000 + 4.90% 5.18%
$100,000 TO $149,999 5.20% 4.85%
$ 75,000 TO $ 99,999 6.72% 5.97%
$ 50,000 TO $ 74,999 17.69% 16.21%
$ 35,000 TO $ 49,999 18.71% 17.85%
$ 25,000 TO $ 34,999 15.38% 15.98%
$ 15,000 TO $ 24,999 15.85% 16.67%
$ 5,000 TO $ 14,999 12.34% 13.96%
UNDER $5,000 3.21% 3.33%
1997 EST. AVERAGE HH INCOME $56,415 $55,440
1997 EST. MEDIAN HH INCOME $37,584 $35,045
1997 EST. PER CAPITA INCOME $26,174 $25,773
<PAGE>
Tue Nov 25, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP 80-02, HH 80-02, INC 80-02)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6510
PREPARED FOR
CUSHMAN & WAKEFIELD, INC.
27TH ST & NORTH TUTTLE AVE
SARASOTA, FL COORD: 27:21.56 82:30.83
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- --------------------------------------------------------------------------------
POP_80: TOTAL 96,657 225,262
POP_90: TOTAL 123,694 304,013
POP_97: TOTAL (EST.) 130,810 329,226
POP_02: TOTAL (PROJ.) 134,824 342,237
HH_80: TOTAL 40,933 96,671
HH_90: TOTAL 53,438 133,275
HH_97: TOTAL (EST.) 59,710 150,887
HH_02: TOTAL (PROJ.) 62,438 159,056
INC_80: PER CAPITA (EST.) $8,033 $8,086
INC_90: PER CAPITA $16,491 $16,972
INC_97: PER CAPITA (EST.) $26,174 $25,773
INC_02: PER CAPITA (PROJ.) $34,556 $33,687
HH_90_BY INCOME_89: MEDIAN $29,728 $28,581
HH_97_BY INCOME: MEDIAN $37,584 $35,045
HH_02_BY INCOME: MEDIAN $45,598 $42,579
HH_80_BY INCOME_79: AVERAGE $18,968 $18,842
HH_90_BY INCOME_89: AVERAGE $37,600 $38,050
HH_97_BY INCOME: AVERAGE $56,415 $55,440
HH_02_BY INCOME: AVERAGE $73,377 $71,409
<PAGE>
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LEGAL DESCRIPTION
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<PAGE>
LEGAL DESCRIPTION
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File No. 93-0012 EXHIBIT "A" OF SCHEDULE A
PARCEL NO.N24-21587-10 (Windmill Sarasota):
Commence at a R/R spike at the Northwest corner of Section 9, Township 36
South, Range 18 East, Sarasota County, Florida; thence S. 0(degree)00'02"
W., along the West line of said Section 9 a distance of 990.69 feet to a
P.K. nail; thence S. 87 (degree) 51'41" E., a distance of 50.04 feet to a
point on the South line of property described in Official Record Book 481,
page 656 of the public records of Sarasota County, Florida, also being the
Point of Beginning; thence S. 0(degree)00'02" W., and parallel with said
West line of Section 9, a distance of 2252.55 feet to the Southerly line
of Amendment Lease Area as recorded in Official Record Book 980, pages 569
through 572 of the aforementioned public records (passing through a
concrete monument found at a distance of 2233.04 feet); thence N.
88(degree)36'02" E., along said Southerly line a distance of 302.44 feet
to a P.C. of a curve to the left having a central angle of
39(degree)02'17" and a radius of 680.00 feet; thence Northeasterly along
the arc of said curve (also said Southerly line) a distance of 463.31
feet; thence N. 49 (degree) 33'45" E., along said Southerly line a
distance of 369.58 feet to a P.C. of a curve to the right having a central
angle of 18 (degree) 36'02" and a radius of 920.00 feet; thence
Northeasterly along the arc of said curve (also said Southerly line) a
distance of 298.67 feet; thence N. 0(degree)09'03" E., parallel with and
30 feet Westerly of the East line of the West 1/2 of the Northwest 1/4 of
said Section 9 for a distance of 960.90 feet; thence S. 89(degree)21'29"
E., a distance of 30.00 feet to said East line of the West 1/2 of the
Northwest 1/4; thence N. 0(degree)09'03" E., along said East line a
distance of 1646.0 feet to a concrete monument at the South right-of-way
line of 47th Street, said right-of-way lying 25 feet Southerly of and
parallel with the North line of said Section 9; thence N.
87(degree)51'41" W., along said Southerly right-of-way line a distance
of 649.89 feet to the East line of aforementioned property described in
Official Record Book 481, page 656; thence S. 0(degree)00'02" W., along
said East line of property a distance of 965.67 feet to a concrete
monument at the Southeast corner of said property; thence N. 87(degree)
51'41" W., a distance of 650.45 feet to the Point of Beginning.
TOGETHER WITH: Lots 7, 8, 9 and 10, Block 18, BEVERLY TERRACE, Unit 2, as
per Plat Book 2, page 126, of the public records of Sarasota County,
Florida.
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QUALIFICATIONS OF APPRAISERS
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<PAGE>
STATEMENT OF QUALIFICATIONS
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JENNIFER L. ESTRELLA
Education
Master of Urban Planning, Economic Development Concentration
University of Illinois at Urbana-Champaign, 1996
Bachelor of Business Administration, Finance Major
Loyola University Chicago, 1991
Real Estate Education
The following courses have been completed through the Real Estate Program at
the University of Illinois at Urbana-Champaign:
Real Estate Financial Markets
Urban Real Estate Valuation
Real Estate and Urban Land Economics
Current Position
Associate Appraiser, Cushman & Wakefield of Illinois, Inc., Valuation Advisory
Services
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
MICHAEL J. SCHAEFFER
Real Estate Experience
Mr. Schaeffer has been active in the appraisal of real estate since 1983.
Appraisal experience includes the valuation of income-producing real estate in
the Chicago area as well as many major cities and small towns throughout the
Midwest. The types of properties appraised include office buildings, regional
malls, shopping centers, country clubs, apartment complexes, subsidized housing
units, industrial buildings, nursing homes, retirement communities, automotive
dealerships, department stores, vacant land, proposed income-producing
properties, and various special purpose properties. Mr. Schaeffer also has had
over 10 years of experience in new construction and renovation of commercial,
industrial, residential and specialized real estate properties.
Education
Bachelor of Arts, University of Cincinnati, Cincinnati, Ohio MBA Graduate Course
Work in Economics and Management, Xavier University, Cincinnati, Ohio
Real Estate Education
The following courses sponsored by the Appraisal Institute have been
successfully completed:
Real Estate Appraisal Principles 1A-1
Basic Valuation Procedures 1A-2
Standards of Professional Practice
Capitalization Theory and Techniques 1BA
Capitalization Theory and Techniques IBB
Advanced Applications 550
Report Writing & Valuation Analysis 540
Mr. Schaeffer has also attended numerous lectures and seminars sponsored by the
Appraisal Institute.
Mr. Schaeffer is currently a candidate for the MAI designation of the Appraisal
Institute, and has completed the educational and experience requirements for the
MAI designation.
Current Position
Director, Appraisal Services, Cushman & Wakefield, Inc., Chicago, Illinois
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
STANLEY R. DENNIS, JR., MAI
Real Estate Experience
Director, Manager, Cushman & Wakefield Valuation Advisory Services, Chicago,
Illinois. Division is responsible for the appraisal and consultation function of
Cushman & Wakefield, Inc., a national full service real estate organization,
1989.
Vice President, Manager, Cushman & Wakefield Appraisal Services, Portland,
Oregon, 1983.
Principal, Stanley R. Dennis & Associates, Portland, Oregon, 1982.
Education
Portland State University, Portland, Oregon
Bachelor of Science Degree, 1977, Finance and Real Estate
Appraisal Institute
Course I-A Fundamentals and Principles of Real Estate Appraisal
Course I-B Capitalization Theory and Techniques
Course II-I Case Studies in Real Estate Valuation
Course II-2 Valuation Analysis and Report Writing
Course II-3 Standards of Professional Practice
Course IV Litigation/Condemnation Valuation
Course VI Investment Analysis
Course VIII Residential Case Studies
Course X Market Analysis
Seminar Feasibility Analysis and Highest and Best Use
Seminar Discounted Cash Flow Analysis
Seminar Cash Equivalency
Seminar Subdivision Analysis
Seminar Rates, Ratios and Reasonableness
Professional Affiliations
American Institute of Real Estate Appraisers, Member (Designation #6754)
Building Owners and Managers Association (BOMA)
National Association of Corporate Real Estate Executives (NACORE)
<PAGE>
================================================================================
MARKET STUDY OF REAL PROPERTY
Hacienda de Valencia
201 South Greenfield Road
Mesa, Maricopa County, Arizona
================================================================================
As of December 1, 1997
Prepared For:
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Prepared By:
Cushman & Wakefield of Illinois, Inc.
Valuation Advisory Services
455 North Cityfront Plaza Drive, Suite 2800
Chicago, Illinois 60611-5555
CUSHMAN &
WAKEFIELD(R)
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<PAGE>
[Letterhead of Cushman & Wakefield of Illinois, Inc.]
December 12, 1997
Mr. Edward J. Welch
Director
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Re: Market Study of Real Property
Hacienda de Valencia
201 South Greenfield Road
Mesa, Maricopa County, Arizona 85206
Dear Mr. Welch:
In fulfillment of our agreement as outlined in the Letter of Engagement,
Cushman & Wakefield of Illinois, Inc., is pleased to transmit our market study
and consulting report evaluating the above referenced real property.
As specified in the Letter of Engagement, our market study and consulting
report is qualified by certain assumptions, limiting conditions, certifications,
and definitions, which are set forth in the report.
This consulting report was prepared for the Client, and it is intended
only for the specified use of the Client. It may not be distributed to or relied
upon by other persons or entities without written permission of Cushman &
Wakefield, Inc.
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the above
referenced real property, as of the date of our property inspection. The
function of the report is to assist the client, in evaluating the property for
underwriting and rating purposes.
<PAGE>
Mr. Edward Welch -2- December 12, 1997
This market study and consulting report was prepared in conformity with
the requirements of the Code of Ethics and Standards of Professional Appraisal
Practice of the Appraisal Institute and the Uniform Standards of Professional
Practice (USPAP) adopted by the Appraisal Standards Board of the Appraisal
Foundation.
This letter is invalid if detached from the report, which contains the
text, exhibits, and the Addenda.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF ILLINOIS, INC.
/s/ Jody L. Garbisch
Jody L. Garbisch
Associate Appraiser
/s/ Michael J. Schaeffer
Michael J. Schaeffer
Director
/s/ Stanley R. Dennis, Jr.
Stanley R. Dennis, Jr., MAI
Director, Manager
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
SUMMARY OF SALIENT FACTS
================================================================================
Property Name: Hacienda de Valencia
Location: 201 South Greenfield Road
Mesa, Maricopa County, Arizona
Assessor's Parcel Number: Based on information provided by Maricopa
County Treasurer's Office, the subject
property is identified by Assessor's Parcel
Numbers 140-32-001C 3 and 140-33-004C 0.
Date of Inspection: The property was inspected December 1, 1997.
Ownership: The subject property is legally entitled to
Tanland Vistas, Inc., an Illinois
corporation.
Land Area: Based on the measurements taken from the
property's legal plat of survey, the subject
property contains approximately 53.75 acres
of land area, or 2,341,511.55 square feet.
Zoning: Based on information provided by the City of
Mesa Zoning Department, the subject property
is zoned R-4, General Multiple Residences,
which is a legal, but non-conforming use.
Improvements
Type: A manufactured housing community.
Year Built: The subject property was originally developed
in approximately 1972.
Size: The subject property consists of a 366-site
manufactured housing community, of which
approximately 200 sites are single-wide and
166 sites are double-wide.
Condition: At the time of inspection, the subject
property was in good condition.
Property Rating: Five Star manufactured home community.
Special Assumptions: 1. Information regarding the subject
property, including its physical
characteristics, was provided to us by the
client and the on-site manager, and is
assumed to be accurate.
CUSHMAN &
WAKEFIELD(R)
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Summary of Salient Facts
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2. The existence of potentially hazardous or
toxic materials, which may be located on or
about the property, was not considered in our
evaluation. The appraisers are not qualified
to detect such substances, and Cushman &
Wakefield urges that an expert in this field
be employed to determine the existence, if
any, of hazardous materials located on or
about the site.
3. Our market and consulting report regarding
the subject assumes the subject property, as
presently improved, represents its highest
and best use.
4. It is unknown to the appraiser if the
subject property complies with the Americans
with Disabilities Act (ADA). We recommend a
qualified specialist in the final
determination regarding any ADA compliance
deficiencies that may be present at the
subject property.
5. Please refer to the complete list of
assumptions and limiting conditions included
at the end of this report.
CUSHMAN &
WAKEFIELD(R)
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<PAGE>
TABLE OF CONTENTS
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Page
PHOTOGRAPHS OF SUBJECT PROPERTY................................................1
INTRODUCTION...................................................................5
Identification of Property..................................................5
Property Ownership and Recent History.......................................5
Purpose and Function of the Market Study and Consulting Assignment..........5
Scope of the Market Study and Consulting Assignment.........................5
Date of Property Inspection.................................................5
Definitions and Other Pertinent Terms.......................................5
REGIONAL ANALYSIS..............................................................8
NEIGHBORHOOD ANALYSIS.........................................................33
MARKET ANALYSIS...............................................................35
National Overview..........................................................35
Competition................................................................42
Comparable Manufactured Housing Community Sales............................46
Demographic Trends.........................................................47
Expense Analysis...........................................................49
Market Supply and Demand...................................................49
Conclusion.................................................................50
PROPERTY DESCRIPTION..........................................................52
Site Description...........................................................52
Improvements Description...................................................52
REAL PROPERTY TAXES AND ASSESSMENTS...........................................53
ZONING........................................................................53
CONCLUSION....................................................................54
ASSUMPTIONS AND LIMITING CONDITIONS...........................................55
CERTIFICATION.................................................................57
ADDENDA.......................................................................58
Pop-Fact Sheets
Legal Description
Qualifications of Appraisers
CUSHMAN &
WAKEFIELD(R)
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PHOTOGRAPHS OF SUBJECT PROPERTY
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[PHOTO OMITTED]
Exterior of Main Community Center
[PHOTO OMITTED]
Exterior of Second Community Center
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Photographs Of Subject Property
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[PHOTO OMITTED]
Front Entrance of the Subject Park
[PHOTO OMITTED]
View of Pool Area
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Photographs Of Subject Property
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[PHOTO OMITTED]
Typical Interior View of the Subject Park
[PHOTO OMITTED]
Typical Interior View of the Subject Park
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Photographs Of Subject Property
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[PHOTO OMITTED]
Street Scene Facing North Along South Greenfield Road
[PHOTO OMITTED]
Street Scene Facing South Along South Greenfield Road
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<PAGE>
INTRODUCTION
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Identification of Property
The subject property consists of a 366-site manufactured housing
community, situated on approximately 53.75 acres of land area for 55-year-old or
greater residents. Hacienda de Valencia is located on the east side of South
Greenfield Road, approximately two miles north of U.S. Highway 60, in the City
of Mesa, Maricopa County, Arizona. The property's street address is 201 South
Greenfield Road. The property was constructed in 1972, and was 96.0 percent
occupied at the time of inspection.
Property Ownership and Recent History
The subject property is currently entitled to Tanland Vistas, Inc., an
Illinois corporation. The subject property was originally developed in 1972,
with 366 manufactured housing sites.
Purpose and Function of the Market Study and Consulting Assignment
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the subject
property, as of the date of property inspection. The function of the consulting
report is to assist the client in evaluating the property for underwriting and
rating purposes.
Scope of the Market Study and Consulting Assignment
In the process of preparing this report, we inspected the property,
interviewed the on-site manager, conducted market research into asking rental
rates for comparable properties, conducted market investigations, and
ascertained sales prices of comparable properties. Additionally, we conducted
market research and evaluated demographic and economic trends; and, the market
position and rating of the subject property.
Date of Property Inspection
The property was inspected December 1, 1997.
Definitions and Other Pertinent Terms
Definitions of pertinent terms taken from the Dictionary of Real Estate
Appraisal, Third Edition (1993), published by the Appraisal Institute, is as
follows:
Market Rent
The rental income that a property would most probably command on the open
market; indicated by current rents paid and asked for comparable space as
of the date of the appraisal.
Evaluation
Evaluation is a study of the nature, quality, or utility of a parcel of
real estate or
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Introduction
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interest in, or aspects of, real property, in which a value estimate is
not necessarily required.
Market Study
A macroeconomic analysis that examines the general market conditions of
supply, demand, and pricing or the demographics of demand for a specific
area or property type.
Legal Description
The subject property is located along the east side of South Greenfield
Road, approximately two miles north of U.S. Highway 60, in the City of Mesa,
Maricopa County, Arizona. The street address of the subject property is 201
South Greenfield Road, Mesa, Arizona. The property is identified by tax parcel
numbers 140-32-001C 3 and 140-33-004C 0, according to Maricopa County
Treasurer's Office. Due to the lengthy metes and bounds legal description, the
subject property's legal description is presented in the Addenda of this report,
and reference is made thereto.
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LOCATION MAP
[MAP OMITTED]
<PAGE>
REGIONAL ANALYSIS - PHOENIX-MESA MSA
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Introduction
The short- and long-term value of real estate is influenced by a variety
of factors and forces which interact within a given region. Regional analysis
serves to identify those forces which affect property value and the role they
play within the region. The four primary forces which influence real property
value include environmental characteristics, governmental forces, social
factors, and economic trends. These forces determine the supply and demand for
real property which, in turn, affect market value.
- --------------------------------
A. Environmental Characteristics
- --------------------------------
The primary environmental forces which influence the region include
physical location, geography, and infrastructure. These characteristics provide
a basis for the region's stability and describe the area's overall locational
bearing. Both natural and man-made environmental forces influence real property
values and are best understood in relation to the subject property's location.
General Overview
The Phoenix-Mesa MSA, which includes Maricopa and Pinal Counties, is the
nation's 12th largest MSA by population rank. Maricopa County comprises a
majority of the MSA, containing 23 incorporated cities and towns, and numerous
developed unincorporated areas within its 9,225 square miles. The urbanized area
of the county covers more than 2,000 square miles, making the Phoenix
metropolitan area one of the geographically largest, yet least densely
populated, metro areas in the country.
Over the past several years, Phoenix has been one of the nation's fastest
growing metropolitan areas. During this decade, it has trailed only Atlanta and
Las Vegas in terms of domestic immigration with over 33,000 U.S. residents
relocating here. The urbanized area has five distinct regions: central,
northeast, southeast, northwest, and southwest. The areas are divided by
mountains to the south and north of central Phoenix, by the Salt River Indian
Reservation to the east, and by Interstate 10 and Interstate 17 running north,
south, and west from the Salt River.
The central region contains the area's major office employment centers:
Downtown, the Central Avenue corridor, the Camelback corridor, and the 44th
Street/Sky Harbor International Airport area which is home to a significant
amount of warehouse/distribution and industrial employment.
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Regional Analysis
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The northeast region is characterized by an expanding services employment
sector concentrated in south-central Scottsdale, the Paradise Valley Mall area,
and the Scottsdale Airpark. The Scottsdale Airpark area contains a high
concentration of industrial and light manufacturing employment. There is also an
emerging medical service corridor along Shea Boulevard in north Scottsdale.
The northeast region is, perhaps, best known for its abundance of
high-quality resorts and golf courses and its affluent bedroom communities such
as Scottsdale, Paradise Valley, Fountain Hills, Carefree, Cave Creek, and
northern portions of the City of Phoenix.
The southeast region, often referred to as the East Valley, contains the
cities of Tempe, Mesa, Chandler, Gilbert, Guadalupe, Queen Creek, and the South
Mountain area of Phoenix. Major high-tech and aerospace employers are located in
this region of the MSA, as is the main campus of Arizona State University in
Tempe. Eastern portions of the southeast region contain many retirement
communities that host thousands of winter visitors, as well as year-round
retirees. Continued employment growth in high-tech industries, a diverse housing
market, and transportation improvements are expected to fuel continued
development in the southeast region.
The northwest region includes northwest Phoenix and the communities of
Glendale, Peoria, Youngtown, Surprise, El Mirage, and the unincorporated
retirement communities of Sun City and Sun City West. This region is rapidly
developing its own employment base, including service industries, agriculture,
and high-tech manufacturing. Recent development has tended to follow Bell Road
and the partially completed Agua Fria Freeway.
The rapidly growing southwest region is the least developed of the five
metropolitan areas, but its abundance of relatively inexpensive, developable
land and access to Interstate 10 make it attractive to both developers and
employers. The southwest region, which includes portions of the City of Phoenix,
as well as Goodyear, Litchfield Park, Avondale, Tolleson, and Buckeye, has
traditionally been agricultural in nature. In recent years, the area has
attracted considerable warehouse and distribution development.
Transportation
The Phoenix MSA is generally well served by an integrated transportation
network. The central portion of the MSA contains a majority of the area's
transportation links, supported by surrounding interstates, highways, and local
routes.
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Regional Analysis
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Highways & Interstates
The Phoenix region is served by two major interstates: Interstate 10 and
Interstate 17. Interstate 10 is the primary transportation thruway for the MSA,
linking with Southern California to the west, and Tucson and New Mexico to the
southeast. Interstate 17 runs northward, linking Phoenix with Flagstaff.
Superstition Freeway (U.S. Highway 60) runs east from Central Phoenix/Interstate
10 toward Mesa and Gilbert. Other major routes within the region include U.S.
Highways 80 and 89. Several new freeways, in various stages of competition, also
pass through the metro area.
Air Service
Air transportation is available at Phoenix Sky Harbor International
Airport, one of the 25 largest air traffic hubs in the nation. Airlines serving
Sky Harbor include Southwest Airlines, Air West, United, Delta, Northwest,
Alaska, American, USAir, and TWA. The Phoenix Sky Harbor International Airport
handled 30.4 million passengers in 1996, a 9.0 percent increase over 1995,
making it the 11th-busiest passenger airport in the country and the 16th-busiest
in the world. The airport moved 312,800 tons of cargo, which also represented a
9.0 percent increase.
The airport is in the midst of two major projects. The first is the
construction of a new, $169 million, 7,800-foot runway (which will be the
airport's third). It is scheduled to become operational in the Spring of 1999.
Construction has begun on a $30.0 million project that will add 14 more
passenger gates. Completion is expected next Spring.
Other Services
Rail transportation is provided by the Southern Pacific, Atchison, and
Topeka and Santa Fe lines. AMTRAK provides passenger service to the region. The
MSA is also serviced by bus lines and motor carriers. Most municipalities
provide local bus routes which run throughout the metropolitan area, while
Greyhound/Trailways provides more regional service.
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B. Governmental Characteristics
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Governmental influences on the region impact property values via political
and legal actions at all levels. The legal climate at a particular time or in a
particular place may overshadow the natural market forces of supply and demand.
Government provides many necessary facilities and services that affect land use
patterns, including public utilities, refuse collection, transportation
networks, zoning codes, and fiscal policies.
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Government Structure
Maricopa County contains 23 incorporated cities and towns, and numerous
unincorporated areas within its 9,225 square miles. Local governments provide a
variety of services, including law enforcement, fire safety, planning and
zoning, and other typical government services.
Services & Utilities
Arizona Public Service supplies electricity for most of the Valley,
including Ahwatukee, Foothills, Chandler, Gilbert, and Tempe. Salt River Project
is the other main electric supplier in the region, serving parts of Apache
Junction, Chandler, Mesa, and Tempe. Southwest Gas provides natural gas to the
region. US West Communications is the main telephone supplier in Maricopa
County. Water and sewer service is provided by the local municipalities.
Tax Structure
Tax burdens within the region include state and local sale taxes,
corporate income taxes, and ad valorem property taxes. Arizona's sales tax is
5.0 percent. Maricopa County adds an additional 0.05 percent on retail sales for
freeway construction. The Maricopa County Assessor's Office assesses taxes at
25.0 percent of full value for improved industrial and commercial properties.
Bond Rating
Moody's Bond Record places the State of Arizona's bond rating as "Aaa"
relative to investment qualities, while Maricopa County is "A". "Aaa" bonds are
judged to be the best quality and carry the smallest degree of investment risk.
"A" bonds are judged to possess many favorable investment attributes and are
considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
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C. Social Forces
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Real estate values can be influenced to a large degree by social issues
impacting the region, including population trends, income levels, the profile of
workers in the area, and other quality of life issues. The demographic
composition of the population reveals the potential, basic demand for real
estate services.
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Population
The population and its geographic distribution are basic determinants of
the need for real estate. Aggregate population growth is distributed among
regions in response to changing economic opportunities, while the demand for
real estate is created by a population's demand for the goods and services to be
produced or distributed within the region. Thus, population and demographic
trends can influence the demand for services provided by property, thereby
affecting property value.
The Phoenix market is commonly perceived as a market composed primarily of
retirees. This view is valid to a limited extent, since Phoenix still ranks
among the top quartile nationwide in the proportion of residents over the age of
64. But the consumer base has changed as the in-migration of job seekers in
recent years has outpaced the influx of retirees. Members of the "baby boom"
generation (ages 25 through 44) now constitute a slightly higher proportion of
the Phoenix population than the national average. While strong transportation
and educational infrastructures are important assets, a major impetus to
Phoenix's rapid population growth has been its lower living costs relative to
MSAs in Southern California. Overall utility costs and tax collections are also
below national and regional levels.
Population in the Phoenix-Mesa MSA has grown at a relatively healthy pace
over the past decade, showing increases of 3.4 percent per year from 1980 to
1990, and 2.7 percent per year from 1990 to 1997. By comparison, Arizona has
also experienced population growth of 2.7 percent per year over the last seven
years, while the U.S. reports population growth of about 1.0 percent per year
for the same period. Estimates for 1997 place population in the Phoenix MSA at
2,695,900 +/-, an aggregate increase of 20.0 percent over 1990.
Through 2010, population growth in the MSA is forecasted to be 2.1 percent
per year according to Woods & Poole Economics, slightly higher than the rate of
growth projected for the state as a whole.
Households
Household formation is an important component of demographic analysis
which helps to identify changing patterns or shifts within the population. A
household consists of all people occupying a single housing unit, thus providing
significant sociological information about the region. Household formation also
has a significant influence on demand for real estate. Households, combined with
effective purchasing power, provide the basic demand
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for housing units and household needs, thereby transforming needs into effective
demand for real estate improvements.
Like the nation as a whole, household formation has occurred at a rate in
excess of population growth within the subject region. This acceleration has
been the result of several trends, namely the fact that the population is
generally living longer, divorce rates have been on the rise, and many younger
professionals are postponing marriage and/or leaving home at an earlier age, all
resulting in increases of one- and two-person households. The total number of
households in the Phoenix-Mesa MSA has increased from 580,190+/- in 1980 to
1,005,140+/- in 1997, a compound annual increase of about 3.3 percent per year.
Accordingly, the number of persons per household within the MSA has decreased
from 2.74 in 1980 to 2.64 in 1997.
Projections through 2010 by Woods & Poole Economics show household growth
in Phoenix at 2.1 percent per year, similar to population growth forecasts. This
rate of growth will lead the state and far surpass the household growth for the
nation.
Income
Income levels, either on a per capita, per family, or per household basis,
indicate the economic level of residents within the region and form an important
component of economic analysis. Average income has a direct impact on the
ability of residents to satisfy material desires for goods and services,
directly affecting the demand and price levels of real estate.
Phoenix's large retiree population consumes extensive amounts of goods and
services, but adds little to the overall income of the community. Coupled with
the relatively low wage levels in the MSA, this contributes to a slightly
below-average per capita personal income level. Although low costs of living
help to balance the below-average income, housing, taxes, and pension
expenditures claim an above-average percentage of personal income. This tends to
place Phoenix in the bottom quartile of Top 100 MSAs for consumer spending
potential.
On an average household basis (in real 1992 dollars), Phoenix-Mesa has an
average income of $56,337 for 1997, about 8.7 percent higher than the state
level of $51,817 and slightly below the national income level of $57,295.
Maricopa County has a higher average household income figure than the MSA with
$57,122.
Real per capita income growth has generally kept pace with state and
national trends, experiencing annual growth of roughly 1.07 percent per year
(1980-90); 1.39 percent per year from 1990 to 1997 (not adjusted for inflation).
Income projections by Woods & Poole
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Economics show per capita income growth of 1.36 percent per year for the
Phoenix-Mesa MSA. Areas on the northeast and a portion of the southwest side of
the MSA in Scottsdale and Phoenix are generally more affluent than other sectors
with average income levels between $100,000 and $180,000.
Effective Buying Income
While income levels are above average for the state, and slightly below
the nation, lower taxes and housing costs also tend to improve the purchasing
power of area residents. As such, the effective disposable income of
residents--adjusted for tax payments, contributions to pension funds, and the
cost of new housing--ranks fairly comparable to other regions of the southeast.
Sales & Marketing Management places median household effective buying income at
$31,340 for Phoenix-Mesa as of 1996, higher than the state median of $28,923 but
lower than the U.S. median household EBI of $33,482.
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D. Economic Trends
- -----------------------------
Economic forces are significant to real property value. The fundamental
relationships between current and anticipated supply and demand and the economic
ability of the population to satisfy its wants, needs, and demands through
purchasing power are tantamount to such an analysis. Some of the specific market
characteristics considered in economic analysis include employment trends, the
economic base of the region, expansion and new development, and the overall
economic health of the region.
Overview
The Phoenix-Mesa MSA has a relatively diverse economic base. Several
factors contribute to the strength and stability of the local economy, including
a good quality of life, a skilled labor force, low taxes, financial incentives
by government, and a good transportation network.
Over the past several years, the region has seen stable investment from
new companies, as well as expanding industries. Statistics on labor, employment,
investment, and construction show evidence of the region's dynamic economic
growth.
For years, Phoenix has been one of the fastest growing metropolitan areas
in the nation. Low costs, a favorable climate, a well-educated workforce, and
proximity to key markets in Southern California and the Pacific Rim have all
contributed to the area's economic vigor. Despite an economic downturn in the
late-1980s/early-1990s, the factors that previously fueled the MSA's growth
remain in-place, giving Phoenix a positive outlook.
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The industry mix, although heavily concentrated in electronics and aerospace,
also favors the MSA's long-term prospects.
With an improving economy, new growth has stimulated construction activity
and has also increased the movement of thousands of new companies, primarily
from California and the Midwest, into the Valley because of the readily
available work force, low cost of living, quality of living for their employees,
and the pro-business environment.
In terms of real estate, Arizona's phase-out of its sales tax on
commercial leases continues, dropping from 4.0 percent to 3.0 percent in 1994,
2.0 percent in 1995, and 1.0 percent in 1996. The 1.0 percent decrease will
continue until 1997, when the tax will be eliminated altogether.
Also contributing to the large number of companies choosing the Phoenix
metropolitan area are low corporate income tax rates, plus new state regulations
which allow corporations to file consolidated income tax returns. This
regulation allows corporations to claim losses from subsidiaries in other states
on their Arizona tax returns. The end result is the development of buildings for
new companies and existing companies expanding and/or relocating.
Among the Top 100 MSAs in the country, Phoenix ranks about 19th in
economic diversity, with goods and services for sale outside the MSA ranging
from high-tech manufacturing, communications, and tourism. Although only about
10.5 percent of the nation's urban markets lie within a 500-mile radius of the
region, the MSA's convenient access to major markets in Southern California
overshadows its distance from other U.S. regions. Key manufacturing industries
in Phoenix includes the electronics and aerospace sectors. Phoenix has become a
major regional center for communications and business services, providing
support for much of the Southwestern U.S. and Rocky Mountain region.
Tourism employment has continued to grow rapidly as the area's
recreational charms have not abated. Tourism is expected to continue to bolster
the local economy over the coming years as the number of visitors and winter
residents continue to increase.
Employment
The largest sectors of non-agricultural employment in Phoenix are Services
(32.0 percent), Wholesale and Retail Trade (23.7 percent), and Government (12.5
percent). Although continuing to witness growth in manufacturing, this sector of
non-farm employment accounts for a lower percentage of employment than its 14.9
percent share in 1980. Services, on the other hand, have increased its share
from 23.0 percent in 1980 to 32.0
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percent today. Finance, Insurance and Real Estate sectors of employment have
generally maintained their percentage of non-farm employment, while Government
has slipped. Both Construction and Transportation, Communications and Public
Utilities have also maintained their distribution over the past fifteen years.
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Employment Distribution
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Employment Sector 1980 % of Total 1997 % of Total
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Total Non-Farm Employment 796,860 100.00% 1,516,260 100.00%
- ------------------------------------------------------------------------------
Mining 7,380 0.9% 6,290 0.4%
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Construction 59,110 7.4% 99,470 6.6%
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Manufacturing 118,740 14.9% 152,900 10.1%
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T.C.P.U. 33,800 4.2% 72,700 4.8%
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Wholesale/Retail Trade 186,870 23.5% 358,600 23.7%
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F.I.R.E. 84,270 10.6% 149,100 9.8%
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Services 183,000 23.0% 481,900 31.8%
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Government 123,690 15.5% 189,700 12.5%
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Source: Woods & Poole Economics, Inc.
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Between 1980 and 1997 (forecast) the Phoenix MSA added 719,400 jobs,
indicative of an astounding compound annual growth rate of 3.8 percent. During
1996 alone, the region added in excess of 73,000 jobs, or 5.7 percent. According
to Metro Market Facts, (second quarter 1997 report), this increase was the
second largest aggregate gain in the country behind Dallas, Ft. Worth, and the
second largest proportional gain behind Las Vegas.
The region's robustness produced gains in all major employment categories.
The service sector was the big leader in absolute terms, creating 30,800 net new
jobs. Retail trade had the second-largest gain (9,600 new jobs), followed by the
public sector (9,100). Finance, insurance and real estate (FIRE) and wholesale
trade grew by 7,800 and 6,800 new jobs, respectively. the transportation sector
created 4,400 net new jobs. The construction industry added 3,900 workers.
Manufacturing had the least impressive gain, 300 net new jobs.
Three sectors had percentage gains of over 8 percent. The largest (8.8
percent) occurred in wholesale trade. It was followed by FIRE and services.
Transportation expanded its employment base by 6.8 percent; government by 5.2
percent; construction by 4.3 percent; and retail trade by 3.9 percent.
Manufacturing's gain translated into a minuscule 0.2 percent advance.
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Services now account for 31.8 percent of the area's workforce versus 28.6
percent for the nation and 23 percent of MSA employment in 1980. Retail trade,
the second largest employment category, with 23.7 percent, is generally
consistent with national averages. Phoenix has a much lower percentage of its
workers employed in manufacturing, 10.1 percent versus 15.1 percent for the
nation.
Owing to its status as the state capital, one of Phoenix's largest
employment categories is state and local government. This tends to mitigate some
of the volatile economic swings seen in regions which depend more heavily on one
particular industry. The construction sector has traditionally comprised a key
segment of the Phoenix economy. Despite faltering in the early-1990s with
overbuilding in most real estate markets, this sector continues to be an
important part of the local economy. As such, construction's 6.6 percent of
local employment is well above the national average of 4.5 percent. In recent
years, businesses selling goods and services outside the MSA have also been
expanding, including high-tech durable manufacturing, communications, and
tourism.
Based on data through the second quarter of 1997, Phoenix continued to
ride its recent wave of exuberant economic growth; payroll employment advanced
5.8 percent over year ago levels. Broad gains can be found in a number of key
areas: the growth of high-technology manufacturing, increases in the retirement
population, and the city's gains as a distribution hub. These improvements in
turn, produced increases in secondary and tertiary industries, for example
financial services, retail trade and professional services.
Greater Phoenix is home to an increasing number of high-tech companies.
One of the major high-tech players here is Intel, which has a $1.3 billion chip
manufacturing complex (Fab 12) in southwest Chandler. Two of the area's newest
high-tech developments involve Sumitomo and Microchip Technology. Sumitomo/Sitix
just opened a new $400 million, 550,000 square foot water fabrication plant in
northeast Phoenix. The plant employs 200 currently, with expected employment of
up to 500 by 1999.
Microchip Technology has a $137 million expansion underway at its Fab2
manufacturing facility in Tempe that is expected to create 200 new jobs.
Completion is scheduled for early 1998. In addition, the company is planning to
add about 300,000 more square feet (divided between manufacturing and office
space) at its plant in Chandler. The $1 billion expansion is scheduled to take
place over the next eight years, with construction beginning in 1998. If built
out as currently envisioned, the company expects to hire another 2,000 workers
for the Chandler site by 2003.
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Avnet, a distributor of electronics and computer products, which currently
employs 1,700 throughout greater Phoenix, has announced plans to move its
Electronic Marketing Group into a 176,000 square foot facility at Phoenix
Airport Center. The move is expected to create several hundred new jobs.
The growth of the area's high-tech industry has been part of the reason
for Phoenix's high ranking in Cognetics' annual survey of "Entrepreneurial Hot
Sports". The metropolitan area received the fourth-highest ranking in 1996
(behind Salt Lake City, Atlanta and Birmingham, Alabama).
Another industry, aerospace, is pumping new life into some quarters here.
The merger between McDonnel-Douglas and Boeing, is expected to have positive
ramifications for the area.
The metropolitan area continues to lure high-profile back-office
operations and many companies with existing facilities are looking for room to
grow. Excell Agent Services, a directory services firm that already has 2,400
employees in the area (in Phoenix, Tempe and Mesa), has announced plans to hire
500 more during the next six months.
Bank of America plans to hire about 1,000 more workers at its telephone
banking center in Tempe. Bank One Arizona has announced plans to add 1,000 new
jobs in a consolidation of the company's telephone operations.
Employment Growth
Over the past five years, it is clear that employment growth in the
Phoenix-Mesa MSA has slowed over the growth experienced between 1980 and 1990.
Total employment grew at a compound annual rate of 4.5 percent per year from
1980 to 1990, decreasing to an annual rate of 2.8 percent from 1990 to 1997.
Services, Transportation/Public Utilities, Finance, Insurance and Real Estate,
Wholesale/Retail Trade, and Government have led employment growth, while
Manufacturing increases have slowed.
The consensus opinion is that while Phoenix's growth in employment will
slow over the next decade, it will remain one of the top performing areas in the
nation. Employment forecasts by a variety of econometric firms show a consensus
growth of approximately 2.5 to 3.0 percent per annum.
Major Employers
The relative diversity of the Phoenix economy can also be seen in the list
of major MSA employers. Motorola is greater Phoenix's largest private sector
employer, with 19,400
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workers on its local payroll. Samaritan Health System is next, with an employee
roster of 10,800. AlliedSignal (engineering and aerospace firm) employs 8,700.
Pinnacle West Capital (the holding company for Arizona Public Service), US West,
American Express, and Bank of America employ over 7,000 each. Both Intel and
Banc One locally employ approximately 6,500.
Other companies with more than 3,000 employees include: America West
Airlines, Fry's Food Stores, Wells Fargo Bank, Honeywell Inc., Tosco/Circle K,
Safeway, the Salt River Project (water and power utility), Bashas
(supermarkets), McDonnell-Douglas, TRW, AT&T, Southwest Airlines, and Gosnell
Builders.
Unemployment Rates
Unemployment rates in the Phoenix-Mesa MSA have historically been below
state and national figures. As of October 1997, the unadjusted unemployment rate
for Phoenix-Mesa was 2.5 percent, 110 basis points below year end 1996 and 140
points below the state unemployment rate of 3.9 percent. Mirroring national
trends, unemployment in the MSA peaked between 1992-1993, followed by a
declining trend through 1996.
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Historic Unemployment Rates
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Year Phoenix MSA Arizona United States
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Oct-97 2.5% 3.9% 4.7%
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1996 3.7% 5.5% 5.4%
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1995 3.5% 5.1% 5.6%
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1994 5.0% 6.4% 6.1%
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1993 5.1% 6.2% 6.8%
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1992 6.4% 7.4% 7.4%
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1991 4.9% 5.7% 6.7%
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1990 4.3% 5.3% 5.5%
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Source: Employment & Earnings; Bureau of Labor Statistics
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Although it is too soon to know what the 1996 annual adjusted rate will be
for the Phoenix region, it appears that unemployment declines have slowed within
the MSA as a whole through the third quarter of this year.
Retail Sales
Another measure of the economic health of a region is retail sales
patterns. Consumers drive the economy by creating demand for goods and services
and, in turn, generate the need for housing, office space, retail centers, and
warehouse/distribution facilities. It is estimated that consumer spending
accounts for two-thirds of all economic activity in the United Sates today. As
such, retail sales patterns have become an important
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indicator of the economic health of a region. The following table summarizes
historic retail sales in the Phoenix MSA and State of Arizona for the period
1985 - 1996.
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Retail Sales (1985-1996)
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Year Phoenix MSA (000) State of Arizona (000)
================================================================================
1985 $11,710,860 $18,401,358
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1991 $17,241,381 $26,893,039
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1996 $28,007,212 $42,748,487
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CAGR 1985-1996 8.2% 8.0%
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CAGR 1991-1996 10.2% 9.7%
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Source: Sales and Marketing Management Survey of Buying Power
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Retail sales growth has been very good in the Phoenix area, increasing at
a compound annual rate of 8.2 percent over the past 11 years. More recently,
growth has increased to 10.2 percent per annum which is higher than the 9.7
percent growth experienced by the state as a whole. Going forward, Sales &
Marketing Management forecasts an increase of 31.9 percent in sales to $36.9
billion versus 30.5 percent for the state as a whole. The significance of the
Phoenix market is evidenced by the fact that with approximately 61.0 percent of
the state's population, it accounts for nearly 66.0 percent of total retail
sales. Woods & Poole Economics forecasts the MSA to see annual retail sales
growth of 2.7 percent per year above inflation through 2010 (adjusted to 1987
dollars).
The purchasing profile of area residents tends to reflect the demographic
characteristics of the city. Drugs/Pharmaceuticals, and health and beauty aids
claim a disproportionately large share of retail sales, attributable in part to
the area's high proportion of retirees. Sporting goods and recreational vehicles
are also featured, reflecting the region's opportunities for leisure-time
activities and the favorable climate. Those categories expected to have the
greatest growth potential are seen in General Merchandise and Eating and
Drinking places.
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E. Tourism/Visitor Profile
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Overview
According to the Phoenix & Valley of the Sun Convention & Visitors Bureau,
Tourism represents the second largest industry in the metropolitan area, behind
high-technology. It is estimated that over 10.0 million people visit Phoenix
each year, while more than 24.0 million visit the State of Arizona as a whole.
Visitors to the Valley account for nearly $4.0 billion in total expenditures
annually, with retail sales comprising $400.0 million.
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Visitor Economic Impact
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Year: 1995
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Estimated Number of Visitors: 10.86 Million
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Average Length of Stay: 4.7 Nights
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Mean Expenditure Per Trip: $476
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Total Economic Impact for Maricopa County: $5.35 Billion
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Source: Arizona Hospitality Research & Resource Center 1996
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Expenditures
The majority of visitor expenditures go toward food & beverage which
accounts for 28.6 percent of all expenditures; lodging accounts for 21.5
percent, transportation 20.0 percent, and retail sales 15.0 percent. The
following chart presents a breakdown of visitor expenditures by category.
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Visitor Expenditures
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Category Percent 1995 Expenditures(000)
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Food & Beverage: 28.6% $1,530,946
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Lodging: 21.5% $1,150,886
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Transportation: 20.0% $1,070,591
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Retail Sales: 15.0% $ 802,944
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Entertainment: 9.0% $ 481,766
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Other: 5.9% $ 315,824
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Total: 100.0% $5,352,957
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Source: Arizona Hospitality Research & Resource Center 1996
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Based upon the 11+/- million visitors in 1995, the direct economic impact
was calculated to be $5.35 billion. Business and convention travelers accounted
for 38.0 percent of all visitations in 1995.
Business/Convention Travelers
Business and convention-oriented travelers to the Phoenix area comprise
about 38.0 percent of all visitors to the region. The following chart summarizes
the profile of business and convention travelers to the region.
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Business/Convention Traveler Profile
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Average Age: 41.6 Years
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Average Income: $74,700
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Average Party Size: 1.51 People
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Average Daily Spending: $193
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Average Length of Stay: 3.8 Nights
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Major Activities
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Shopping: 52.0%
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Sightseeing: 40.0%
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Swimming/Sunbathing: 36.0%
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Nightclubs: 25.0%
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Golf: 19.0%
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Source: Behavior Research, Inc.
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From the data we see that the average business/convention visitor is 41.6
years of age with an average income of $74,700. According to Behavior Research,
52.0 percent of those surveyed cited shopping as one of their major activities
while visiting.
Leisure Travelers/Winter Visitors
Leisure travelers to the Phoenix area comprise approximately 62.0 percent
of all visitors to the region. Their average age is slightly higher than the
business/convention traveler at 42.8 years, with a significantly lower average
income of $51,100. About 73.0 percent of all leisure travelers surveyed said
that shopping was one of their primary activities. The following chart
summarizes the profile of leisure travelers to the region.
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Leisure Traveler Profile
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Average Age: 42.8 Years
- --------------------------------------------------------------------------------
Average Income: $51,100
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Average Party Size: 2.12 People
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Average Daily Spending: $174
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Average Length of Stay: 5.3 Nights
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Major Activities
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Shopping: 73.0%
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Sightseeing: 74.0%
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Swimming/Sunbathing: 46.0%
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Museums: 39.0%
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Golf: 16.0%
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Source: Behavior Research, Inc.
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In the table below, only visitors staying in mobile homes or travel
trailers were portrayed. In general, winter visitors arrive in the Valley by
October and return to their state of origin by May. Median length of stay is
estimated at slightly more than four months. In Metro Phoenix, approximately
113,000 winter visitors injected more than $340 million, while statewide,
approximately 201,200 winter visitors injected nearly $1.0 billion in direct
consumer expenditures during the 1995/96 season.
================================================================================
Motor Home & Travel Trailer Winter Visitors - Metro Phoenix
================================================================================
Mobile Home &
Travel Trailer Census 1992/93 1993/94 1994/95 1995/96
================================================================================
Number of Mobile Home Spaces 56,400 57,900 58,400 64,500
- --------------------------------------------------------------------------------
Number of Travel Trailer/R.V. Spaces 44,600 44,000 43,500 37,400
- --------------------------------------------------------------------------------
Total Spaces Available 101,000 101,900 101,900 101,900
- --------------------------------------------------------------------------------
Spaces Occupied 92,000 94,800 95,800 97,000
- --------------------------------------------------------------------------------
% of Space Occupied by Winter Visitors 58% 59% 58% 58%
- --------------------------------------------------------------------------------
Number of Winter Visitor Households 53,200 56,000 56,000 56,700
================================================================================
Source: Arizona State University, College of Business, Center for Business
Research, August 1996
================================================================================
Summary
From this analysis, it is clear that the Phoenix region is greatly
impacted by the tourism and winter visitor industry. With over 10.0 million
visitors each year providing over $400.0 million in retail sales to the region
annually, there is clearly a competitive climate to attract these expenditures.
As noted by the American Express study, roughly 40.6 percent of all retail
expenditures in 1995 were from Non-Phoenix card members. In addition, 74.0
percent of all leisure travelers and 52.0 percent of all business travelers to
the area cited shopping as one of their primary activities while visiting. In
our opinion, the mall portfolio is well positioned to capture a strong market
share of this visitor spending potential upon completion.
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F. Real Estate Markets
- -------------------------------------------
The real estate markets in Phoenix can be divided primarily into
commercial and residential segments. The commercial segment includes office,
industrial, and retail properties, while the residential market consists of
multi-family and single-family dwellings. The following is a brief overview of
each segment.
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Office Market
The Phoenix office market is rebounding from several years of oversupply
which is being absorbed due to continued population and employment growth.
Recent declines in vacancy are attributable to a steady pattern of net
absorption and lack of new construction. As a result, effective rents have begun
to increase. The decline in the use of concessions, especially free rent, has
increased effective rent levels and, coupled with increased office space demand,
should continue to warrant rental rate improvement in all submarkets.
According to F.W. Dodge, the total inventory of office space in
metropolitan Phoenix was 103.5 million square feet at year end 1996. This was up
2.3 percent from 1995. Net absorption of 5.4 million square feet resulting in a
reduction in the vacancy rate to 11.1 percent from 14.4 percent. Koll Real
Estate reports that most of the net absorption was in the Class B sector.
Overall, vacancy in the Class A sector was slightly below 6 percent and 11.3
percent among Class B. In the more marginal Class C product, nearly one quarter
remained empty.
Approximately 1.2 million square feet of new suburban office space was
under construction in early 1997, and an additional 3.8 million square feet were
in the planning pipeline. According to Koll, most of the projects are located in
the active Camelback Corridor, Scottsdale, or Tempe submarkets. Scottsdale, with
an inventory of 5.6 million square feet, had an overall vacancy rate of 5.6
percent at year end. In the Class A sector, vacancy was particularly low at 3.4
percent.
The overall tightness in the market has caused prices to rise. According
to Koll, the value of Class A Central Business District space rose 7 percent to
$113.40 per square foot while suburban space rose 24 percent to $116.63 per
square foot. With such value increases, it would be expected that the pace of
new construction would accelerate.
F.W. Dodge forecasts that between 1998 and 1999, 7.5 million square feet
of new supply will be available in the market, forcing vacancies above 12
percent. The F.W. Dodge pipeline is currently tracking well over 2 million
square feet of new product which is expected to break ground before the close of
the fourth quarter. In subsequent years, developers will heed the warning
signals. They anticipate contract activity to average 2.1 million square feet
per year during the final five years of the forecast, compared with the average
of 1.7 million square feet for the 58 MSAs they surveyed. Fortunately, stable
office employment growth will keep the metro-wide office vacancy rate in the 11
to 12 percent range.
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Regional Analysis
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Industrial Market
Arguably the most active market segment, the industrial sector shows
little sign of slowing down. According to Koll, metropolitan Phoenix has an
industrial inventory of approximately 87.6 million square feet, about 9.4
percent of which were vacant in early 1997. Though vacancy was only slightly
below what it was a year earlier, that stability gains new significance when
considering that approximately eight million square feet (half of it
speculative) came on-line here during 1996. According to Koll, another 1.9
million square feet were under construction entering 1997, and 2.9 million more
square feet were in the planning stages. Areas seeing the most growth include
Chandler/Gilbert, Mesa, South Phoenix, and Tempe.
A breakdown by product type is shown on the following page.
==========================================================================
Type Inventory (mil SF) Vacancy
--------------------------------------------------------------------------
Distribution Warehouse 33.0 11.0%
--------------------------------------------------------------------------
Manufacturing 27.5 6.7%
--------------------------------------------------------------------------
Industrial Office 12.7 9.4%
--------------------------------------------------------------------------
High Tech 5.2 6.2%
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F.W. Dodge reports that the Phoenix industrial market is firmly entrenched
in the development phase of the real estate cycle. During the first six months
of 1997, the MSA has completed more new industrial facilities than any other
metropolitan area surveyed. Although the increase in capital availability has
been an impetus to higher contract activity, demand has been buoyant. The MSA's
gains in manufacturing and the growth in its retail markets together produced
strong demand for inventory storage and distribution centers. Total net
absorption reached a cyclical peak in 1996, but remains healthy in the current
year They do note however, that gains to inventory will force vacancies to rise,
ending the fourth quarter at 9 percent.
In the final five years of the forecast, supply-demand fundamentals will
remain firm and the market will experience above average returns on investment.
Net absorption in 1998 and 1999 will average 2.9 million square feet per year,
compared with 1.3 million square feet for the 58 MSAs Dodge surveys. However,
industrial properties are extremely sensitive to swings in the GDP. As growth in
the national economy decelerates in the latter portion of the forecast,
absorption will drop to a 2.2 million square feet annual average. Developers
will respond accordingly; after advancing at a 4 percent annual pace, inventory
gains will settle into a more manageable 2.4 percent annual rate for the first
three years of the forecast. Therefore, vacancies will end the period below the
survey average, at 8.2 percent.
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Construction will be strongest in the near term, peaking in 1997. On
average, 3.1 million square feet of new warehouse space will be started each
year through 2002. The project pipeline contains over 5.0 million square feet.
The average price for Class A warehouse stood at $34.25 per square foot at
the end of 1996, up 16 percent over 1995.
Retail Market
By all accounts, the retail market remains robust. According to Koll, the
year end vacancy rate declined to 7.7 percent from 9 percent among the 80+/-
million square feet they survey. F.W. Dodge reports that since the first quarter
of 1996, the Phoenix market absorbed 5.9 million square feet, more than any
other western MSA. Dodge reports that during the past 6 quarters, 12 million
square feet of new space was completed, with only Atlanta and Philadelphia
experiencing higher inventory gains.
One of the reasons retail is so strong in Phoenix is due to tourism.
Tourists boost the spending totals there. According to Sales & Marketing
Management's 1997 Survey of Buying Power, retail sales in greater Phoenix
averaged $26,482 per household during 1996, while the national metropolitan
average was $24,992 per household and for the state sales were $25,391. Retail
sales were highest in Scottsdale ($45,152 per household).
By contrast, greater Phoenix's median household EBI for 1996 ($31,346 per
household) was well below the national median ($33,482 per household).
Nonetheless, with a lower cost of living, residents in Phoenix enjoy a higher
percentage of disposable income.
Most of the new construction was in the neighborhood centers segment which
accounts for 25.6 million square feet (32 percent of inventory) and had a
vacancy rate of approximately 7 percent. Power centers, with 6.7 million square
feet of total inventory report the lowest vacancy rate of slightly less than 1
percent. Net absorption was 400,000 square feet in the first quarter of 1997.
Community centers, with 12.2 million square feet had a vacancy rate of
just over 7.0 percent and regional malls had the highest vacancy rate of
approximately 10.0 percent among its 14.2 million square feet. Finally, Koll
reports that nearly all of the 4.8 million square feet of freestanding space was
occupied. Among all of the submarkets, Scottsdale had the lowest vacancy rate of
only 4.0 percent for its 15.2 million square feet of retail inventory.
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F.W. Dodge expects that demand for retail space in Phoenix will remain
strong, averaging 3.2 million square feet annually through 2002. The key
determinants of demand are households and incomes, both of which will continue
to grow through the next six years. National chains and investors will respond
to the increasing demographic base by expanding their presence in the market.
Competition from various retail formats will place increasing pressure on profit
margins. However, Phoenix will weather the storm better than most markets.
Strong net absorption will force vacancies to trend downward, driving them to a
low 7.3 percent by 2002.
Phoenix will remain one of the most attractive retail markets in the
country for both institutional investors and new development. F.W. Dodge expects
retail inventory to expand at an average 2.1 percent annual rate over the next
six years. This level of construction will be maintained by the more than 8.0
million square feet in the planning pipeline.
The largest project in the market is the 1.2 million square foot Arizona
Mills scheduled to open in November 1997. The next largest is a 570,000 square
foot power center on Ray Road and 48th Street. Plans are being finalized for a
proposed regional mall in Chandler which could be on line in late 1999.
Hospitality/Lodging Market
F.W. Dodge reports that the building boom currently underway in the
Valley's hospitality industry is negatively affecting the bottom line for many
local area hotel operators. Since January, 639,000 SF of new hotel space has
been added to inventory and another 764,000 SF is slated to be completed in the
final six months of the year, adding more than 3,000 rooms to a marketplace that
is quickly becoming overbuilt. In an attempt to bolster occupancies, hoteliers
across all segments have cut room-rates, relative to last summer. Despite
attractive price incentives, occupancies through June are a percentage point
below year-ago levels at 71.6 percent. Demand has fueled rate increases in the
average daily rate (ADR). In 1996 it stood at 95.34 percent, up 8.9 percent from
$87.56 in 1995 and 20 percent from the $79.18 reported for 1994.
In the near term, the Phoenix hotel market should experience favorable
demand conditions. Twenty-seven percent of Arizona's domestic out-of-state
visitors come from California; 17 percent of its international visitors are from
Mexico. Given the stabilization of Mexico's peso and California's rebounding
economy, leisure travel to the MSA should be robust. As a result, lodging demand
between 1998 and 2002 will be sturdy, totaling 4.3 msf; but average annual
increases of 4.5 percent in stock will hold occupancies in the 68 percent to 70
percent range.
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Regional Analysis
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With 7.5 msf in the planning pipeline it is quite evident that developers
will continue to enter the market at a rapid pace. F.W. Dodge is currently
tracking 17 projects which are scheduled to begin construction before year-end
1997, including: the 200-room Marriott Hotel, a 172-room Quality Suites Hotel, a
120-room Holiday Inn Suites, and 160-room, Radisson facility. In 1997, contact
activity will exceed 2 msf for the first time in over a decade. However, rising
competition and downward pressure on daily room rates will limit new
construction to a more reasonable 910,000 SF per year between 1998 and 2002.
This rate of construction is still more than double the average of the 58 MSA's
Dodge surveys.
Residential Market
Phoenix continues to be one of the most active housing markets in the
nation. Huge population growth and a sharply revived economy have driven vibrant
new home construction. In 1994, 28,784 single-family units were approved for
construction, the nation's highest total that year. In 1995, the sum in Phoenix
rose again, to 29,104 units. Still more, 29,892 units were authorized in 1996.
For the first half of 1997, 15,960 were permitted, according to preliminary data
from the bureau. Construction is active in a number of areas; the city of
Phoenix, Chandler and Scottsdale hold the lead, but Gilbert, Mesa, Glendale and
Peoria are also active. F.W. Dodge expects that single family construction is
expected to peak in 1997 at 29,800 units, before falling to an average of 24,200
over the next five years.
Prices remain low by national norms, but the gap seems to be quickly
narrowing. According to the National Association of Realtors, the second quarter
1997 median resale price in the metro market was $113,200, 8.5 percent below the
national median of $123,700, and 22.4 percent below the $145,900 median for the
Western U.S. A year earlier, these differences were respectively 14.7 percent
and 34.0 percent.
According to the 1997 Study of Housing Costs, conducted by E&Y Kenneth
Leventhal, Phoenix ranks as the 33rd least expensive housing market of the 75
major metropolitan markets surveyed. After factoring in tax deductions, owning a
home required approximately 22 percent of the median family income. According to
the study, housing costs were approximately the same for renters.
Apartment development in Phoenix has picked up markedly, particularly at
the high end, and particularly (but not only) in the North Phoenix-Scottsdale
area; Mesa, Chandler and Tempe have also been active. Indeed, building permit
numbers here are a good example of the steep cycles characteristic of Phoenix
area real estate markets. After averaging fewer than 1,900 units per year from
1989 through 1993, multi-family building
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Regional Analysis
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permitting leapt to 5,991 units in 1994. It leapt again in 1995, to 8,220 units.
And yet another substantial gain was reported for 1996 with the authorization of
9,754 units.
As large as those numbers may seem, they pale beside the 34,580
multi-family units approved in 1984, and the 25,693 in 1985 (and the 17,821 of
1986). Through the first half of 1997, the pace appears to be cooling:
preliminary date from the U.S. Department of Commerce, Bureau of the Census,
report 3,832 units authorized, a 32 percent decline from the total for the
comparable period of 1996. In 1996, some 7,000 new units came on line, with a
higher total expected for the 1997 year-end tally. F.W. Dodge reports that since
1994, net absorption of 24,000 units was achieved, pushing vacancy rates to a
low of 6.1 percent.
Average vacancy, thus, has increased. Indeed, its been increasing since
1995--although as of first quarter 1997 the vacancy rate was still relatively
low at 5 percent (a far cry from the double-digit levels that persisted from
1985 to 1992). F.W. Dodge reports that since 1994 effective rents have risen at
an annual rate of 5.3 percent compared with 3.2 percent for the nation.
Despite the relatively large increases in inventory, the multi-family
sector continues to function efficiently. During the remainder of the decade the
supply-demand relationship for apartments should gradually improve. In the near
term, demand for market-rate and luxury condominiums will keep net absorption
above a 7,000-unit average per year through 2002. However, long-term demographic
trends indicate that elderly housing and assisted living facilities will be in
greater demand as the decade unfolds. Overall, F.W. Dodge expects Phoenix to
construct more multi-family facilities than any other western region city,
averaging 6,300 units per year between 1997 and 2002.
Summary
Most submarkets in Phoenix will continue to experience new development in
1997-98. Those areas not encountering new development will see increases in
rental rates as current space is absorbed and new construction takes place in
surrounding submarkets. The stimulated market has produced a tightening which
has improved overall vacancy rates and begun to push rental rates upward.
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Regional Analysis
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G. Critical Observations
- -------------------------------------------
The following bullet points summarize some of our general observations
relating to the subject's region:
o Economy - The Phoenix-Mesa economy is relatively diverse and has
seen strong growth over the past decade. The largest sectors of
employment include Services (32.0 percent), Wholesale/Retail Trade
(23.7 percent), Government (12.5 percent), Manufacturing (10.1
percent), and F.I.R.E. (9.8 percent).
o Employment - Employment growth is projected to be 2.6 percent per
year, led by F.I.R.E., Services, and Transportation, Communications,
and Public Utilities. The Manufacturing base will continue to lag
the other sectors and expand at an annual rate of 1.3 percent per
year through 2010.
o Population - Population growth in the MSA is forecasted to be 2.1
percent per year, while household formation will occur at an annual
rate of 2.1 percent per annum.
o Average Household Income - Income levels are projected to increase
at an annual rate of about 1.4 percent per year through 2010 above
inflation.
o Retail Sales - Sales are forecasted to grow by about 2.7 percent per
year for the MSA as a whole, in real (1992) dollars.
o Consumer Markets - The attractiveness of Phoenix's consumer markets
is mixed. Positive factors include the area's fundamentally strong
growth, both in terms of resident population and income. Conversely,
relatively low per capita disposable income and Phoenix's
historically high level of cyclically tend to detract slightly from
the appeal of its retail markets.
o Strengths - Strengths of the region include low living and operating
costs and proximity to Southern California and Pacific Rim markets.
The MSA also benefits from an efficient transportation network and a
good quality of life. Rapid growth in the working-age population
continues to boost the outlook for expansion in the retail sector.
With wages, energy rates, and construction costs relatively low, the
area continues to keep and attract firms, a trend that continues to
invigorate growth in business-to-business markets.
o Weaknesses - Weaknesses within the MSA include a strained physical
and educational infrastructure which has resulted from the area's
rapid growth, compromising the quality of life within the region.
These are typical growing pains, however, which continue to be a
focus of local government.
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Regional Analysis
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Conclusion
The short- and long-term outlook for the Phoenix-Mesa region and its
surrounding area is for good growth in employment and population. The economy is
well diversified, with a relatively low cost of living and good transportation
system. On balance, we are relatively optimistic about the short-term outlook of
the subject region. Long-term, the region should see stability and good growth,
with increasing real estate values.
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NEIGHBORHOOD MAP
[MAP OMITTED]
<PAGE>
NEIGHBORHOOD ANALYSIS
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The City of Mesa
Mesa is located 12 miles southeast of Phoenix and covers more than 122
square miles. According to the Mesa Chamber of Commerce, Mesa is the second
largest city in the Phoenix-Mesa metropolitan area and the third largest city in
Arizona. The estimated population for the City of Mesa, Maricopa County and the
State of Arizona is shown below.
---------------------------------------------------------------------------
Population
---------------------------------------------------------------------------
1980 1990 1996
---------------------------------------------------------------------------
Mesa 152,453 288,091 343,710
---------------------------------------------------------------------------
Maricopa County 1,509,175 2,122,101 2,634,625
---------------------------------------------------------------------------
Arizona 2,716,546 3,665,228 4,462,300
---------------------------------------------------------------------------
Source: Arizona Department of Economic Security and U.S. Census Bureau.
---------------------------------------------------------------------------
Mesa's economic base is heightened with thirteen of Fortune magazine's top
500 manufacturers located in Mesa. In addition, more than 500 smaller firms
offer supportive roles in the manufacturing economy of Mesa.
Mesa is central to transportation facilities covering the state, and is
served by the main line of the Southern Pacific Railroad, 25 interstate truck
lines and Sky Harbor International Airport. Sky Harbor International Airport,
located approximately 12 miles west of Mesa, is served by 16 major airlines and
offers non-stop flights to every major U.S. city. The major highway in Mesa is
U.S. Highway 60 (Superstition Freeway), which connects Mesa with Interstates 10
and 17. The interstate and highways allow easy accessibility to Tempe, Phoenix
and the Sky Harbor International Airport.
Neighborhood Description
The subject property is situated along the east side of South Greenfield
Road, approximately two miles north of U.S. Highway 60, in the City of Mesa,
Arizona. The subject property's neighborhood is generally bounded by University
Drive to the north, Higley Road to the east, U.S. Highway 60 to the south and
Gilbert Road to the west. This area is primarily developed with manufactured
housing communities, residential uses, retail uses and convenience stores.
Manufactured housing communities are located to the north, east and west
of the subject property, several communities include: Sunrise Vista, Castillo
Nuevo, El Mirage, Citrus Gardens, Mesa Village and Brentwood West. Comparison
rental information is provided for Sunrise Vista and Castillo Nuevo in the
Market Analysis section of this report. Single-family residential uses are noted
primarily to the southwest of the subject site and retail
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Neighborhood Analysis
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uses along Greenfield Road.
Transportation in the subject's immediate area is good. The subject
property enjoys access and visibility along South Greenfield Road, a
north-south, four-lane paved roadway, with a middle turning lane. The subject
property has approximately 1,318 feet of frontage along the east side of South
Greenfield Road. South Greenfield Road enjoys an interchange with U.S. Highway
60 approximately two miles south of the subject site.
In summary, the subject property is located within a well-established
area, which benefits from the nearby manufactured housing communities and
accessibility to South Greenfield Road U.S. Highway 60.
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MARKET ANALYSIS
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National Overview
Reportedly, the largest property owners of manufactured housing
communities in the United States are: ROC Communities, headquartered in
Colorado; MHC, Inc., headquartered in Illinois; Ellenburg Capital, headquartered
in Oregon; Lautrec Ltd., headquartered in Michigan; Clayton Homes, headquartered
in Tennessee; Clayton Williams and Sherwood, headquartered in California;
Chateau Properties, Sun Communities and UNIPROP, headquartered in Michigan.
The following represents the top ten manufactured housing community firms,
as reported by GFA Management, as of 1997.
<TABLE>
<CAPTION>
=========================================================================================
1997 Firm Name State No. of Sites No. of Communities
Rank Owned/Managed Owned/Managed
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Sun Communities Michigan 30,295/0 84/0
- -----------------------------------------------------------------------------------------
2 ROC Communities Colorado 22,441/7,167 77/36
- -----------------------------------------------------------------------------------------
3 Manufactured Home Communities Illinois 27,349/838 69/3
- -----------------------------------------------------------------------------------------
4 Ellenburg Capital Florida 25,173/0 63/0
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5 Lautrec Ltd. Michigan 22,652/0 58/0
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6 Chateau Properties Michigan 20,003/0 47/0
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7 Clayton Homes Tennessee 18,000/0 66/0
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8 Clayton, Williams and Sherwood California 16,946/0 44/0
- -----------------------------------------------------------------------------------------
9 UNIPROP Michigan 14,931/0 40/0
- -----------------------------------------------------------------------------------------
10 The Bloch Organization Michigan 14,379/0 37/0
=========================================================================================
</TABLE>
According to the U.S. Census Bureau, more than 8,521,000 people were
living in manufactured housing communities as of 1990 compared to 3,838,678 in
1980. This represents an increase in manufactured housing community living of
approximately 122.0 percent over the last ten years. Over the last ten years,
there has been a steady increase in manufactured housing community development
across the country. Among the demographic factors which account for the increase
in manufactured housing community living are: decreasing household size, a
growing demand for smaller housing, as well as an alternative to the increasing
cost of housing. Nationally, the largest percentage of manufactured housing
communities are located in California, Michigan, Colorado, Florida, New York,
Minnesota, Indiana, Arizona, Ohio, and Wisconsin.
The manufactured home industry has dramatically changed over the last 20
years. Manufactured homes are now designed and constructed to accommodate
spacious and attractive living requirements. Today, approximately one out of
sixteen families live in
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Market Analysis
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manufactured housing units. The manufactured housing market share has been
growing steadily over the last 10 years. In 1990, 6.7 percent of Americans lived
in manufactured housing units, up from 2.9 percent compared to 1970, according
to the U.S. Census Bureau, which represents 12.0 to 14.0 percent of all new
housing built since the mid-1980's, according to the Manufactured Housing
Institute in Arlington, Virginia.
In 1990, the average cost of a manufactured housing unit was $27,800
compared to $149,000 for a new house (including land), according to the
Manufactured Housing Institute. This reflects a 28.0 percent increase in the
cost of manufactured housing since 1980 versus a 49.0 percent increase in
conventional housing. Industry experts estimate that a single-family home
selling for $150,000 would require an annual income of $52,671. To purchase a
$27,800 manufactured housing unit, only a $19,984 income level would be
required.
At Fleetwood Enterprises, the nation's largest manufacturer of
manufactured housing units, units may be purchased for up to $100,000, which
would include a three-bedroom, two-bath unit of 2,100 square feet, with vaulted
ceilings.
In 1990, approximately 10.0 percent of manufactured home owners lived in
units worth approximately $40,000, up from 4.0 percent compared to 1981,
according to a study conducted by Foremost Insurance Company in Grand Rapids,
Michigan. Also, according to the study, approximately 21.0 percent of the
manufactured housing households are occupied by people' 65 years of age or
older, slightly lower than the age group for conventional homes, as reported by
Foremost Insurance.
The demand for good quality institutional grade manufactured housing
communities has substantially increased over the last ten years. Manufactured
housing communities provide an affordable alternative to the increasing cost of
housing. Also, manufactured housing communities provide an alternative form of
living for the elderly and retirees, especially for those living on fixed
incomes.
Acquisitions of manufactured housing communities during 1993 and 1994 were
clearly dominated by Real Estate Investment Trusts. During 1994 and 1995
Manufactured Home Communities (MHC) and ROC communities lead the acquisition of
manufactured housing communities nationally. During 1996, Sun Communities
captured the lead and, together with ROC and MHC dominate the Real Estate
Investment Trust market.
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Market Analysis
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The following chart represents the largest Real Estate Investment Trusts,
from 1991 to 1996, as reported by GFA Management
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HOME SITE GROWTH, DEVELOPMENT AMONG THE LARGEST
REAL ESTATE INVESTMENT TRUST (REITS)
- --------------------------------------------------------------------------------
Year ROC MHC Chateau Sun United Total Annual
Growth
- --------------------------------------------------------------------------------
1996 29,608 28,187 20,003 30,295 5,234 113,327 17.0%
- --------------------------------------------------------------------------------
1995 27,910 26,237 19,594 18,000 4,850 96,591 9.0%
- --------------------------------------------------------------------------------
1994 26,231 28,407 15,689 13,500 4,623 88,450 37.8%
- --------------------------------------------------------------------------------
1993 20,142 14,700 15,261 9,036 5,050 64,189 17.8%
- --------------------------------------------------------------------------------
1992 18,745 12,873 10,032 7,600 5,200 54,450 N/A
- --------------------------------------------------------------------------------
1991 9,030 13,079 9,759 N/R N/R N/A N/A
- --------------------------------------------------------------------------------
N/R = No report N/A = Not applicable
- --------------------------------------------------------------------------------
NOTE: The 113,327 sites counted for the top five REITs in 1996 make up 20
percent of the total sites surveyed in the 1997 Allen Report. These rental sites
are located in 339 communities, accounting for about 1 percent of some 50,000
existing manufactured housing communities nationwide. The community counts for
the five major REITs are: ROC (113), MHC (72), Chateau (47), Sun (84) and United
(23). The proportion of communities owned by each of the REITs compared to the
others is: ROC (33%), MHC (21%), Chateau (14%), Sun (25%) and United (7%).
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Manufactured Home Communities (MHC) is expected to continue an aggressive
acquisition campaign through 1997 and beyond. As of September 1997, the MHC REIT
had a market cap of $632.0 million, and continues to pursue the acquisition of
manufactured home communities. Aside from the ELL-CAP $300.0 million
transaction, in September 1997 Manufactured Home Communities, Inc. completed a
$107.0 million purchase of 18 manufactured housing communities and two related
commercial properties from partnerships affiliated with Mobileparks West. The
communities, with 3,505 sites, were purchased with about $3.0 million
manufactured home operating units, $16.0 million in cash and $20.0 million of
installment notes and assumed debt. The communities have an average monthly
rental of $349.00. The communities are located in California, Utah, Oregon,
Washington and Nevada. MHC may be the first manufactured home community REIT to
reach $1.0 billion.
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Market Analysis
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The MHC REIT continues to perform and expand, and as of September 1997
was trading at $25.625, with a current yield of 5.2 percent. The top traded
REITs, are presented as follows.
==================================================================
REIT MARKET UPDATE
- ------------------------------------------------------------------
Company Price Current 52 Week 52 Week Annual 12 Mth Tot
Symbol (9/19/97) Yield High Low Dividend Rtn
- ------------------------------------------------------------------
CPJ $29.688 5.8% $31.125 $22.250 1.72 26.6%
- ------------------------------------------------------------------
MHC $25.625 5.2% $26.428 $18.875 1.32 30.7%
- ------------------------------------------------------------------
SUI $37.428 5.0% $ 38.00 $27.750 1.88 31.8%
- ------------------------------------------------------------------
UMH $11.625 6.0% $13.625 $10.875 0.70 -1.7%
- ------------------------------------------------------------------
Total return figures obtained through Standard & Poors and are for
the period through Sept 1997.
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The Southwest and Northwest Regions of the nation are the preferred
locations regarding recent and future manufactured housing community
acquisitions. However, investors seeking moderate, but consistent growth
expectations, are still looking at the midwest region. Also, southern portions
of Florida are still considered a prime area for investors seeking good quality
manufactured housing communities, with good up-side potential. What was once a
stagnant market, the northeast region is now being considered for future
acquisitions.
According to a recent study prepared by Merrill Lynch & Company, ownership
in the manufactured housing community industry is highly fragmented. The top 150
owner-operators account for less than 5.0 percent of the total industry, whereas
a host of "mom-and-pop" private companies account for the other 95.0 percent.
This unglamorous niche industry is ripe for consolidation, and an infusion of
professional management expertise is likely to yield significant economies of
scale. The four REIT's specializing in manufactured housing communities are
already among the top ten owner-operators, and are well positioned to facilitate
and hasten the industry's consolidation to the likely benefit of their
stockholders.
Manufactured homes are the fastest growing component of the nation's
housing inventory, due to their affordability, good quality design and safety
standards. According to the Merrill Lynch & Company Manufactured Housing
Community Industry Report, factory-built homes appeal especially to senior
citizens and to households with limited economic needs, two segments of the
population that are likely to grow rapidly in coming years.
Consistent returns in manufactured housing community investments have been
the mainstay of the industry. For this reason, as well as the amount of
acquisitions seen by Real Estate Investment Trusts (REITs) from 1991 to 1996,
the availability of good quality
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Market Analysis
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manufactured housing communities has been substantially reduced compared to the
1980's. Good quality manufactured housing communities still command premium
prices, thus driving down overall capitalization rates.
Cushman & Wakefield's Valuation Advisory Services has tracked sale
transactions of manufactured housing communities since 1985. Overall
capitalization rates have consistently been within the 8.75 to 10.00 percent
range for communities located in moderate to increasing growth markets, and as
low as near 8.0 percent for those communities located in growing markets that
poses significant upside potential. Overall capitalization rates are clearly
affected and are differentiated among the properties relative to rent levels,
age, quality, condition, location, amenities, demographic characteristics,
resident profile, as well as the quality of management.
Manufactured housing communities fall within, and are categorized by their
overall appearance, age, and amenities, but more importantly the strength of the
local market. The various categories of manufactured housing communities,
according to the Woodall Directory, can be ranked as 1 to 5 Star Parks. These
rankings are defined as follows:
One Star Park
The most important consideration for a one star park is overall
appearance. If it is not a decent place to live, it will not be listed in
Woodall's Directory. The following are general requirements:
o Fair overall appearance;
o Patios on most lots. May be concrete, asphalt, wood, or some
suitable material;
o Grass, rock or shell to cover ground;
o Streets fair to good. May be dirt, asphalt or gravel in reasonable
condition;
o Restrooms clean, if any;
o Adequate laundry or laundromat nearby;
o If fences allowed, must be neat;
o Mail service;
o Homes may be old models, but show evidence of care; and,
o Manager available some hours of each day.
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Market Analysis
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Two Star Park
In addition to the requirements for a one star park, a two star park will
have the following:
o Landscaping - some lawns and shrubs;
o Streets in good condition. Must be dust free of crushed rock, gravel
or shell minimum;
o Neat storage; Well equipped laundry or laundromat nearby;
o 200 volt connections available;
o If children accepted, park should have play area;
o Park free of clutter, such as old cars and other abandoned
equipment; and,
o Well maintained and managed.
Three Star Park
What a three star park does it does well, but not as uniformly as higher
rated parks. Many three star parks were once higher rated, but original
construction does not allow for today's 10-foot, 12-foot, and double-wides
or the 55-foot and 60-foot lengths. If children are allowed, there should
be adequate play area. However, the disarray caused by children may at
times be the determining factor that keeps a three star park at that level
when it otherwise could be rated higher. In addition to the requirements
for one and two star parks, a three star park must have the following:
o Attractive entrance;
o All homes must be in good condition;
o Awnings and cabana rooms on some homes in southern areas;
o Some spaces for large mobile homes;
o Paved or hard surfaced streets;
o Off-street parking or streets wide enough for safe on-street
parking;
o Good lawns or substitute throughout, shade trees, some shrubs where
climate permits;
o Concrete patios or the equivalent on all lots;
o All lots neat and attractive;
o All park buildings in good repair; and,
o Good management.
Four Star Park
Four star parks are luxury parks. In addition to the requirements for one,
two and three star parks, a four star park must have the following:
o Good landscaping;
o Most homes skirted with metal skirts, concrete block, ornamental
wood or stone;
o Paved streets, edged or curbed.
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Market Analysis
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o Uncrowded lots;
o Underground utilities if permitted by local conditions and
authorities;
o Most tanks, if present, concealed;
o Any hedges or fences must be attractive and uniform;
o Awnings, cabanas, or porches on most homes in southern areas.
(Excepting double-wide units.);
o Most lots to accommodate large mobile homes;
o Where row parking of homes exists, all must be lined up uniformly;
o Community hall and/or swimming pool and/or recreation programs. If a
park is four star in all but this requirement, the fourth star will
be printed as an open star indicating a four star park without
park-centered recreation; and,
o Excellent management.
Five Star Park
Five star parks are the finest. They should be nearly impossible to
improve. In addition to the requirements for one, two, three, and four
star parks, a five star park must have the following:
o Well planned and laid out spacious appearance;
o Good location in regard to accessibility and desirable neighborhood.
In some locations, park should be enclosed by high hedges or
ornamental fence;
o Wide paved streets in perfect condition. Curbs or lawns edged to
streets, sidewalks, street lights, street signs;
o Homes set back from street;
o Exceptionally attractive entrance and park sign;
o Patios at least 8 x 30 feet. (Excepting double-wide units.);
o Paved off-street parking such as carports or planned parking;
o All homes skirted;
o All hitches concealed. Any existing tanks concealed;
o Recreation, some or all of the following: swimming pool (excepting
areas with long, cold winters), shuffleboards, horseshoe pitching,
golf course, hobby shop, hobby classes, games, potlucks, dances or
natural recreational facilities;
o Beautifully equipped recreation hall with kitchen. Room for
community gatherings, tiled restrooms, etc.;
o Uniform storage sheds or central storage facilities;
o All late model homes in excellent condition;
o At least 60 percent occupancy in order to judge quality of residents
which indicates park's ability to maintain a five star rating
between inspections;
o All empty lots grassed, graveled or otherwise well maintained;
o If pets or children allowed, there must be a place for them to run
and play without cluttering the streets and yards. Most five star
parks are for adults only; and,
o Superior management interested in comfort of residents and
maintenance of park.
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Market Analysis
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The demand for good quality institutional grade manufactured housing
communities is anticipated to increase throughout the 1990's, since manufactured
housing communities provide an alternative form of living for the elderly and
retirees, especially for those living on fixed income. Manufactured home
shipments continue to be strong. Shipments rose 20.0 percent in 1992 and 1994,
and 12.0 percent in 1995. The market for good quality manufactured housing
communities is expected to be strong, with yield and capitalization rates and
prices expected to continue to be competitive, with the REITs leading the way.
Competition
We have surveyed nine manufactured housing communities located within the
subject's primary market, including the subject property, containing a total of
3,192 sites. The combined occupancy rate of these nine manufactured housing
communities, including the subject property, is approximately 97.0 percent.
Excluding the subject property in our survey, the combined occupancy rate is
also approximately 98.0 percent, based on 2,826 sites.
The name and location of the subject property's primary competition, as
well as the number of sites, occupancy levels, amenities offered, monthly rental
rates and services provided in the monthly rental rate, are presented on the
following facing page, along with a map which identifies the location of each
competing park.
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<TABLE>
<CAPTION>
================================================================================================================================
SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- --------------------------------------------------------------------------------------------------------------------------------
Number Age
Of Sites --------- 3-Year
-------- Condition Services Date Of Average
Comp. Name Occupancy ------------- Monthly Provided Last Rental Annual Rental
No. Location Level Amenities Park Rating(1) Rent in Rent Increase Increase
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R-1 Contempo Tempe 454 Clubhouse 1974 $280.00/Mo. Water January, 1997 $8.00/Mo.
2609 W. Southern Avenue --- Pool/Spa ---- To Sewer
Tempe, Arizona 94% Library Good $303.00/Mo. Refuse
Exercise Room ----
Billiard Room 5*
Shuffleboard
Putting Green
Laundry
Storage
- --------------------------------------------------------------------------------------------------------------------------------
R-2 Pueblo Sereno 224 Clubhouse 1972 $300.00/Mo. Water January, 1997 $8.00/Mo.
8350 E. McKellips Road ---- Pool/Spa ---- To Sewer
Scottsdale, Arizona 100% Exercise Room Good $369.00/Mo. Refuse
Shuffleboard ----
Fishing Lake 5*
Laundry
Storage
- --------------------------------------------------------------------------------------------------------------------------------
R-3 Shadow Mountain Village 589 Clubhouse 1973 $300.00/Mo. Water January, 1997 $8.00/Mo.
8780 E. McKellips Road ---- Pool/Spa ---- To Sewer
Scottsdale, Arizona 100% Tennis Courts Good $325.00/Mo. Refuse
Shuffleboard ----
Laundry 5*
Storage
- --------------------------------------------------------------------------------------------------------------------------------
R-4 Brentwood Southern 345 Clubhouse 1979 $316.64/Mo. Water January, 1997 $15.00/Mo.
8103 E. Southern Avenue --- Pool/Spa ---- To Sewer
Mesa, Arizona 93% Exercise Room Good $322.70/Mo. Refuse
Billiard Room ----
Craft Room 5*
Shuffleboard
Laundry
Storage
================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
================================================================================================================================
SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
================================================================================================================================
Number Age
Of Sites --------- 3-Year
-------- Condition Services Date Of Average
Comp. Name Occupancy ------------- Monthly Provided Last Rental Annual Rental
No. Location Level Amenities Park Rating(1) Rent in Rent Increase Increase
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R-5 The Meadows 391 Clubhouse 1971 $330.74/Mo. Water January, 1997 $17.00/Mo.
2401 W. Southern Avenue --- Pool/Spa ---- To Sewer
Tempe, Arizona 98% Billiard Room Good $396.29/Mo. Refuse
Craft Room ----
Exercise Room 5*
Shuffleboard
Laundry
Storage
- --------------------------------------------------------------------------------------------------------------------------------
R-6 Sunrise Village 230 Clubhouse 1982 $334.00/Mo. None January, 1997 $13.00/Mo.
5502 E. McKellips Road --- Pool/Spa ---- To
Mesa, Arizona 99% Shuffleboard Good $350.00/Mo.
Laundry ----
Storage 5*
- --------------------------------------------------------------------------------------------------------------------------------
R-7 Castillo Nuevo 302 Clubhouse 1972 $309.00/Mo. Refuse January, 1997 $10.00/Mo.
3300 E. Broadway Road --- Pool/Spa ---- To
Mesa, Arizona 98% Library Good $319.00/Mo.
Exercise Room ----
Shuffleboard 5*
Laundry
Storage
- --------------------------------------------------------------------------------------------------------------------------------
R-8 Sunrise Vista 291 Clubhouse 1974 $308.05/Mo. Water October, 1997 $10.00/Mo.
300 S. Val Vista Drive --- Pool/Spa ---- To Sewer
Mesa, Arizona 99% Shuffleboard Good $318.15/Mo. Refuse
Putting Green ----
Laundry 5*
Storage
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</TABLE>
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<TABLE>
<CAPTION>
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SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- --------------------------------------------------------------------------------------------------------------------------------
Number Age
Of Sites --------- 3-Year
-------- Condition Services Date Of Average
Comp. Name Occupancy ------------- Monthly Provided Last Rental Annual Rental
No. Location Level Amenities Park Rating(1) Rent in Rent Increase Increase
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Subject Hacienda de Valencia 366 Clubhouse 1972
201 South Greenfield Road --- Pool/Spa ---- $317.00/Mo. None December, 1997 $13.00/Mo.
Mesa, Arizona 96% Exercise Room Good
Billiard Room ----
Shuffleboard 5*
Laundry
Storage
- --------------------------------------------------------------------------------------------------------------------------------
(1) Ratings from One Star to Five Star Parks are defined in the National Overview section of this report.
================================================================================================================================
</TABLE>
<PAGE>
COMPETING MANUFACTURED HOUSING MAP
[MAP OMITTED]
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Market Analysis
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Rental rates of manufactured housing communities located within the
subject's primary market range from $280.00 to $396.29.00 per site, on a monthly
basis. The subject property is currently quoting monthly rental rates within the
market range, or at $317.00 per site. The last rental rate increase at the
subject property was as of December, 1997, of $14.00 per month.
The enclosed comparable rentals are considered the most competitive to the
subject property regarding amenities offered, condition, location and overall
ranking.
Comparable R-1, Contempo Tempe, is located at 2609 W. Southern Avenue, in
Tempe, Arizona. This comparable property is a 55-year-old and greater
residential community, which contains 454 sites, and is approximately 94.0
percent occupied. Contempo Tempe was developed in 1974, and is in overall
good condition. Over the last three years, the annual rental rate
increased approximately $8.00 per month. Monthly rental rates range from
$280.00 to $303.00, with water, sewer and refuse service included in the
monthly rental payment. Amenities include a clubhouse, pool, spa, library,
exercise room, billiard room, shuffleboard, putting green, laundry
facility and recreational vehicle storage.
Comparable R-2, Pueblo Sereno, is located at 8350 E. McKellips Road, in
Scottsdale, Arizona. This comparable property is a 55-year-old and greater
residential community, which contains 224 sites, and is 100.0 percent
occupied. Pueblo Sereno was developed in 1972, and is in overall good
condition. Over the last three years, the annual rental rate increased
approximately $8.00 per month. Monthly rental rates range from $300.00 to
$369.00, with water, sewer and refuse service included in monthly rental
payment. Amenities include a clubhouse, pool, spa, exercise room,
shuffleboard, fishing lake, laundry facility and recreational vehicle
storage.
Comparable R-3, Shadow Mountain Village, is located at 8780 E. McKellips
Road, in Scottsdale, Arizona. This comparable property is a 55-year-old
and greater residential community, which contains 589 sites, and is 100.0
percent occupied. Shadow Mountain Village was developed in 1973, and is in
overall good condition. Over the last three years, the annual rental rate
increased approximately $8.00 per month. Monthly rental rates range from
$300.00 to $325.00, with water, sewer and refuse service included in the
monthly rental payment. Amenities include three clubhouses, two pools, two
spas, a tennis courts, shuffleboard, laundry facility and recreational
vehicle storage.
Comparable R-4, Brentwood Southern, is located at 8103 E. Southern Avenue,
in Mesa, Arizona. This comparable property is a 55-year-old and greater
residential community, which contains 345 sites, and is approximately 93.0
percent occupied. Brentwood Southern was developed in 1979, and is in
overall
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Market Analysis
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good condition. Over the last three years, the annual rental rate
increased approximately $15.00 per month. Monthly rental rates range from
$316.64 to $322.70, with water, sewer and refuse service included in
monthly rental payment. Amenities include a clubhouse, two pools, two
spas, a billiard room, exercise room, craft room, shuffleboard, laundry
facility and recreational vehicle storage.
Comparable R-5, The Meadows, is located at 2401 W. Southern Avenue, in
Tempe, Arizona. This comparable property is a 55-year-old and greater
residential community, which contains 391 sites, and is approximately 98.0
percent occupied. The Meadows was developed in 1971, and is in overall
good condition. Over the last three years, the annual rental rate
increased approximately $17.00 per month. Monthly rental rates range from
$330.74 to $396.29, with water, sewer and refuse service provided in the
monthly rental payment. Amenities include a clubhouse, pool, spa, billiard
room, craft room, exercise room, shuffleboard, laundry facility and
recreational vehicle storage.
Comparable R-6, Sunrise Village, is located at 5502 E. McKellips Road, in
Mesa, Arizona. This comparable property is a 55-year-old and greater
residential community, which contains 230 sites, and is approximately 99.0
percent occupied. Sunrise Village was developed in 1982, and is in overall
good condition. Over the last three years, the annual rental rate
increased approximately $13.00 per month. Monthly rental rates range from
$334.00 to $350.00, with no services provided in the monthly rental
payment. Amenities include a clubhouse, pool, spa, shuffleboard, laundry
facility and recreational vehicle storage.
Comparable R-7, Castillo Nuevo, is located at 3300 E. Broadway Road, in
Mesa, Arizona. This comparable property is a 55-year-old and greater
residential community, which contains 302 sites, and is approximately 98.0
percent occupied. Castillo Nuevo was developed in 1972, and is in overall
good condition. Over the last three years, the annual rental rate
increased approximately $10.00 per month. Monthly rental rates range from
$309.00 to $319.00, with only refuse service provided in the monthly
rental payment. Amenities include a clubhouse, pool, spa, library,
exercise room, shuffleboard, laundry facility and recreational vehicle
storage.
Comparable R-8, Sunrise Vista, is located at 300 S. Val Vista Drive, in
Mesa, Arizona. This comparable property is a 55-year-old and greater
residential community, which contains 291 sites, and is approximately 99.0
percent occupied. Sunrise Vista was developed in 1974, and is in overall
good condition. Over the last three years, the annual rental rate
increased approximately $10.00 per month. Monthly rental rates range from
$308.05 to $318.15, with water, sewer and refuse service provided in the
monthly rental payment. Amenities include a clubhouse, pool, spa,
shuffleboard, putting green, laundry facility and recreational vehicle
storage.
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Market Analysis
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In our opinion, and based on conversations with the on-site manager,
properties R-4, R-7 and R-8 compete most favorably with the subject property,
with monthly rental rates ranging from $308.05 to $322.70 per site. The subject
property is currently quoting monthly rental rates at $317.00 per site, which is
within the range of rental rates of our more comparable and competing
properties. The subject property competes most effectively with its primary
competitors regarding amenities, condition and current rent structure.
Comparable Manufactured Housing Community Sales
A search of the subject's market revealed six recent sales of manufactured
housing communities located in the Phoenix-Mesa MSA. The following is a brief
discussion of each of the manufactured housing sales located within the
subject's market. These sales are summarized on the following facing page.
Comparable Sale I-1, Mesa Village, is located at 2701 E. Allred Avenue, in
Mesa, Arizona. This property contains 201 sites, situated on 18.36 acres
of land area. The property was in good condition at the time of sale and
was developed in 1964. Amenities include a pool, laundry facility and
shuffleboard. The property was approximately 99.0 percent occupied at the
time of sale. The property was purchased for $5,000,000, which equates to
$24,876 per site.
Comparable Sale I-2, Chaparral Mobile Village, is located at 400 W.
Baseline Road, in Tempe, Arizona. This property contains 359 sites,
situated on 41.10 acres of land area. The property was in average
condition at the time of sale and was developed in 1971. Amenities
includes a pool. The property was 100.0 percent occupied at the time of
sale. The property was purchased for $7,800,000, which equates to $21,727
per site.
Comparable Sale I-3, Casa del Sol I Resort, is located at 11411 N. 91st
Avenue, in Peoria, Arizona. This property contains 246 sites, situated on
30.886 acres of land area. The property was in good condition at the time
of sale and was developed in 1972. Amenities include a clubhouse, pool,
spa, saunas, library, activity center, billiard room, exercise room,
shuffleboards, golf course and laundry facility. The property was
approximately 99.0 percent occupied at the time of sale. The property was
purchased for $8,610,000, which equates to $35,000 per site.
Comparable Sale I-4, Casa del Sol II Resort, is located at 10960 N. 67th
Avenue, in Peoria, Arizona. This property contains 239 sites, situated on
28.872 acres of land area. The property was in good condition at the time
of sale and was developed in 1977. Amenities include a clubhouse, pool,
spa, saunas, library, billiard room, exercise room, golf course, laundry
facility and recreational vehicle storage. The property was approximately
99.0 percent occupied at the
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Market Analysis
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time of sale. The property was purchased for $8,370,000, which equates to
$35,021 per site.
Comparable Sale I-5, Brentwood Southern, is located at 8103 E. Southern
Avenue, in Mesa, Arizona. This property contains 345 sites, situated on
60.06 acres of land area. The property was in good condition at the time
of sale and was developed in 1983. Amenities include a clubhouse, two
pools, two spas, horseshoes and shuffleboard. The property was 100.0
percent occupied at the time of sale. The property was purchased for
$10,540,000, which equates to $30,551 per site.
Comparable Sale I-6, Sunrise Heights, is located at 17801 N. 16th Street,
in Phoenix, Arizona. This property contains 200 sites, situated on 28.0
acres of land area. The property was in good condition at the time of sale
and was developed in 1981. Amenities include a clubhouse, pool, spa and
tennis court. The property was approximately 95.0 percent occupied at the
time of sale. The property was purchased for $4,000,000, which equates to
$20,000 per site.
It should be noted that comparability does not imply an identical or exact
duplicate, but rather the possession of a similar utility and affected by
similar supply and demand forces. Also, relative to the subject property,
differences include: time or date of the transactions; location, which
encompasses differences in accessibility; site characteristics, including
differences in size, topography, access, exposure and development capacities;
and improvement characteristics, which include differences in age, quality,
condition, size and amenities.
Demographic Trends
Based on information provided by National Decision Systems (NDS), the
populations within the subject's primary 5-mile and secondary 10-mile market
areas, as of 1997, are 267,628 and 598,327, respectively. The populations of the
subject's primary and secondary market areas are projected to increase to
318,031 and 702,406, respectively, by the year 2002.
According to NDS, the total number of households within the subject's
primary and secondary market areas, are 100,499 and 230,260, respectively, for
1997. The number of households within the subject's primary 5-mile and secondary
10-mile market areas are projected to increase to 123,457 and 277,829,
respectively, by the year 2002.
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<TABLE>
<CAPTION>
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SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- -----------------------------------------------------------------------------------------------------------------------------------
$EGI/Site
Sales Price ---------
Per Site $Expense/Site
Sales Date Land Area Density --------- EGIM -------------
Comp. Name ---------- --------- ------- Occupancy ---- Expense Ratio Comparability
No. Location Sales Price No. Sites Condition At Sale $NOI/Site OAR % Of EGI to the Subject
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
I-1 Mesa Village 1/97 18.36 10.95 $24,876 N/A N/A N/A Inferior
2701 E. Allred Avenue ------ ----- ----- -------
Mesa, Arizona $5,000,000 201 Good 99%
- -----------------------------------------------------------------------------------------------------------------------------------
I-2 Chaparral Mobile 12/96 41.10 8.73 $21,727 N/A N/A N/A Inferior
Village ----- ----- ---- -------
400 W. Baseline Road $7,800,000 359 Average 100%
Tempe, Arizona
- -----------------------------------------------------------------------------------------------------------------------------------
I-3 Casa del Sol I Resort 10/96 30.886 7.96 $35,000 $2,642 9.16x $3,821 Similar
11411 N. 91st Avenue ----- ------ ---- ------- ----- ------
Peoria, Arizona $8,610,000 246 Good 99% 7.55% $1,179
------
30.86%
- -----------------------------------------------------------------------------------------------------------------------------------
I-4 Casa del Sol II Resort 10/96 28.872 8.28 $35,021 $3,096 8.13x $4,310 Similar
10960 N. 67th Avenue ----- ------ ---- ------- ----- ------
Peoria, Arizona $8,370,000 239 Good 99% 8.84% $1,213
------
28.14%
- -----------------------------------------------------------------------------------------------------------------------------------
I-5 Brentwood Southern 4/96 60.06 5.75 $30,551 $2,520 8.49x $3,600 Similar
8103 E. Southern Ave. ------ ----- ---- ------- ----- ------
Mesa, Arizona $10,540,000 345 Good 100% 8.25% $1,080
------
30.0%
- -----------------------------------------------------------------------------------------------------------------------------------
I-6 Sunrise Heights 2/94 28.0 7.14 $20,000 $1,680 7.38x $2,710 Inferior
17801 N. 16th Street ------ ---- ---- ------- ----- ------
Phoenix, Arizona $4,000,000 200 Good 95% 8.40% $1,030
------
38.01%
- -----------------------------------------------------------------------------------------------------------------------------------
Subject Hacienda de Valencia - - - 53.75 6.81 - - - $2,574 N/A $3,708 Subject Property
2401 W. Southern Ave. ----- ---- ------
Mesa, Arizona 366 Good 96% $1,134
------
30.58%
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</TABLE>
==============================================================
- --------------------------------------------------------------
Comp. Name
No. Location Comments
- --------------------------------------------------------------
I-1 Mesa Village Developed in 1964;
2701 E. Allred Avenue Good condition; Amenities
Mesa, Arizona include: pool, laundry
facility and shuffleboard.
- --------------------------------------------------------------
I-2 Chaparral Mobile Developed in 1971; Average
Village condition; Amenities
400 W. Baseline Road includes a pool.
Tempe, Arizona
- --------------------------------------------------------------
I-3 Casa del Sol I Resort Developed in 1972; Good
11411 N. 91st Avenue condition; Amenities
Peoria, Arizona include a clubhouse, pool,
spa, saunas, library,
activity center, billiard
room, exercise room,
shuffleboards, golf course
and laundry facility.
- --------------------------------------------------------------
I-4 Casa del Sol II Resort Developed in 1977; Good
10960 N. 67th Avenue condition; Amenities
Peoria, Arizona include: clubhouse, pool,
spa, saunas, library,
billiard room, exercise
room, golf course, laundry
facility and RV storage.
- --------------------------------------------------------------
I-5 Brentwood Southern Developed in 1983;
8103 E. Southern Ave. Good condition; Amenities
Mesa, Arizona include: clubhouse, two
pools, two spas, exercise
room, billiard room, craft
room, shuffleboard, laundry
facility and RV storage.
- --------------------------------------------------------------
I-6 Sunrise Heights Developed in 1981; Good
17801 N. 16th Street condition; Amenities
Phoenix, Arizona include: clubhouse, pool,
spa and tennis court.
- --------------------------------------------------------------
Subject Hacienda de Valencia Developed in 1972; Good
2401 W. Southern Ave. condition; Amenities
Mesa, Arizona include: clubhouse, pool,
spa, exercise room,
billiard room,
shuffleboard, laundry
facility and RV storage.
==============================================================
<PAGE>
Market Analysis
================================================================================
The average household income levels within the subject's primary and
secondary market areas, for 1997, are $52,856 and $51,727, respectively. The
median household income levels within the subject's primary and secondary market
areas, for 1997, are $39,678 and $38,205, respectively. Per capita income within
the subject's primary and secondary market areas, for 1997, are $19,938 and
$19,974, respectively.
Based on the above levels, the demographics of the subject's primary
market area appear to indicate a positive growth trend, based on information
provided by NDS. For additional demographic information, please refer to the NDS
summary report in the Addenda of this report.
Expense Analysis
Expenses exhibited by manufactured housing communities nationally are
typically 35.0 to 45.0 percent of effective gross income. However, expense
ratios of manufactured housing communities located in the southeast and
southwest regions of the nation are typically lower by comparison, due to lower
real estate taxes and common area maintenance charges.
As presented in the Summary of Manufactured Housing Communities Sales,
operating expense ratios of competing parks range from 28.14 to 38.01 percent of
effective gross income levels, and $1,030 to $1,213 on a per site basis. The
subject property is currently reporting expenses, for the 12-month trailing
period of 1997, at 30.58 percent of effective gross income and $1,134 on a per
site basis. The operating expenses of the subject property are within the range
of comparable properties on both a percentage of effective gross income and on a
per site basis.
Market Supply and Demand
There are a total of eight competing manufactured housing communities
located within the subject's market, which total 2,826 sites, with a
corresponding average occupancy rate of 98.0 percent. No specific absorption
statistics were available. The subject property, based on conversations with
management, has historically had occupancy rates consistent with competing
parks, and is currently 96.0 percent occupied. We believe the current occupancy
rate of the subject property is stabilized, and has similar occupancy rates of
competing parks presently presented. Based on the subject's current occupancy
rate and occupancy rates at competing parks, demand appears to be strong, with
steady rental rate increases expected.
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Maket Analysis
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Conclusion
Historically, the subject's primary market has sustained occupancy levels
of 95.0 to 100 percent. Rental rates of similar manufactured housing communities
located within the subject's primary market generally range from $280.00 to
$396.29 per site, on a monthly basis. The subject property is currently quoting,
and is currently achieving (based on the most recent rent roll provided), a
monthly rental rate within the range of competing parks, or at $317.00 per site.
Based on our research, steady increases in rental rates are anticipated,
based on actual historical performance of competing parks and historical
increases seen at the subject property. Sales transactions of manufactured
housing communities located within the subject's region range from $20,000 to
$35,021 per site, with corresponding overall rates ranging from 7.55 to 8.84
percent. In our opinion, the subject property competes favorably with its
competition regarding amenities, condition, rent structure and overall market
rating.
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SITE PLAN
[GRAPHIC OMITTED]
<PAGE>
PROPERTY DESCRIPTION
================================================================================
Site Description
The subject site is located along the east side of South Greenfield Road,
approximately two miles north of U.S. Highway 60, in Mesa, Maricopa County,
Arizona. The subject site is rectangular in shape and contains approximately
53.75 acres, or 2,341,511.55 square feet of land area. Topographically, the site
is basically level and at street grade.
The City of Mesa provides natural gas, electricity, water and sewer to the
subject site. Primary access to the subject site is available from South
Greenfield Road. Reported by the Maricopa County Flood Hazard Department, the
subject property is located in Zone X, minimal flood hazard area, as stated on
the Flood Insurance Rate Map No. 2215F-04013C, dated December 3, 1993.
The streets within the park have two-lanes, with concrete curbs. Overall,
the subject site is typical of the area and is functionally well suited for its
current use.
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.
Improvements Description
The subject property was originally developed in 1972. The subject
improvements consist of a 366-site manufactured housing community, with two
community centers, two swimming pools, two laundry facilities, a spa, exercise
room, billiard room, shuffleboards and recreational vehicle storage. Of the 366
total sites, approximately 200 sites are single-wide, while the remaining 166
sites are double-wide.
The main community center consists of a manager's office, restroom
facilities, open-space available for resident use, billiard room and a fully
equipped kitchen area. The second community center is located toward the eastern
portion of the community, and consists of an open-space area and restroom
facility.
The swimming pools are located adjacent to each of the community centers,
and the spa is located inside the main community center. Off-street parking is
available for each resident. Site improvements within the park include: paved
streets, street lighting and signage. Overall, the site improvements appeared to
be in good condition at the time of inspection.
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Property Description
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Hacienda de Valencia is a functional manufactured housing community with
good ingress and egress along South Greenfield Road. Overall, the subject
community appears to be well maintained and is in good condition. Hacienda de
Valencia is a functional manufactured housing community and competes favorably
with other existing manufactured housing communities in the area in terms of
appearance and amenities. The subject property would fit the profile of a Five
Star Park, as defined in the National Overview section of this report.
Real Property Taxes and Assessments
Assessed value of commercial property in Maricopa County is assessed at
25.0 percent of the Assessor's opinion of market value. The subject property is
identified by tax parcel numbers 140-32-001C 3 and 140-33-004C 0.
The total amount of real estate taxes for 1996 payable in 1997 for the
subject property amounts to $35,629.60. The total amount of real estate taxes
for 1996 payable in 1997 equates to approximately $97.35 per site.
Zoning
According to the City of Mesa zoning officials, the subject property is
currently zoned R-4, General Multiple Residences. The subject property is a
legal, but, non-conforming use for this zoned district.
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CONCLUSION
================================================================================
Conclusion
o The subject property, Hacienda de Valencia, is a functional
manufactured housing community, which competes favorably in relation
to its competition;
o Comparable manufactured housing communities located within the
subject's market range in monthly rental rates per site from $280.00
to $396.29;
o The subject property is currently quoting, and is currently
achieving (based on the most recent rent roll provided) a monthly
rental rate at $317.00 per site, which is within the range of
competing parks;
o Sale transactions of manufactured housings located within the
subject's region range in unit sales prices per site from $20,000 to
$35,021, with corresponding overall rates ranging from 7.55 to 8.84
percent;
o Operating expenses are within industry standards for a park located
in the southwestern region of the country;
o The subject park appears to be operating at economic levels based on
our review of historical and budgeted 1998 income and expenses;
o The demographic characteristics of the area appear to be positive;
o The population profile of the subject property is 100 percent adult;
o The current occupancy rate at the subject property of 96.0 percent
is evident by a strong local market and demand;
o No significant manufactured housing communities are expected to be
developed in the near future;
o In our opinion, based on Woodall's criteria, the subject property is
a Five Star Park, and the reader's attention is directed to the
corresponding definition and criteria of a Five Star Park, presented
in the National Overview section of this report; and,
o Based on the subject's location, demographic, economic, market and
physical characteristics, we believe Hacienda de Valencia will
continue to be a viable manufactured housing community in the
foreseeable future, and is well positioned in the marketplace.
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<PAGE>
ASSUMPTIONS AND LIMITING CONDITIONS
================================================================================
"Report" means the consulting report to which these Assumptions and Limiting
Conditions are annexed.
"Property" means the subject of the Report.
"C&W" means Cushman & Wakefield, Inc. or its subsidiary which issued the Report.
"Appraiser(s)" means the employee(s) of C&W who prepared and signed the Report.
This report is made subject to the following assumptions and limiting
conditions:
1 No responsibility is assumed for the legal description or for any matters
which are legal in nature. 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 Report or upon which the Report 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 Appraisers nor C&W shall be responsible for the
accuracy or completeness of such information, including the correctness of
estimates, opinions, dimensions, sketches, exhibits, and other factual
matters.
3 The information is effective as of the date stated in the Report. Changes
since that date in external and market factors or in the property itself
can significantly affect our analysis.
4 The report is to be used in whole and not in part. No part of the Report
shall be used in conjunction with any other report. Possession of the
Report, or a copy thereof, does not carry with it the right of
publication. Publication of the Report or any portion thereof without the
prior written consent of C&W is prohibited. Except as may be otherwise
expressly stated in the letter of engagement to prepare the Report, C&W
does not permit use of the Report by any person other than the party to
whom it is addressed or for purposes other than those for which it was
prepared. If written permission is given by C&W to use the Report, the
Report must be used in its entirety and only with proper written
qualification as approved by C&W. No part of the Report or the identity of
the Appraiser shall be conveyed to the public through advertising, public
relations, news, sales, or other media or used in any material without
C&W's prior written consent. Reference to the Appraisal Institute or to
the MAI designation is prohibited.
5 The Appraiser shall not be required to give testimony in any court or
administrative proceedings relating to the Property or the Report.
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Assumptions And Limiting Conditions
================================================================================
6 The Report 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 Report; 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 Report is based.
7 The physical condition of the improvements considered by the Report is
based on visual inspection by the Appraiser or other person identified in
the Report. C&W assumes no responsibility for the soundness of structural
members nor for the condition of mechanical equipment, plumbing, or
electrical components.
8 Unless otherwise stated in the Report, the existence of potentially
hazardous or toxic materials which may have been used in the construction
or maintenance or operation of the improvements or may be located at or
about the Property was not considered in the Report. These materials (such
as formaldehyde foam insulation, asbestos insulation, various soil
contaminants, and other potentially hazardous materials) may affect the
value of the Property. The Appraisers are not qualified to detect such
substances, and C&W urges that an expert in this field be employed to
determine the economic impact of these matters, if any, on the property in
the Report.
9 Unless otherwise stated in the Report, compliance with the requirements of
the Americans With Disabilities Act of 1990 (ADA) has not been considered
in the Report. Failure to comply with the requirements of the ADA may
negatively affect the value of the property. C&W recommends that an expert
in this field be employed.
10 If the Report is submitted to a lender or investor with the prior approval
of C&W, such party should consider the Report as one factor, together with
its independent investment considerations and underwriting criteria, in
its overall investment decision.
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CERTIFICATION
================================================================================
We certify that, to the best of our knowledge and belief:
1 Jody L. Garbisch inspected the property, and Michael J. Schaeffer and
Stanley R. Dennis, Jr., MAI, have reviewed and approved the report, but
did not inspect 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 on an action or event (such as the
approval of a loan) resulting from the analyses, opinions, or conclusions
in, or the use of, this report.
6 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 Ethics and Standards of Professional Practice of the Appraisal
Institute.
7 No one provided significant professional assistance to the persons signing
this 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 As of the date of this report, Stanley R. Dennis, Jr., MAI, has completed
the requirements of the continuing education program of the Appraisal
Institute.
/s/ Michael J. Schaeffer /s/ Jody L. Garbisch /s/ Stanley R. Dennis, Jr.
Michael J. Schaeffer Jody L. Garbisch Stanley R. Dennis, Jr., MAI
Director Associate Appraiser Director, Manager
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<PAGE>
ADDENDA
================================================================================
POP-FACT SHEETS
LEGAL DESCRIPTION
QUALIFICATIONS OF APPRAISERS
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58
<PAGE>
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POP-FACT SHEETS
================================================================================
<PAGE>
Mon Nov 24, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP FACTS: SUMMARY REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6511
PREPARED FOR
Cushman & Wakefield
S. Greenfield Road & Broadway Road
Mesa, Arizona COORD: 33:24.49 111:44.16
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- --------------------------------------------------------------------------------
POPULATION
2002 PROJECTION 318,031 702,406
1997 ESTIMATE 267,628 598,327
1990 CENSUS 198,401 462,787
1980 CENSUS 95,607 262,275
GROWTH 1980 - 1990 107.52% 76.45%
HOUSEHOLDS
2002 PROJECTION 123,457 277,829
1997 ESTIMATE 100,499 230,260
1990 CENSUS 72,621 172,496
1980 CENSUS 35,117 93,510
GROWTH 1980 - 1990 106.80% 84.47%
1997 ESTIMATED POPULATION BY RACE 267,628 598,327
WHITE 91.38% 87.85%
BLACK 1.47% 2.01%
ASIAN & PACIFIC ISLANDER 1.36% 1.95%
OTHER RACES 5.79% 8.19%
1997 ESTIMATED POPULATION 267,628 598,327
HISPANIC ORIGIN 11.71% 14.71%
OCCUPIED UNITS 72,621 172,496
OWNER OCCUPIED 73.29% 64.80%
RENTER OCCUPIED 26.71% 35.20%
1990 AVERAGE PERSON PER HH 2.72 2.66
1997 ESTIMATED HH BY INCOME 100,499 230,260
$150,000+ 3.04% 3.07%
$100,000 TO $149,999 5.15% 4.80%
$ 75,000 TO $ 99,999 7.30% 7.34%
$ 50,000 TO $ 74,999 21.05% 20.10%
$ 35,000 TO $ 49,999 19.57% 18.69%
$ 25,000 TO $ 34,999 14.85% 14.57%
$ 15,000 TO $ 24,999 15.08% 15.52%
$ 5,000 TO $ 14,999 11.56% 12.70%
UNDER $5,000 2.41% 3.21%
1997 EST. AVERAGE HH INCOME $ 52,856 $ 51,727
1997 EST. MEDIAN HH INCOME $ 39,678 $ 38,205
1997 EST. PER CAPITA INCOME $ 19,938 $ 19,974
<PAGE>
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LEGAL DESCRIPTION
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<PAGE>
LEGAL DESCRIPTION
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PARCEL NO. 1:
THE SOUTH HALF OF THAT PART OF THE EAST HALF OF THE SOUTHWEST QUARTER OF SECTION
22, TOWNSHIP 1 NORTH, RANGE 6 EAST OF THE GILA AND SALT RIVER BASE AND MERIDIAN,
MARICOPA COUNTY, ARIZONA, DESCRIBED AS FOLLOWS:
BEGINNING AT THE NORTHWEST CORNER OF SAID EAST HALF OF THE SOUTHWEST QUARTER OF
SAID SECTION 22; AND
THENCE EAST ALONG THE MIDSECTION LINE OF SAID SECTION 22, A DISTANCE OF 513.9
FEET TO A POINT;
THENCE SOUTH 2634.0 FEET TO A POINT ON THE SOUTH LINE OF SAID SECTION 22, SAID
POINT BEING 515.7 FEET EAST OF THE SOUTHWEST CORNER OF SAID EAST HALF OF THE
SOUTHWEST QUARTER OF SAID SECTION 22;
THENCE WEST ALONG THE SOUTH LINE OF SAID SECTION 22, A DISTANCE OF 515.7 FEET TO
THE SOUTHWEST CORNER OF THE EAST HALF OF THE SOUTHWEST QUARTER OF SAID SECTION
22;
THENCE NORTH 2634.45 FEET TO THE POINT OF BEGINNING.
PARCEL NO. 2:
TRACTS 1 TO 40, INCLUSIVE, ARIZONA CITRUS GROVES UNIT NO. 1, ACCORDING TO BOOK
23 OF MAPS, PAGE 26, RECORDS OF MARICOPA COUNTY, ARIZONA;
TOGETHER WITH THAT PORTION OF THE ABANDONED PRIVATE ROAD IN ARIZONA CITRUS
GROVES, ACCORDING TO BOOK 23 OF MAPS, PAGE 26, (SAID ABANDONED ROAD BEING 60
FEET WIDE MORE OR LESS LYING BETWEEN UNIT NOS. 1 AND 2 OF SAID PLAT AND BETWEEN
THE EAST LINE OF TRACT 40, SAID UNIT NO. 2 EXTENDED SOUTHERLY AND THE WEST LINE
OF TRACT 21, SAID UNIT NO. 2 EXTENDED SOUTHERLY) WHICH IS SITUATED IN THE
SOUTHWEST QUARTER OF THE SOUTHWEST QUARTER OF SECTION 22, TOWNSHIP 1 NORTH,
RANGE 6 EAST OF THE GILA AND SALT RIVER BASE AND MERIDIAN, MARICOPA COUNTY,
ARIZONA.
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<PAGE>
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QUALIFICATIONS OF APPRAISERS
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<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
JODY L. GARBISCH
Education
Bachelor of Science Degree in Finance, concentration in Real Estate, from the
College of Commerce and Business Administration at the University of Illinois,
Urbana-Champaign, Illinois, 1997.
Real Estate Education
The following courses have been completed through the Real Estate Program at the
University of Illinois at Urbana-Champaign:
Urban Real Estate Valuation
Urban Economics
Real Estate Financial Markets
Real Estate Investments
Real Estate Law
Real Estate Fundamentals
Current Position
Associate Appraiser, Cushman & Wakefield of Illinois, Inc., Valuation Advisory
Services.
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
MICHAEL J. SCHAEFFER
Real Estate Experience
Mr. Schaeffer has been active in the appraisal of real estate since 1983.
Appraisal experience includes the valuation of income-producing real estate in
the Chicago area as well as many major cities and small towns throughout the
Midwest. The types of properties appraised include office buildings, regional
malls, shopping centers, country clubs, apartment complexes, subsidized housing
units, industrial buildings, nursing homes, retirement communities, automotive
dealerships, department stores, vacant land, proposed income-producing
properties, and various special purpose properties. Mr. Schaeffer also has had
over 10 years of experience in new construction and renovation of commercial,
industrial, residential and specialized real estate properties.
Education
Bachelor of Arts, University of Cincinnati, Cincinnati, Ohio MBA Graduate Course
Work in Economics and Management, Xavier University, Cincinnati, Ohio
Real Estate Education
The following courses sponsored by the Appraisal Institute have been
successfully completed:
Real Estate Appraisal Principles 1A-1
Basic Valuation Procedures 1A-2
Standards of Professional Practice
Capitalization Theory and Techniques 1BA
Capitalization Theory and Techniques IBB
Advanced Applications 550
Report Writing & Valuation Analysis 540
Mr. Schaeffer has also attended numerous lectures and seminars sponsored by the
Appraisal Institute.
Mr. Schaeffer is currently a candidate for the MAI designation of the Appraisal
Institute, and has completed the educational and experience requirements for the
MAI designation.
Current Position
Director, Appraisal Services, Cushman & Wakefield, Inc., Chicago, Illinois
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
STANLEY R. DENNIS, JR., MAI
Real Estate Experience
Director, Manager, Cushman & Wakefield Valuation Advisory Services, Chicago,
Illinois. Division is responsible for the appraisal and consultation function of
Cushman & Wakefield, Inc., a national full service real estate organization,
1989.
Vice President, Manager, Cushman & Wakefield Appraisal Services, Portland,
Oregon, 1983.
Principal, Stanley R. Dennis & Associates, Portland, Oregon, 1982.
Education
Portland State University, Portland, Oregon
Bachelor of Science Degree, 1977, Finance and Real Estate
Appraisal Institute
Course I-A Fundamentals and Principles of Real Estate Appraisal
Course I-B Capitalization Theory and Techniques
Course II-I Case Studies in Real Estate Valuation
Course II-2 Valuation Analysis and Report Writing
Course II-3 Standards of Professional Practice
Course IV Litigation/Condemnation Valuation
Course VI Investment Analysis
Course VIII Residential Case Studies
Course X Market Analysis
Seminar Feasibility Analysis and Highest and Best Use
Seminar Discounted Cash Flow Analysis
Seminar Cash Equivalency
Seminar Subdivision Analysis
Seminar Rates, Ratios and Reasonableness
Professional Affiliations
American Institute of Real Estate Appraisers, Member (Designation #6754)
Building Owners and Managers Association (BOMA)
National Association of Corporate Real Estate Executives (NACORE)
<PAGE>
================================================================================
MARKET STUDY OF REAL PROPERTY
Cimarron
12205 North Perry Street
Broomfield, Adams County, Colorado
================================================================================
As of December 4, 1997
Prepared For:
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Prepared By:
Cushman & Wakefield of Illinois, Inc.
Valuation Advisory Services
455 North Cityfront Plaza Drive, Suite 2800
Chicago, Illinois 60611-5555
CUSHMAN &
WAKEFIELD(R)
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<PAGE>
[Letterhead of Cushman & Wakefield of Illinois, Inc.]
December 16, 1997
Mr. Edward J. Welch
Director
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Re: Market Study of Real Property
Cimarron
12205 North Perry Street
Broomfield, Adams County, Colorado 80020
Dear Mr. Welch:
In fulfillment of our agreement as outlined in the Letter of Engagement,
Cushman & Wakefield of Illinois, Inc., is pleased to transmit our market study
and consulting report evaluating the above referenced real property.
As specified in the Letter of Engagement, our market study and consulting
report is qualified by certain assumptions, limiting conditions, certifications,
and definitions, which are set forth in the report.
This consulting report was prepared for the Client, and it is intended
only for the specified use of the Client. It may not be distributed to or relied
upon by other persons or entities without written permission of Cushman &
Wakefield, Inc.
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the above
referenced real property, as of the date of our property inspection. The
function of the report is to assist the client, in evaluating the property for
underwriting and rating purposes.
<PAGE>
Mr. Edward J. Welch -2- December 16, 1997
This market study and consulting report was prepared in conformity with
the requirements of the Code of Ethics and Standards of Professional Appraisal
Practice of the Appraisal Institute and the Uniform Standards of Professional
Practice (USPAP) adopted by the Appraisal Standards Board of the Appraisal
Foundation.
This letter is invalid if detached from the report, which contains the
text, exhibits, and the Addenda.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF ILLINOIS, INC.
/s/ Jody L. Garbisch
Jody L. Garbisch
Associate Appraiser
/s/ Michael J. Schaeffer
Michael J. Schaeffer
Director
/s/ Stanley R. Dennis, Jr.
Stanley R. Dennis, Jr., MAI
Director, Manager
JLG/MJS:mmw
Revised 97
File No. 97362-15
CUSHMAN &
WAKEFIELD(R)
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<PAGE>
SUMMARY OF SALIENT FACTS
================================================================================
Property Name: Cimarron
Location: 12205 North Perry Street
Broomfield, Adams County, Colorado
Assessor's Parcel Number: Based on information provided by Adams County
Treasurer's Office, the subject property is
identified by Assessor's Parcel Numbers
00000-00-2-43-354 and 01573-31-4-08-001.
Date of Inspection: The property was inspected December 4, 1997.
Ownership: The subject property is legally entitled to
Snowland Vistas, Inc., an Illinois corporation.
Land Area: Based on the property's legal plat of survey,
the subject property contains 50.265 acres of
land area, or 2,189,543 square feet.
Zoning: Based on information provided by the City of
Broomfield Zoning Department, the subject
property is zoned RPUD, Residential Planned Unit
Development, which is a legal and conforming
use.
Improvements
Type: A manufactured housing community.
Year Built: The subject property was originally developed in
approximately 1972.
Size: The subject property consists of a 327-site
manufactured housing community, of which
approximately 60 percent, or 196 sites, are
single-wide and 40 percent, or 131 sites are
double-wide.
Condition: At the time of inspection, the subject property
was in good condition.
Property Rating: Four Star manufactured home community.
Special Assumptions: 1. Information regarding the subject property,
including its physical characteristics, was
provided to us by the client and the on-site
manager, and is assumed to be accurate.
CUSHMAN &
WAKEFIELD(R)
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Summary of Salient Facts
================================================================================
2. The existence of potentially hazardous or
toxic materials, which may be located on or
about the property, was not considered in our
evaluation. The appraisers are not qualified to
detect such substances, and Cushman & Wakefield
urges that an expert in this field be employed
to determine the existence, if any, of hazardous
materials located on or about the site.
3. Our market and consulting report regarding
the subject assumes the subject property, as
presently improved, represents its highest and
best use.
4. It is unknown to the appraiser if the subject
property complies with the Americans with
Disabilities Act (ADA). We recommend a qualified
specialist in the final determination regarding
any ADA compliance deficiencies that may be
present at the subject property.
5. Please refer to the complete list of
assumptions and limiting conditions included at
the end of this report.
CUSHMAN &
WAKEFIELD(R)
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TABLE OF CONTENTS
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Page
PHOTOGRAPHS OF SUBJECT PROPERTY................................................1
INTRODUCTION...................................................................5
Identification of Property..................................................5
Property Ownership and Recent History.......................................5
Purpose and Function of the Market Study and Consulting Assignment..........5
Scope of the Market Study and Consulting Assignment.........................5
Date of Property Inspection.................................................5
Definitions and Other Pertinent Terms.......................................5
REGIONAL ANALYSIS..............................................................8
NEIGHBORHOOD ANALYSIS.........................................................17
MARKET ANALYSIS...............................................................18
National Overview..........................................................18
Competition................................................................25
Comparable Manufactured Housing Community Sales............................31
Demographic Trends.........................................................32
Expense Analysis...........................................................34
Market Supply and Demand...................................................34
Conclusion.................................................................34
PROPERTY DESCRIPTION..........................................................37
Site Description...........................................................37
Improvements Description...................................................37
REAL PROPERTY TAXES AND ASSESSMENTS...........................................38
ZONING........................................................................38
CONCLUSION....................................................................39
ASSUMPTIONS AND LIMITING CONDITIONS...........................................40
CERTIFICATION.................................................................42
ADDENDA.......................................................................43
Pop-Fact Sheets
Legal Description
Qualifications of Appraisers
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PHOTOGRAPHS OF SUBJECT PROPERTY
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Front Entrance of Subject Property
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Exterior of Community Center
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Photographs of Subject Property
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Exterior of Basketball Court
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Typical Interior View of the Subject Park
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Photographs of Subject Property
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Typical Interior View of the Subject Park
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Typical Interior View of the Subject Park
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Photographs of Subject Property
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Street Scene Facing North Along North Perry Street
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Street Scene Facing South Along North Perry Street
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INTRODUCTION
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Identification of Property
The subject property consists of a 327-site manufactured housing
community, situated on approximately 50.265 acres of land area. Cimarron is
located along the west side of North Perry Street, just north of West 120th
Avenue, in the City of Broomfield, Adams County, Colorado. The property's street
address is 12205 North Perry Street. The property was constructed in 1972, and
was 98.0 percent occupied at the time of inspection.
Property Ownership and Recent History
The subject property is currently entitled to Snowland Vistas, Inc., an
Illinois corporation, and was originally developed in 1972.
Purpose and Function of the Market Study and Consulting Assignment The
purpose of this consulting report is to evaluate the location, demographic,
economic, market and property characteristics of the subject property, as of the
date of property inspection. The function of the consulting report is to assist
the client in evaluating the property for underwriting and rating purposes.
Scope of the Market Study and Consulting Assignment
In the process of preparing this report, we inspected the property,
interviewed the on-site manager, conducted market research into asking rental
rates for comparable properties, conducted market investigations, and
ascertained sales prices of comparable properties. Additionally, we conducted
market research and evaluated demographic and economic trends; and, the market
position and rating of the subject property.
Date of Property Inspection
The property was inspected on December 4, 1997.
Definitions and Other Pertinent Terms
Definitions of pertinent terms taken from the Dictionary of Real Estate
Appraisal, Third Edition (1993), published by the Appraisal Institute, is as
follows:
Market Rent
The rental income that a property would most probably command on the open
market; indicated by current rents paid and asked for comparable space as
of the date of the appraisal.
Evaluation
Evaluation is a study of the nature, quality, or utility of a parcel of
real estate or interest in, or aspects of, real property, in which a value
estimate is not necessarily required.
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Introduction
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Market Study
A macroeconomic analysis that examines the general market conditions of
supply, demand, and pricing or the demographics of demand for a specific
area or property type.
Legal Description
The subject property is located along the west side of North Perry Street,
in the City of Broomfield, Adams County, Colorado. The street address of the
subject property is 12205 North Perry Street, Broomfield, Colorado. The property
is identified by tax parcel numbers 00000-00-2-43-354 and 01573-31-4-08-001,
according to Adams County Treasurer's Office. Due to the lengthy metes and
bounds legal description, the subject property's legal description is presented
in the Addenda of this report, and reference is made thereto.
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LOCATION MAP
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REGIONAL ANALYSIS
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Locational, economic, and population trends of the Denver-Boulder
Metropolitan Statistical Area are detailed in this section.
Location
o The DMA is a six-county region including Adams, Arapahoe, Boulder, Denver,
Douglas and Jefferson Counties.
o Primary cities within the DMA include: Denver, Arvada, Aurora, Broomfield,
Boulder, Commerce City, Englewood, Golden, Lakewood, Littleton,
Northglenn, Thornton, Westminster, and Wheat Ridge. There are various
secondary municipalities.
o The DMA is part of the Rocky Mountain Front Range, which includes the
Cities of Colorado Springs, Fort Collins, Greeley, Longmont, Loveland and
Pueblo, as well as the cities within the DMA and various smaller
municipalities.
Employment and the Economy
Employment
The non-agricultural wage & salary employment by sector in the
Denver-Boulder Metropolitan Statistical Area is summarized in the table below.
=========================================================
Denver-Boulder MSA
Nonagricultural Wage & Salary Employment
July 1996
=========================================================
Sector Employed
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Mining and Construction 74,000
Manufacturing 119,600
Transportation & Public Utilities 88,200
Trade 282,300
F.I.R.E. 84,100
Services 351,600
Government 157,800
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TOTAL 1,157,600
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Source: Colorado Department of Labor and Employment
o The DMA economy has grown since 1988, following substantial over-building
in the early-1980s and economic deterioration in the mid-1980s.
o The compounded, average annual increase in employment from 1990 through
1995 equaled 3.3 percent.
o The 1995 annual, average, non-agricultural wage and salary employment in
the Denver-Boulder MSA was 1,128,700. This represents an increase of 4.0
percent from
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Regional Analysis
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the 1994 annual average of 1,084,800. The 1996 employment level exhibited
continued increase (2.6 percent above the year-end 1995 level).
o The strongest growth over the past year occurred in the trade and services
sectors. Growth in the construction sector has been strong, due to public
works projects, single-family construction and build-to-suit development.
Government has grown to service a larger population. Other sectors have
exhibited moderate growth.
Major Employers
o Several, major telecommunications companies are headquartered or have
major operations in the area, including TCI (largest cable-TV provider in
the country), US West (largest private employer in the DMA), MCI, Sprint
and AT&T.
o There are numerous, large high-tech manufacturing facilities in the DMA
and along the Rocky Mountain Front Range, including Lockheed Martin (3.2
million square feet in the Denver area), Eastman-Kodak (occupying 3.1
million square feet in Greeley), Hewlett Packard (occupying 3.0 million
square feet in Fort Collins, Loveland and Colorado Springs), IBM (2.5
million square feet in Boulder) and StorageTek (2.3 million square feet in
Louisville and Longmont).
o Other major employers include numerous hospitals and health care
organizations (HealthOne and Kaiser Permanente), retailers (K-Mart, King
Soopers and Safeway) and financial institutions (Colorado National Bank).
Coors Brewing Company is one of the largest employers, providing
approximately 5,300 jobs in the Denver area.
o Denver International Airport (DIA), which opened February 28, 1995,
employ's approximately 26,000; of which 21,000 employees were transferred
from Stapleton International Airport, which was closed. United Airlines
employs approximately 6,700 at the new airport.
o Rocky Flats, previously a producer of nuclear weapons trigger devices,
employs approximately 5,000. This facility is currently operated by EG&G,
a private employer. Production has been terminated and the facility will
be phased-out over a 10-year period, with labor reductions of
approximately 15 to 20 percent per year projected for the next three
years.
o Government downsizing and cutbacks in defense spending has resulted in
closure of Lowry Air Force Base in Denver and decreased operations of EG&G
Rocky Flats.
o Lowry Air Force Base was recently closed, resulting in the elimination of
1,900 civilian positions, transfer or elimination of 2,200 military
positions and 2,500 students. The vacated base is being converted to
educational, research, commercial and residential use. The new Higher
Education and Advanced Technology Center on 156 acres is operated by
several colleges in the area.
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Regional Analysis
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The 20 largest private employers in the Denver Metropolitan Area are
summarized in the following table.
<TABLE>
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20 Largest Private Employers in the Denver Metropolitan Area
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No. Company # Employed Primary Business Recent Announcements
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<S> <C> <C> <C> <C>
*1 US West (All Operations) 15,400 Telecommunications Consolidating operations into Colorado
from throughout the Rocky Mountain
region.
*2 Columbia-HealthONE LLC 10,500 Hospitals, health care Recent merger of several hospitals
3 AT&T (All Operations) 8,000 Telecommunications services Numerous facilities in the area.
4 King Soopers 7,000 Grocery stores Largest grocer in the area with major
distribution facilities.
5 Lockheed Martin Corp. 7,000 Aerospace and Lockheed and Martin Marietta recently
defense-related systems merged. Largest defense contractor in the
nation.
6 United Airlines, Inc. 6,700 Airline, reservation center Major hub at new airport.
*7 Coors Brewing Company 5,300 Beverages Third-largest brewing company.
8 Rocky Flats Environmental 5,000 Clean-up and waste Will be phased-out over 10 years.
Technology Site management
9 Safeway 4,300 Grocery stores Largest grocer in nation.
*10 Public Service Company of Colorado 3,500 Natural gas and Major public utilities provider recently
electric utility cut 700 positions.
*11 StorageTek 3,500 Computer storage devices Recently cut 1,700 positions and placed a
550,000 SF facility on market.
*12 Provenant Health Partners 4,043 Health care Major hospital merger recently.
13 Kaiser Permanente of Colorado 3,055 Health care Numerous medical facilities throughout
region; major HMO.
14 Colorado National Bank 3,000 Bank services First Bank Systems recently acquired and
merged Bank Western, Central Bank and
Colorado National Bank.
*15 Lutheran Medical Center 2,800 Hospital, health care Large hospital.
16 Ball Corporation 2,650 Aerospace research & Recently won major contract with US
productions, containers Government.
17 IBM 2,500 Computer services Significant cuts totaling approx. 2,500
over past several years.
*18 St. Joseph Hospital 2,500 Hospital, health care Large hospital.
*19 University Hospital 2,450 Hospital, health care Large hospital.
20 K-Mart Stores 2,400 Retail stores Includes K-Mart, Super-K, Price Club,
Builder's Square.
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</TABLE>
* Headquarters in Denver Metropolitan Area
Source: The Business Development Group, Greater Denver Chamber of Commerce,
Cushman and Wakefield of Colorado, Inc.
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Regional Analysis
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o Merrill Lynch (financial services) plans to construct a one million
square-foot campus-type facility in the southeast quadrant of the DMA and
employ 3,000 to 5,000. The first 106,400 square-foot facility in the
Meridian International Business Center is nearing completion, and is
planned to be completed in early-1997.
o Sun Microsystems will construct a 1 million square-foot, high-tech/R&D and
manufacturing campus in the northwest quadrant of the DMA in the
Interlocken Business Park, and employ 3,500.
Public works projects have been a major factor in the DMA's economic
growth. The largest of these projects are summarized in the table below,
including approximate cost estimates and completion dates. Many projects have
been completed.
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Major Public Works Projects in the Denver Metropolitan Area
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Project Estimated Cost Projected Completion
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Denver International Airport $4.0 billion Completed 1995
Interstates 25 and 76 $500 million Completed 1995
Central Platte Valley Street System $185 million Completed 1997
Coors Field Baseball Stadium $130 million Completed 1995
Metro Area Connection Light Rail System $112 million Completed 1994
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Source: City of Denver and Regional Transportation District (RTD)
Projected Employment Growth Rates and Trends
The following table summarizes employment projections by sector for the
DMA.
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Projected Denver MSA Nonagricultural Wage & Salary Employment
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Sector 2000 % (DELTA)* 2005 % (DELTA)*
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Mining/Construction 65,400 -0.2% 67,000 0.5%
Manufacturing 121,700 0.7% 122,900 0.2%
Trans. & Pub. Util. 90,100 0.5% 95,600 1.2%
Trade 289,000 0.7% 298,600 0.7%
F.I.R.E. 85,100 0.5% 86,900 0.4%
Services 384,300 2.6% 421,300 1.9%
Government 177,100 1.8% 195,300 2.0%
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TOTAL 1,212,700 1.4% 1,287,600 1.2%
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* Compounded annual change from 1995-2000, and 2000-2005.
Source: Denver Regional Council of Governments and Colorado Department of
Labor and Employment
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Regional Analysis
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o Recent projections made by the Denver Regional Council of Governments
(DRCOG) indicates annual employment growth will average approximately 1.4
percent through 2000 (based on 1995 annual averages) and 1.2 percent from
2001 through 2005.
o Economic growth is expected to slow and the levels should more closely
mirror the national levels.
o The services sector (health care, legal, education, recreation, lodging,
etc.) will continue to exhibit the largest gains in employment, as has
been the case for the past 30 years; four in every 10 new jobs will be in
the services sector.
o The construction sector is projected to decline due to completion of major
public works projects and decreases in residential development.
o Transportation, communications and utilities are projected to continue to
grow, as a result of DIA, technological advances in communications, and
population growth. Retail trade is projected to experience modest growth.
o The government sector is projected to experience growth to service a
larger population and to accommodate an increasing elderly population.
Unemployment
o The unemployment rate for the Denver-Boulder Metropolitan Statistical Area
fluctuated between 3.0 and 7.0 percent from 1990 through September 1996.
o The most recent employment figures, as of August, 1997, indicate
unemployment rate of 2.8 percent in the Denver-Boulder MSA.
o Unemployment is projected to average approximately 4.0 to 5.0 percent over
the long term.
Inflation
o In 1994, Denver's CPI increased 4.4 percent, at a higher rate than the 2.6
percent level for the U.S.
o In 1995, Denver's index increased by 2.6 percent, while the national CPI
index increased by 2.5 percent during the same period.
o Compounded, annual, percentage changes in the national CPI are projected
to average 3.8 percent through 2005.(1)
o We project the Denver area CPI will increase by an average of 4.0 percent,
annually, during the next 10 years.
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(1) The WEFA Group Fall 1993 Regional Metro Area Long-Term Tables.
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Regional Analysis
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Population
The following table summarizes population estimates for the DMA.
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1995 Population Estimates
---------------------------------------------------
Area Population
---------------------------------------------------
Adams County 291,798
Arapahoe County 442,136
Boulder County 259,421
Arapahoe County 502,796
Douglas County 97,739
Adams County 491,446
---------------------------------------------------
Denver Metro Area 2,085,336
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Source: Colorado Division of Local Governments
o Following stagnant population growth from the mid-1980s through 1990,
including a decline in 1988, population began to increase substantially in
the 1990s.
o The compounded, average annual increase from 1990 to 1995 equaled 2.4
percent; population growth averaged 1.3 percent annually from 1980 through
1990.
o Relatively strong population growth over the past several years has been
due to strong economic and employment growth.
o A relatively large proportion of population growth has been net migration.
A majority of new residents migrated from California, Texas, Arizona,
Florida and Illinois. The net migration slowed in 1995.
o Recent projections by the Colorado Division of Local Governments and DRCOG
indicate annual population increases in the Metropolitan Area will average
1.0 percent (projected declining growth rates in future years is directly
related to economic growth and varying population in certain age groups).
o Approximately 46.0 to 50.0 percent of the projected population growth
through 2005 is composed of net migration.
Retail Sales
o Metro area retail sales began to increase substantially in 1990, due to
economic and population growth.
o The DMA's compounded, average annual retail sales increased 9.65 percent
from 1990 through 1994.
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Regional Analysis
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o Retail sales growth is projected to moderate in direct correlation with
projected decreases in economic and population growth.
Housing
There has been substantial single family residential development in recent
years. Information regarding building permits issued is summarized as follows.
o Between 1988 and 1991, an average of 6,600 residential building permits
were issued, annually (includes single and multi-family).
o In 1993, 16,254 building permits were issued. In 1994, 19,917 permits were
issued, a 22.5 percent increase over 1993 levels.
o Through 1995, approximately 12,450 residential building permits issued,
exhibiting a decrease from the 1994 level. The 1996 levels are similar to
1995.
o New housing sales increased 22 percent, as 13,456 homes were sold through
1995, compared to 11,039 in 1994. Through the third quarter 1996, 11,958
home sales were reported, above the 1995 pace by over 10 percent.
o Through 1995, there were 13,188 housing starts (attached, detached and
custom), compared to 12,745 during 1994, a 3.5 percent increase. Through
the third quarter 1996, there has been 11,500 starts, above the 1995 pace.
o As of year-end 1996, the average price of a new production-built home was
$172,000.
o The average single-family residential sales price (new and used) equaled
$159,000 at the end of 1996, $154,000 at the end of 1995 and $140,000 at
the end of 1994.
Interest Rates and Financing
The ability to obtain financing and the level of interest rates impacts
the supply and demand for real estate. A summary of historical interest rates is
summarized as follows.
o Interest rates hit an historical low in mid to late 1993. The average
30-year, fixed-rate, single-family residential mortgage interest rate was
approximately 6.5 percent in late-1993. Rates increased significantly in
1994 but have decreased since the beginning of 1995.
o The average residential mortgage interest rate has recently fluctuated
near 8.0 percent in the DMA.(2)
o Due to substantial over-building in the 1980s, and high number of
foreclosures in the late-1980s and early-1990s, financial and banking
institutions are cautious to provide financing for speculative office,
retail, industrial and hotel development.
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(2) The Denver Post.
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Regional Analysis
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Economic Impact on Real Property Markets
Growth in population and employment has resulted in increased demand for
real property throughout the DMA. Residential real estate has experienced
sufficient demand to result in substantial, new speculative construction. There
are numerous multi-family residential projects planned or under construction
throughout the DMA. Single-family construction is at its highest levels since
the building boom of the early-1980s.
Office occupancy has reached stabilized levels in most markets, due to
improved economic conditions and population growth. Office rental rates have
increased substantially since 1993, and speculative construction is occurring in
prime market areas, including the Denver Tech Center and Boulder. Certain
submarkets continue to lag in improvement, including Denver's central business
district. There are numerous build-to-suit projects, as several large companies
have established regional or national headquarters in the Denver area.
Industrial market conditions have improved substantially since 1993,
resulting in the achievement of stabilized occupancy levels. Proforma rental
rates have been reached in prime market areas. Numerous speculative industrial
projects are under way near the Denver International Airport, with over 3
million square feet recently completed or under way. The developers of a
majority of these speculative projects require lease-up prior to breaking
ground. Build-to-suit construction has been substantial.
Build-to-suit retail construction has been substantial throughout the DMA,
involving predominately national retailers such as "big box" operations and
national chain restaurants. The new Park Meadows Town Center, a 1.3 million
square-foot regional mall, located in the southeast suburban portion of the DMA,
was completed in September 1996. There has been some speculative retail
development in prime market areas.
The Denver Metropolitan Area economy has exhibited one of the strongest
growth rates in the nation in the 1990s. The result has been an influx of
investors, national retailers, major corporations, and other investors and users
of real property. The growth is projected to continue, though at moderating
levels to recent years.
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NEIGHBORHOOD MAP
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NEIGHBORHOOD ANALYSIS
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City of Broomfield
Broomfield is located approximately 20 miles north of downtown Denver, and
covers 24.57 square miles with an elevation of 5,460 feet. Broomfield's economic
base is continually growing, with the eight major employers as follows:
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Major Employers
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Company Number of Employees
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Kaiser Hill 4,400
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Storage Technology 3,400
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IBM 2,600
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Neodata Services 2,500
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AT&T 2,400
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Ball Aerospace & Technology 1,900
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Geneva Pharmaceuticals 850
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Hunter Douglas 677
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Source: Broomfield Economic Development Corporation
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Neighborhood Description
The subject property is situated along the west side of North Perry
Street, in the City of Broomfield, Colorado. The subject property's neighborhood
is generally bounded by West 136th Avenue to the north, Huron Street to the
east, West 120th Avenue to the south and Main Street to the west. This area is
developed with primarily residential and agriculture uses, with a few commercial
developments.
Single-family residential developments and agricultural uses surround the
subject property to the north, east and west. Mountainview Elementary School is
located to the north, while commercial establishments are located to the south
of the subject site along West 120th Avenue. A vacant outdoor movie theatre is
located to the southeast of the subject.
Transportation in the subject's immediate area is good. The subject
property is located about three miles west of Interstate 25 and three miles east
of State Highway 36 (Denver-Boulder Freeway). The subject property's primary
access is along North Perry Street, a north-south, two-lane paved roadway, with
no outlet from West 120th Avenue. West 120th Avenue is located approximately
one-quarter mile south of the subject site, which is an east-west, four-lane
paved roadway, with a middle turning lane.
In summary, the subject property is situated in an area well suited for
manufactured housing development. Real estate values are anticipated to increase
at a steady pace. The economy in the area is anticipated to be good, with
unemployment steadily decreasing and population anticipated to increase.
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MARKET ANALYSIS
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National Overview
Reportedly, the largest property owners of manufactured housing
communities in the United States are: ROC Communities, headquartered in
Colorado; MHC, Inc., headquartered in Illinois; Ellenburg Capital, headquartered
in Oregon; Lautrec Ltd., headquartered in Michigan; Clayton Homes, headquartered
in Tennessee; Clayton Williams and Sherwood, headquartered in California;
Chateau Properties, Sun Communities and UNIPROP, headquartered in Michigan.
The following represents the top ten manufactured housing community firms,
as reported by GFA Management, as of 1997.
<TABLE>
<CAPTION>
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1997 Firm Name State No. of Sites No. of Communities
Rank Owned/Managed Owned/Managed
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Sun Communities Michigan 30,295/0 84/0
- -----------------------------------------------------------------------------------------
2 ROC Communities Colorado 22,441/7,167 77/36
- -----------------------------------------------------------------------------------------
3 Manufactured Home Communities Illinois 27,349/838 69/3
- -----------------------------------------------------------------------------------------
4 Ellenburg Capital Florida 25,173/0 63/0
- -----------------------------------------------------------------------------------------
5 Lautrec Ltd. Michigan 22,652/0 58/0
- -----------------------------------------------------------------------------------------
6 Chateau Properties Michigan 20,003/0 47/0
- -----------------------------------------------------------------------------------------
7 Clayton Homes Tennessee 18,000/0 66/0
- -----------------------------------------------------------------------------------------
8 Clayton, Williams and Sherwood California 16,946/0 44/0
- -----------------------------------------------------------------------------------------
9 UNIPROP Michigan 14,931/0 40/0
- -----------------------------------------------------------------------------------------
10 The Bloch Organization Michigan 14,379/0 37/0
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</TABLE>
According to the U.S. Census Bureau, more than 8,521,000 people were
living in manufactured housing communities as of 1990 compared to 3,838,678 in
1980. This represents an increase in manufactured housing community living of
approximately 122.0 percent over the last ten years. Over the last ten years,
there has been a steady increase in manufactured housing community development
across the country. Among the demographic factors which account for the increase
in manufactured housing community living are: decreasing household size, a
growing demand for smaller housing, as well as an alternative to the increasing
cost of housing. Nationally, the largest percentage of manufactured housing
communities are located in California, Michigan, Colorado, Florida, New York,
Minnesota, Indiana, Arizona, Ohio, and Wisconsin.
The manufactured home industry has dramatically changed over the last 20
years. Manufactured homes are now designed and constructed to accommodate
spacious and attractive living requirements. Today, approximately one out of
sixteen families live in
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Market Analysis
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manufactured housing units. The manufactured housing market share has been
growing steadily over the last 10 years. In 1990, 6.7 percent of Americans lived
in manufactured housing units, up from 2.9 percent compared to 1970, according
to the U.S. Census Bureau, which represents 12.0 to 14.0 percent of all new
housing built since the mid-1980's, according to the Manufactured Housing
Institute in Arlington, Virginia.
In 1990, the average cost of a manufactured housing unit was $27,800
compared to $149,000 for a new house (including land), according to the
Manufactured Housing Institute. This reflects a 28.0 percent increase in the
cost of manufactured housing since 1980 versus a 49.0 percent increase in
conventional housing. Industry experts estimate that a single-family home
selling for $150,000 would require an annual income of $52,671. To purchase a
$27,800 manufactured housing unit, only a $19,984 income level would be
required.
At Fleetwood Enterprises, the nation's largest manufacturer of
manufactured housing units, units may be purchased for up to $100,000, which
would include a three-bedroom, two-bath unit of 2,100 square feet, with vaulted
ceilings.
In 1990, approximately 10.0 percent of manufactured home owners lived in
units worth approximately $40,000, up from 4.0 percent compared to 1981,
according to a study conducted by Foremost Insurance Company in Grand Rapids,
Michigan. Also, according to the study, approximately 21.0 percent of the
manufactured housing households are occupied by people' 65 years of age or
older, slightly lower than the age group for conventional homes, as reported by
Foremost Insurance.
The demand for good quality institutional grade manufactured housing
communities has substantially increased over the last ten years. Manufactured
housing communities provide an affordable alternative to the increasing cost of
housing. Also, manufactured housing communities provide an alternative form of
living for the elderly and retirees, especially for those living on fixed
incomes.
Acquisitions of manufactured housing communities during 1993 and 1994 were
clearly dominated by Real Estate Investment Trusts. During 1994 and 1995
Manufactured Home Communities (MHC) and ROC communities lead the acquisition of
manufactured housing communities nationally. During 1996, Sun Communities
captured the lead and, together with ROC and MHC dominate the Real Estate
Investment Trust market.
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Market Analysis
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The following chart represents the largest Real Estate Investment Trusts,
from 1991 to 1996, as reported by GFA Management
HOME SITE GROWTH, DEVELOPMENT AMONG THE LARGEST
REAL ESTATE INVESTMENT TRUST (REITS)
- --------------------------------------------------------------------------------
Year ROC MHC Chateau Sun United Total Annual
Growth
- --------------------------------------------------------------------------------
1996 29,608 28,187 20,003 30,295 5,234 113,327 17.0%
- --------------------------------------------------------------------------------
1995 27,910 26,237 19,594 18,000 4,850 96,591 9.0%
- --------------------------------------------------------------------------------
1994 26,231 28,407 15,689 13,500 4,623 88,450 37.8%
- --------------------------------------------------------------------------------
1993 20,142 14,700 15,261 9,036 5,050 64,189 17.8%
- --------------------------------------------------------------------------------
1992 18,745 12,873 10,032 7,600 5,200 54,450 N/A
- --------------------------------------------------------------------------------
1991 9,030 13,079 9,759 N/R N/R N/A N/A
- --------------------------------------------------------------------------------
N/R = No report N/A = Not applicable
- --------------------------------------------------------------------------------
NOTE: The 113,327 sites counted for the top five REITs in 1996 make up 20
percent of the total sites surveyed in the 1997 Allen Report. These rental sites
are located in 339 communities, accounting for about 1 percent of some 50,000
existing manufactured housing communities nationwide. The community counts for
the five major REITs are: ROC (113), MHC (72), Chateau (47), Sun (84) and United
(23). The proportion of communities owned by each of the REITs compared to the
others is: ROC (33%), MHC (21%), Chateau (14%), Sun (25%) and United (7%).
================================================================================
Manufactured Home Communities (MHC) is expected to continue an aggressive
acquisition campaign through 1997 and beyond. As of September 1997, the MHC REIT
had a market cap of $632.0 million, and continues to pursue the acquisition of
manufactured home communities. Aside from the ELL-CAP $300.0 million
transaction, in September 1997 Manufactured Home Communities, Inc. completed a
$107.0 million purchase of 18 manufactured housing communities and two related
commercial properties from partnerships affiliated with Mobileparks West. The
communities, with 3,505 sites, were purchased with about $3.0 million
manufactured home operating units, $16.0 million in cash and $20.0 million of
installment notes and assumed debt. The communities have an average monthly
rental of $349.00. The communities are located in California, Utah, Oregon,
Washington and Nevada. MHC may be the first manufactured home community REIT to
reach $1.0 billion.
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<PAGE>
The MHC REIT continues to perform and expand, and as of September 1997 was
trading at $25.625, with a current yield of 5.2 percent. The top traded REITs,
are presented as follows.
<TABLE>
<CAPTION>
==========================================================================================
REIT MARKET UPDATE
- ------------------------------------------------------------------------------------------
Company Symbol Price Current Yield 52 Week High 52 Week Low Annual 12 Mth Tot
(9/19/97) Dividend Rtn
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CPJ $29.688 5.8% $31.125 $22.250 1.72 26.6%
- ------------------------------------------------------------------------------------------
MHC $25.625 5.2% $26.428 $18.875 1.32 30.7%
- ------------------------------------------------------------------------------------------
SUI $37.428 5.0% $ 38.00 $27.750 1.88 31.8%
- ------------------------------------------------------------------------------------------
UMH $11.625 6.0% $13.625 $10.875 0.70 -1.7%
- ------------------------------------------------------------------------------------------
Total return figures obtained through Standard & Poors and are for the period
through Sept 1997.
==========================================================================================
</TABLE>
The Southwest and Northwest Regions of the nation are the preferred
locations regarding recent and future manufactured housing community
acquisitions. However, investors seeking moderate, but consistent growth
expectations, are still looking at the midwest region. Also, southern portions
of Florida are still considered a prime area for investors seeking good quality
manufactured housing communities, with good up-side potential. What was once a
stagnant market, the northeast region is now being considered for future
acquisitions.
According to a recent study prepared by Merrill Lynch & Company, ownership
in the manufactured housing community industry is highly fragmented. The top 150
owner-operators account for less than 5.0 percent of the total industry, whereas
a host of "mom-and-pop" private companies account for the other 95.0 percent.
This unglamorous niche industry is ripe for consolidation, and an infusion of
professional management expertise is likely to yield significant economies of
scale. The four REIT's specializing in manufactured housing communities are
already among the top ten owner-operators, and are well positioned to facilitate
and hasten the industry's consolidation to the likely benefit of their
stockholders.
Manufactured homes are the fastest growing component of the nation's
housing inventory, due to their affordability, good quality design and safety
standards. According to the Merrill Lynch & Company Manufactured Housing
Community Industry Report, factory-built homes appeal especially to senior
citizens and to households with limited economic needs, two segments of the
population that are likely to grow rapidly in coming years.
Consistent returns in manufactured housing community investments have been
the mainstay of the industry. For this reason, as well as the amount of
acquisitions seen by Real
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Market Analysis
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Estate Investment Trusts (REITs) from 1991 to 1996, the availability of good
quality manufactured housing communities has been substantially reduced compared
to the 1980's. Good quality manufactured housing communities still command
premium prices, thus driving down overall capitalization rates.
Cushman & Wakefield's Valuation Advisory Services has tracked sale
transactions of manufactured housing communities since 1985. Overall
capitalization rates have consistently been within the 8.75 to 10.00 percent
range for communities located in moderate to increasing growth markets, and as
low as near 8.0 percent for those communities located in growing markets that
poses significant upside potential. Overall capitalization rates are clearly
affected and are differentiated among the properties relative to rent levels,
age, quality, condition, location, amenities, demographic characteristics,
resident profile, as well as the quality of management.
Manufactured housing communities fall within, and are categorized by their
overall appearance, age, and amenities, but more importantly the strength of the
local market. The various categories of manufactured housing communities,
according to the Woodall Directory, can be ranked as 1 to 5 Star Parks These
rankings are defined as follows:
One Star Park
The most important consideration for a one star park is overall
appearance. If it is not a decent place to live, it will not be listed in
Woodall's Directory. The following are general requirements:
o Fair overall appearance;
o Patios on most lots. May be concrete, asphalt, wood, or some
suitable material;
o Grass, rock or shell to cover ground;
o Streets fair to good. May be dirt, asphalt or gravel in reasonable
condition;
o Restrooms clean, if any;
o Adequate laundry or laundromat nearby;
o If fences allowed, must be neat;
o Mail service;
o Homes may be old models, but show evidence of care; and,
o Manager available some hours of each day.
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Market Analysis
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Two Star Park
In addition to the requirements for a one star park, a two star park will
have the following:
o Landscaping - some lawns and shrubs;
o Streets in good condition. Must be dust free of crushed rock, gravel
or shell minimum;
o Neat storage;
o Well equipped laundry or laundromat nearby;
o 200 volt connections available;
o If children accepted, park should have play area;
o Park free of clutter, such as old cars and other abandoned
equipment; and,
o Well maintained and managed.
Three Star Park
What a three star park does it does well, but not as uniformly as higher
rated parks. Many three star parks were once higher rated, but original
construction does not allow for today's 10-foot, 12-foot, and double-wides
or the 55-foot and 60-foot lengths. If children are allowed, there should
be adequate play area. However, the disarray caused by children may at
times be the determining factor that keeps a three star park at that level
when it otherwise could be rated higher. In addition to the requirements
for one and two star parks, a three star park must have the following:
o Attractive entrance;
o All homes must be in good condition;
o Awnings and cabana rooms on some homes in southern areas;
o Some spaces for large mobile homes;
o Paved or hard surfaced streets;
o Off-street parking or streets wide enough for safe on-street
parking;
o Good lawns or substitute throughout, shade trees, some shrubs where
climate permits;
o Concrete patios or the equivalent on all lots;
o All lots neat and attractive;
o All park buildings in good repair; and,
o Good management.
Four Star Park
Four star parks are luxury parks. In addition to the requirements for one,
two and three star parks, a four star park must have the following:
o Good landscaping;
o Most homes skirted with metal skirts, concrete block, ornamental
wood or stone;
o Paved streets, edged or curbed.
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Market Analysis
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o Uncrowded lots;
o Underground utilities if permitted by local conditions and
authorities;
o Most tanks, if present, concealed;
o Any hedges or fences must be attractive and uniform;
o Awnings, cabanas, or porches on most homes in southern areas.
(Excepting double-wide units.);
o Most lots to accommodate large mobile homes;
o Where row parking of homes exists, all must be lined up uniformly;
o Community hall and/or swimming pool and/or recreation programs. If a
park is four star in all but this requirement, the fourth star will
be printed as an open star indicating a four star park without
park-centered recreation; and,
o Excellent management.
Five Star Park
Five star parks are the finest. They should be nearly impossible to
improve. In addition to the requirements for one, two, three, and four
star parks, a five star park must have the following:
o Well planned and laid out spacious appearance;
o Good location in regard to accessibility and desirable neighborhood.
In some locations, park should be enclosed by high hedges or
ornamental fence;
o Wide paved streets in perfect condition. Curbs or lawns edged to
streets, sidewalks, street lights, street signs;
o Homes set back from street;
o Exceptionally attractive entrance and park sign;
o Patios at least 8 x 30 feet. (Excepting double-wide units.);
o Paved off-street parking such as carports or planned parking;
o All homes skirted;
o All hitches concealed. Any existing tanks concealed;
o Recreation, some or all of the following: swimming pool (excepting
areas with long, cold winters), shuffleboards, horseshoe pitching,
golf course, hobby shop, hobby classes, games, potlucks, dances or
natural recreational facilities;
o Beautifully equipped recreation hall with kitchen. Room for
community gatherings, tiled restrooms, etc.;
o Uniform storage sheds or central storage facilities;
o All late model homes in excellent condition;
o At least 60 percent occupancy in order to judge quality of residents
which indicates park's ability to maintain a five star rating
between inspections;
o All empty lots grassed, graveled or otherwise well maintained;
o If pets or children allowed, there must be a place for them to run
and play without cluttering the streets and yards. Most five star
parks are for adults only; and,
o Superior management interested in comfort of residents and
maintenance of park.
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Market Analysis
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The demand for good quality institutional grade manufactured housing
communities is anticipated to increase throughout the 1990's, since manufactured
housing communities provide an alternative form of living for the elderly and
retirees, especially for those living on fixed income. Manufactured home
shipments continue to be strong. Shipments rose 20.0 percent in 1992 and 1994,
and 12.0 percent in 1995. The market for good quality manufactured housing
communities is expected to be strong, with yield and capitalization rates and
prices expected to continue to be competitive, with the REITs leading the way.
Competition
We have surveyed ten manufactured housing communities located within the
subject's primary market, including the subject property, containing a total of
4,360 sites. The combined occupancy rate of these ten manufactured housing
communities, including the subject property, is approximately 99.0 percent.
Excluding the subject property in our survey, the combined occupancy rate is
approximately 99.0 percent, based on 4,033 sites.
The name and location of the subject property's primary competition, as
well as the number of sites, occupancy levels, amenities offered, monthly rental
rates and services provided in the monthly rental rate, are presented on the
following facing page, along with a map which identifies the location of each
competing park.
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<TABLE>
<CAPTION>
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SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- ------------------------------------------------------------------------------------------------------------------------------------
Age
Number ---------
Of Sites Condition 3-Year
--------- --------- Services Date Of Average
Comp. Name Occupancy Park Monthly Provided Last Rental Annual Rental
No. Location Level Amenities Rating(1) Rent in Rent Increase Increase
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R-1 Countryside 327 Clubhouse 1972 $319.00/Mo. Refuse August, 1997 $10.00/Mo.
9850 N. Federal Boulevard ---- Pool/Spa ---- To
Federal Heights, Colorado 100% Playground Good $334.00/Mo.
Storage ----
4*
- ------------------------------------------------------------------------------------------------------------------------------------
R-2 Denver Cascade 382 Clubhouse 1974 $310.00/Mo. Water September, 1997 $10.00/Mo.
9650 N. Federal Boulevard ---- Pool/Spa ---- To Sewer
Federal Heights, Colorado 100% Playground Good $325.00/Mo. Refuse
Storage ----
4*
- ------------------------------------------------------------------------------------------------------------------------------------
R-3 Friendly Village of the 522 Clubhouse 1974 $300.00/Mo. Refuse April, 1997 $15.00/Mo.
Rockies ---- Pool ---- To
2100 W. 100th Avenue 100% Tennis Court Good $305.00/Mo.
Thornton, Colorado Playground ----
Laundry 4*
Storage
- ------------------------------------------------------------------------------------------------------------------------------------
R-4 Thornton Estates 208 Clubhouse 1970 $315.00/Mo. Water May, 1997 $13.00/Mo.
3600 E. 88th Avenue ---- Pool ---- Sewer
Thornton, Colorado 100% Library Good Refuse
Mini Golf ----
Laundry 4*
- ------------------------------------------------------------------------------------------------------------------------------------
R-5 North Country Village 425 Clubhouse 1985 $325.00/Mo. Refuse March, 1997 $35.00/Mo.
9700 Riverdale Road ---- Pool/Spa ----
Thornton, Colorado 100% Billiard Room Good
Playground ----
Laundry 4*
Storage
- ------------------------------------------------------------------------------------------------------------------------------------
R-6 Pine Lake Ranch 766 Clubhouse 1972 $298.00/Mo. Water June, 1997 $14.00/Mo.
10201 Riverdale Road ---- Pool ---- To Sewer
Thornton, Colorado 100% Tennis Court Good $308.00/Mo. Refuse
Playground ----
Storage 4*
====================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- ------------------------------------------------------------------------------------------------------------------------------------
Age
Number ---------
Of Sites Condition 3-Year
--------- --------- Services Date Of Average
Comp. Name Occupancy Park Monthly Provided Last Rental Annual Rental
No. Location Level Amenities Rating(1) Rent in Rent Increase Increase
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R-7 Holiday Hills 737 Clubhouse 1960 $343.00/Mo. Refuse January, 1997 $18.00/Mo.
2000 West 92nd Avenue --- Pool/Spa ---- To
Federal Heights, Colorado 98% Exercise Room Good $362.00/Mo.
Billiard Room ----
Library 5*
Shuffleboards
Activity Room
Laundry
Storage
- ------------------------------------------------------------------------------------------------------------------------------------
R-8 Front Range 302 Clubhouse 1973 $295.00/Mo. Refuse April, 1997 $10.00/Mo.
2885 W. 128th Avenue --- Pool ---- To
Broomfield, Colorado 98% Playground Good $305.00/Mo.
Storage ----
4*
- ------------------------------------------------------------------------------------------------------------------------------------
R-9 Casa Estates 364 Clubhouse 1974 $315.00/Mo. Refuse April, 1997 $17.00/Mo.
860 W. 132nd Avenue ---- Pool ----
Westminster, Colorado 100% Playground Good
Exercise Room ----
Storage 4*
- ------------------------------------------------------------------------------------------------------------------------------------
Subject Cimarron 327 Clubhouse 1972 $333.00/Mo. Refuse January, 1997 $18.00/Mo.
12205 North Perry --- Pool ----
Broomfield, Colorado 98% Pool Good
Billiard Room ----
Basketball 4*
Playground
Storage
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Ratings from One Star to Five Star Parks are defined in the National Overview section of this report.
====================================================================================================================================
</TABLE>
CUSHMAN &
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COMPETING MANUFACTURED HOUSING MAP
[MAP OMITTED]
CUSHMAN &
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Market Analysis
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Rental rates of manufactured housing communities located within the
subject's primary market range from $295.00 to $362.00 per site, on a monthly
basis. The subject property is currently quoting a monthly rental rate within
the market range, or at $333.00 per site. The last rental rate increase at the
subject property was as of January, 1997, of $18.00 per month.
The enclosed comparable rentals are considered the most competitive to the
subject property regarding amenities offered, condition, location and overall
ranking.
Comparable R-1, Countryside, is located at 9850 N. Federal Boulevard, in
Federal Heights, Colorado. This comparable property contains 327 sites,
and is 100.0 percent occupied. Countryside was developed in 1972, and is
in overall good condition. Over the last three years, the annual rental
rate increased approximately $10.00 per month. Monthly rental rates range
from $319.00 to $334.00, with refuse service included in monthly rental
payment. Amenities include a clubhouse, pool, spa, playground and
recreational vehicle storage.
Comparable R-2, Denver Cascade, is located at 9650 N. Federal Boulevard,
in Federal Heights, Colorado. This comparable property contains 382 sites,
and is 100.0 percent occupied. Denver Cascade was developed in 1974, and
is in overall good condition. Over the last three years, the annual rental
rate increased approximately $10.00 per month. Monthly rental rates range
from $310.00 to $325.00, with water, sewer and refuse service included in
monthly rental payment. Amenities include a clubhouse, pool, spa,
playground and recreational vehicle storage.
Comparable R-3, Friendly Village of the Rockies, is located at 2100 W.
100th Avenue, in Thornton, Colorado. This comparable property contains 522
sites, and is 100.0 percent occupied. Friendly Village of the Rockies was
developed in 1974, and is in overall good condition. Over the last three
years, the annual rental rate increased approximately $15.00 per month.
Monthly rental rates range from $300.00 to $305.00, with refuse service
included in monthly rental payment. Amenities include a clubhouse, two
pools, tennis court, playground, laundry facility and recreational vehicle
storage.
Comparable R-4, Thornton Estates, is located at 3600 E. 88th Avenue, in
Thornton, Colorado. This comparable property contains 208 sites, and is
100.0 percent occupied. Thornton Estates was developed in 1970, and is in
overall good condition. Over the last three years, the annual rental rate
increased approximately $13.00 per month. Monthly rental rates are at
$315.00, with water, sewer and refuse service included in monthly rental
payment. Amenities include a clubhouse, pool, library, mini golf and
laundry facility.
Comparable R-5, North County Village, is located at 9700 Riverdale Road,
in Thornton, Colorado. This comparable property contains 425 sites, and is
100.0 percent occupied. North County Village was developed in 1985, and is
in overall
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Market Analysis
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good condition. Over the last three years, the annual rental rate
increased approximately $35.00 per month. Monthly rental rates are at
$325.00, with refuse service included in monthly rental payment. Amenities
include a clubhouse, two pools, two spas, billiard room, playground,
laundry facility and recreational vehicle storage.
Comparable R-6, Pines Lake Ranch, is located at 10201 Riverdale Road, in
Thornton, Colorado. This comparable property contains 766 sites, and is
100.0 percent occupied. Pines Lake Ranch was developed in 1972, and is in
overall good condition. Over the last three years, the annual rental rate
increased approximately $14.00 per month. Monthly rental rates range from
$298.00 to $308.00, with water, sewer and refuse service included in
monthly rental payment. Amenities include two clubhouses, three pools,
tennis court, playground and recreational vehicle storage.
Comparable R-7, Holiday Hills, is located at 2000 West 92nd Avenue, in
Federal Heights, Colorado. This comparable property contains 737 sites,
and is approximately 98.0 percent occupied. Holiday Hills was developed in
1960, and is in overall good condition. Over the last three years, the
annual rental rate increased approximately $18.00 per month. Monthly
rental rates range from $343.00 to $362.00, with refuse service included
in monthly rental payment. Amenities include two clubhouses, pool, spa,
exercise room, billiard room, library, shuffleboards, activity room,
laundry facility and recreational vehicle storage.
Comparable R-8, Front Range, is located at 2885 W. 128th Avenue, in
Broomfield, Colorado. This comparable property contains 302 sites, and is
approximately 98.0 percent occupied. Front Range was developed in 1973,
and is in overall good condition. Over the last three years, the annual
rental rate increased approximately $10.00 per month. Monthly rental rates
range from $295.00 to $305.00, with refuse service included in monthly
rental payment. Amenities include a clubhouse, two pools, playground and
recreational vehicle storage.
Comparable R-9, Casa Estates, is located at 860 W. 132nd Avenue, in
Westminster, Colorado. This comparable property contains 364 sites, and is
100.0 percent occupied. Casa Estates was developed in 1974, and is in
overall good condition. Over the last three years, the annual rental rate
increased approximately $17.00 per month. Monthly rental rates are at
$315.00, with refuse service included in monthly rental payment. Amenities
include a clubhouse, pool, playground, exercise room and recreational
vehicle storage.
In our opinion, and based on conversations with the on-site manager,
properties R-1, R-2 and R-8 compete most favorably with the subject property,
with monthly rental rates ranging from $295.00 to $334.00 per site. The subject
property is currently quoting a monthly rental rate of $333.00 per site, which
is within the range of rental rates of our more comparable
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Market Analysis
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competing properties. The subject property competes most effectively with its
primary competitors regarding amenities, condition and current rent structure.
Comparable Manufactured Housing Community Sales
A search of the subject's market revealed six recent sales of manufactured
housing communities located in the Denver Metropolitan Area. The following is a
brief discussion of each of the manufactured housing sales located within the
subject's market. These sales are summarized on the following facing page.
Comparable Sale I-1, Pine Lakes, is located at 10201 Riverdale Road, in
Thornton, Colorado. This property contains 760 sites, situated on 183.67
acres of land area. The property was developed in 1972, and was in overall
good condition at the time of sale. Amenities include two clubhouses, two
pools, recreation room, tennis court, basketball court, and a playground.
The property was approximately 90.0 percent occupied at the time of sale.
The property was purchased for $12,500,000 as a combined transaction with
sale I-2, which equates to $16,447 per site,
Comparable Sale I-2, Redwood Estate II, is located at 9595 Pecos Street,
in Thornton, Colorado. This property contains 752 sites, situated on
128.22 acres of land area. Amenities include a clubhouse, pool, recreation
room, playground and recreational vehicle storage. The property was
approximately 93.0 percent occupied at the time of sale. The property was
purchased for $12,500,000 as a combined transaction with sale I-1, which
equates to $16,622 per site.
Comparable Sale I-3, Canyon Ridge, is located at 5150 Airport Road, in
Colorado Springs, Colorado. This property contains 250 sites, situated on
31.36 acres of land area. Canyon Ridge was developed in 1972, and was in
good condition at the time of sale. Amenities include a clubhouse, pool,
recreation room and laundry facility. The property was approximately 99.0
percent occupied at the time of sale. The property was purchased for
$4,200,000, which equates to $16,800 per site.
Comparable Sale I-4, Cottonwood Village, is located at 11990 S. Boulder
Road, in Layfayette, Colorado. This property contains 241 sites, situated
on 19.36 acres of land area. Cottonwood Village was developed in 1972, and
was in overall good condition at the time of sale. Amenities include a
clubhouse, pool, recreation room, playground and laundry facility. The
property was 100.0 percent occupied at the time of sale. The property was
purchased for $4,800,000, which equates to $19,917 per site.
Comparable Sale I-5, Canterbury Park, is located at 3020 S. Powers
Boulevard, in Colorado Springs, Colorado. This property contains 496
sites, situated on 61.73 acres of land area. Canterbury Park was developed
in 1985, and was in overall good condition at the time of sale. Amenities
include a clubhouse, pool
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<TABLE>
<CAPTION>
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SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- ------------------------------------------------------------------------------------------------------------------------------------
$EGI/Site
Sales Price ---------
Per Site $Expense/Site
Sales Date Land Area Density ----------- EGIM -------------
Comp. Name ---------- --------- ------- Occupancy ---- Expense Ratio
No. Location Sales Price No. Sites Condition At Sale $NOI/Site OAR % Of EGI
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
I-1 Pine Lakes 7/96 183.67 4.14 $16,447 $1,563 N/A N/A
10201 Riverdale Road ----- ------ ---- ------- ---
Thornton, Colorado $12,500,000(1) 760 Good 90% 9.50%
- ------------------------------------------------------------------------------------------------------------------------------------
I-2 Redwood Estate II 7/96 128.22 5.86 $16,622 $1,579 N/A N/A
9595 Pecos Street ----- ------ ---- ------- ---
Thornton, Colorado $12,500,000(1) 752 Good 93% 9.50%
- ------------------------------------------------------------------------------------------------------------------------------------
I-3 Canyon Ridge 7/96 31.36 7.97 $16,800 $1,512 N/A N/A
5150 Airport Road ----- ----- ---- ------- ---
Colorado Springs, CO $4,200,000 250 Good 99% 9.00%
- ------------------------------------------------------------------------------------------------------------------------------------
I-4 Cottonwood Village 9/95 19.36 12.45 $19,917 $1,591 6.45x $3,089
11990 S. Boulder Road ---- ----- ----- ------- ----- ------
Lafayette, Colorado $4,800,000 241 Good 100% 7.99% $1,498
------
48.50%
- ------------------------------------------------------------------------------------------------------------------------------------
I-5 Canterbury Park 7/95 61.73 8.03 $18,750 $2,037 6.91x $2,714
3020 S. Powers Blvd. ---- ----- ---- ------- ----- ------
Colorado Springs, CO $9,300,000 496 Good 100% 10.87% $677
----
24.95%
- ------------------------------------------------------------------------------------------------------------------------------------
I-6 Woodland Hills 3/94 57.0 7.63 $18,391 $1,885 5.56x $3,310
1500 West Thornton ---- ---- ---- ------- ----- ------
Thornton, Colorado $8,000,000 435 Good 97% 10.25% $1,425
------
43.05%
- ------------------------------------------------------------------------------------------------------------------------------------
Subject Cimarron - - - 50.265 6.51 - - - $2,871 N/A $4,245
12205 North Perry St. ------ ---- ------
Broomfield, CO 327 Good 98% $1,374
------
32.37%
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Sale I-1 and I-2 were purchased as a combined transaction.
====================================================================================================================================
<CAPTION>
================================================================================================
SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- ------------------------------------------------------------------------------------------------
Comp. Name Comparability
No. Location to the Subject Comments
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
I-1 Pine Lakes Similar Good condition; Amenities include
10201 Riverdale Road two clubhouses, two pools,
Thornton, Colorado recreation room, tennis,
basketball and playground.
- ------------------------------------------------------------------------------------------------
I-2 Redwood Estate II Similar Good condition; Amenities include
9595 Pecos Street a clubhouse, pool, recreation
Thornton, Colorado room, playground and RV storage.
- ------------------------------------------------------------------------------------------------
I-3 Canyon Ridge Inferior Developed in 1972;
5150 Airport Road Good condition; Amenities include
Colorado Springs, CO a clubhouse, pool, recreation
room and laundry facility.
- ------------------------------------------------------------------------------------------------
I-4 Cottonwood Village Inferior Developed in 1972; Good
11990 S. Boulder Road condition; Amenities include a
Lafayette, Colorado clubhouse, pool, recreation room,
playground and laundry facility.
- ------------------------------------------------------------------------------------------------
I-5 Canterbury Park Similar Developed in 1985; Good
3020 S. Powers Blvd. condition; Amenities include a
Colorado Springs, CO clubhouse, pool and RV storage.
- ------------------------------------------------------------------------------------------------
I-6 Woodland Hills Similar Developed in 1970; Good
1500 West Thornton condition; Amenities include a
Thornton, Colorado clubhouse, pool, playground and
barbecue pavilion.
- ------------------------------------------------------------------------------------------------
Subject Cimarron Subject Property Developed in 1972; Good
12205 North Perry St. condition; Amenities include a
Broonfield, CO clubhouse, pool, billiard room,
basketball court, playground and
RV storage.
================================================================================================
</TABLE>
<PAGE>
Market Analysis
================================================================================
and recreational vehicle storage. The property was 100.0 percent occupied
at the time of sale. The property was purchased for $9,300,000, which
equates to $18,750 per site.
Comparable Sale I-6, Woodland Hills, is located at 1500 West Thornton, in
Thornton, Colorado. This property contains 435 sites, situated on 57.0
acres of land area. Woodland Hills was developed in 1970, and was in
overall good condition at the time of sale. Amenities include a clubhouse,
pool, playground and barbecue pavilion. The property was 97.0 percent
occupied at the time of sale. The property was purchased for $8,000,000,
which equates to $18,391 per site.
It should be noted that comparability does not imply an identical or exact
duplicate, but rather the possession of a similar utility and affected by
similar supply and demand forces. Also, relative to the subject property,
differences include: time or date of the transactions; location, which
encompasses differences in accessibility; site characteristics, including
differences in size, topography, access, exposure and development capacities;
and improvement characteristics, which include differences in age, quality,
condition, size and amenities.
Demographic Trends
Based on information provided by National Decision Systems (NDS), the
populations within the subject's primary 5-mile and secondary 10-mile market
areas, as of 1997, are 176,519 and 496,468, respectively. The populations of the
subject's primary and secondary market areas are projected to increase to
205,303 and 556,719, respectively, by the year 2002.
According to NDS, the total number of households within the subject's
primary and secondary market areas, are 67,297 and 192,521, respectively, for
1997. The number of households within the subject's primary 5-mile and secondary
10-mile market areas are projected to increase to 78,042 and 220,054,
respectively, by the year 2002.
The average household income levels within the subject's primary and
secondary market areas, for 1997, are $52,056 and $50,586, respectively, and are
expected to increase to $61,943 and $60,855, respectively, by the year 2002. The
median household income levels within the subject's primary and secondary market
areas, for 1997, are $43,395 and $42,021, respectively, and are expected to
increase to $49,102 and $47,736, respectively, by the year 2002. Per capita
income within the subject's primary and secondary market areas, for 1997, are
$19,811 and $19,455, respectively, and are expected to increase to $23,519 and
$23,968, respectively, by the year 2002.
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Market Analysis
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Based on the above levels, the demographics of the subject's primary
market area appear to indicate a positive growth trend, based on information
provided by NDS. For additional demographic information, please refer to the NDS
summary report in the Addenda of this report.
Expense Analysis
Expenses exhibited by manufactured housing communities nationally are
typically 35.0 to 45.0 percent of effective gross income. However, expense
ratios of manufactured housing communities located in the southeast and
southwest regions of the nation are typically lower by comparison, due to lower
real estate taxes and common area maintenance charges.
As presented in the Summary of Manufactured Housing Communities Sales,
operating expense ratios of competing parks range from 24.95 to 48.50 percent of
effective gross income levels, and $677 to $1,498 on a per site basis. The
subject property is currently reporting expenses, for the 12-month trailing
period of 1997, at 32.37 percent of effective gross income and $1,374 on a per
site basis. The operating expenses of the subject property are within the range
of comparable properties on both a percentage of effective gross income and on a
per site basis.
Market Supply and Demand
There are a total of nine competing manufactured housing communities
located within the subject's market, which total 4,033 sites, with a
corresponding average occupancy rate of 99.0 percent. No specific absorption
statistics were available. The subject property, based on conversations with
management, has historically had occupancy rates consistent with competing
parks, and is currently 98.0 percent occupied. We believe the current occupancy
rate of the subject property is stabilized, and has similar occupancy rates of
competing parks presently presented. Based on the subject's current occupancy
rate and occupancy rates at competing parks, demand appears to be strong, with
steady rental rate increases expected.
Conclusion
Historically, the subject's primary market has sustained occupancy levels
of 95.0 to 100 percent. Rental rates of similar manufactured housing communities
located within the subject's primary market generally range from $295.00 to
$362.00 per site, on a monthly basis. The subject property is currently quoting,
and is currently achieving (based on the most recent rent roll provided), a
monthly rental rate within the range of competing parks, or at $333.00 per site.
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Market Analysis
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Based on our research, steady increases in rental rates are anticipated,
based on actual historical performance of competing parks and historical
increases seen at the subject property. Sales transactions of manufactured
housing communities located within the subject's region range from $16,447 to
$19,917 per site, with corresponding overall rates ranging from 7.99 to 10.87
percent. In our opinion, the subject property competes favorably with its
competition regarding amenities, condition, rent structure and overall market
rating. SITE PLAN
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SITE PLAN
[GRAPHIC OMITTED]
<PAGE>
PROPERTY DESCRIPTION
================================================================================
Site Description
The subject site is located along the west side of North Perry Street, in
Broomfield, Adams County, Colorado. The subject site is rectangular in shape and
contains approximately 50.265 acres, or 2,189,543 square feet of land area.
Topographically, the site is generally level and at street grade.
Primary access to the subject site is available from North Perry Street.
According to an environmental survey completed by PEI Assoicates, Inc.,
completed November 30, 1990, the subject property does not appear to be located
in a flood plain area. However, we recommend an opinion by a qualified engineer
whether the subject property is located in a flood hazard area in the final
analysis.
The streets within the park have two-lanes, with concrete curbs. Overall,
the subject site is typical of the area and is functionally well suited for its
current use.
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.
Improvements Description
The subject property was originally developed in 1972. The subject
improvements consist of a 327-site manufactured housing community, with a
community center, swimming pool, billiard room, basketball court, playground and
recreational vehicle storage of the 327 sites, approximately 60 percent, or 196
sites, are single-wide, and 40 percent, or 131 sites, are double-wide.
The main community center consists of a manager's office, restroom
facilities, open-space available for resident use, billiard room and a fully
equipped kitchen. The swimming pool is located adjacent to the main community
center.
Off-street parking is available for each resident. Site improvements
within the park include: paved streets, street lighting and signage. Overall,
the site improvements appeared to be in good condition at the time of
inspection.
Cimarron is a functional manufactured housing community with ingress and
egress
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Property Description
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along North Perry Street. Overall, the subject community appears to be well
maintained and is in good condition. Cimarron is a functional manufactured
housing community and competes favorably with other existing manufactured
housing communities in the area in terms of appearance and amenities. The
subject property would fit the profile of a Four Star Park, as defined in the
National Overview section of this report.
Real Property Taxes and Assessments
Assessed value of commercial property in Adams County is assessed at 29.0
percent of the Assessor's opinion of market value. The subject property is
identified by tax parcel numbers 00000-00-2-43-354 and 01573-31-4-08-001.
The total amount of real estate taxes for 1996 payable in 1997 for the
subject property amounts to $59,500. The total amount of real estate taxes for
1996 payable in 1997 equates to approximately $181.96 per site.
Zoning
According to the City of Broomfield zoning officials, the subject property
is currently zoned RPUD, Residential Planned Unit Development. The subject
property is a legal and conforming use for this zoned district.
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CONCLUSION
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Conclusion
o The subject property, Cimarron, is a functional manufactured housing
community, which competes favorably in relation to its competition;
o Comparable manufactured housing communities located within the
subject's market range in monthly rental rates per site from $295.00
to $362.00;
o The subject property is currently quoting, and is currently
achieving (based on the most recent rent roll provided) a monthly
rental rate at $333.00 per site, which is above the range of
competing parks;
o Sale transactions of manufactured housings located within the
subject's region range in unit sales prices per site from $16,447 to
$19,917, with corresponding overall rates ranging from 7.99 to 10.87
percent;
o Operating expenses are within industry standards for a park located
in the mountain region of the country;
o The subject park appears to be operating at economic levels based on
our review of historical and budgeted 1998 income and expenses;
o The demographic characteristics of the area appear to be positive;
o The population profile of the subject property is 95 percent adult;
o The current occupancy rate at the subject property of 98.0 percent
is evident by a strong local market and demand;
o No significant manufactured housing communities are expected to be
developed in the near future;
o In our opinion, based on Woodall's criteria, the subject property is
a Four Star Park, and the reader's attention is directed to the
corresponding definition and criteria of a Four Star Park, presented
in the National Overview section of this report; and,
o Based on the subject's location, demographic, economic, market and
physical characteristics, we believe Cimarron will continue to be a
viable manufactured housing community in the foreseeable future, and
is well positioned in the marketplace.
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ASSUMPTIONS AND LIMITING CONDITIONS
================================================================================
"Report" means the consulting report to which these Assumptions and Limiting
Conditions are annexed.
"Property" means the subject of the Report.
"C&W" means Cushman & Wakefield, Inc. or its subsidiary which issued the Report.
"Appraiser(s)" means the employee(s) of C&W who prepared and signed the Report.
This report is made subject to the following assumptions and limit-ing
conditions:
1. No responsibility is assumed for the legal description or for any matters
which are legal in nature. 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 Report or upon which the Report is based
has been gath-ered 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 Apprais-ers nor C&W shall be responsible for the
accuracy or completeness of such information, including the correctness of
estimates, opinions, dimensions, sketches, exhibits, and other factual
matters.
3. The information is effective as of the date stated in the Report. Changes
since that date in external and market factors or in the property itself
can significantly affect our analysis.
4. The report is to be used in whole and not in part. No part of the Report
shall be used in conjunction with any other report. Possession of the
Report, or a copy thereof, does not carry with it the right of
publication. Publication of the Report or any portion thereof without the
prior written consent of C&W is prohibited. Except as may be otherwise
expressly stated in the letter of engagement to prepare the Report, C&W
does not permit use of the Report by any person other than the party to
whom it is addressed or for purposes other than those for which it was
prepared. If written permission is given by C&W to use the Report, the
Report must be used in its entirety and only with proper written
qualification as approved by C&W. No part of the Report or the identity of
the Appraiser shall be conveyed to the public through advertising, public
relations, news, sales, or other media or used in any material without
C&W's prior written consent. Reference to the Appraisal Institute or to
the MAI designation is prohibited.
5. The Appraiser shall not be required to give testi-mony in any court or
administrative proceedings relating to the Property or the Report.
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Assumptions and Limiting Conditions
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6. The Report 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 Report; 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 Report is based.
7. The physical condition of the improvements considered by the Report is
based on visual inspection by the Appraiser or other person identified in
the Report. C&W assumes no responsibility for the soundness of structural
members nor for the condition of mechanical equipment, plumbing, or
electrical components.
8. Unless otherwise stated in the Report, the existence of potentially
hazardous or toxic materials which may have been used in the construction
or maintenance or operation of the improvements or may be located at or
about the Property was not considered in the Report. These materials (such
as formaldehyde foam insulation, asbestos insulation, various soil
contaminants, and other potentially hazardous materials) may affect the
value of the Property. The Appraisers are not qualified to detect such
substances, and C&W urges that an expert in this field be employed to
determine the economic impact of these matters, if any, on the property in
the Report.
9. Unless otherwise stated in the Report, compliance with the requirements of
the Americans With Disabilities Act of 1990 (ADA) has not been considered
in the Report. Failure to comply with the requirements of the ADA may
negatively affect the value of the property. C&W recommends that an expert
in this field be employed.
10. If the Report is submitted to a lender or investor with the prior approval
of C&W, such party should consider the Report as one factor, together with
its independent investment considerations and underwriting criteria, in
its overall investment decision.
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CERTIFICATION
================================================================================
We certify that, to the best of our knowledge and belief:
1. Jody L. Garbisch inspected the property, and Michael J. Schaeffer and
Stanley R. Dennis, Jr., MAI, have reviewed and approved the report, but
did not inspect 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 on an action or event (such as the
approval of a loan) resulting from the analyses, opinions, or conclusions
in, or the use of, this report.
6. 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 Ethics and Standards of Professional Practice of the Appraisal
Institute.
7. No one provided significant professional assistance to the persons signing
this 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. As of the date of this report, Stanley R. Dennis, Jr., MAI, has completed
the requirements of the continuing education program of the Appraisal
Institute.
/s/ Michael J. Schaeffer /s/ Jody L. Garbisch /s/ Stanley R. Dennis, Jr.
Michael J. Schaeffer Jody L. Garbisch Stanley R. Dennis, Jr., MAI
Director Associate Appraiser Director, Manager
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<PAGE>
ADDENDA
================================================================================
POP-FACT SHEETS
LEGAL DESCRIPTION
QUALIFICATIONS OF APPRAISERS
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POP-FACT SHEETS
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<PAGE>
Tue Nov 25, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP FACTS: SUMMARY REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6510
PREPARED FOR
CUSHMAN & WAKEFIELD, INC
CIMARRON
BROONFIELD, CO COORD: 39:55.16 105:02.31
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- --------------------------------------------------------------------------------
POPULATION
2002 PROJECTION 205,303 556,719
1997 ESTIMATE 176,519 496,468
1990 CENSUS 138,431 415,339
1980 CENSUS 114,163 361,266
GROWTH 1980 - 1990 21.26% 14.97%
HOUSEHOLDS
2002 PROJECTION 78,042 220,054
1997 ESTIMATE 67,297 192 521
1990 CENSUS 50,795 152,124
1980 CENSUS 38,748 123,294
GROWTH 1980 - 1990 31.09% 23.38%
1997 ESTIMATED POPULATION BY RACE 176,519 496,468
WHITE 89.64% 88.17%
BLACK 1.14% 1.06%
ASIAN & PACIFIC ISLANDER 3.43% 3.31%
OTHER RACES 5.79% 7.47%
1997 ESTIMATED POPULATION 176,519 496,468
HISPANIC ORIGIN 12.38% 15.41%
OCCUPIED UNITS 50,795 152,124
OWNER OCCUPIED 68.06% 69.34%
RENTER OCCUPIED 31.94% 30.66%
1990 AVERAGE PERSON PER HH 2.72 2.71
1997 ESTIMATED HH BY INCOME 67,297 192,521
$150,000 + 1.94% 1.90%
$100,000 TO $149,999 4.41% 4.17%
$ 75,000 TO $ 99,999 8.48% 7.73%
$ 50,000 TO $ 74,999 25.92% 24.87%
$ 35,000 TO $ 49,999 20.98% 21.30%
$ 25,000 TO $ 34,999 14.03% 13.95%
$ 15,000 TO $ 24,999 12.50% 12.68%
$ 5,000 TO $ 14,999 9.21% 10.29%
UNDER $ 5,000 2.52% 3.11%
1997 EST. AVERAGE HH INCOME $52,056 $50,586
1997 EST. MEDIAN HH INCOME $43,395 $42,021
1997 EST. PER CAPITA INCOME $19,811 $19,455
<PAGE>
Tue Nov 25, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP 80-02, HH 80-02, INC 80-02)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6510
PREPARED FOR
CUSHMAN & WAKEFIELD, INC
CIMARRON
BROONFIELD, CO COORD: 39:55.16 105:02.31
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- --------------------------------------------------------------------------------
POP_80: TOTAL 114,163 361,266
POP_90: TOTAL 138,431 415,339
POP_97: TOTAL (EST.) 176,519 496,468
POP_02: TOTAL (PROJ.) 205,303 556,719
HH_80: TOTAL 38,748 123,294
HH_90: TOTAL 50,795 152,124
HH_97: TOTAL (EST.) 67,297 192,521
HI-I_02: TOTAL (PROJ.) 78,042 220,054
INC 80: PER CAPITA (EST.) $ 8,210 $ 7,984
INC_90: PER CAPITA $ 14,861 $ 14,165
INC_97: PER CAPITA (EST. $ 19,811 $ 19,455
INC_02: PER CAPITA (PROJ $ 23,519 $ 23,968
HH_90_BY INCOME_89: MEDIAN $ 36,080 $ 34,322
HH-I_97_BY INCOME: MEDIAN $ 43,395 $ 42,021
HH_02_BY INCOME: MEDIAN $ 49,102 $ 47,736
HH_80_BY INCOME 79: AVERAGE $ 24,189 $ 23,395
HH_90_BY INCOME_89: AVERAGE $ 40,557 $ 38,469
HH_97_BY INCOME: AVERAGE $ 52,056 $ 50,586
HH_02_BY INCOME: AVERAGE $ 61,943 $ 60,855
<PAGE>
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LEGAL DESCRIPTION
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<PAGE>
LEGAL DESCRIPTION
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THAT PART OF THE SOUTHEAST 1/4 OF SECTION 31, TOWNSHIP 1 SOUTH, RANGE 68 WEST OF
THE 6TH P.M., DESCRIBED AS FOLLOWS:
BEGINNING AT THE SOUTHEAST CORNER OF THE SOUTHEAST 1/4 OF SECTION 31, TOWNSHIP 1
SOUTH, RANGE 68 WEST OF THE 6TH PRINCIAL MERIDIAN;
THENCE NORTH 90 DEGREES 00 MINUTES 00 SECONDS WEST ON AN ASSUMED BEARING ALONG
THE SOUTH LINE OF SAID SOUTHEAST 1/4 A DISTANCE OF 1350 FEET;
THENCE NORTH 00 DEGREES 16 MINUTES 20 SECONDS WEST AND PARALLEL TO THE EAST LINE
OF SAID SOUTHEAST 1/4 A DISTANCE OF 1040.81 FEET TO THE TRUE POINT OF BEGINNING
THENCE SOUTH 90 DEGREES 00 MINUTES 00 SECONDS WEST, A DISTANCE OF 630.00 FEET;
THENCE SOUTH 00 DEGREES 16 MINUTES 20 SECONDS EAST, A DISTANCE OF 47.48 FEET;
THENCE SOUTH 90 DEGREES 00 MINUTES 00 SECONDS WEST, A DISTANCE OF 656.94 FEET;
TO A POINT ON THE WEST LINE OF SAID SOUTHEAST 1/4;
THENCE NORTH 00 DEGREES 22 MINUTES 05 SECONDS WEST ALONG SAID WEST LINE A
DISTANCE OF 1650 FEET TO THE NORTHWEST CORNER OF SAID SOUTHEAST 1/4;
THENCE NORTH 89 DEGREES 57 MINUTES 40 SECONDS EAST ALONG THE NORTH LINE OF SAID
SOUTHEAST 1/4 A DISTANCE OF 1349.69 FEET TO A POINT 1290 FEET WEST OF THE EAST
QUARTER CORNER OF SAID SECTION 31;
THENCE SOUTH 00 DEGREES 16 MINUTES 20 SECONDS EAST, A DISTANCE OF 1553.42 FEET
TO A POINT ON THE NORTH LINE OF WEST 121ST PLACE;
THENCE SOUTH 90 DEGREES 00 MINUTES 00 SECONDS WEST A DISTANCE OF 60 FEET ALONG
SAID NORTH LINE TO THE WEST LINE OF PERRY STREET;
THENCE SOUTH 00 DEGREES 16 MINUTES 20 SECONDS EAST, A DISTANCE OF 50 FEET ALONG
SAID WEST LINE TO THE TRUE POINT OF BEGINNING
BEING ALSO KNOWN AS
ALL OF
CONTINENTAL ETATES,
COUNTY OF ADAMS,
STATE OF COLORADO
- --------------------------------------------------------------------------------
<PAGE>
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QUALIFICATIONS OF APPRAISERS
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<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
JODY L. GARBISCH
Education
Bachelor of Science Degree in Finance, concentration in Real Estate, from the
College of Commerce and Business Administration at the University of Illinois,
Urbana-Champaign, Illinois, 1997.
Real Estate Education
The following courses have been completed through the Real Estate Program at the
University of Illinois at Urbana-Champaign:
Urban Real Estate Valuation
Urban Economics
Real Estate Financial Markets
Real Estate Investments
Real Estate Law
Real Estate Fundamentals
Current Position
Associate Appraiser, Cushman & Wakefield of Illinois, Inc., Valuation Advisory
Services.
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
MICHAEL J. SCHAEFFER
Real Estate Experience
Mr. Schaeffer has been active in the appraisal of real estate since 1983.
Appraisal experience includes the valuation of income-producing real estate in
the Chicago area as well as many major cities and small towns throughout the
Midwest. The types of properties appraised include office buildings, regional
malls, shopping centers, country clubs, apartment complexes, subsidized housing
units, industrial buildings, nursing homes, retirement communities, automotive
dealerships, department stores, vacant land, proposed income-producing
properties, and various special purpose properties. Mr. Schaeffer also has had
over 10 years of experience in new construction and renovation of commercial,
industrial, residential and specialized real estate properties.
Education
Bachelor of Arts, University of Cincinnati, Cincinnati, Ohio MBA Graduate Course
Work in Economics and Management, Xavier University, Cincinnati, Ohio
Real Estate Education
The following courses sponsored by the Appraisal Institute have been
successfully completed:
Real Estate Appraisal Principles 1A-1
Basic Valuation Procedures 1A-2
Standards of Professional Practice
Capitalization Theory and Techniques 1BA
Capitalization Theory and Techniques IBB
Advanced Applications 550
Report Writing & Valuation Analysis 540
Mr. Schaeffer has also attended numerous lectures and seminars sponsored by the
Appraisal Institute.
Mr. Schaeffer is currently a candidate for the MAI designation of the Appraisal
Institute, and has completed the educational and experience requirements for the
MAI designation.
Current Position
Director, Appraisal Services, Cushman & Wakefield, Inc., Chicago, Illinois
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
STANLEY R. DENNIS, JR., MAI
Real Estate Experience
Director, Manager, Cushman & Wakefield Valuation Advisory Services, Chicago,
Illinois. Division is responsible for the appraisal and consultation function of
Cushman & Wakefield, Inc., a national full service real estate organization,
1989.
Vice President, Manager, Cushman & Wakefield Appraisal Services, Portland,
Oregon, 1983.
Principal, Stanley R. Dennis & Associates, Portland, Oregon, 1982.
Education
Portland State University, Portland, Oregon
Bachelor of Science Degree, 1977, Finance and Real Estate
Appraisal Institute
Course I-A Fundamentals and Principles of Real Estate Appraisal
Course I-B Capitalization Theory and Techniques
Course II-I Case Studies in Real Estate Valuation
Course II-2 Valuation Analysis and Report Writing
Course II-3 Standards of Professional Practice
Course IV Litigation/Condemnation Valuation
Course VI Investment Analysis
Course VIII Residential Case Studies
Course X Market Analysis
Seminar Feasibility Analysis and Highest and Best Use
Seminar Discounted Cash Flow Analysis
Seminar Cash Equivalency
Seminar Subdivision Analysis
Seminar Rates, Ratios and Reasonableness
Professional Affiliations
American Institute of Real Estate Appraisers, Member (Designation #6754)
Building Owners and Managers Association (BOMA)
National Association of Corporate Real Estate Executives (NACORE)
<PAGE>
================================================================================
MARKET STUDY OF REAL PROPERTY
Lake Haven
1415 Main Street
Dunedin, Pinellas County, Florida
================================================================================
As of December 3, 1997
Prepared For:
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Prepared By:
Cushman & Wakefield of Illinois, Inc.
Valuation Advisory Services
455 North Cityfront Plaza Drive, Suite 2800
Chicago, Illinois 60611-5555
CUSHMAN &
WAKEFIELD(R)
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<PAGE>
[Letterhead of Cushman & Wakefield of Illinois, Inc.]
December 12, 1997
Mr. Edward J. Welch
Director
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Re: Market Study of Real Property
Lake Haven
1415 Main Street
Dunedin, Pinellas County, Florida 34698
Dear Mr. Welch:
In fulfillment of our agreement as outlined in the Letter of Engagement,
Cushman & Wakefield of Illinois, Inc., is pleased to transmit our market study
and consulting report evaluating the above referenced real property.
As specified in the Letter of Engagement, our market study and consulting
report is qualified by certain assumptions, limiting conditions, certifications,
and definitions, which are set forth in the report.
This consulting report was prepared for the Client, and it is intended
only for the specified use of the Client. It may not be distributed to or relied
upon by other persons or entities without written permission of Cushman &
Wakefield, Inc.
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the above
referenced real property, as of the date of our property inspection. The
function of the report is to assist the client, in evaluating the property for
underwriting and rating purposes.
<PAGE>
Mr. Edward J. Welch - 2 - December 12, 1997
This market study and consulting report was prepared in conformity with
the requirements of the Code of Ethics and Standards of Professional Appraisal
Practice of the Appraisal Institute and the Uniform Standards of Professional
Practice (USPAP) adopted by the Appraisal Standards Board of the Appraisal
Foundation.
This letter is invalid if detached from the report, which contains the
text, exhibits, and the Addenda.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF ILLINOIS, INC.
/s/ Jennifer L. Estrella
Jennifer L. Estrella
Associate Appraiser
/s/ Michael J. Schaeffer
Michael J. Schaeffer
Director
/s/ Stanley R. Dennis, Jr., MAI
Stanley R. Dennis, Jr., MAI
Director, Manager
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SUMMARY OF SALIENT FACTS
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Property Name: Lake Haven
Location: 1415 Main Street Dunedin, Pinellas County,
Florida
Assessor's Parcel Number: Based on information provided by the
client, the subject property is identified
by Assessor's Parcel Numbers
26-28-15-00000-410-0600 and
26-28-15-00000-420-0500.
Date of Inspection: The property was inspected December 3,
1997.
Ownership: The subject property is legally entitled
to Orangeland Vistas, an Illinois
Corporation, and MHC Financing Limited
Partnership, as beneficiary.
Land Area: Based on information provided by the
property's legal plat of survey, the
subject property contains approximately
48.2 acres of land area, or 2,100,625
square feet.
Zoning: Based on information provided by the City
of Dunedin, the subject property is zoned
MH, Residential Mobile Home. The subject
property is a legal and conforming use.
Improvements
Type: A manufactured housing community.
Year Built: The subject property was developed in
phases between 1962 and 1968.
Size: The subject property consists of a
379-site manufactured housing community.
Condition: At the time of inspection, the subject
property was in good condition.
Property Rating: Five Star manufactured home community.
Special Assumptions: 1. Information regarding the subject
property, including its physical
characteristics, was provided to us by the
client and the on-site manager, and is
assumed to be accurate.
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Summary of Salient Facts
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2. The existence of potentially hazardous
or toxic materials, which may be located
on or about the property, was not
considered in our evaluation. The
appraisers are not qualified to detect
such substances, and Cushman & Wakefield
urges that an expert in this field be
employed to determine the existence, if
any, of hazardous materials located on or
about the site.
3. Our market and consulting report
regarding the subject assumes the subject
property, as presently improved,
represents its highest and best use.
4. It is unknown to the appraiser if the
subject property complies with the
Americans with Disabilities Act (ADA). We
recommend a qualified specialist in the
final determination regarding any ADA
compliance deficiencies that may be
present at the subject property.
5. Please refer to the complete list of
assumptions and limiting conditions
included at the end of this report.
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TABLE OF CONTENTS
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Page
PHOTOGRAPHS OF SUBJECT PROPERTY................................................1
INTRODUCTION...................................................................5
Identification of Property..................................................5
Property Ownership and Recent History.......................................5
Purpose and Function of the Market Study and Consulting Assignment..........5
Scope of the Market Study and Consulting Assignment.........................5
Date of Property Inspection.................................................5
Definitions and Other Pertinent Terms.......................................5
REGIONAL ANALYSIS..............................................................8
NEIGHBORHOOD ANALYSIS.........................................................16
MARKET ANALYSIS...............................................................18
National Overview..........................................................18
Competition................................................................25
Comparable Manufactured Housing Community Sales............................29
Demographic Trends.........................................................31
Expense Analysis...........................................................32
Market Supply and Demand...................................................32
Conclusion.................................................................33
PROPERTY DESCRIPTION..........................................................35
Site Description...........................................................35
Improvements Description...................................................35
REAL PROPERTY TAXES AND ASSESSMENTS...........................................36
ZONING........................................................................36
CONCLUSION....................................................................37
ASSUMPTIONS AND LIMITING CONDITIONS...........................................38
CERTIFICATION.................................................................40
ADDENDA.......................................................................41
Pop-Fact Sheets
Legal Description
Qualifications of Appraisers
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PHOTOGRAPHS OF SUBJECT PROPERTY
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[PHOTO OMITTED]
Front Entrance of the Subject Property
[PHOTO OMITTED]
Property Manager's Office at the Subject Property
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Photographs of Subject Property
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[PHOTO OMITTED]
Exterior of Clubhouse
[PHOTO OMITTED]
View of Lake at the Subject Property
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Photographs of Subject Property
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[PHOTO OMITTED]
Typical Interior View of the Subject Park
[PHOTO OMITTED]
Typical Interior View of the Subject Park
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Photographs of Subject Property
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[PHOTO OMITTED]
Street Scene Facing East Along Main Street
[PHOTO OMITTED]
Street Scene Facing West Along Main Street
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INTRODUCTION
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Identification of Property
The subject property consists of a 379-site manufactured housing
community, situated on approximately 48.22 acres of land area, located on the
south side of Main Street (also known as State Road 580), in the city of
Dunedin, Pinellas County, Florida. The property's street address is 1415 Main
Street. The property was constructed in phases between 1962 and 1968. According
to information provided by the property manager at the time of inspection, the
occupancy rate at the subject property was 98.4 percent. However, the recent
rent roll provided by the client, dated October 22, 1997, indicates an occupancy
rate of 97.4 percent. The occupancy rate referenced throughout this report is
98.4 percent, and based upon the information provided by the property manager.
Property Ownership and Recent History
The subject property is currently entitled to Orangeland Vistas, an
Illinois corporation, and MHC Financing Limited Partnership, as beneficiary. The
subject property was originally developed in phases between 1962 and 1968.
Purpose and Function of the Market Study and Consulting Assignment
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the subject
property, as of the date of property inspection. The function of the consulting
report is to assist the client in evaluating the property for underwriting and
rating purposes.
Scope of the Market Study and Consulting Assignment
In the process of preparing this report, we inspected the property,
interviewed the on-site manager, conducted market research into asking rental
rates for comparable properties, conducted market investigations, and
ascertained sales prices of comparable properties. Additionally, we conducted
market research and evaluated demographic and economic trends; and, the market
position and rating of the subject property.
Date of Property Inspection
The property was inspected December 3, 1997.
Definitions and Other Pertinent Terms
Definitions of pertinent terms taken from the Dictionary of Real Estate
Appraisal, Third Edition (1993), published by the Appraisal Institute, is as
follows:
Market Rent
The rental income that a property would most probably command on the open
market; indicated by current rents paid and asked for comparable space as
of the date of the appraisal.
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Introduction
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Evaluation
Evaluation is a study of the nature, quality, or utility of a parcel of
real estate or interest in, or aspects of, real property, in which a value
estimate is not necessarily required.
Market Study
A macroeconomic analysis that examines the general market conditions of
supply, demand, and pricing or the demographics of demand for a specific
area or property type.
Legal Description
The subject property is located along the south side of Main Street, in
the city of Dunedin, Pinellas County, Florida. The street address of the subject
property is 1415 Main Street, Dunedin, Florida. The property is identified by
tax parcel numbers 26-28-15-00000-410-0600 and 26-28-15-00000-420-0500,
according to information provided by the client. Due to the lengthy metes and
bounds legal description, the subject property's legal description is presented
in the Addenda of this report, and reference is made thereto.
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LOCATION MAP
[MAP OMITTED]
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REGIONAL ANALYSIS
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The subject property is located in the West Central Region of Florida.
West Central Florida, as the name suggests, is centrally located along Florida's
west coast. It is comprised primarily of a nine county area anchored by the
Tampa-St. Petersburg-Clearwater Metropolitan Statistical Area (MSA). According
to Sales and Marketing Management's 1997 Survey of Buying Power, the 1996
estimated population of the nine county West Central Florida region is
3,397,000. The Tampa-St. Petersburg-Clearwater MSA has a 1996 estimated
population of 2,240,200.
Overview
The Tampa-St. Petersburg-Clearwater MSA (hereinafter referred to as the
Tampa MSA) includes Hillsborough, Pinellas, Pasco, and Hernando Counties.
Florida's economy has expanded rapidly during the past decade due to a
favorable business climate rated as one of the best in the country. Tourism and
agriculture have traditionally been the largest industries in Florida, but the
expansion of the nation's space program during the 1960's led to growth in the
high technology fields. Like many areas of the nation, the service sector
experienced dramatic growth in the 1980's. The Tampa MSA is representative of
Florida as a whole, with a diversified economy including tourism, agriculture,
high technology industries, and a large service sector.
Population and housing growth have been influenced by Florida's relatively
low cost of living, and business expansion has continued to provide job
opportunities for skilled workers from economically stagnating economies in the
north. According to the Bureau of Economic and Business Research at the
University of Florida, the statewide unemployment rate as of September, 1997 was
5.2 percent.
A legacy of the state's unprecedented 1980s economic growth has been the
inability of infrastructure in many areas, including Tampa Bay, to keep pace
with development. Because Florida does not have a state income tax, and the
overall tax base is lower than in most other states, problems such as inadequate
highways, municipal services, land use planning, and environmental quality have
received considerable attention. To overcome this, the state is cooperating with
local governments to institute growth management and planning. Impact fees on
new developments, for example, continue to increase while gasoline taxes and
new-resident automobile taxes are earmarked for highway improvement. This places
more of the burden for funding capital improvement projects on developers and
consumers, while avoiding the need to impose state income taxes.
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Regional Analysis
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Population
West Central Florida consists of a nine county area centered around Tampa
Bay. The 1996 estimated population of the West Central Florida region is
3,397,000. The following chart illustrates the historic and estimated future
population growth by county.
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PROJECTED
COUNTY 1980 1990 1995 2000
- --------------------------------------------------------------------------------
Hillsborough 646,960 859,329 883,202 930,002
- --------------------------------------------------------------------------------
Pinellas 728,531 839,912 870,296 888,059
- --------------------------------------------------------------------------------
Pasco 193,643 281,619 303,692 325,174
- --------------------------------------------------------------------------------
Polk 321,652 413,544 435,619 464,408
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Manatee 148,442 195,328 229,029 245,525
- --------------------------------------------------------------------------------
Sarasota 202,251 271,714 296,283 313,914
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Hernando 44,469 106,770 120,246 138,465
- --------------------------------------------------------------------------------
Citrus 54,703 99,980 106,569 119,006
- --------------------------------------------------------------------------------
Sumter 24,272 32,895 33,837 35,991
--------- --------- --------- ---------
- --------------------------------------------------------------------------------
TOTAL 2,364,923 3,101,091 3,278,773 3,460,544
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Source: Source Book of County Demographics
As indicated on the preceding chart, the population of west central
Florida increased during the 1980's by 736,168 residents, indicating an annual
compound growth rate of nearly 2.75%. This rate of growth has slowed since 1990
due to a downturn in the national and local economy. The projections for
population growth for the year 2000 indicate continuing increases in population
for all 9 counties.
Governmental and Political Characteristics
On October 27, 1994, Hillsborough County adopted a comprehensive land use
plan known as the "2015 Land Use Plan". The planning effort was mandated by the
Comprehensive Planning Act passed by the Florida Legislature in 1975. The plan
was intended to provide for infrastructure planning and to guide growth and
development in an orderly manner, and has been modified to accommodate new
development patterns.
Recently, Hillsborough County and the city of Tampa revised their zoning
ordinances in the context of objectives set forth in the land use plan, which
also recently underwent major
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Regional Analysis
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revisions. These changes were part of an attempt by the Hillsborough County
City-County Planning Commission, the Hillsborough County Department of
Development Coordination, and other local planning and zoning agencies to more
effectively plan for new growth and development and avoid many of the problems
experienced in recent years.
The state of Florida and its municipalities do not levy personal income
taxes. Property taxes in the Tampa Bay area are typical of most urban areas in
Florida. Continued commercial and industrial development has kept millage rates
levied by Hillsborough County relatively low, although assessed valuations of
commercial properties have recently increased. This has resulted in a moderate
property tax burden for residential property owners, with further relief
provided by homestead exemptions of the first $25,000 of assessed valuations on
primary residences. However, property taxes are anticipated to increase in
future years to help fund infrastructure costs.
Geographic and Physical Characteristics
The Tampa area has long been a desirable place in which to vacation and
retire. Its warm, semitropical climate and location on Tampa Bay near the Gulf
of Mexico, coupled with new industry and new development, continue to attract
new residents.
Because of its strategic geographical location and transportation network,
Tampa is the manufacturing and distribution hub of Florida. The port of Tampa is
the largest in the state of Florida, the nation's 7th largest in size, and 3rd
largest in tonnage. It represents the largest deep-water port to the Panama
Canal and serves as a major distribution and trade center of Florida and the
southern United States. Its 50 terminals handle phosphate, fertilizer, chemical
and dry bulk products, grain, cement, coal, steel, citrus products, bananas,
petroleum products, and liquid sulfur.
In addition to the manufacturing base in Tampa, west central Florida has
some of the most pristine beaches in the state. The coastal counties in the
region, primarily Sarasota, Manatee and Pinellas, rely heavily on their beaches
to attract tourists from the United States, Canada, and Europe. Pinellas County
in particular has been very successful attracting British, Dutch and German
tourists who previously vacationed in southeast Florida.
The eastern counties in the region are mostly flat, with rich soils
suitable for citrus groves and cattle grazing. Polk County is one of the top
five counties in the state for citrus crops. Other areas of Polk County are
heavily mined for phosphate. Sumter, Citrus, Hernando and Pasco Counties were
all heavily planted with citrus from 1940 through the 1970's but increasingly
cold weather destroyed most of the citrus in those counties. Most large scale
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Regional Analysis
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citrus grove operators recognize State Road 60 as the northernmost boundary for
citrus production. This arbitrary boundary indicates southern Polk County,
Manatee County, and Sarasota County are more suitable for citrus due to the
likelihood of cold weather to the north.
Transportation
Major interstate highways through the region allow unrestricted traffic
flow to other areas of the state. The two interstate highways in the region are
Interstate 75 and Interstate 4.
Interstate 75 extends from Miami westward to Naples. From Naples, it
extends northward along the west coast of Florida, continuing through the lower
peninsula of Michigan. Interstate 75 was completed through west central Florida
in 1986 and its completion was a tremendous catalyst for growth along its path,
particularly in Hillsborough County, Manatee County, and Sarasota County. The
growth consisted of a variety of developments including residential
subdivisions, industrial parks, and office parks.
Interstate 4 extends eastward from Tampa to Daytona Beach on Florida's
east coast. It is very heavily traveled, especially during the winter and spring
tourist seasons because it connects the Tampa Bay area and Orlando, two primary
tourist destinations in the state. The intersection of Interstate 4 and
Interstate 75 is approximately 6 miles east of downtown Tampa and the Port of
Tampa. The area around this intersection is heavily developed with office and
industrial parks where tenants need proximity to the interstate highway system.
The Veterans Expressway was completed in October 1995 and the proposed
construction of the Suncoast Parkway should alleviate a great deal of the
congestion in and around north Tampa. The Suncoast Parkway is proposed to
connect north Tampa (via an interchange on the Veterans Expressway) with an
undetermined point in Citrus, Sumter or Levy County. The intent is to provide a
highway to the western (and most populous) areas of west central Florida.
Tampa International Airport (TIA) is one of the world's most modern
airports. It is centrally located in northwest Hillsborough County to serve
Hillsborough, Pinellas, Pasco, Hernando, Citrus, Sumter, and western Polk
Counties. Situated on 3,000 acres, the airport is centrally located near
interstate 275 and is easily accessible from State Road 60. To serve 15 domestic
and international airlines carrying nearly 10,000,000 passengers a year, it has
five levels of short-term parking, an air cargo terminal, aircraft maintenance
buildings, a general aviation terminal, two-way shuttle systems to air-side
terminals, an Airport Marriot Hotel, and other facilities.
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Regional Analysis
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Social and Cultural Characteristics
The nine county west central Florida region is fairly disparate in terms
of population age distribution. Hillsborough County has the most industrial
orientation and the median age (33.7) is the lowest in the region. Like the
nation as a whole, the population of Hillsborough County is increasing.
Conversely, Pasco County has traditionally been a retirement area, and it has
the highest median age in the region (51.2). Due to its proximity to employment
centers in Hillsborough and Pinellas County, many families are moving into the
county.
The relative prosperity of the 1980's increased demand for upscale housing
in the region. In Pinellas and Hillsborough Counties the result was the
development of more golf course communities like Cheval, Tampa Palms, and
Feather Sound. In Pasco and Hernando Counties, more modest, retiree-oriented
communities like Beacon Woods and Glen Lakes were developed. Some of these large
scale communities over-invested in "up front" infrastructure and they had
difficulty servicing their debt as the housing market softened over the past few
years. However, these large scale golf course communities have been the first
residential developments to rebound as single family home sales improved
significantly in the last two years.
Tampa is not as tourist oriented as Orlando or several of the beach
communities in Pinellas County, though it is conveniently located between the
Gulf Beaches and Walt Disney World. However, Busch Gardens which is located on
Busch Boulevard in northeast Tampa is the second largest tourist attraction in
Florida. Several major golf and tennis resorts such as Avila, Cheval, and
Saddlebrook are also located in the vicinity, and several major-league baseball
franchises relocate to the area for spring training.
Houlihan Stadium, formerly known as Tampa Stadium, is located at the
southeast corner of North Dale Mabry Highway and Dr. Martin Luther King
Boulevard. It is home of the Tampa Bay Buccaneers, who began their 22nd season
in the fall of 1997. The home of the bay area's National Hockey League
franchise, "The Lightnings," is the Ice Palace. The Ice Palace, completed in
1996, is a $110,000,000, 21,000-seat hockey arena, located in the central
business district of Tampa.
In March 1995, Tampa Bay received one of two major-league baseball
franchises. The baseball team is known as the Tampa Bay Devil Rays and plays in
St. Petersburg Tropicana Field in 1998. In addition, the Tampa Bay Mutiny, a
major-league soccer team, began playing at Houlihan Stadium in 1996.
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Regional Analysis
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The downtown waterfront will see further major developments in years to
come. Around the Tampa Port Authority's recently developed 21-acre cruise ship
terminal, investors have confirmed plans for additional mixed-use commercial
developments. The waterfront area between Harbour Island and Ybor City is
projected to become the nucleus of the revitalization of Tampa's downtown area
over the next five years.
Recreation
Hillsborough County contains numerous parks, fishing camps, marinas,
campgrounds, and recreational facilities to appeal to the outdoor sportsman. In
addition, both public and private golf courses and tennis courts abound
throughout the county. Boating of all types takes place in Tampa Bay, with easy
access to the Gulf of Mexico.
Economic Characteristics
The most recent economic data indicate that Florida and West Central
Florida are benefiting from the economic growth in the national economy.
Florida's unemployment rate was 5.2 percent in September 1997. The largest
populated counties in West Central Florida, Hillsborough and Pinellas counties,
each had a September, 1997 unemployment rate of 3.6 percent. The major employers
in Hillsborough County are presented in the chart on the following page.
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Major Employers in Hillsborough County
- --------------------------------------------------------------------------------
Firm Business Employees
- --------------------------------------------------------------------------------
Hillsborough County School System Public education 22,000
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GTE Telecommunications 10,155
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MacDill Air Force Base Military 8,700
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Hillsborough County Government Public services 7,500
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U.S. Postal Service Mail delivery 6,573
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Tampa International Airport Airport 4,899
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City of Tampa City government 4,347
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University of South Florida Higher education 4,202
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Tampa General Hospital Hospital 4,200
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St. Joseph Hospital Hospital 3,800
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Humana Tampa Bay Hospitals, managed care 3,500
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Tampa Electric Company Utility 3,200
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NationsBank Financial institution 3,005
- --------------------------------------------------------------------------------
James A. Haley Veterans Hospital Hospital 2,480
- --------------------------------------------------------------------------------
Busch Entertainment Corporation Theme park 2,200
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Employment in the southeast is expected to grow faster than the national
average through the year 2000, and Florida is expected to have the greatest
increase in employment of all of the eight southeastern states. America
Demographics, a leading local economic
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Regional Analysis
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forecaster, projects a 27.6 percent employment growth rate in the next decade
for the Tampa Bay area, while in 1985 their 10-year projection was more
optimistic, 41.7 percent.
The chart on the following page illustrates the dispersion of median
household income in the nine county region. Not surprisingly, the more urban
counties, Hillsborough, Pinellas and Sarasota, have a higher percentage of
households with income in excess of $50,000 annually. Sarasota County, a
traditionally high end retiree area, is the highest with 18.8% of the households
earning over $50,000. The more rural counties have smaller populations with a
higher percentage of households with annual income less than $25,000.
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DISTRIBUTION OF 1995 HOUSEHOLDS BY INCOME (%)
================================================================================
Less $15,000 $25,000 $50,000 $100,000 $150,000
1995 # than to to to to or
COUNTY Household $15,000 $24,999 $49,999 $99,999 $149,999 More
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Hillsborough 343,118 18.1 16.5 35.3 24.4 4.1 1.7
- --------------------------------------------------------------------------------
Pinellas 387,842 18.7 18.9 35.4 20.7 4.1 2.1
- --------------------------------------------------------------------------------
Pasco 130,302 26.2 24.2 35.4 12.7 1.1 0.4
- --------------------------------------------------------------------------------
Polk 155,969 21.0 19.4 37.2 18.7 2.6 1.1
- --------------------------------------------------------------------------------
Manatee 98,182 17.5 19.9 37.5 20.4 3.3 1.4
- --------------------------------------------------------------------------------
Sarasota 133,384 15.4 17.8 37.0 22.5 4.6 2.8
- --------------------------------------------------------------------------------
Hernando 50,284 22.2 25.4 36.9 13.6 1.3 0.5
- --------------------------------------------------------------------------------
Citrus 46,198 29.2 25.3 31.1 12.7 1.2 0.5
- --------------------------------------------------------------------------------
Sumter 13,142 31.0 21.9 33.5 12.0 1.0 0.6
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Summary and Conclusions
In conclusion, the long term outlook for the region is positive. Previous
declines in population growth and employment growth rates are giving way to job
growth and the consequent encouragement of immigration of all type of labor.
This puts into perspective the recessionary conditions of the last two to three
years. In summary, the Tampa Bay economy is considered well balanced and should
be able to sustain healthy levels of growth and expansion into the foreseeable
future.
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NEIGHBORHOOD MAP
[MAP OMITTED]
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NEIGHBORHOOD ANALYSIS
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The subject property is situated along south side of Main Street (also
known as State Road 580), just west of Keene Road, in the city of Dunedin,
Florida. The subject's immediate neighborhood is bordered by Alternate State
Highway 19 to the west, Michigan Boulevard to the north, State Highway 19 to the
east and Virginia Street to the south. Development in the immediate neighborhood
of the subject property consists of single-family housing and commercial
development along Main Street.
Regional access to the subject property is excellent via Main Street,
which provides access to State Highway 19. State Highway 19 runs north and south
in the St. Petersburg-Tampa Bay area and is located two miles east of the
subject property. Major thoroughfares in the immediate neighborhood of the
subject property provide excellent neighborhood access to the subject property.
Major thoroughfares in the subject's immediate neighborhood include: Main
Street, Alternate State Highway 19, Keene Road, and Belcher Road. The subject
property enjoys excellent visibility along Main Street, which runs east and west
in the St. Petersburg-Tampa area.
Development in the immediate neighborhood of the subject property consists
of single-family housing and commercial development along Main Street.
Businesses in the neighborhood of the subject property include Amoco gas
station, Blockbuster Video, McDonalds, True Value Hardware, Taco Bell, Thrift
Store Bargain Depot, and Florida Water Treatment. Master Key Center, a strip
commercial shopping center, is located directly west of the subject property.
Businesses at the Master Key Center include: Country Boy Restaurant, Copy
Master, Sign Mart, Sam's Seafood and the Starlight Dance Club.
According to the Dunedin Chamber of Commerce, the 1997 estimated
population of Dunedin (including seasonal residents) is 38,868. According to
1990 statistics of the U.S. Bureau of the Census, the median age of the Dunedin
population was 48.8 years. The average assessed value of the single-family home
in Dunedin in 1996 was $77,258.
The land area of the City of Dunedin is approximately 10.0 square miles.
According to the City of Dunedin Department of Community Services, the 1995 land
use distribution was primarily residential and recreation/open space land use.
Residential and recreation/open space land uses accounted for 44.0 percent and
28.5 percent of total Dunedin land uses, respectively.
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Neighborhood Analysis
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According to the Dunedin Chamber of Commerce, the largest employers in Dunedin
are Nielsen Media Research Company and Mease Hospital, with 2,119 and 1,800
employees, respectively. Nielsen Media Research conducts market research as a
service.
The subject property is situated in an area well suited for manufactured
housing development. Real estate values are anticipated to increase at a steady
pace. The economy in the area is anticipated to be good, with unemployment
steadily decreasing. The growth in population is anticipated to remain constant.
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MARKET ANALYSIS
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National Overview
Reportedly, the largest property owners of manufactured housing
communities in the United States are: ROC Communities, headquartered in
Colorado; MHC, Inc., headquartered in Illinois; Ellenburg Capital, headquartered
in Oregon; Lautrec Ltd., headquartered in Michigan; Clayton Homes, headquartered
in Tennessee; Clayton Williams and Sherwood, headquartered in California;
Chateau Properties, Sun Communities and UNIPROP, headquartered in Michigan.
The following represents the top ten manufactured housing community firms,
as reported by GFA Management, as of 1997.
<TABLE>
<CAPTION>
=========================================================================================
1997 Firm Name State No. of Sites No. of Communities
Rank Owned/Managed Owned/Managed
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Sun Communities Michigan 30,295/0 84/0
- -----------------------------------------------------------------------------------------
2 ROC Communities Colorado 22,441/7,167 77/36
- -----------------------------------------------------------------------------------------
3 Manufactured Home Communities Illinois 27,349/838 69/3
- -----------------------------------------------------------------------------------------
4 Ellenburg Capital Florida 25,173/0 63/0
- -----------------------------------------------------------------------------------------
5 Lautrec Ltd. Michigan 22,652/0 58/0
- -----------------------------------------------------------------------------------------
6 Chateau Properties Michigan 20,003/0 47/0
- -----------------------------------------------------------------------------------------
7 Clayton Homes Tennessee 18,000/0 66/0
- -----------------------------------------------------------------------------------------
8 Clayton, Williams and Sherwood California 16,946/0 44/0
- -----------------------------------------------------------------------------------------
9 UNIPROP Michigan 14,931/0 40/0
- -----------------------------------------------------------------------------------------
10 The Bloch Organization Michigan 14,379/0 37/0
=========================================================================================
</TABLE>
According to the U.S. Census Bureau, more than 8,521,000 people were
living in manufactured housing communities as of 1990 compared to 3,838,678 in
1980. This represents an increase in manufactured housing community living of
approximately 122.0 percent over the last ten years. Over the last ten years,
there has been a steady increase in manufactured housing community development
across the country. Among the demographic factors which account for the increase
in manufactured housing community living are: decreasing household size, a
growing demand for smaller housing, as well as an alternative to the increasing
cost of housing. Nationally, the largest percentage of manufactured housing
communities are located in California, Michigan, Colorado, Florida, New York,
Minnesota, Indiana, Arizona, Ohio, and Wisconsin.
The manufactured home industry has dramatically changed over the last 20
years. Manufactured homes are now designed and constructed to accommodate
spacious and
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Market Analysis
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attractive living requirements. Today, approximately one out of sixteen families
live in manufactured housing units. The manufactured housing market share has
been growing steadily over the last 10 years. In 1990, 6.7 percent of Americans
lived in manufactured housing units, up from 2.9 percent compared to 1970,
according to the U.S. Census Bureau, which represents 12.0 to 14.0 percent of
all new housing built since the mid-1980's, according to the Manufactured
Housing Institute in Arlington, Virginia.
In 1990, the average cost of a manufactured housing unit was $27,800
compared to $149,000 for a new house (including land), according to the
Manufactured Housing Institute. This reflects a 28.0 percent increase in the
cost of manufactured housing since 1980 versus a 49.0 percent increase in
conventional housing. Industry experts estimate that a single-family home
selling for $150,000 would require an annual income of $52,671. To purchase a
$27,800 manufactured housing unit, only a $19,984 income level would be
required.
At Fleetwood Enterprises, the nation's largest manufacturer of
manufactured housing units, units may be purchased for up to $100,000, which
would include a three-bedroom, two-bath unit of 2,100 square feet, with vaulted
ceilings.
In 1990, approximately 10.0 percent of manufactured home owners lived in
units worth approximately $40,000, up from 4.0 percent compared to 1981,
according to a study conducted by Foremost Insurance Company in Grand Rapids,
Michigan. Also, according to the study, approximately 21.0 percent of the
manufactured housing households are occupied by people' 65 years of age or
older, slightly lower than the age group for conventional homes, as reported by
Foremost Insurance.
The demand for good quality institutional grade manufactured housing
communities has substantially increased over the last ten years. Manufactured
housing communities provide an affordable alternative to the increasing cost of
housing. Also, manufactured housing communities provide an alternative form of
living for the elderly and retirees, especially for those living on fixed
incomes.
Acquisitions of manufactured housing communities during 1993 and 1994 were
clearly dominated by Real Estate Investment Trusts. During 1994 and 1995
Manufactured Home Communities (MHC) and ROC communities lead the acquisition of
manufactured housing communities nationally. During 1996, Sun Communities
captured the lead and, together with ROC and MHC dominate the Real Estate
Investment Trust market.
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Market Analysis
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The following chart represents the largest Real Estate Investment Trusts,
from 1991 to 1996, as reported by GFA Management
================================================================================
HOME SITE GROWTH, DEVELOPMENT AMONG THE LARGEST
REAL ESTATE INVESTMENT TRUST (REITS)
- --------------------------------------------------------------------------------
Year ROC MHC Chateau Sun United Total Annual
Growth
- --------------------------------------------------------------------------------
1996 29,608 28,187 20,003 30,295 5,234 113,327 17.0%
- --------------------------------------------------------------------------------
1995 27,910 26,237 19,594 18,000 4,850 96,591 9.0%
- --------------------------------------------------------------------------------
1994 26,231 28,407 15,689 13,500 4,623 88,450 37.8%
- --------------------------------------------------------------------------------
1993 20,142 14,700 15,261 9,036 5,050 64,189 17.8%
- --------------------------------------------------------------------------------
1992 18,745 12,873 10,032 7,600 5,200 54,450 N/A
- --------------------------------------------------------------------------------
1991 9,030 13,079 9,759 N/R N/R N/A N/A
- --------------------------------------------------------------------------------
N/R = No report N/A = Not applicable
- --------------------------------------------------------------------------------
NOTE: The 113,327 sites counted for the top five REITs in 1996 make up 20
percent of the total sites surveyed in the 1997 Allen Report. These rental sites
are located in 339 communities, accounting for about 1 percent of some 50,000
existing manufactured housing communities nationwide. The community counts for
the five major REITs are: ROC (113), MHC (72), Chateau (47), Sun (84) and United
(23). The proportion of communities owned by each of the REITs compared to the
others is: ROC (33%), MHC (21%), Chateau (14%), Sun (25%) and United (7%).
================================================================================
Manufactured Home Communities (MHC) is expected to continue an aggressive
acquisition campaign through 1997 and beyond. As of September 1997, the MHC REIT
had a market cap of $632.0 million, and continues to pursue the acquisition of
manufactured home communities. Aside from the ELL-CAP $300.0 million
transaction, in September 1997 Manufactured Home Communities, Inc. completed a
$107.0 million purchase of 18 manufactured housing communities and two related
commercial properties from partnerships affiliated with Mobileparks West. The
communities, with 3,505 sites, were purchased with about $3.0 million
manufactured home operating units, $16.0 million in cash and $20.0 million of
installment notes and assumed debt. The communities have an average monthly
rental of $349.00. The communities are located in California, Utah, Oregon,
Washington and Nevada. MHC may be the first manufactured home community REIT to
reach $1.0 billion.
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Market Analysis
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The MHC REIT continues to perform and expand, and as of September 1997 was
trading at $25.625, with a current yield of 5.2 percent. The top traded REITs,
are presented as follows.
================================================================================
REIT MARKET UPDATE
================================================================================
Company Price Current 52 Week 52 Week Annual 12 Mth
Symbol (9/19/97) Yield High Low Dividend Tot Rtn
- --------------------------------------------------------------------------------
CPJ $29.688 5.8% $31.125 $22.250 1.72 26.6%
- --------------------------------------------------------------------------------
MHC $25.625 5.2% $26.428 $18.875 1.32 30.7%
- --------------------------------------------------------------------------------
SUI $37.428 5.0% $ 38.00 $27.750 1.88 31.8%
- --------------------------------------------------------------------------------
UMH $11.625 6.0% $13.625 $10.875 0.70 -1.7%
- --------------------------------------------------------------------------------
Total return figures obtained through Standard & Poors and are for the period
through Sept 1997.
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The Southwest and Northwest Regions of the nation are the preferred
locations regarding recent and future manufactured housing community
acquisitions. However, investors seeking moderate, but consistent growth
expectations, are still looking at the midwest region. Also, southern portions
of Florida are still considered a prime area for investors seeking good quality
manufactured housing communities, with good up-side potential. What was once a
stagnant market, the northeast region is now being considered for future
acquisitions.
According to a recent study prepared by Merrill Lynch & Company, ownership
in the manufactured housing community industry is highly fragmented. The top 150
owner-operators account for less than 5.0 percent of the total industry, whereas
a host of "mom-and-pop" private companies account for the other 95.0 percent.
This unglamorous niche industry is ripe for consolidation, and an infusion of
professional management expertise is likely to yield significant economies of
scale. The four REIT's specializing in manufactured housing communities are
already among the top ten owner-operators, and are well positioned to facilitate
and hasten the industry's consolidation to the likely benefit of their
stockholders.
Manufactured homes are the fastest growing component of the nation's
housing inventory, due to their affordability, good quality design and safety
standards. According to the Merrill Lynch & Company Manufactured Housing
Community Industry Report, factory-built homes appeal especially to senior
citizens and to households with limited economic needs, two segments of the
population that are likely to grow rapidly in coming years.
Consistent returns in manufactured housing community investments have been
the mainstay of the industry. For this reason, as well as the amount of
acquisitions seen by Real Estate Investment Trusts (REITs) from 1991 to 1996,
the availability of good quality
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Market Analysis
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manufactured housing communities has been substantially reduced compared to the
980's. Good quality manufactured housing communities still command premium
rices, thus driving down overall capitalization rates.
Cushman & Wakefield's Valuation Advisory Services has tracked sale
ransactions of manufactured housing communities since 1985. Overall
capitalization rates have consistently been within the 8.75 to 10.00 percent
range for communities located in moderate to increasing growth markets, and as
low as near 8.0 percent for those communities located in growing markets that
poses significant upside potential. Overall capitalization rates are clearly
affected and are differentiated among the properties relative to rent levels,
age, quality, condition, location, amenities, demographic characteristics,
resident profile, as well as the quality of management.
Manufactured housing communities fall within, and are categorized by their
overall appearance, age, and amenities, but more importantly the strength of the
local market. The various categories of manufactured housing communities,
according to the Woodall Directory, can be ranked as 1 to 5 Star Parks These
rankings are defined as follows:
One Star Park
The most important consideration for a one star park is overall
appearance. If it is not a decent place to live, it will not be listed in
Woodall's Directory. The following are general requirements:
o Fair overall appearance;
o Patios on most lots. May be concrete, asphalt, wood, or some
suitable material;
o Grass, rock or shell to cover ground;
o Streets fair to good. May be dirt, asphalt or gravel in reasonable
condition;
o Restrooms clean, if any;
o Adequate laundry or laundromat nearby;
o If fences allowed, must be neat;
o Mail service;
o Homes may be old models, but show evidence of care; and,
o Manager available some hours of each day.
Two Star Park
In addition to the requirements for a one star park, a two star park will
have the following:
o Landscaping - some lawns and shrubs;
o Streets in good condition. Must be dust free of crushed rock, gravel
or shell minimum;
o Neat storage;
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Market Analysis
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o Well equipped laundry or laundromat nearby;
o 200 volt connections available;
o If children accepted, park should have play area;
o Park free of clutter, such as old cars and other abandoned
equipment; and,
o Well maintained and managed.
Three Star Park
What a three star park does it does well, but not as uniformly as higher
rated parks. Many three star parks were once higher rated, but original
construction does not allow for today's 10-foot, 12-foot, and double-wides
or the 55-foot and 60-foot lengths. If children are allowed, there should
be adequate play area. However, the disarray caused by children may at
times be the determining factor that keeps a three star park at that level
when it otherwise could be rated higher. In addition to the requirements
for one and two star parks, a three star park must have the following:
o Attractive entrance;
o All homes must be in good condition;
o Awnings and cabana rooms on some homes in southern areas;
o Some spaces for large mobile homes;
o Paved or hard surfaced streets;
o Off-street parking or streets wide enough for safe on-street
parking;
o Good lawns or substitute throughout, shade trees, some shrubs where
climate permits;
o Concrete patios or the equivalent on all lots;
o All lots neat and attractive;
o All park buildings in good repair; and,
o Good management.
Four Star Park
Four star parks are luxury parks. In addition to the requirements for one,
two and three star parks, a four star park must have the following:
o Good landscaping;
o Most homes skirted with metal skirts, concrete block, ornamental
wood or stone;
o Paved streets, edged or curbed.
o Uncrowded lots;
o Underground utilities if permitted by local conditions and
authorities;
o Most tanks, if present, concealed;
o Any hedges or fences must be attractive and uniform;
o Awnings, cabanas, or porches on most homes in southern areas.
(Excepting double-wide units.);
o Most lots to accommodate large mobile homes;
o Where row parking of homes exists, all must be lined up uniformly;
o Community hall and/or swimming pool and/or recreation programs. If a
park is four star in all but this requirement, the fourth star will
be printed as an open star indicating a four star park without
park-centered recreation; and,
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Market Analysis
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o Excellent management.
Five Star Park
Five star parks are the finest. They should be nearly impossible to
improve. In addition to the requirements for one, two, three, and four
star parks, a five star park must have the following:
o Well planned and laid out spacious appearance;
o Good location in regard to accessibility and desirable neighborhood.
In some locations, park should be enclosed by high hedges or
ornamental fence;
o Wide paved streets in perfect condition. Curbs or lawns edged to
streets, sidewalks, street lights, street signs;
o Homes set back from street;
o Exceptionally attractive entrance and park sign;
o Patios at least 8 x 30 feet. (Excepting double-wide units.);
o Paved off-street parking such as carports or planned parking;
o All homes skirted;
o All hitches concealed. Any existing tanks concealed;
o Recreation, some or all of the following: swimming pool (excepting
areas with long, cold winters), shuffleboards, horseshoe pitching,
golf course, hobby shop, hobby classes, games, potlucks, dances or
natural recreational facilities;
o Beautifully equipped recreation hall with kitchen. Room for
community gatherings, tiled restrooms, etc.;
o Uniform storage sheds or central storage facilities;
o All late model homes in excellent condition;
o At least 60 percent occupancy in order to judge quality of residents
which indicates park's ability to maintain a five star rating
between inspections;
o All empty lots grassed, graveled or otherwise well maintained;
o If pets or children allowed, there must be a place for them to run
and play without cluttering the streets and yards. Most five star
parks are for adults only; and,
o Superior management interested in comfort of residents and
maintenance of park.
The demand for good quality institutional grade manufactured housing
communities is anticipated to increase throughout the 1990's, since manufactured
housing communities provide an alternative form of living for the elderly and
retirees, especially for those living on fixed income. Manufactured home
shipments continue to be strong. Shipments rose 20.0 percent in 1992 and 1994,
and 12.0 percent in 1995. The market for good quality manufactured housing
communities is expected to be strong, with yield and capitalization rates and
prices expected to continue to be competitive, with the REITs leading the way.
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Market Analysis
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Competition
We have surveyed six manufactured housing communities located within the
subject's primary market, including the subject property, containing a total of
1,988 sites. The combined occupancy rate of these six manufactured housing
communities, including the subject property, is approximately 98.19 percent.
Excluding the subject property in our survey, the combined occupancy rate is
approximately 98.14 percent, based on 1,609 sites.
The name and location of the subject property's primary competition, as
well as the number of sites, occupancy levels, amenities offered, monthly rental
rates and services provided in the monthly rental rate, are presented on the
following facing page, along with a map which identifies the location of each
competing park.
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<TABLE>
<CAPTION>
================================================================================================================================
SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- --------------------------------------------------------------------------------------------------------------------------------
Number Age
Of Sites ---
-------- Condition Services Date Of
Comp. Name Occupancy --------- Monthly Provided Last Rental
No. Location Level Amenities Park Rating(1) Rent in Rent Increase
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
R-1 Bays End 188 Clubhouse 1970 $341.00/Mo. Sewer January, 1996
3432 State Road 580 ---- Pool ---- To Refuse
Countryside, Florida 100% Boat Storage Good $346.00/Mo. Lawn Service
Laundry ----
5*
R-2 Regency Heights 391 Clubhouse 1979 $320.00/Mo. Water June, 1997
2550 State Road 580 --- Pool ---- To Sewer
Palm Harbor, Florida 99% Laundry Good $325.00/Mo. Refuse
---- Lawn Service
5*
R-3 Amber Glades 422 Clubhouse 1972 $332.00/Mo. Water July, 1997
2801 State Road 580 --- Pool ---- To Sewer
Safety Harbor, Florida 95% Laundry Good $336.00/Mo. Refuse
Shuffleboard ---- Lawn Service
Spa 5* Basic Cable
Horseshoes
Putting Green
R-4 Westwind 378 Clubhouse 1970's $325.00/Mo. Water January, 1997
3301 Alternate Route 19 --- Pool ------ To Sewer
Dunedin, Florida 99% Shuffleboard Good $337.00/Mo. Refuse
Laundry ---- Lawn Service
5*
R-5 Honeymoon Village 230 Clubhouse 1968 Refuse January, 1996
1100 Curlew Road --- Pool ---- $326.00/Mo. Lawn Service
Dunedin, Florida 99% Spa Good (Average)
Shuffleboard ----
Putting Green 5*
Subject Lake Haven 379 Clubhouse 1962-1968 $316.50/Mo. Water January, 1997
1415 Main Street ----- Pool --------- To Sewer
Dunedin, Florida 98.4% Shuffleboard Good $346.50/Mo. Refuse
Horseshoes ----
Lake 5*
Laundry
- --------------------------------------------------------------------------------------------------------------------------------
(1) Ratings from One Star to Five Star Parks are defined in the National Overview section of this report.
================================================================================================================================
<CAPTION>
========================================================
SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- --------------------------------------------------------
3-Year
Average
Comp. Name Annual Rental
No. Location Increase
- --------------------------------------------------------
<S> <C> <C>
R-1 Bays End $6.00/Mo. (Increase
3432 State Road 580 effective 1/96;
Countryside, Florida Rent increases are
not annual)
R-2 Regency Heights $7.50/Mo.
2550 State Road 580
Palm Harbor, Florida
R-3 Amber Glades $9.50/Mo.
2801 State Road 580
Safety Harbor, Florid
R-4 Westwind $12.00/Mo.
3301 Alternate Route
Dunedin, Florida
R-5 Honeymoon Village $6.00/Mo.
1100 Curlew Road (Last Increase)
Dunedin, Florida
Subject Lake Haven $13.00/Mo.
1415 Main Street
Dunedin, Florida
- --------------------------------------------------------
========================================================
</TABLE>
<PAGE>
COMPETING MANUFACTURED HOUSING MAP
[MAP OMITTED]
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Market Analysis
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Rental rates of manufactured housing communities located within the
subject's primary market range from $320.00 to $346.00 per site, on a monthly
basis. The subject property is currently quoting monthly rental rates
effectively within the market range or $316.50 to $346.50 per site. The last
rental rate increase at the subject property was as of January 1, 1997, of
$13.00 per month. There are several manufactured homes at the subject property
that are leased with the option to buy, total rents range from $450.00 to
$500.00 per month.
The enclosed comparable rentals are considered the most competitive to the
subject property regarding amenities offered, condition, location and overall
ranking.
Comparable R-1, Bays End, is located at 3432 State Road 580, in
Countryside, Florida. This comparable property contains 188 sites, and is
100.0 percent occupied. Bays End was developed in 1970, and is in overall
good condition. Amenities include a clubhouse, pool, boat storage, and
laundry facilities. Rent increases at Bays End are do not occur annually.
The last rental rate increase was in January, 1996. Monthly rental rates
range from $341.00 to $346.00, with sewer, refuse, and lawn service
included in monthly rental payment. Residents of Bays End must be 55 years
of age or older.
Comparable R-2, Regency Heights, is located at 2550 State Road 580, in
Palm Harbor, Florida. Regency Heights contains 391 sites, and is 99.0
percent occupied. Regency Heights was developed in 1979, and is in overall
good condition. Amenities include a clubhouse, pool and laundry facility.
Over the last three years, the average annual rental rate increase was
approximately $7.50 per month. Monthly rental rates range from $320.00 to
$325.00, with water, sewer, refuse, and lawn service included in the
monthly rental payment. Residents of Regency Heights must be 55 years of
age or older.
Comparable R-3, Amber Glades, is located at 2801 State Road 580, in Safety
Harbor, Florida. Amber Glades contains 422 sites, and is 95.0 percent
occupied. Amber Glades was developed in 1972, and is in overall good
condition. Amenities include a clubhouse, pool, laundry facilities,
shuffleboard courts, spa, horseshoe pits, and a putting green. Over the
past three years, the average annual rental rate increase was
approximately $9.50 per month. Monthly rental rates range from $332.00 to
$336.00, with water, sewer, refuse, lawn service, and basic cable included
in the monthly rental payment. Residents of Amber Glades must be 55 years
of age or older.
Comparable R-4, Westwind, is located at 3301 Alternate Route 19, in
Dunedin Florida. Westwind contains 378 sites, and is 99.0 percent
occupied. Westwind was developed in the 1970's, and is in overall good
condition. Amenities include a clubhouse, pool, shuffleboard courts, and
laundry facilities. Over the last three years, the average annual rental
rate increase was approximately $12.00 per month. Monthly rental rates
range from $325.00 to $337.00, with water, sewer, refuse and lawn service
included in monthly rental payment. Residents of Westwind must be 55 years
of age or older.
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Market Analysis
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Comparable R-5, Honeymoon Village, is located at 1100 Curlew Road, in
Dunedin, Florida. Honeymoon Village contains 230 sites, and is 99.0
percent occupied. Honeymoon Village was developed in 1968, and is in
overall good condition. Amenities include a clubhouse, pool, spa,
shuffleboard courts, and a putting green. The last rental rate increase
was in January, 1996, and was $6.00 per month. The average monthly rental
rate is $326.00, with refuse and lawn service included in the monthly
rental payment. Residents of Honeymoon Village must be 55 years of age or
older.
In our opinion, and based on conversations with the on-site manager,
property R-2 competes most favorably with the subject property, with the monthly
rental rate ranging from $320.00 to $325.00 per month per site. The subject
property is currently quoting monthly rental rates ranging from $316.50 to
$346.50 per site, which is within the range of rental rates of our more
comparable and competing properties. The subject property competes most
effectively with its primary competitors regarding amenities, condition and
current rent structure.
Comparable Manufactured Housing Community Sales
A search of the subject's market revealed six recent sales of manufactured
housing communities located in the Tampa-St. Petersburg, Florida area. The
following is a brief discussion of each of the manufactured housing sales
located within the subject's market. These sales are summarized on the following
facing page.
Comparable Sale I-1, Sun Valley, is located at 39248 U.S. Highway 19, in
Tarpon Springs, Florida. This property contains 261 sites. The property
was in good condition at the time of sale and was developed in 1970.
Amenities include a clubhouse, pool, shuffleboard courts, and laundry
facilities. The property was approximately 99.0 percent occupied at the
time of sale. The property was purchased for $5,027,100, which equates to
$19,261 per site.
Comparable Sale I-2, Park Royal, is located at 10611 66th Street, in
Pinellas Park, Florida. This property contains 309 sites. The property was
in excellent condition at the time of sale and was developed in 1991.
Amenities include a clubhouse, pool, shuffleboard courts, and laundry. The
property was approximately 90.0 percent occupied at the time of sale. The
property was purchased for $5,695,260, which equates to $18,431 per site.
Comparable Sale I-3, Southern Comfort, is located at 24479 U.S. Highway 19
North, in Clearwater, Florida. This property contains 180 sites, situated
on 21.56 acres of land area. The property was in good condition at the
time of sale and was developed in 1955. Amenities include a laundry
facility. Information regarding the occupancy of the property at the time
of sale was unavailable. The property was purchased for $3,475,200, which
equates to $19,307 per site.
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<TABLE>
<CAPTION>
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SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- -----------------------------------------------------------------------------------------------------------------------------------
$EGI/Site
Sales Price -------------
Per Site $Expense/Site
Sales Date Land Area Density ----------- EGIM -------------
Comp. Name ----------- --------- --------- Occupancy ---- Expense Ratio
No. Location Sales Price No. Sites Condition At Sale $NOI/Site OAR % Of EGI
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
I-1 Sun Valley 5/97 N/A N/A $19,261 $2,137 4.99x $3,861
39248 U.S. Highway 19 ---- --- --- ------- ----- ------
Tarpon Springs, Florida $5,027,100 261 Good 99% 11.09% $1,724
------
44.66%
- -----------------------------------------------------------------------------------------------------------------------------------
I-2 Park Royal 5/97 N/A N/A $18,431 $1,913 5.30 $3,478
10611 66th Street ---- --- --- ------- ---- ------
Pinellas Park, Florida $5,695,260 309 Good 90% 10.38% $1,565
------
45.00%
- -----------------------------------------------------------------------------------------------------------------------------------
I-3 Southern Comfort 4/96 21.56 8.35 $19,307 N/A N/A N/A
24479 U.S. Highway 19 North ---- ----- ---- -------
Clearwater, Florida $3,475,200 180 Average N/A
- -----------------------------------------------------------------------------------------------------------------------------------
I-4 Southgate Mobile Home Park 4/96 24.00 6.96 $25,749 $2,306 6.92x $3,720
20000 U.S. Highway 19 North ---- --- ---- ------- ----- ------
Clearwater, Florida $4,300,000 167 Good 90% 8.96% $1,414
------
38.00%
- -----------------------------------------------------------------------------------------------------------------------------------
I-5 Serendipity 5/95 56.00 7.59 $31,118 $2,698 7.83x $3,975
29081 U.S. Highway 19 North ---- --- ---- ------- ----- ------
Clearwater, Florida $13,225,000 425 Good 98% 8.67% $1,277
------
32.13%
- -----------------------------------------------------------------------------------------------------------------------------------
I-6 Doral Mobile Home Park 5/95 70.00 7.53 $30,361 $2,995 6.72x $4,516
29250 U.S. Highway 19 North ---- --- ---- ------- ----- ------
Clearwater, Florida $16,000,000 527 Good 98% 9.87% $1,521
------
33.67%
- -----------------------------------------------------------------------------------------------------------------------------------
Subject Lake Haven - - - 48.22 7.86 - - - $2,481(1) N/A $3,938
1415 Main Street --- ---- 98.4% ------
Dunedin, Florida 379 Good $1,457
------
36.99%
- -----------------------------------------------------------------------------------------------------------------------------------
(1) 1997 Trailing 12 months
===================================================================================================================================
<CAPTION>
=====================================================================================
SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- -------------------------------------------------------------------------------------
Comp. Name Comparability
No. Location to the Subject Comments
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
I-1 Sun Valley Similar Developed in 1970; Good
39248 U.S. Highway 19 condition; Amenities
Tarpon Springs, Florida include a clubhouse, pool,
shuffleboard courts, and
laundry facilities.
- -------------------------------------------------------------------------------------
I-2 Park Royal Superior Developed in 1991;
10611 66th Street Excellent condition;
Pinellas Park, Florida Amenities include:
clubhouse, pool,
shuffleboard courts,
laundry.
- -------------------------------------------------------------------------------------
I-3 Southern Comfort Inferior Developed in 1955;
24479 U.S. Highway 19 North Average condition; Minimal
Clearwater, Florida amenities.
- -------------------------------------------------------------------------------------
I-4 Southgate Mobile Home Park Similar Developed in 1971;
20000 U.S. Highway 19 North Good condition; Amenities
Clearwater, Florida include: clubhouse, pool,
shuffleboard courts, and
laundry facilities.
- -------------------------------------------------------------------------------------
I-5 Serendipity Superior Developed in 1975; Good
29081 U.S. Highway 19 North condition; Amenities
Clearwater, Florida include: clubhouse, pool,
shuffleboard courts, and
laundry facilities.
- -------------------------------------------------------------------------------------
I-6 Doral Mobile Home Park Similar Developed in 1972; Good
29250 U.S. Highway 19 North condition; Amenities
Clearwater, Florida
include: clubhouse, pool,
shuffleboard courts, and
laundry facilities.
- -------------------------------------------------------------------------------------
Subject Lake Haven Subject Developed in 1962;
1415 Main Street Property Good condition;
Dunedin, Florida Amenities include:
Clubhouse, pool,
shuffleboard court,
horseshoe pit, lake, and
laundry facilities.
- -------------------------------------------------------------------------------------
=====================================================================================
</TABLE>
<PAGE>
Market Analysis
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Comparable Sale I-4, Southgate Mobile Home Park, is located at 20000 U.S.
Highway 19 North, in Clearwater, Florida. This property contains 167
sites, situated on 24.0 acres of land area. The park was in good condition
at the time of sale and was developed in approximately 1971. Amenities
include a clubhouse, swimming pool, shuffleboard courts, and laundry
facilities. The property was 90.0 percent occupied at the time of sale.
The property was purchased for $4,300,000, which equates to $25,749 per
site.
Comparable Sale I-5, Serendipity, is located at 29081 U.S. Highway 19
North, in Clearwater, Florida. This property contains 425 sites, situated
on 56.0 acres of land area. The park was in good condition at the time of
sale and was developed in 1975. Amenities include a clubhouse, pool,
shuffleboard courts, and laundry facilities. The property was 98.0 percent
occupied at the time of sale. The property was purchased for $13,225,000,
which equates to $31,118 per site.
Comparable Sale I-6, Doral Mobile Home Park, is located at 29250 U.S.
Highway 19 North, in Clearwater, Florida. This property contains 527
sites, situated on 70.0 acres of land area. The park was in good condition
at the time of sale and was developed in 1972. Amenities include a
clubhouse, pool, shuffleboard courts, and laundry facilities. The property
was 98.0 percent occupied at the time of sale. The property was purchased
for $16,000,000, which equates to $30,361 per site.
It should be noted that comparability does not imply an identical or exact
duplicate, but rather the possession of a similar utility and affected by
similar supply and demand forces. Also, relative to the subject property,
differences include: time or date of the transactions; location, which
encompasses differences in accessibility; site characteristics, including
differences in size, topography, access, exposure and development capacities;
and improvement characteristics, which include differences in age, quality,
condition, size and amenities.
Demographic Trends
Based on information provided by National Decision Systems (NDS), the
populations within the subject's primary 5-mile and secondary 10-mile market
areas, as of 1997, are 214,308 and 431,692, respectively. The populations of the
subject's primary and secondary market areas are projected to increase to
231,709 and 469,237, respectively, by the year 2002.
According to NDS, the total number of households within the subject's
primary and secondary market areas, are 99,069 and 201,682, respectively, for
1997. The number of households within the subject's primary 5-mile and secondary
10-mile market areas are projected to increase to 107,122 and 219,481,
respectively, by the year 2002.
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Market Analysis
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The average household income levels within the subject's primary and
secondary market areas, for 1997, are $51,537 and $51,590, respectively, and are
expected to increase to $65,546 and $66,224, respectively, by the year 2002. The
median household income levels within the subject's primary and secondary market
areas, for 1997, are $34,557 and $34,255, respectively, and are expected to
increase to $41,635 and $41,271, respectively, by the year 2002. Per capita
income within the subject's primary and secondary market areas, for 1997, are
$24,204 and $24,563, respectively, and are expected to increase to $30,914 and
$31,590, respectively, by the year 2002.
Based on the above levels, the demographics of the subject's primary
market area appear to indicate a positive growth trend, based on information
provided by NDS.
Expense Analysis
Expenses exhibited by manufactured housing communities nationally are
typically 35.0 to 45.0 percent of effective gross income. However, expense
ratios of manufactured housing communities located in the southeast and
southwest regions of the nation are typically lower by comparison, due to lower
real estate taxes and common area maintenance charges.
As presented in the Summary of Manufactured Housing Communities Sales,
operating expense ratios of competing parks range from 32.1 to 45.0 percent of
effective gross income levels, and $1,277 to $1,724 on a per site basis. The
subject property is currently reporting expenses, for the 12-month trailing
period of 1997, at 37.0 percent of effective gross income and $1,457 on a per
site basis. The operating expenses at the subject property are within the range
of comparable properties on both a per site basis as well as on a percentage of
effective gross income.
Market Supply and Demand
There are a total of five competing manufactured housing communities
located within the subject's market, which total 1,609 sites, with a
corresponding average occupancy rate of 98.1 percent. No specific absorption
statistics were available, since the subject's competing parks have historically
reported occupancy rates at, or above 95.0 percent. The subject property, based
on conversations with management, has historically been within the range of
occupancy rates of competing parks, and is currently 98.4 percent occupied. We
believe the current occupancy rate of the subject property is stabilized, and is
within the range of occupancy rates of competing parks presently presented.
Based on the subject's current occupancy rate and occupancy rates at competing
parks, demand appears to be strong, with steady rental rate increases expected.
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Market Analysis
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Conclusion
Historically, the subject's primary market has sustained high occupancy
levels of 95.0 to 100 percent. Rental rates of similar manufactured housing
communities located within the subject's primary market generally range from
$320.00 to $346.00 per site, on a monthly basis. The subject property is
currently quoting, and is currently achieving (based on the most recent rent
roll provided), monthly rental rates within the range of competing parks, or at
$316.50 to $346.50 per site, which we believe is market-orientated.
Based on our research, steady increases in rental rates are anticipated,
based on actual historical performance of competing parks and historical
increases seen at the subject property. Sales transactions of manufactured
housing communities located within the subject's region range from $18,431 to
$31,118 per site, with corresponding overall rates ranging from 8.67 to 11.09
percent. In our opinion, the subject property competes favorably with its
competition regarding amenities, condition, rent structure and overall market
rating.
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SITE PLAN
[GRAPHIC OMITTED]
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PROPERTY DESCRIPTION
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Site Description
The subject site is located on the south side of Main Street, just west of
Keene Road, in Dunedin, Florida. Main Street is also known as State Road 580.
The subject site is irregular in shape and contains 48.22 acres, or 2,100,625
square feet of land area. Topographically, the site is basically level and at
street grade.
Sewer and water service are provided by the City of Dunedin. Electric
Service is provided by Florida Power Company. Ferrell Gas Company provides gas
service, and GTE Company provides telephone service. The subject property is
accessible via Main Street and Lake Haven Road. Based on conversations with the
Engineering Department of the City of Dunedin, the subject property is not
located in a flood hazard area. However, we recommend a qualified engineer to
determine the existence of any flood hazard areas.
Each developed site has a concrete driveway. The streets within the park
have two-lanes, with concrete curbs. Overall, the subject site is typical of the
area and is functionally well suited for its current use.
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.
Improvements Description
The subject property was developed in phases between 1962 and 1968. The
subject improvements consist of a 379-site manufactured housing community, with
a clubhouse, pool, shuffleboard courts, horseshoe pits, laundry facilities, and
a lake. The 379-total sites can fit both double-wide and single-wide homes.
The clubhouse consists of open-space available for resident use, and a
kitchen. The exterior of the one-story clubhouse is painted concrete block, and
appeared to be in overall good condition at the time of inspection.
The shuffleboard courts, pool, and horseshoe pits are adjacent to the
clubhouse. Off-street parking is available for each resident. Site improvements
within the park include: paved streets, concrete driveways, street lighting and
signage. Overall, the site improvements appeared to be in good condition at the
time of inspection.
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Property Description
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Lake Haven is a functional manufactured housing community with good
ingress and egress from Main Street and Lake Haven Road. Overall, the subject
community appears to be well maintained and is in good condition. Lake Haven is
a functional manufactured housing community and competes favorably with other
existing manufactured housing communities in the area in terms of appearance and
amenities. The subject property would fit the profile of a Five Star Park, as
defined in the National Overview section of this report.
Real Property Taxes and Assessments
Assessed value of commercial property in Pinellas County is assessed at
100.0 percent of the Assessor's opinion of market value. The subject property is
identified by tax parcel numbers 26-28-15-00000-410-0600 and
26-28-15-00000-420-0500.
Real estate taxes in Pinellas County are assessed in arrears. Real estate
taxes for 1997 were billed in November of 1997. The total amount of real estate
taxes for 1997 for the subject property amounts to $173,205.30. Taxes are
discounted if paid in full before March 31, 1997. The total amount of real
estate taxes for 1997 equates to approximately $457.00 per site.
Zoning
According to zoning officials of the City of Dunedin, the subject property
is currently zoned M-H, Residential Mobile Home. Based on conversations with
zoning officials of the City of Dunedin, the subject property is a legal and
conforming use in M-H, Residential Mobile Home district.
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CONCLUSION
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Conclusion
o The subject property, Lake Haven, is a functional manufactured
housing community, which competes favorably in relation to its
competition;
o Comparable manufactured housing communities located within the
subject's market range in monthly rental rates per site from $320.00
to $346.00;
o The subject property is currently quoting, and is currently
achieving (based on the most recent rent roll provided) monthly
rental rates ranging from $316.50 to $346.50 per site, which is
within the range of competing parks, and appears to be
market-oriented;
o Sale transactions of manufactured housings located within the
subject's region range in unit sales prices per site from $18,431 to
$31,118, with corresponding overall rates ranging from 8.67 to 11.09
percent;
o Operating expenses are within industry standards for a park located
in the southeastern region of the country;
o The subject park appears to be operating at economic levels based on
our review of historical and budgeted 1998 income and expenses;
o The demographic characteristics of the area appear to be positive;
o The population profile of the subject property is 90 percent retired
adults, and 10 percent working adults, 55 years of age or older. The
subject property is a retirement park, with residents required to be
55 years of age or older.
o The current occupancy rate at the subject property of 98.4 percent
is evident by a strong local market and demand;
o No significant manufactured housing communities are expected to be
developed in the near future;
o In our opinion, based on Woodall's criteria, the subject property is
a Five Star Park, and the reader's attention is directed to the
corresponding definition and criteria of a Five Star Park, presented
in the National Overview section of this report.
o Based on the subject's location, demographic, economic, market and
physical characteristics, we believe Lake Haven will continue to be
a viable manufactured housing community in the foreseeable future,
and is well positioned in the marketplace.
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ASSUMPTIONS AND LIMITING CONDITIONS
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"Report" means the consulting report to which these Assumptions and Limiting
Conditions are annexed.
"Property" means the subject of the Report.
"C&W" means Cushman & Wakefield, Inc. or its subsidiary which issued the Report.
"Appraiser(s)" means the employee(s) of C&W who prepared and signed the Report.
This report is made subject to the following assumptions and limiting
conditions:
1. No responsibility is assumed for the legal description or for any matters
which are legal in nature. 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 Report or upon which the Report 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 Appraisers nor C&W shall be responsible for the
accuracy or completeness of such information, including the correctness of
estimates, opinions, dimensions, sketches, exhibits, and other factual
matters.
3. The information is effective as of the date stated in the Report. Changes
since that date in external and market factors or in the property itself
can significantly affect our analysis.
4. The report is to be used in whole and not in part. No part of the Report
shall be used in conjunction with any other report. Possession of the
Report, or a copy thereof, does not carry with it the right of
publication. Publication of the Report or any portion thereof without the
prior written consent of C&W is prohibited. Except as may be otherwise
expressly stated in the letter of engagement to prepare the Report, C&W
does not permit use of the Report by any person other than the party to
whom it is addressed or for purposes other than those for which it was
prepared. If written permission is given by C&W to use the Report, the
Report must be used in its entirety and only with proper written
qualification as approved by C&W. No part of the Report or the identity of
the Appraiser shall be conveyed to the public through advertising, public
relations, news, sales, or other media or used in any material without
C&W's prior written consent. Reference to the Appraisal Institute or to
the MAI designation is prohibited.
5. The Appraiser shall not be required to give testimony in any court or
administrative proceedings relating to the Property or the Report.
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Assumptions and Limiting Conditions
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6. The Report 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 Report; 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 Report is based.
7. The physical condition of the improvements considered by the Report is
based on visual inspection by the Appraiser or other person identified in
the Report. C&W assumes no responsibility for the soundness of structural
members nor for the condition of mechanical equipment, plumbing, or
electrical components.
8. Unless otherwise stated in the Report, the existence of potentially
hazardous or toxic materials which may have been used in the construction
or maintenance or operation of the improvements or may be located at or
about the Property was not considered in the Report. These materials (such
as formaldehyde foam insulation, asbestos insulation, various soil
contaminants, and other potentially hazardous materials) may affect the
value of the Property. The Appraisers are not qualified to detect such
substances, and C&W urges that an expert in this field be employed to
determine the economic impact of these matters, if any, on the property in
the Report.
9. Unless otherwise stated in the Report, compliance with the requirements of
the Americans With Disabilities Act of 1990 (ADA) has not been considered
in the Report. Failure to comply with the requirements of the ADA may
negatively affect the value of the property. C&W recommends that an expert
in this field be employed.
10. If the Report is submitted to a lender or investor with the prior approval
of C&W, such party should consider the Report as one factor, together with
its independent investment considerations and underwriting criteria, in
its overall investment decision.
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CERTIFICATION
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We certify that, to the best of our knowledge and belief:
1. Jennifer L. Estrella inspected the property, and Michael J. Schaeffer and
Stanley R. Dennis, Jr., MAI, have reviewed and approved the report, but
did not inspect 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 on an action or event (such as the
approval of a loan) resulting from the analyses, opinions, or conclusions
in, or the use of, this report.
6. 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 Ethics and Standards of Professional Practice of the Appraisal
Institute.
7. No one provided significant professional assistance to the persons signing
this 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. As of the date of this report, Stanley R. Dennis, Jr., MAI, has completed
the requirements of the continuing education program of the Appraisal
Institute.
/s/ Michael J. Schaeffer /s/ Jennifer L. Estrella /s/ S.R. Dennis, Jr.
Michael J. Schaeffer Jennifer L. Estrella Stanley R. Dennis, Jr., MAI
Director Associate Appraiser Director, Manager
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ADDENDA
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POP-FACT SHEETS
LEGAL DESCRIPTION
QUALIFICATIONS OF APPRAISERS
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POP-FACT SHEETS
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<PAGE>
Tue Nov 25, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP FACTS: SUMMARY REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6510
PREPARED FOR
CUSHMAN & WAKEFIELD, INC
COUNTY RD & MAIN ST
DUNEDIN, FL COORD: 28:01.16 82:45.82
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5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
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POPULATION
2002 PROJECTION 231,709 469,237
1997 ESTIMATE 214,308 431,692
1990 CENSUS 201,162 404,707
1980 CENSUS 148,632 299,511
GROWTH 1980 - 1990 35.34% 35.12%
HOUSEHOLDS
2002 PROJECTION 107,122 219,481
1997 ESTIMATE 99,069 201,682
1990 CENSUS 88,649 179,501
1980 CENSUS 64,921 130,839
GROWTH 1980 - 1990 36.55% 37.19%
1997 ESTIMATED POPULATION BY RACE 214,308 431,692
WHITE 92.45% 92.65%
BLACK 5.42% 5.06%
ASIAN & PACIFIC ISLANDER 1.21% 1.34%
OTHER RACES 0.92% 0.95%
1997 ESTIMATED POPULATION 214,308 431,692
HISPANIC ORIGIN 3.89% 4.08%
OCCUPIED UNITS 88,649 179,501
OWNER OCCUPIED 71.24% 70.34%
RENTER OCCUPIED 28.76% 29.66%
1990 AVERAGE PERSON PER HH 2.22 2.20
1997 ESTIMATED HH BY INCOME 99,069 201,682
$150,000 + 3.79% 3.86%
$100,000 TO $149,999 4.82% 4.90%
$ 75,000 TO $ 99,999 6.79% 6.39%
$ 50,000 TO $ 74,999 16.49% 16.42%
$ 35,000 TO $ 49,999 17.44% 17.26%
$ 25,000 TO $ 34,999 15.24% 15.63%
$ 15,000 TO $ 24,999 16.87% 17.28%
$ 5,000 TO $ 14,999 15.16% 15.01%
UNDER $ 5,000 3.41% 3.25%
1997 EST. AVERAGE HH INCOME $51,537 $51,590
1997 EST. MEDIAN HH INCOME $34,557 $34,255
1997 EST. PER CAPITA INCOME $24,204 $24,563
<PAGE>
Tue Nov 25, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP 80-02, HH 80-02, INC 80-02)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6510
PREPARED FOR
CUSHMAN & WAKEFIELD, INC
COUNTY RD & MAIN ST
DUNEDIN, FL COORD: 28:01.16 82:45.82
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
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POP_80: TOTAL 148,632 299,511
POP_90: TOTAL 201,162 404,707
POP_97: TOTAL (EST.) 214,308 431,692
POP_02: TOTAL (PROJ.) 231,709 469,237
HH_80: TOTAL 64,921 130,839
HH_90: TOTAL 88,649 179,501
HH_97: TOTAL (EST.) 99,069 201,682
HH_02: TOTAL (PROJ.) 107,122 219,481
INC_80: PER CAPITA (EST.) $ 8,235 $ 8,176
INC_90: PER CAPITA $ 16,480 $ 16,519
INC_97: PER CAPITA (EST. $ 24,204 $ 24,563
INC_02: PER CAPITA (PROJ $ 30,914 $ 31,590
HH_90_BY INCOME_89: MEDIAN $ 28,562 $ 28,437
HH_97_BY INCOME: MEDIAN $ 34,557 $ 34,255
HH_02_BY INCOME: MEDIAN $ 41,635 $ 41,271
HH_80_BY INCOME_79: AVERAGE $ 18,853 $ 18,716
HH_90_BY INCOME_89: AVERAGE $ 36,717 $ 36,684
HH_97_BY INCOME: AVERAGE $ 51,537 $ 51,590
HH_02_BY INCOME: AVERAGE $ 65,546 $ 66,224
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LEGAL DESCRIPTION
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LEGAL DESCRIPTION
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EXHIBIT "A" OF SCHEDULE "A"
PARCEL NO.N24-21588-10 (Lake Haven):
PARCEL I:
The West 1/2 of the Northwest 1/4 of the Southeast 1/4 of Section 26, Township
28 South, Range 15 East, Pinellas County, Florida, less the Northerly 150.00
feet thereof, and less the Westerly 5.00 feet and the Easterly 33.00 feet
thereof.
PARCEL II:
Commence at the Northwest corner of the Southeast 1/4 of Section 26, Township 20
South, Range 13 East, Pinellas County, Florida; thence S. 89(degree)29'43" E.,
along the East-West centerline of said Section 26, a distance of 691.34 feet to
a point of intersection with the Northerly prolongation of the East
right-of-way line of Lake Haven Road (as Lake Haven Road is presently
dedicated); thence S. 00(degree)26'16" E., along the East right-of-way line
of Lake Haven Road (and the Northerly prolongation thereof), which
right-of-way line (and prolongation thereof) is 33.00 feet East of and
parallel to the West boundary of the East 1/2 of the Northwest 1/4 of the
Southeast 1/4 of said Section 26, a distance of 250.03 feet for a Point of
Beginning; thence S. 89(degree)29'43" E., along a line parallel to the
East-West centerline of said Section 26, a distance of 625.90 feet to a point
of intersection with the East boundary of the Northwest 1/4 of the Southeast 1/4
of said Section 26; thence continuing S. 89(degree)29'43" E., along a line
parallel to the East-West centerline of said Section 26, a distance of 64.50
feet; thence S. 00(degree)34'05" E., along a line which is 64.50 feet East of
and parallel to the West boundary of the Northeast 1/4 of the Southeast 1/4 of
said Section 26, a distance of 394.96 feet; thence N. 89(degree)29'43" W.,
along a line parallel to the East-West centerline of said Section 26, a
distance of 64.50 feet to a point of intersection with the West boundary of the
Northeast 1/4 of the Southeast 1/4 of said Section 26; thence S.
00(degree)34'05" S., along the West boundary of the Northeast 1/4 of the
Southeast 1/4 of said Section 26, a distance of 438.81 feet to a point from
whence the Southeast corner of the Northwest 1/4 of the Southeast 1/4 of said
Section 26 bears S. 00(degree)34'O5" E., a distance of 280.11 feet; thence N.
88(degree)59'29" W., along a line parallel to the South boundary of the
Northwest 1/4 of the Southeast 1/4 of said Section 26, a distance of 627.91 feet
to a point of intersection with the East right-of-way line of Lake Haven Road;
thence N. 00(degree)26'16" W., along the East right-of-way line of said Lake
Haven Road, a distance of 828.21 feet to the point of beginning.
PARCEL III:
Commence at the Northwest corner of the Southeast 1/4 of Section 26, Township 28
South, Range 15 East, Pinellas County, Florida; thence S. 89(degree)29'43" E.,
along the East-West centerline of said Section 26, a distance of 1316.67 feet
to the Northwest corner of the Northeast 1/4 of the Southeast 1/4 of said
Section 26; thence continuing S. 89(degree)29'43" E., along the East-West
centerline of said Section 26, a distance of 90.00 feet; thence S.
00(degree)34'05" E., along a line parallel to the West boundary of the
Northeast 1/4 of the Southeast 1/4 of said Section 26 (and 89.98 feet East of
said West boundary as measured on a perpendicular thereto), a distance of 50.01
feet for a Point of Beginning; thence continuing S. 00(degree)34'05" E., along
a line parallel to the West boundary of the Northeast 1/4 of the Southeast 1/4
of said Section 26, a distance of 449.99 feet; thence S. 89(degree)29'43" E.,
along a line parallel to the East-West centerline of said Section 26, a
distance of 450.86 feet; thence S. 00(degree)49'30" E., along a line parallel
to the East boundary of the Southeast 1/4 of said Section 26, a distance of
245.00 feet; thence S. 89(degree)29'43" E., along a line parallel to the
East-West centerline of said Section 26, a distance of 344.00 feet; thence S.
00(degree)49'30" E., along a line parallel to the East boundary of the
CONTINUED
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LEGAL DESCRIPTION
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File No. 93-0008
EXHIBIT "A" OF SCHEDULE "A"
Southeast 1/4 of said Section 26, a distance of 626.82 feet to a point of
intersection with the South boundary of the Northeast 1/4 of the Southeast 1/4
of said Section 26; thence N. 88(degrees)59'29" W., along the South boundary of
the Northeast 1/4 of the Southeast 1/4 of said Section 26, a distance of 888.95
feet to the Southwest corner of the Northeast 1/4 of the Southeast 1/4 of said
section 26; thence N. 00(degrees)34'05" W., along the West boundary of the
Northeast 1/4 of the Southeast 1/4 of said Section 26, a distance of 718.92 feet
to a point from whence the Northwest corner of the Northeast 1/4 of the
Southeast 1/4 of said Section 26 bears N. 00(degrees)34'O5" W., a distance of
645.00 feet; thence S. 89(degrees)29'43" W, along a line parallel to the
East-West centerline of said Section 26, a distance of 64.50 feet; thence N.
00(degrees)34'05" W., along a line 64.50 feet East of and parallel to the West
boundary of the Northeast 1/4 of the Southeast 1/4 of said Section 26, a
distance of 394.96 feet; thence N. 89(degrees)29'43" E., along a line parallel
to the East-West centerline of said section 26, a distance of 64.50 feet to a
point of intersection with the West line of the Northeast 1/4 of the Southeast
1/4 of said Section 26; thence N. 00(degrees)34'05" W., along the West boundary
of the Northeast 1/4 of the Southeast 1/4 of said section 26, a distance of
200.03 feet; thence S. 89(degrees)29'43" E., along the South right-of-way line
of State Road No. 580, which right-of-way line is 50.00 feet South of and
parallel to the East-West centerline of said Section 26, a distance of 90.00
feet to the Point of Beginning.
LESS that part of said Parcels I, II and III conveyed to State of Florida by
Deed recorded in 0.R. Book 6114, page 193, Pinellas County records.
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QUALIFICATIONS OF APPRAISERS
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<PAGE>
STATEMENT OF QUALIFICATIONS
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JENNIFER L. ESTRELLA
Education
Master of Urban Planning, Economic Development Concentration
University of Illinois at Urbana-Champlaign, 1996
Bachelor of Business Administration, Finance Major
Loyola University Chicago, 1991
Real Estate Education
The following courses have been completed through the Real Estate Program at
the University of Illinois at Urbana-Champlaign:
Real Estate Financial Market
Urban Real Estate Valuation
Real Estate and Urban Land Economics
Current Position
Associate Appraiser, Cushman & Wakefield of Illinois, inc., Valuation Advisory
Services
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
MICHAEL J. SCHAEFFER
Real Estate Experience
Mr. Schaeffer has been active in the appraisal of real estate since 1983.
Appraisal experience includes the valuation of income-producing real estate in
the Chicago area as well as many major cities and small towns throughout the
Midwest. The types of properties appraised include office buildings, regional
malls, shopping centers, country clubs, apartment complexes, subsidized housing
units, industrial buildings, nursing homes, retirement communities, automotive
dealerships, department stores, vacant land, proposed income-producing
properties, and various special purpose properties. Mr. Schaeffer also has had
over 10 years of experience in new construction and renovation of commercial,
industrial, residential and specialized real estate properties.
Education
Bachelor of Arts, University of Cincinnati, Cincinnati, Ohio MBA Graduate Course
Work in Economics and Management, Xavier University, Cincinnati, Ohio
Real Estate Education
The following courses sponsored by the Appraisal Institute have been
successfully completed:
Real Estate Appraisal Principles 1A-1
Basic Valuation Procedures 1A-2
Standards of Professional Practice
Capitalization Theory and Techniques 1BA
Capitalization Theory and Techniques IBB
Advanced Applications 550
Report Writing & Valuation Analysis 540
Mr. Schaeffer has also attended numerous lectures and seminars sponsored by the
Appraisal Institute.
Mr. Schaeffer is currently a candidate for the MAI designation of the Appraisal
Institute, and has completed the educational and experience requirements for the
MAI designation.
Current Position
Director, Appraisal Services, Cushman & Wakefield, Inc., Chicago, Illinois
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
STANLEY R. DENNIS, JR., MAI
Real Estate Experience
Director, Manager, Cushman & Wakefield Valuation Advisory Services, Chicago,
Illinois. Division is responsible for the appraisal and consultation function of
Cushman & Wakefield, Inc., a national full service real estate organization,
1989.
Vice President, Manager, Cushman & Wakefield Appraisal Services, Portland,
Oregon, 1983.
Principal, Stanley R. Dennis & Associates, Portland, Oregon, 1982.
Education
Portland State University, Portland, Oregon
Bachelor of Science Degree, 1977, Finance and Real Estate
Appraisal Institute
Course I-A Fundamentals and Principles of Real Estate Appraisal
Course I-B Capitalization Theory and Techniques
Course II-I Case Studies in Real Estate Valuation
Course II-2 Valuation Analysis and Report Writing
Course II-3 Standards of Professional Practice
Course IV Litigation/Condemnation Valuation
Course VI Investment Analysis
Course VIII Residential Case Studies
Course X Market Analysis
Seminar Feasibility Analysis and Highest and Best Use
Seminar Discounted Cash Flow Analysis
Seminar Cash Equivalency
Seminar Subdivision Analysis
Seminar Rates, Ratios and Reasonableness
Professional Affiliations
American Institute of Real Estate Appraisers, Member (Designation #6754)
Building Owners and Managers Association (BOMA)
National Association of Corporate Real Estate Executives (NACORE)
<PAGE>
================================================================================
MARKET STUDY OF REAL PROPERTY
Golden Terrace West
431 Zeta Street
Golden, Jefferson County, Colorado
================================================================================
As of December 4, 1997
Prepared For:
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Prepared By:
Cushman & Wakefield of Illinois, Inc.
Valuation Advisory Services
455 North Cityfront Plaza Drive, Suite 2800
Chicago, Illinois 60611-5555
CUSHMAN &
WAKEFIELD(R)
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<PAGE>
[Letterhead of Cushman & Wakefield of Illinois, Inc.]
December 17, 1997
Mr. Edward J. Welch
Director
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Re: Market Study of Real Property
Golden Terrace West
431 Zeta Street
Golden, Jefferson County, Colorado 80401
Dear Mr. Welch:
In fulfillment of our agreement as outlined in the Letter of Engagement,
Cushman & Wakefield of Illinois, Inc., is pleased to transmit our market study
and consulting report evaluating the above referenced real property.
As specified in the Letter of Engagement, our market study and consulting
report is qualified by certain assumptions, limiting conditions, certifications,
and definitions, which are set forth in the report.
This consulting report was prepared for the Client, and it is intended
only for the specified use of the Client. It may not be distributed to or relied
upon by other persons or entities without written permission of Cushman &
Wakefield, Inc.
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the above
referenced real property, as of the date of our property inspection. The
function of the report is to assist the client, in evaluating the property for
underwriting and rating purposes.
<PAGE>
Mr. Edward J. Welch - 2 - December 17, 1997
This market study and consulting report was prepared in conformity with
the requirements of the Code of Ethics and Standards of Professional Appraisal
Practice of the Appraisal Institute and the Uniform Standards of Professional
Practice (USPAP) adopted by the Appraisal Standards Board of the Appraisal
Foundation.
This letter is invalid if detached from the report, which contains the
text, exhibits, and the Addenda.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF ILLINOIS, INC.
/s/ Jody L. Garbisch
Jody L. Garbisch
Associate Appraiser
/s/ Michael J. Schaeffer
Michael J. Schaeffer
Director
/s/ Stanley R. Dennis, Jr.
Stanley R. Dennis, Jr., MAI
Director, Manager
JLG/MJS:mmw
Revised 97
File No. 97362-16
CUSHMAN &
WAKEFIELD(R)
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<PAGE>
SUMMARY OF SALIENT FACTS
================================================================================
Property Name: Golden Terrace West
Location: 431 Zeta Street Golden, Jefferson County,
Colorado
Assessor's Parcel Number: Based on information provided by Jefferson
County Treasurer's Office, the subject property
is identified by Assessor's Parcel Number
40-101-00-001 and Schedule Number 084452.
Date of Inspection: The property was inspected December 4, 1997.
Ownership: The subject property is legally entitled to
Snowland Vistas, Inc., an Illinois corporation.
Land Area: Based on the property's legal plat of survey, the
subject property contains 38.919 acres of land
area, or 1,695,291 square feet.
Zoning: Based on information provided by the City of
Golden Zoning Department, the subject property
is zoned C-1, Commercial, which is a legal
and nonconforming use.
Improvements
Type: A manufactured housing community.
Year Built: The subject property was originally developed in
approximately 1969.
Size: The subject property consists of a 316-site
manufactured housing community, of which
approximately 263 sites are single-wide and 53
sites are double-wide.
Condition: At the time of inspection, the subject property
was in good condition.
Property Rating: Four Star manufactured home community.
Special Assumptions: 1. Information regarding the subject property,
including its physical characteristics, was
provided to us by the client and the on-site
manager, and is assumed to be accurate.
CUSHMAN &
WAKEFIELD(R)
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<PAGE>
Summary of Salient Facts
================================================================================
2. The existence of potentially hazardous or
toxic materials, which may be located on or
about the property, was not considered in our
evaluation. The appraisers are not qualified to
detect such substances, and Cushman &
Wakefield urges that an expert in this field be
employed to determine the existence, if any, of
hazardous materials located on or about the site.
3. Our market and consulting report regarding
the subject assumes the subject property, as
presently improved, represents its highest and
best use.
4. It is unknown to the appraiser if the subject
property complies with the Americans with
Disabilities Act (ADA). We recommend a
qualified specialist in the final determination
regarding any ADA compliance deficiencies that
may be present at the subject property.
5. Please refer to the complete list of
assumptions and limiting conditions included at
the end of this report.
CUSHMAN &
WAKEFIELD(R)
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<PAGE>
TABLE OF CONTENTS
================================================================================
Page
PHOTOGRAPHS OF SUBJECT PROPERTY..............................................1
INTRODUCTION.................................................................5
Identification of Property................................................5
Property Ownership and Recent History.....................................5
Purpose and Function of the Market Study and Consulting Assignment........5
Scope of the Market Study and Consulting Assignment.......................5
Date of Property Inspection...............................................5
Definitions and Other Pertinent Terms.....................................5
REGIONAL ANALYSIS............................................................8
NEIGHBORHOOD ANALYSIS.......................................................17
MARKET ANALYSIS.............................................................19
National Overview........................................................19
Competition..............................................................26
Comparable Manufactured Housing Community Sales..........................31
Demographic Trends.......................................................34
Expense Analysis.........................................................34
Market Supply and Demand.................................................35
Conclusion...............................................................35
PROPERTY DESCRIPTION........................................................37
Site Description.........................................................37
Improvements Description.................................................37
REAL PROPERTY TAXES AND ASSESSMENTS.........................................38
ZONING......................................................................38
CONCLUSION..................................................................39
ASSUMPTIONS AND LIMITING CONDITIONS.........................................40
CERTIFICATION...............................................................42
ADDENDA.....................................................................43
Pop-Fact Sheets
Legal Description
Qualifications of Appraisers
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PHOTOGRAPHS OF SUBJECT PROPERTY
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[PHOTO OMITTED]
Front Entrance of Subject Property
[PHOTO OMITTED]
Exterior of Community Center
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Photographs of Subject Property
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[PHOTO OMITTED]
Typical Interior View of the Subject Park
[PHOTO OMITTED]
Typical Interior View of the Subject Park
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Photographs of Subject Property
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[PHOTO OMITTED]
Typical Interior View of the Subject Park
[PHOTO OMITTED]
Typical Interior View of the Subject Park
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<PAGE>
Photographs of Subject Property
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[PHOTO OMITTED]
Street Scene Facing Northeast Along West Colfax Avenue
[PHOTO OMITTED]
Street Scene Facing Southwest Along West Colfax Avenue
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<PAGE>
INTRODUCTION
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Identification of Property
The subject property consists of a 316-site manufactured housing
community, situated on approximately 38.919 acres of land area. Golden Terrace
West is located just north of West Colfax Avenue, along the east and west sides
of Zeta Street, in the City of Golden, Jefferson County, Colorado. The
property's street address is 431 Zeta Street. The property was constructed in
1969, and was 98.0 percent occupied at the time of inspection.
Property Ownership and Recent History
The subject property is currently entitled to Snowland Vistas, Inc., an
Illinois corporation, and was originally developed in 1969.
Purpose and Function of the Market Study and Consulting Assignment
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the subject
property, as of the date of property inspection. The function of the consulting
report is to assist the client in evaluating the property for underwriting and
rating purposes.
Scope of the Market Study and Consulting Assignment
In the process of preparing this report, we inspected the property,
interviewed the on-site manager, conducted market research into asking rental
rates for comparable properties, conducted market investigations, and
ascertained sales prices of comparable properties. Additionally, we conducted
market research and evaluated demographic and economic trends; and, the market
position and rating of the subject property.
Date of Property Inspection
The property was inspected December 4, 1997.
Definitions and Other Pertinent Terms
Definitions of pertinent terms taken from the Dictionary of Real Estate
Appraisal, Third Edition (1993), published by the Appraisal Institute, is as
follows:
Market Rent
The rental income that a property would most probably command on the open
market; indicated by current rents paid and asked for comparable space as
of the date of the appraisal.
Evaluation
Evaluation is a study of the nature, quality, or utility of a parcel of
real estate or interest in, or aspects of, real property, in which a value
estimate is not necessarily required.
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Introduction
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Market Study
A macroeconomic analysis that examines the general market conditions of
supply, demand, and pricing or the demographics of demand for a specific
area or property type.
Legal Description
The subject property is located along the east and west sides of Zeta
Street, just north of West Colfax Avenue, in the City of Golden, Jefferson
County, Colorado. The street address of the subject property is 431 Zeta Street,
Golden, Colorado. The property is identified by parcel number 40-101-00-001 and
schedule number 084452, according to Jefferson County Treasurer's Office. Due to
the lengthy metes and bounds legal description, the subject property's legal
description is presented in the Addenda of this report, and reference is made
thereto.
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LOCATION MAP
[MAP OMITTED]
<PAGE>
REGIONAL ANALYSIS
================================================================================
Locational, economic, and population trends of the Denver-Boulder
Metropolitan Statistical Area are detailed in this section.
Location
o The DMA is a six-county region including Adams, Arapahoe, Boulder, Denver,
Douglas and Jefferson Counties.
o Primary cities within the DMA include: Denver, Arvada, Aurora, Broomfield,
Boulder, Commerce City, Englewood, Golden, Lakewood, Littleton,
Northglenn, Thornton, Westminster, and Wheat Ridge. There are various
secondary municipalities.
o The DMA is part of the Rocky Mountain Front Range, which includes the
Cities of Colorado Springs, Fort Collins, Greeley, Longmont, Loveland and
Pueblo, as well as the cities within the DMA and various smaller
municipalities.
Employment and the Economy
Employment
The non-agricultural wage & salary employment by sector in the
Denver-Boulder Metropolitan Statistical Area is summarized in the table.
=====================================================================
Denver-Boulder MSA
Nonagricultural Wage & Salary Employment
July 1996
---------------------------------------------------------------------
Sector Employed
---------------------------------------------------------------------
Mining and Construction 74,000
Manufacturing 119,600
Transportation & Public Utilities 88,200
Trade 282,300
F.I.R.E. 84,100
Services 351,600
Government 157,800
---------------------------------------------------------------------
TOTAL 1,157,600
=====================================================================
Source: Colorado Department of Labor and Employment
o The DMA economy has grown since 1988, following substantial over-building
in the early-1980s and economic deterioration in the mid-1980s.
o The compounded, average annual increase in employment from 1990 through
1995 equaled 3.3 percent.
o The 1995 annual, average, non-agricultural wage and salary employment in
the Denver-Boulder MSA was 1,128,700. This represents an increase of 4.0
percent from
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Regional Analysis
================================================================================
the 1994 annual average of 1,084,800. The 1996 employment level exhibited
continued increase (2.6 percent above the year-end 1995 level).
o The strongest growth over the past year occurred in the trade and services
sectors. Growth in the construction sector has been strong, due to public
works projects, single-family construction and build-to-suit development.
Government has grown to service a larger population. Other sectors have
exhibited moderate growth.
Major Employers
o Several, major telecommunications companies are headquartered or have
major operations in the area, including TCI (largest cable-TV provider in
the country), US West (largest private employer in the DMA), MCI, Sprint
and AT&T.
o There are numerous, large high-tech manufacturing facilities in the DMA
and along the Rocky Mountain Front Range, including Lockheed Martin (3.2
million square feet in the Denver area), Eastman-Kodak (occupying 3.1
million square feet in Greeley), Hewlett Packard (occupying 3.0 million
square feet in Fort Collins, Loveland and Colorado Springs), IBM (2.5
million square feet in Boulder) and StorageTek (2.3 million square feet in
Louisville and Longmont).
o Other major employers include numerous hospitals and health care
organizations (HealthOne and Kaiser Permanente), retailers (K-Mart, King
Soopers and Safeway) and financial institutions (Colorado National Bank).
Coors Brewing Company is one of the largest employers, providing
approximately 5,300 jobs in the Denver area.
o Denver International Airport (DIA), which opened February 28, 1995,
employ's approximately 26,000; of which 21,000 employees were transferred
from Stapleton International Airport, which was closed. United Airlines
employs approximately 6,700 at the new airport.
o Rocky Flats, previously a producer of nuclear weapons trigger devices,
employs approximately 5,000. This facility is currently operated by EG&G,
a private employer. Production has been terminated and the facility will
be phased-out over a 10-year period, with labor reductions of
approximately 15 to 20 percent per year projected for the next three
years.
o Government downsizing and cutbacks in defense spending has resulted in
closure of Lowry Air Force Base in Denver and decreased operations of EG&G
Rocky Flats.
o Lowry Air Force Base was recently closed, resulting in the elimination of
1,900 civilian positions, transfer or elimination of 2,200 military
positions and 2,500 students. The vacated base is being converted to
educational, research, commercial and residential use. The new Higher
Education and Advanced Technology Center on 156 acres is operated by
several colleges in the area.
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Regional Analysis
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The 20 largest private employers in the Denver Metropolitan Area are
summarized in the following table.
<TABLE>
<CAPTION>
=======================================================================================================================
20 Largest Private Employers in the Denver Metropolitan Area
- -----------------------------------------------------------------------------------------------------------------------
No. Company # Employed Primary Business Recent Announcements
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
*1 US West (All Operations) 15,400 Telecommunications Consolidating operations into
Colorado from throughout the Rocky
Mountain region.
*2 Columbia-HealthONE LLC 10,500 Hospitals, health care Recent merger of several hospitals
3 AT&T (All Operations) 8,000 Telecommunications Numerous facilities in the area.
services
4 King Soopers 7,000 Grocery stores Largest grocer in the area with
major distribution facilities.
5 Lockheed Martin Corp. 7,000 Aerospace and defense- Lockheed and Martin Marietta
related systems recently merged. Largest defense
contractor in the nation.
6 United Airlines, Inc. 6,700 Airline, reservation Major hub at new airport.
center
*7 Coors Brewing Company 5,300 Beverages Third-largest brewing company.
8 Rocky Flats Environmental 5,000 Clean-up and waste Will be phased-out over 10 years.
Technology Site management
9 Safeway 4,300 Grocery stores Largest grocer in nation.
*10 Public Service Company of 3,500 Natural gas and electric Major public utilities provider
Colorado utility recently cut 700 positions.
*11 StorageTek 3,500 Computer storage devices Recently cut 1,700 positions and
placed a 550,000 SF facility on
market.
*12 Provenant Health Partners 4,043 Health care Major hospital merger recently.
13 Kaiser Permanente of Colorado 3,055 Health care Numerous medical facilities
throughout region; major HMO.
14 Colorado National Bank 3,000 Bank services First Bank Systems recently
acquired and merged Bank
Western, Central Bank and
Colorado National Bank.
*15 Lutheran Medical Center 2,800 Hospital, health care Large hospital.
16 Ball Corporation 2,650 Aerospace research & Recently won major contract with
productions, containers US Government.
17 IBM 2,500 Computer services Significant cuts totaling approx.
2,500 over past several years.
*18 St. Joseph Hospital 2,500 Hospital, health care Large hospital.
*19 University Hospital 2,450 Hospital, health care Large hospital.
20 K-Mart Stores 2,400 Retail stores Includes K-Mart, Super-K, Price
Club, Builder's Square.
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</TABLE>
*Headquarters in Denver Metropolitan Area
Source: The Business Development Group, Greater Denver Chamber of Commerce.
Cushman and Wakefield of Colorado, Inc.
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Regional Analysis
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o Merrill Lynch (financial services) plans to construct a one million
square-foot campus-type facility in the southeast quadrant of the DMA and
employ 3,000 to 5,000. The first 106,400 square-foot facility in the
Meridian International Business Center is nearing completion, and is
planned to be completed in early-1997.
o Sun Microsystems will construct a 1 million square-foot, high-tech/R&D and
manufacturing campus in the northwest quadrant of the DMA in the
Interlocken Business Park, and employ 3,500.
Public works projects have been a major factor in the DMA's economic
growth. The largest of these projects are summarized in the table below,
including approximate cost estimates and completion dates. Many projects have
been completed.
================================================================================
Major Public Works Projects in the Denver Metropolitan Area
- --------------------------------------------------------------------------------
Project Estimated Cost Projected Completion
- --------------------------------------------------------------------------------
Denver International Airport $4.0 billion Completed 1995
Interstates 25 and 76 $500 million Completed 1995
Central Platte Valley Street System $185 million Completed 1997
Coors Field Baseball Stadium $130 million Completed 1995
Metro Area Connection Light Rail System $112 million Completed 1994
================================================================================
Source: City of Denver and Regional Transportation District (RTD)
Projected Employment Growth Rates and Trends
The following table summarizes employment projections by sector for the
DMA.
================================================================================
Projected Denver MSA Nonagricultural Wage & Salary Employment
- --------------------------------------------------------------------------------
Sector 2000 % (DELTA)* 2005 % (DELTA)*
- --------------------------------------------------------------------------------
Mining/Construction 65,400 -0.2% 67,000 0.5%
Manufacturing 121,700 0.7% 122,900 0.2%
Trans. & Pub. Util. 90,100 0.5% 95,600 1.2%
Trade 289,000 0.7% 298,600 0.7%
F.I.R.E. 85,100 0.5% 86,900 0.4%
Services 384,300 2.6% 421,300 1.9%
Government 177,100 1.8% 195,300 2.0%
- --------------------------------------------------------------------------------
TOTAL 1,212,700 1.4% 1,287,600 1.2%
================================================================================
* Compounded annual change from 1995-2000, and 2000-2005.
Source: Denver Regional Council of Governments and Colorado Department of
Labor and Employment
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Regional Analysis
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o Recent projections made by the Denver Regional Council of Governments
(DRCOG) indicates annual employment growth will average approximately 1.4
percent through 2000 (based on 1995 annual averages) and 1.2 percent from
2001 through 2005.
o Economic growth is expected to slow and the levels should more closely
mirror the national levels.
o The services sector (health care, legal, education, recreation, lodging,
etc.) will continue to exhibit the largest gains in employment, as has
been the case for the past 30 years; four in every 10 new jobs will be in
the services sector.
o The construction sector is projected to decline due to completion of major
public works projects and decreases in residential development.
o Transportation, communications and utilities are projected to continue to
grow, as a result of DIA, technological advances in communications, and
population growth. Retail trade is projected to experience modest growth.
o The government sector is projected to experience growth to service a
larger population and to accommodate an increasing elderly population.
Unemployment
o The unemployment rate for the Denver-Boulder Metropolitan Statistical Area
fluctuated between 3.0 and 7.0 percent from 1990 through September 1996.
o The most recent employment figures, as of August, 1997, indicate
unemployment rate of 2.8 percent in the Denver-Boulder MSA.
o Unemployment is projected to average approximately 4.0 to 5.0 percent over
the long term.
Inflation
o In 1994, Denver's CPI increased 4.4 percent, at a higher rate than the 2.6
percent level for the U.S.
o In 1995, Denver's index increased by 2.6 percent, while the national CPI
index increased by 2.5 percent during the same period.
o Compounded, annual, percentage changes in the national CPI are projected
to average 3.8 percent through 2005.(1)
o We project the Denver area CPI will increase by an average of 4.0 percent,
annually, during the next 10 years.
- ----------
(1) The WEFA Group Fall 1993 Regional Metro Area Long-Term Tables.
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Regional Analysis
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Population
The following table summarizes population estimates for the DMA.
================================================================================
1995 Population Estimates
- --------------------------------------------------------------------------------
Area Population
- --------------------------------------------------------------------------------
Adams County 291,798
Arapahoe County 442,136
Boulder County 259,421
Arapahoe County 502,796
Douglas County 97,739
Adams County 491,446
- --------------------------------------------------------------------------------
Denver Metro Area 2,085,336
================================================================================
Source: Colorado Division of Local Governments
o Following stagnant population growth from the mid-1980s through 1990,
including a decline in 1988, population began to increase substantially in
the 1990s.
o The compounded, average annual increase from 1990 to 1995 equaled 2.4
percent; population growth averaged 1.3 percent annually from 1980 through
1990.
o Relatively strong population growth over the past several years has been
due to strong economic and employment growth.
o A relatively large proportion of population growth has been net migration.
A majority of new residents migrated from California, Texas, Arizona,
Florida and Illinois. The net migration slowed in 1995.
o Recent projections by the Colorado Division of Local Governments and DRCOG
indicate annual population increases in the Metropolitan Area will average
1.3 percent in 1996, and 1.0 percent thereafter (projected declining
growth rates in future years is directly related to economic growth and
varying population in certain age groups).
o Approximately 46.0 to 50.0 percent of the projected population growth
through 2005 is composed of net migration.
Retail Sales
o Metro area retail sales began to increase substantially in 1990, due to
economic and population growth.
o The DMA's compounded, average annual retail sales increased 9.65 percent
from 1990 through 1994.
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Regional Analysis
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o Retail sales growth is projected to moderate in direct correlation with
projected decreases in economic and population growth.
Housing
There has been substantial single family residential development in recent
years. Information regarding building permits issued is summarized as follows.
o Between 1988 and 1991, an average of 6,600 residential building permits
were issued, annually (includes single and multi-family).
o In 1993, 16,254 building permits were issued. In 1994, 19,917 permits were
issued, a 22.5 percent increase over 1993 levels.
o Through 1995, approximately 12,450 residential building permits issued,
exhibiting a decrease from the 1994 level. The 1996 levels are similar to
1995.
o New housing sales increased 22 percent, as 13,456 homes were sold through
1995, compared to 11,039 in 1994. Through the third quarter 1996, 11,958
home sales were reported, above the 1995 pace by over 10 percent.
o Through 1995, there were 13,188 housing starts (attached, detached and
custom), compared to 12,745 during 1994, a 3.5 percent increase. Through
the third quarter 1996, there has been 11,500 starts, above the 1995 pace.
o As of year-end 1996, the average price of a new production-built home was
$172,000.
o The average single-family residential sales price (new and used) equaled
$159,000 at the end of 1996, $154,000 at the end of 1995 and $140,000 at
the end of 1994.
Interest Rates and Financing
The ability to obtain financing and the level of interest rates impacts
the supply and demand for real estate. A summary of historical interest rates is
summarized as follows.
o Interest rates hit an historical low in mid to late 1993. The average
30-year, fixed-rate, single-family residential mortgage interest rate was
approximately 6.5 percent in late-1993. Rates increased significantly in
1994 but have decreased since the beginning of 1995.
o The average residential mortgage interest rate has recently fluctuated
near 8.0 percent in the DMA.(2)
o Due to substantial over-building in the 1980s, and high number of
foreclosures in the late-1980s and early-1990s, financial and banking
institutions are cautious to provide financing for speculatvie office,
retail, industrial and hotel development.
Economic Impact on Real Property Markets
- ----------
(2) The Denver Post.
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Regional Analysis
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Growth in population and employment has resulted in increased demand for
real property throughout the DMA. Residential real estate has experienced
sufficient demand to result in substantial, new speculative construction. There
are numerous multi-family residential projects planned or under construction
throughout the DMA. Single-family construction is at its highest levels since
the building boom of the early-1980s.
Office occupancy has reached stabilized levels in most markets, due to
improved economic conditions and population growth. Office rental rates have
increased substantially since 1993, and speculative construction is occurring in
prime market areas, including the Denver Tech Center and Boulder. Certain
submarkets continue to lag in improvement, including Denver's central business
district. There are numerous build-to-suit projects, as several large companies
have established regional or national headquarters in the Denver area.
Industrial market conditions have improved substantially since 1993,
resulting in the achievement of stabilized occupancy levels. Proforma rental
rates have been reached in prime market areas. Numerous speculative industrial
projects are under way near the Denver International Airport, with over 3
million square feet recently completed or under way. The developers of a
majority of these speculative projects require lease-up prior to breaking
ground. Build-to-suit construction has been substantial.
Build-to-suit retail construction has been substantial throughout the DMA,
involving predominately national retailers such as "big box" operations and
national chain restaurants. The new Park Meadows Town Center, a 1.3 million
square-foot regional mall, located in the southeast suburban portion of the DMA,
was completed in September 1996. There has been some speculative retail
development in prime market areas.
The Denver Metropolitan Area economy has exhibited one of the strongest
growth rates in the nation in the 1990s. The result has been an influx of
investors, national retailers, major corporations, and other investors and users
of real property. The growth is projected to continue, though at moderating
levels to recent years.
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<PAGE>
NEIGHBORHOOD MAP
[MAP OMITTED]
<PAGE>
NEIGHBORHOOD ANALYSIS
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City of Golden
Golden is located 15 miles west of downtown Denver, and is in a valley at
the foot of the Rocky Mountains. Golden covers eight square miles, and is
elevated 5,676 feet. Five major highways, including Interstate 70, Colorado 470
and U.S. Highway 6, which provide a direct route to Denver, Boulder and the
Rocky Mountains, serve the city.
Golden is home to the Coors Brewery and several Coors subsidiaries
involved in manufacturing of high technology products, and is Golden's leading
industry. In addition to employing 5,000 people, its brewery tour attracts
roughly 300,000 visitors each year. The major employers in Golden are as
follows:
- --------------------------------------------------------------------------------
Major Employers
- --------------------------------------------------------------------------------
Company Number of Employees
- --------------------------------------------------------------------------------
Jefferson County R-1 School District 9,900
- --------------------------------------------------------------------------------
Coors Industries 5,000
- --------------------------------------------------------------------------------
Rocky Flats Environmental Technology 4,000
- --------------------------------------------------------------------------------
Jefferson County Government 2,000
- --------------------------------------------------------------------------------
National Renewable Energy Laboratory 750
- --------------------------------------------------------------------------------
Ball Corporation 656
- --------------------------------------------------------------------------------
Colorado School of Mines 655
- --------------------------------------------------------------------------------
Mobile Premix Concrete 519
- --------------------------------------------------------------------------------
Rocky Mountain Banknote 450
- --------------------------------------------------------------------------------
Source: Greater Golden Chamber of Commerce
- --------------------------------------------------------------------------------
Neighborhood Description
The subject property is located approximately three miles southeast of
downtown Golden, along the east and west side of Zeta Street, just north of West
Colfax Avenue (State Highway 40), in the City of Golden, Colorado.
The subject property's neighborhood is generally bounded by U.S. Highway 6
to the north, Interstate 70 to the east, State Highway 40 to the south and
County Road 93 to the west. This area is primarily developed with residential
and commercial uses.
Residential developments include single-family houses and manufactured
housing communities, which are located primarily to the east of the subject
property. Manufactured housing communities to the east of the subject include
Golden Terrace South and Golden Terrace and Mountain Side Estates. Comparison
rental information is provided in the Market Analysis section of this report.
Commercial developments are located to the south of the
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Neighborhood Analysis
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subject along West Colfax Avenue, such as convenience stores, gas stations, fast
food restaurants and neighborhood shopping centers.
Transportation in the subject's immediate area is excellent. The subject
property is located just north of West Colfax Avenue, a northeast/southwest,
four-lane paved roadway. Interstate 70 lies approximately one mile east of the
subject property, and can be access from the subject site via U.S. Highway 6.
In summary, the subject property is situated in an area well suited for
manufactured housing development, which benefits from the nearby manufactured
housing communities and accessibility to Interstate 70, U.S. Highway 6, and
State Highway 40. Real estate values are anticipated to increase at a steady
pace. The economy in the area is anticipated to be good, with unemployment
steadily decreasing and population anticipated to increase.
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MARKET ANALYSIS
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National Overview
Reportedly, the largest property owners of manufactured housing
communities in the United States are: ROC Communities, headquartered in
Colorado; MHC, Inc., headquartered in Illinois; Ellenburg Capital, headquartered
in Oregon; Lautrec Ltd., headquartered in Michigan; Clayton Homes, headquartered
in Tennessee; Clayton Williams and Sherwood, headquartered in California;
Chateau Properties, Sun Communities and UNIPROP, headquartered in Michigan.
The following represents the top ten manufactured housing community firms,
as reported by GFA Management, as of 1997.
<TABLE>
<CAPTION>
=================================================================================================================
1997 Firm Name State No. of Sites No. of Communities
Rank Owned/Managed Owned/Managed
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Sun Communities Michigan 30,295/0 84/0
- -----------------------------------------------------------------------------------------------------------------
2 ROC Communities Colorado 22,441/7,167 77/36
- -----------------------------------------------------------------------------------------------------------------
3 Manufactured Home Communities Illinois 27,349/838 69/3
- -----------------------------------------------------------------------------------------------------------------
4 Ellenburg Capital Florida 25,173/0 63/0
- -----------------------------------------------------------------------------------------------------------------
5 Lautrec Ltd. Michigan 22,652/0 58/0
- -----------------------------------------------------------------------------------------------------------------
6 Chateau Properties Michigan 20,003/0 47/0
- -----------------------------------------------------------------------------------------------------------------
7 Clayton Homes Tennessee 18,000/0 66/0
- -----------------------------------------------------------------------------------------------------------------
8 Clayton, Williams and Sherwood California 16,946/0 44/0
- -----------------------------------------------------------------------------------------------------------------
9 UNIPROP Michigan 14,931/0 40/0
- -----------------------------------------------------------------------------------------------------------------
10 The Bloch Organization Michigan 14,379/0 37/0
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
According to the U.S. Census Bureau, more than 8,521,000 people were
living in manufactured housing communities as of 1990 compared to 3,838,678 in
1980. This represents an increase in manufactured housing community living of
approximately 122.0 percent over the last ten years. Over the last ten years,
there has been a steady increase in manufactured housing community development
across the country. Among the demographic factors which account for the increase
in manufactured housing community living are: decreasing household size, a
growing demand for smaller housing, as well as an alternative to the increasing
cost of housing. Nationally, the largest percentage of manufactured housing
communities are located in California, Michigan, Colorado, Florida, New York,
Minnesota, Indiana, Arizona, Ohio, and Wisconsin.
The manufactured home industry has dramatically changed over the last 20
years. Manufactured homes are now designed and constructed to accommodate
spacious and attractive living requirements. Today, approximately one out of
sixteen families live in
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Market Analysis
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manufactured housing units. The manufactured housing market share has been
growing steadily over the last 10 years. In 1990, 6.7 percent of Americans lived
in manufactured housing units, up from 2.9 percent compared to 1970, according
to the U.S. Census Bureau, which represents 12.0 to 14.0 percent of all new
housing built since the mid-1980's, according to the Manufactured Housing
Institute in Arlington, Virginia.
In 1990, the average cost of a manufactured housing unit was $27,800
compared to $149,000 for a new house (including land), according to the
Manufactured Housing Institute. This reflects a 28.0 percent increase in the
cost of manufactured housing since 1980 versus a 49.0 percent increase in
conventional housing. Industry experts estimate that a single-family home
selling for $150,000 would require an annual income of $52,671. To purchase a
$27,800 manufactured housing unit, only a $19,984 income level would be
required.
At Fleetwood Enterprises, the nation's largest manufacturer of
manufactured housing units, units may be purchased for up to $100,000, which
would include a three-bedroom, two-bath unit of 2,100 square feet, with vaulted
ceilings.
In 1990, approximately 10.0 percent of manufactured home owners lived in
units worth approximately $40,000, up from 4.0 percent compared to 1981,
according to a study conducted by Foremost Insurance Company in Grand Rapids,
Michigan. Also, according to the study, approximately 21.0 percent of the
manufactured housing households are occupied by people' 65 years of age or
older, slightly lower than the age group for conventional homes, as reported by
Foremost Insurance.
The demand for good quality institutional grade manufactured housing
communities has substantially increased over the last ten years. Manufactured
housing communities provide an affordable alternative to the increasing cost of
housing. Also, manufactured housing communities provide an alternative form of
living for the elderly and retirees, especially for those living on fixed
incomes.
Acquisitions of manufactured housing communities during 1993 and 1994 were
clearly dominated by Real Estate Investment Trusts. During 1994 and 1995
Manufactured Home Communities (MHC) and ROC communities lead the acquisition of
manufactured housing communities nationally. During 1996, Sun Communities
captured the lead and, together with ROC and MHC dominate the Real Estate
Investment Trust market.
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Market Analysis
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The following chart represents the largest Real Estate Investment Trusts,
from 1991 to 1996, as reported by GFA Management
<TABLE>
<CAPTION>
=================================================================================================================
HOME SITE GROWTH, DEVELOPMENT AMONG THE LARGEST
REAL ESTATE INVESTMENT TRUST (REITS)
- -----------------------------------------------------------------------------------------------------------------
Year ROC MHC Chateau Sun United Total Annual
Growth
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 29,608 28,187 20,003 30,295 5,234 113,327 17.0%
- -----------------------------------------------------------------------------------------------------------------
1995 27,910 26,237 19,594 18,000 4,850 96,591 9.0%
- -----------------------------------------------------------------------------------------------------------------
1994 26,231 28,407 15,689 13,500 4,623 88,450 37.8%
- -----------------------------------------------------------------------------------------------------------------
1993 20,142 14,700 15,261 9,036 5,050 64,189 17.8%
- -----------------------------------------------------------------------------------------------------------------
1992 18,745 12,873 10,032 7,600 5,200 54,450 N/A
- -----------------------------------------------------------------------------------------------------------------
1991 9,030 13,079 9,759 N/R N/R N/A N/A
- -----------------------------------------------------------------------------------------------------------------
N/R = No report N/A = Not applicable
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: The 113,327 sites counted for the top five REITs in 1996 make up 20
percent of the total sites surveyed in the 1997 Allen Report. These rental sites
are located in 339 communities, accounting for about 1 percent of some 50,000
existing manufactured housing communities nationwide. The community counts for
the five major REITs are: ROC (113), MHC (72), Chateau (47), Sun (84) and United
(23). The proportion of communities owned by each of the REITs compared to the
others is: ROC (33%), MHC (21%), Chateau (14%), Sun (25%) and United (7%).
================================================================================
Manufactured Home Communities (MHC) is expected to continue an aggressive
acquisition campaign through 1997 and beyond. As of September 1997, the MHC REIT
had a market cap of $632.0 million, and continues to pursue the acquisition of
manufactured home communities. Aside from the ELL-CAP $300.0 million
transaction, in September 1997 Manufactured Home Communities, Inc. completed a
$107.0 million purchase of 18 manufactured housing communities and two related
commercial properties from partnerships affiliated with Mobileparks West. The
communities, with 3,505 sites, were purchased with about $3.0 million
manufactured home operating units, $16.0 million in cash and $20.0 million of
installment notes and assumed debt. The communities have an average monthly
rental of $349.00. The communities are located in California, Utah, Oregon,
Washington and Nevada. MHC may be the first manufactured home community REIT to
reach $1.0 billion.
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Market Analysis
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The MHC REIT continues to perform and expand, and as of September 1997 was
trading at $25.625, with a current yield of 5.2 percent. The top traded REITs,
are presented as follows.
<TABLE>
<CAPTION>
=================================================================================================================
REIT MARKET UPDATE
- -----------------------------------------------------------------------------------------------------------------
Company Symbol Price Current Yield 52 Week High 52 Week Low Annual 12 Mth Tot Rtn
(9/19/97) Dividend
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CPJ $29.688 5.8% $31.125 $22.250 1.72 26.6%
- -----------------------------------------------------------------------------------------------------------------
MHC $25.625 5.2% $26.428 $18.875 1.32 30.7%
- -----------------------------------------------------------------------------------------------------------------
SUI $37.428 5.0% $ 38.00 $27.750 1.88 31.8%
- -----------------------------------------------------------------------------------------------------------------
UMH $11.625 6.0% $13.625 $10.875 0.70 -1.7%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Total return figures obtained through Standard & Poors and are for the period
through Sept 1997.
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The Southwest and Northwest Regions of the nation are the preferred
locations regarding recent and future manufactured housing community
acquisitions. However, investors seeking moderate, but consistent growth
expectations, are still looking at the midwest region. Also, southern portions
of Florida are still considered a prime area for investors seeking good quality
manufactured housing communities, with good up-side potential. What was once a
stagnant market, the northeast region is now being considered for future
acquisitions.
According to a recent study prepared by Merrill Lynch & Company, ownership
in the manufactured housing community industry is highly fragmented. The top 150
owner-operators account for less than 5.0 percent of the total industry, whereas
a host of "mom-and-pop" private companies account for the other 95.0 percent.
This unglamorous niche industry is ripe for consolidation, and an infusion of
professional management expertise is likely to yield significant economies of
scale. The four REIT's specializing in manufactured housing communities are
already among the top ten owner-operators, and are well positioned to facilitate
and hasten the industry's consolidation to the likely benefit of their
stockholders.
Manufactured homes are the fastest growing component of the nation's
housing inventory, due to their affordability, good quality design and safety
standards. According to the Merrill Lynch & Company Manufactured Housing
Community Industry Report, factory-built homes appeal especially to senior
citizens and to households with limited economic needs, two segments of the
population that are likely to grow rapidly in coming years.
Consistent returns in manufactured housing community investments have been
the mainstay of the industry. For this reason, as well as the amount of
acquisitions seen by Real
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Market Analysis
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Estate Investment Trusts (REITs) from 1991 to 1996, the availability of good
quality manufactured housing communities has been substantially reduced compared
to the 1980's. Good quality manufactured housing communities still command
premium prices, thus driving down overall capitalization rates.
Cushman & Wakefield's Valuation Advisory Services has tracked sale
transactions of manufactured housing communities since 1985. Overall
capitalization rates have consistently been within the 8.75 to 10.00 percent
range for communities located in moderate to increasing growth markets, and as
low as near 8.0 percent for those communities located in growing markets that
poses significant upside potential. Overall capitalization rates are clearly
affected and are differentiated among the properties relative to rent levels,
age, quality, condition, location, amenities, demographic characteristics,
resident profile, as well as the quality of management.
Manufactured housing communities fall within, and are categorized by their
overall appearance, age, and amenities, but more importantly the strength of the
local market. The various categories of manufactured housing communities,
according to the Woodall Directory, can be ranked as 1 to 5 Star Parks. These
rankings are defined as follows:
One Star Park
The most important consideration for a one star park is overall
appearance. If it is not a decent place to live, it will not be listed in
Woodall's Directory. The following are general requirements:
o Fair overall appearance;
o Patios on most lots. May be concrete, asphalt, wood, or some
suitable material;
o Grass, rock or shell to cover ground;
o Streets fair to good. May be dirt, asphalt or gravel in reasonable
condition;
o Restrooms clean, if any;
o Adequate laundry or laundromat nearby;
o If fences allowed, must be neat;
o Mail service;
o Homes may be old models, but show evidence of care; and,
o Manager available some hours of each day.
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Market Analysis
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Two Star Park
In addition to the requirements for a one star park, a two star park will
have the following:
o Landscaping - some lawns and shrubs;
o Streets in good condition. Must be dust free of crushed rock, gravel
or shell minimum;
o Neat storage; Well equipped laundry or laundromat nearby;
o 200 volt connections available;
o If children accepted, park should have play area;
o Park free of clutter, such as old cars and other abandoned
equipment; and,
o Well maintained and managed.
Three Star Park
What a three star park does it does well, but not as uniformly as higher
rated parks. Many three star parks were once higher rated, but original
construction does not allow for today's 10-foot, 12-foot, and double-wides
or the 55-foot and 60-foot lengths. If children are allowed, there should
be adequate play area. However, the disarray caused by children may at
times be the determining factor that keeps a three star park at that level
when it otherwise could be rated higher. In addition to the requirements
for one and two star parks, a three star park must have the following:
o Attractive entrance;
o All homes must be in good condition;
o Awnings and cabana rooms on some homes in southern areas;
o Some spaces for large mobile homes;
o Paved or hard surfaced streets;
o Off-street parking or streets wide enough for safe on-street
parking;
o Good lawns or substitute throughout, shade trees, some shrubs where
climate permits;
o Concrete patios or the equivalent on all lots;
o All lots neat and attractive;
o All park buildings in good repair; and,
o Good management.
Four Star Park
Four star parks are luxury parks. In addition to the requirements for one,
two and three star parks, a four star park must have the following:
o Good landscaping;
o Most homes skirted with metal skirts, concrete block, ornamental
wood or stone;
o Paved streets, edged or curbed.
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Market Analysis
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o Uncrowded lots;
o Underground utilities if permitted by local conditions and
authorities;
o Most tanks, if present, concealed;
o Any hedges or fences must be attractive and uniform;
o Awnings, cabanas, or porches on most homes in southern areas.
(Excepting double-wide units.);
o Most lots to accommodate large mobile homes;
o Where row parking of homes exists, all must be lined up uniformly;
o Community hall and/or swimming pool and/or recreation programs. If a
park is four star in all but this requirement, the fourth star will
be printed as an open star indicating a four star park without
park-centered recreation; and,
o Excellent management.
Five Star Park
Five star parks are the finest. They should be nearly impossible to
improve. In addition to the requirements for one, two, three, and four
star parks, a five star park must have the following:
o Well planned and laid out spacious appearance;
o Good location in regard to accessibility and desirable neighborhood.
In some locations, park should be enclosed by high hedges or
ornamental fence;
o Wide paved streets in perfect condition. Curbs or lawns edged to
streets, sidewalks, street lights, street signs;
o Homes set back from street;
o Exceptionally attractive entrance and park sign;
o Patios at least 8 x 30 feet. (Excepting double-wide units.);
o Paved off-street parking such as carports or planned parking;
o All homes skirted;
o All hitches concealed. Any existing tanks concealed;
o Recreation, some or all of the following: swimming pool (excepting
areas with long, cold winters), shuffleboards, horseshoe pitching,
golf course, hobby shop, hobby classes, games, potlucks, dances or
natural recreational facilities;
o Beautifully equipped recreation hall with kitchen. Room for
community gatherings, tiled restrooms, etc.;
o Uniform storage sheds or central storage facilities;
o All late model homes in excellent condition;
o At least 60 percent occupancy in order to judge quality of residents
which indicates park's ability to maintain a five star rating
between inspections;
o All empty lots grassed, graveled or otherwise well maintained;
o If pets or children allowed, there must be a place for them to run
and play without cluttering the streets and yards. Most five star
parks are for adults only; and,
o Superior management interested in comfort of residents and
maintenance of park.
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Market Analysis
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The demand for good quality institutional grade manufactured housing
communities is anticipated to increase throughout the 1990's, since manufactured
housing communities provide an alternative form of living for the elderly and
retirees, especially for those living on fixed income. Manufactured home
shipments continue to be strong. Shipments rose 20.0 percent in 1992 and 1994,
and 12.0 percent in 1995. The market for good quality manufactured housing
communities is expected to be strong, with yield and capitalization rates and
prices expected to continue to be competitive, with the REITs leading the way.
Competition
We have surveyed six manufactured housing communities located within the
subject's primary market, including the subject property, containing a total of
1,409 sites. The combined occupancy rate of these six manufactured housing
communities, including the subject property, is approximately 99.0 percent.
Excluding the subject property in our survey, the combined occupancy rate is
also approximately 99.0 percent, based on 1,093 sites.
The name and location of the subject property's primary competition, as
well as the number of sites, occupancy levels, amenities offered, monthly rental
rates and services provided in the monthly rental rate, are presented on the
following facing page, along with a map which identifies the location of each
competing park.
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<PAGE>
<TABLE>
<CAPTION>
=============================================================================================================================
SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- -----------------------------------------------------------------------------------------------------------------------------
Number Age
Of Sites -------
-------- Condition Services
Comp. Name Occupancy ---------- Monthly Provided
No. Location Level Amenities Park Rent in Rent
Rating(1)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
R-1 Golden Terrace South 80 Laundry(2) 1967 $330.00/Mo. Water
17801 West Colfax Avenue --- ---- To Sewer
Golden, Colorado 99% Good $360.00/Mo Refuse
----
4*
- -----------------------------------------------------------------------------------------------------------------------------
R-2 Golden Terrace 262 Clubhouse 1970 $374.00/Mo. Refuse
17601 West Colfax Avenue --- Pool/Spa ----
Golden, Colorado 99% Billiard Room Good
Storage ----
4*
- -----------------------------------------------------------------------------------------------------------------------------
R-3 Mountain Side Estate 229 Clubhouse 1960 $330.00/Mo. Water
17190 Mt. Vernon Road --- Pool ---- Sewer
Golden, Colorado 100% Laundry Good Refuse
Storage ----
4*
- -----------------------------------------------------------------------------------------------------------------------------
R-4 Wolhurst 272 Clubhouse 1973 $355.00/Mo. Water
8201 S. Santa Fe Drive --- Pool ---- To Sewer
8201 S. Santa Fe Drive 100% Activity Room Good $385.00/Mo. Refuse
Laundry ----
Littleton, Colorado Storage 5*
- -----------------------------------------------------------------------------------------------------------------------------
R-5 South Park 250 Clubhouse 1958 $303.00/Mo. Water
3650 S. Federal Boulevard --- Pool ---- To Sewer
Denver, Colorado 100% Activity Room Good $331.00/Mo. Refuse
Laundry ----
4*
- -----------------------------------------------------------------------------------------------------------------------------
Subject Golden Terrace West 316 Clubhouse 1969 $363.00/Mo. Refuse
431 Zeta Street --- Pool ---- To
Golden, Colorado 98% Billiard Room Good $388.00/Mo.
Playground ----
Storage 4*
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
===============================================================================
- -------------------------------------------------------------------------------
3-Year
Date Of Average
Comp. Name Last Rental Annual Rental
No. Location Increase Increase
- -------------------------------------------------------------------------------
R-1 Golden Terrace South May, 1997 $17.00/Mo.
17801 West Colfax Avenue
Golden, Colorado
- -------------------------------------------------------------------------------
R-2 Golden Terrace January, 1997 $23.00/Mo.
17601 West Colfax Avenue
Golden, Colorado
- -------------------------------------------------------------------------------
R-3 Mountain Side Estate May, 1997 $15.00/Mo.
17190 Mt. Vernon Road
Golden, Colorado
- -------------------------------------------------------------------------------
R-4 Wolhurst December, 1997 $17.00/Mo.
8201 S. Santa Fe Drive
8201 S. Santa Fe Drive
Littleton, Colorado
- -------------------------------------------------------------------------------
R-5 South Park August, 1997 $7.00/Mo.
3650 S. Federal Boulevard
Denver, Colorado
- -------------------------------------------------------------------------------
Subject Golden Terrace West January, 1997 $23.00/Mo.
431 Zeta Street
Golden, Colorado
- -------------------------------------------------------------------------------
(1) Ratings from One Star to Five Star Parks are defined in the National
Overview section of this report.
(2) Golden Terrace South tenants are permitted to use amenities at Golden
Terrace and Golden Terrace West.
================================================================================
<PAGE>
COMPETING MANUFACTURED HOUSING MAP
[MAP OMITTED]
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Market Analysis
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Rental rates of manufactured housing communities located within the
subject's primary market range from $303.00 to $385.00 per site, on a monthly
basis. The subject property is currently quoting monthly rental rates within to
slightly above the market range, or ranging from $363.00 to $388.00 per site.
The last rental rate increase at the subject property was as of January, 1997,
of $25.00 per month.
The enclosed comparable rentals are considered the most competitive to the
subject property regarding amenities offered, condition, location and overall
ranking.
Comparable R-1, Golden Terrace South, is located at 17801 West Colfax
Avenue, in Golden, Colorado. This comparable property contains 80 sites,
and is 99.0 percent occupied. Golden Terrace South was developed in 1967,
and is in overall good condition. Over the last three years, the annual
rental rate increased approximately $17.00 per month. Monthly rental rates
range from $330.00 to $360.00, with water, sewer and refuse service
included in monthly rental payment. Amenities includes only a laundry
facility, however, tenants are permitted to use amenities at Golden
Terrace and Golden Terrace West.
Comparable R-2, Golden Terrace, is located at 17601 West Colfax Avenue, in
Golden, Colorado. This comparable property contains 262 sites, and is 99.0
percent occupied. Golden Terrace was developed in 1970, and is in overall
good condition. Over the last three years, the annual rental rate
increased approximately $23.00 per month. Monthly rental rates are at
$374.00, with refuse service included in monthly rental payment. Amenities
include a clubhouse, pool, spa, billiard room and recreational vehicle
storage.
Comparable R-3, Mountain Side Estates, is located at 17190 Mt. Vernon
Road, in Golden, Colorado. This comparable property contains 229 sites,
and is 100.0 percent occupied. Mountain Side Estates was developed in
1960, and is in overall good condition. Over the last three years, the
annual rental rate increased approximately $15.00 per month. Monthly
rental rates are at $330.00, with water, sewer and refuse service included
in monthly rental payment. Amenities include a clubhouse, pool, laundry
facility and recreational vehicle storage.
Comparable R-4, Wolhurst, is located at 8201 S. Santa Fe Drive, in
Littleton, Colorado. This comparable property is a 55-year-old and greater
residential community, which contains 272 sites and is 100.0 percent
occupied. Wolhurst was developed in 1973, and is in overall good
condition. Over the last three years, the annual rental rate increased
approximately $17.00 per month. Monthly rental rates range from $355.00 to
$385.00, with water, sewer and refuse service included in monthly rental
payment. Amenities include a clubhouse, pool, activity room, laundry
facility and recreational vehicle storage.
Comparable R-5, South Park, is located at 3650 S. Federal Boulevard, in
Denver, Colorado. This comparable property is a 55-year-old and greater
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Market Analysis
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residential community, which contains 250 sites and is 100.0 percent
occupied. South Park was developed in 1958, and is in overall good
condition. Over the last three years, the annual rental rate increased
approximately $7.00 per month. Monthly rental rates range from $303.00 to
$331.00, with water, sewer and refuse service included in monthly rental
payment. Amenities include a clubhouse, pool, activity room and laundry
facility.
In our opinion, and based on conversations with the on-site manager,
properties R-1, R-2 and R-3 compete most favorably with the subject property,
with monthly rental rates ranging from $330.00 to $374.00 per site. The subject
property is currently quoting monthly rental rates at $363.00 to 388.00 per
site, which is within to slightly above the range of rental rates of our more
comparable competing properties. The subject property competes most effectively
with its primary competitors regarding amenities, condition and current rent
structure. Golden Terrace West offers more mountain views than the competing
parks, thus the higher rated sites at Golden Terrace West are for those sites
which have mountain views.
Comparable Manufactured Housing Community Sales
A search of the subject's market revealed six recent sales of manufactured
housing communities located in the Denver Metropolitan Area. The following is a
brief discussion of each of the manufactured housing sales located within the
subject's market. These sales are summarized on the following facing page.
Comparable Sale I-1, Pine Lakes, is located at 10201 Riverdale Road, in
Thornton, Colorado. This property contains 760 sites, situated on 183.67
acres of land area. The property was developed in 1972, and was in overall
good condition at the time of sale. Amenities include two clubhouses, two
pools, recreation room, tennis court, basketball court, and a playground.
The property was approximately 90.0 percent occupied at the time of sale.
The property was purchased for $12,500,000 as a combined transaction with
sale I-2, which equates to $16,447 per site,
Comparable Sale I-2, Redwood Estate II, is located at 9595 Pecos Street,
in Thornton, Colorado. This property contains 752 sites, situated on
128.22 acres of land area. Amenities include a clubhouse, pool, recreation
room, playground and recreational vehicle storage. The property was
approximately 93.0 percent occupied at the time of sale. The property was
purchased for $12,500,000 as a combined transaction with sale I-1, which
equates to $16,622 per site.
Comparable Sale I-3, Canyon Ridge, is located at 5150 Airport Road, in
Colorado Springs, Colorado. This property contains 250 sites, situated on
31.36 acres of land area. Canyon Ridge was developed in 1972, and was in
good condition at the time of sale. Amenities include a clubhouse, pool,
recreation
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<TABLE>
<CAPTION>
====================================================================================================================================
SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- ------------------------------------------------------------------------------------------------------------------------------------
$EGI/Site
Sales Price --------------
Per Site $Expense/Site
Sales Date Land Area Density --------- EGIM -------------
Comp. Name ---------- --------- -------- Occupancy ---- Expense Ratio
No. Location Sales Price No. Sites Condition At Sale $NOI/Site OAR % Of EGI
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
I-1 Pine Lakes 7/96 183.67 4.14 $16,447 $1,563 N/A N/A
10201 Riverdale Road ----- ------ ---- ------- ---
Thornton, Colorado $12,500,000(1) 760 Good 90% 9.50%
- ------------------------------------------------------------------------------------------------------------------------------------
I-2 Redwood Estate II 7/96 128.22 5.86 $16,622 $1,579 N/A N/A
9595 Pecos Street ----- ------ ---- ------- ---
Thornton, Colorado $12,500,000(1) 752 Good 93% 9.50%
- ------------------------------------------------------------------------------------------------------------------------------------
I-3 Canyon Ridge 7/96 31.36 7.97 $16,800 $1,512 N/A N/A
5150 Airport Road ----- ----- ---- ------- ---
Colorado Springs, CO $4,200,000 250 Good 99% 9.00%
- ------------------------------------------------------------------------------------------------------------------------------------
I-4 Cottonwood Village 9/95 19.36 12.45 $19,917 $1,591 6.45x $3,089
11990 S. Boulder Road ---- ----- ----- ------- ----- ------
Lafayette, Colorado $4,800,000 241 Good 100% 7.99% $1,498
------
48.50%
- ------------------------------------------------------------------------------------------------------------------------------------
I-5 Canterbury Park 7/95 61.73 8.03 $18,750 $2,037 6.91x $2,714
3020 S. Powers Blvd. ---- ----- ---- ------- ----- ------
Colorado Springs, CO $9,300,000 496 Good 100% 10.87% $677
----
24.95%
- ------------------------------------------------------------------------------------------------------------------------------------
I-6 Woodland Hills 3/94 57.0 7.63 $18,391 $1,885 5.56x $3,310
1500 West Thornton ---- ---- ---- ------- ----- ------
Thornton, Colorado $8,000,000 435 Good 97% 10.25% $1,425
------
43.05%
- ------------------------------------------------------------------------------------------------------------------------------------
Subject Golden Terrace West - - - 38.919 8.12 - - - $3,562 N/A $4,653
431 Zeta Street ------ ---- ------
Golden, Colorado 316 Good 98% $1,091
------
23.44%
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Sale I-1 and I-2 were purchased as a combined transaction.
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
================================================================================================
SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- ------------------------------------------------------------------------------------------------
Comp. Name Comparability to
No. Location to the Subject Comments
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
I-1 Pine Lakes Similar Good condition; Amenities include
10201 Riverdale Road two clubhouses, two pools,
Thornton, Colorado recreation room, tennis,
basketball and playground.
- ------------------------------------------------------------------------------------------------
I-2 Redwood Estate II Similar Good condition; Amenities include
9595 Pecos Street a clubhouse, pool, recreation
Thornton, Colorado room, playground and RV storage.
- ------------------------------------------------------------------------------------------------
I-3 Canyon Ridge Inferior Developed in 1972;
5150 Airport Road Good condition; Amenities include
Colorado Springs, CO a clubhouse, pool, recreation
room and laundry facility.
- ------------------------------------------------------------------------------------------------
I-4 Cottonwood Village Inferior Developed in 1972; Good
11990 S. Boulder Road condition; Amenities include a
Lafayette, Colorado clubhouse, pool, recreation room,
playground and laundry facility.
- ------------------------------------------------------------------------------------------------
I-5 Canterbury Park Similar Developed in 1985; Good
3020 S. Powers Blvd. condition; Amenities include a
Colorado Springs, CO clubhouse, pool and RV storage.
- ------------------------------------------------------------------------------------------------
I-6 Woodland Hills Similar Developed in 1970; Good
1500 West Thornton condition; Amenities include a
Thornton, Colorado clubhouse, pool, playground and
barbecue pavilion.
- ------------------------------------------------------------------------------------------------
Subject Golden Terrace West Subject Property Developed in 1970; Good
431 Zeta Street condition; Amenities include a
Golden, Colorado clubhouse, pool, billiard room,
playground and RV storage
- ------------------------------------------------------------------------------------------------
(1) Sale I-1 and I-2 were purchased as a combined transaction.
================================================================================================
</TABLE>
31
<PAGE>
Market Analysis
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room and laundry facility. The property was approximately 99.0 percent
occupied at the time of sale. The property was purchased for $4,200,000,
which equates to $16,800 per site.
Comparable Sale I-4, Cottonwood Village, is located at 11990 S. Boulder
Road, in Layfayette, Colorado. This property contains 241 sites, situated
on 19.36 acres of land area. Cottonwood Village was developed in 1972, and
was in overall good condition at the time of sale. Amenities include a
clubhouse, pool, recreation room, playground and laundry facility. The
property was 100.0 percent occupied at the time of sale. The property was
purchased for $4,800,000, which equates to $19,917 per site.
Comparable Sale I-5, Canterbury Park, is located at 3020 S. Powers
Boulevard, in Colorado Springs, Colorado. This property contains 496
sites, situated on 61.73 acres of land area. Canterbury Park was developed
in 1985, and was in overall good condition at the time of sale. Amenities
include a clubhouse, pool and recreational vehicle storage. The property
was 100.0 percent occupied at the time of sale. The property was purchased
for $9,300,000, which equates to $18,750 per site.
Comparable Sale I-6, Woodland Hills, is located at 1500 West Thornton, in
Thornton, Colorado. This property contains 435 sites, situated on 57.0
acres of land area. Woodland Hills was developed in 1970, and was in
overall good condition at the time of sale. Amenities include a clubhouse,
pool, playground and barbecue pavilion. The property was 97.0 percent
occupied at the time of sale. The property was purchased for $8,000,000,
which equates to $18,391 per site.
It should be noted that comparability does not imply an identical or exact
duplicate, but rather the possession of a similar utility and affected by
similar supply and demand forces. Also, relative to the subject property,
differences include: time or date of the transactions; location, which
encompasses differences in accessibility; site characteristics, including
differences in size, topography, access, exposure and development capacities;
and improvement characteristics, which include differences in age, quality,
condition, size and amenities.
Demographic Trends
Based on information provided by National Decision Systems (NDS), the
populations within the subject's primary 5-mile and secondary 10-mile market
areas, as of 1997, are 86,042 and 470,332, respectively. The populations of the
subject's primary and secondary market areas are projected to increase to 92,358
and 502,837, respectively, by the year 2002.
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Market Analysis
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According to NDS, the total number of households within the subject's
primary and secondary market areas, are 36,074 and 198,353, respectively, for
1997. The number of households within the subject's primary 5-mile and secondary
10-mile market areas are projected to increase to 39,741 and 222,605,
respectively, by the year 2002.
The average household income levels within the subject's primary and
secondary market areas, for 1997, are $67,718 and $55,746, respectively, and are
expected to increase to $87,171 and $70,438, respectively, by the year 2002. The
median household income levels within the subject's primary and secondary market
areas, for 1997, are $50,768 and $42,393, respectively, and are expected to
increase to $60,979 and $50,535, respectively, by the year 2002. Per capita
income within the subject's primary and secondary market areas, for 1997, are
$28,566 and $23,238, respectively, and are expected to increase to $37,890 and
$30,812, respectively, by the year 2002.
Based on the above levels, the demographics of the subject's primary
market area appear to indicate a positive growth trend, based on information
provided by NDS. For additional demographic information, please refer to the NDS
summary report in the Addenda of this report.
Expense Analysis
Expenses exhibited by manufactured housing communities nationally are
typically 35.0 to 45.0 percent of effective gross income. However, expense
ratios of manufactured housing communities located in the southeast and
southwest regions of the nation are typically lower by comparison, due to lower
real estate taxes and common area maintenance charges.
As presented in the Summary of Manufactured Housing Communities Sales,
operating expense ratios of competing parks range from 24.95 to 48.50 percent of
effective gross income levels, and $677 to $1,498 on a per site basis. The
subject property is currently reporting expenses, for the 12-month trailing
period of 1997, at 23.44 percent of effective gross income and $1,091 on a per
site basis. Operating expenses appear to be below the range of comparable
properties on a percentage of effective gross income, but within the range on a
per site basis.
Market Supply and Demand
There are a total of five competing manufactured housing communities
located within the subject's market, which total 1,093 sites, with a
corresponding average occupancy rate of 99.0 percent. No specific absorption
statistics were available. The subject property, based on conversations with
management, has historically had occupancy rates consistent with
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Market Analysis
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competing parks, and is currently 98.0 percent occupied. We believe the current
occupancy rate of the subject property is stabilized, and has similar occupancy
rates of competing parks presently presented. Based on the subject's current
occupancy rate and occupancy rates at competing parks, demand appears to be
strong, with steady rental rate increases expected.
Conclusion
Historically, the subject's primary market has sustained occupancy levels
of 95.0 to 100 percent. Rental rates of similar manufactured housing communities
located within the subject's primary market generally range from $303.00 to
$385.00 per site, on a monthly basis. The subject property is currently quoting,
and is currently achieving (based on the most recent rent roll provided), a
monthly rental rate within to slightly above the range of competing parks, or
ranging from $363.00 to $388.00 per site, with the mountain view sites renting
toward the upper end of the range.
Based on our research, steady increases in rental rates are anticipated,
based on actual historical performance of competing parks and historical
increases seen at the subject property. Sales transactions of manufactured
housing communities located within the subject's region range from $16,447 to
$19,917 per site, with corresponding overall rates ranging from 7.99 to 10.87
percent. In our opinion, the subject property competes favorably with its
competition regarding amenities, condition, rent structure and overall market
rating.
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SITE PLAN
[GRAPHIC OMITTED]
<PAGE>
PROPERTY DESCRIPTION
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Site Description
The subject site is located along the east and west sides of Zeta Street,
just north of West Colfax Avenue, in Golden, Jefferson County, Colorado. The
subject site is rectangular in shape and contains approximately 38.919 acres, or
1,695,291 square feet of land area. Topographically, the site is sloping and
above street grade.
Primary access to the subject site is available from Zeta Street, which
bisects Golden Terrace West. According to Flood Insurance Rate Map, Jefferson
County, Colorado, Community Panel Number 080087-0255 B, dated August 5, 1986,
Golden Terrace West does not lie in the 100-year flood plain.
The streets within the park have two-lanes, with concrete curbs. Overall,
the subject site is typical of the area and is functionally well suited for its
current use.
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.
Improvements Description
The subject property was originally developed in 1969. The subject
improvements consist of a 316-site manufactured housing community, with a
community center, swimming pool, billiard room, playground and recreational
vehicle storage. Of the 316 sites, approximately 263 sites are single-wide and
the remaining 53 are double-wide.
The community center consists of a manager's office, restroom facilities,
open-space available for resident use, billiard room and a fully equipped
kitchen. The swimming pool is located adjacent to the community center.
Off-street parking is available for each resident. Site improvements
within the park include: paved streets, street lighting and signage. Overall,
the site improvements appeared to be in good condition at the time of
inspection.
Golden Terrace West is a functional manufactured housing community with
primary ingress and egress along West Colfax Avenue. Overall, the subject
community appears to be well maintained and is in good condition. Golden Terrace
West is a functional manufactured housing community and competes favorably with
other existing manufactured housing communities in the area in terms of
appearance and amenities. The subject property would fit
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Property Description
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the profile of a Four Star Park, as defined in the National Overview section of
this report.
Real Property Taxes and Assessments
Assessed value of commercial property in Jefferson County is assessed at
29.0 percent of the Assessor's opinion of market value. The subject property is
identified by parcel number 40-101-00-001 and schedule number 084452.
The total amount of real estate taxes for 1996 payable in 1997 for the
subject property amounts to $46,943.88. The total amount of real estate taxes
for 1996 payable in 1997 equates to approximately $148.56 per site.
Zoning
According to the City of Golden zoning officials, the subject property is
currently zoned C-1, Commercial, which is a legal but non-conforming use.
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CONCLUSION
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Conclusion
o The subject property, Golden Terrace West, is a functional
manufactured housing community, which competes favorably in relation
to its competition;
o Comparable manufactured housing communities located within the
subject's market range in monthly rental rates per site from $303.00
to $385.00;
o The subject property is currently quoting, and is currently
achieving (based on the most recent rent roll provided) a monthly
rental rate ranging from $363.00 to $388.00 per site, which is
within to slightly above the range of competing parks;
o Sale transactions of manufactured housings located within the
subject's region range in unit sales prices per site from $16,447 to
$19,917, with corresponding overall rates ranging from 7.99 to 10.87
percent;
o Operating expenses are within industry standards for a park located
in the mountain region of the country;
o The subject park appears to be operating at economic levels based on
our review of historical and budgeted 1998 income and expenses;
o The demographic characteristics of the area appear to be positive;
o The population profile of the subject property is 95 percent adult;
o The current occupancy rate at the subject property of 98.0 percent
is evident by a strong local market and demand;
o No significant manufactured housing communities are expected to be
developed in the near future;
o In our opinion, based on Woodall's criteria, the subject property is
a Four Star Park, and the reader's attention is directed to the
corresponding definition and criteria of a Four Star Park, presented
in the National Overview section of this report; and,
o Based on the subject's location, demographic, economic, market and
physical characteristics, we believe Golden Terrace West will
continue to be a viable manufactured housing community in the
foreseeable future, and is well positioned in the marketplace.
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ASSUMPTIONS AND LIMITING CONDITIONS
================================================================================
"Report" means the consulting report to which these Assumptions and Limiting
Conditions are annexed.
"Property" means the subject of the Report.
"C&W" means Cushman & Wakefield, Inc. or its subsidiary which issued the Report.
"Appraiser(s)" means the employee(s) of C&W who prepared and signed the Report.
This report is made subject to the following assumptions and limiting
conditions:
1. No responsibility is assumed for the legal description or for any matters
which are legal in nature. 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 Report or upon which the Report 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 Appraisers nor C&W shall be responsible for the
accuracy or completeness of such information, including the correctness of
estimates, opinions, dimensions, sketches, exhibits, and other factual
matters.
3. The information is effective as of the date stated in the Report. Changes
since that date in external and market factors or in the property itself
can significantly affect our analysis.
4. The report is to be used in whole and not in part. No part of the Report
shall be used in conjunction with any other report. Possession of the
Report, or a copy thereof, does not carry with it the right of
publication. Publication of the Report or any portion thereof without the
prior written consent of C&W is prohibited. Except as may be otherwise
expressly stated in the letter of engagement to prepare the Report, C&W
does not permit use of the Report by any person other than the party to
whom it is addressed or for purposes other than those for which it was
prepared. If written permission is given by C&W to use the Report, the
Report must be used in its entirety and only with proper written
qualification as approved by C&W. No part of the Report or the identity of
the Appraiser shall be conveyed to the public through advertising, public
relations, news, sales, or other media or used in any material without
C&W's prior written consent. Reference to the Appraisal Institute or to
the MAI designation is prohibited.
5. The Appraiser shall not be required to give testimony in any court or
administrative proceedings relating to the Property or the Report.
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Assumptions and Limiting Conditions
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6. The Report 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 Report; 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 Report is based.
7. The physical condition of the improvements considered by the Report is
based on visual inspection by the Appraiser or other person identified in
the Report. C&W assumes no responsibility for the soundness of structural
members nor for the condition of mechanical equipment, plumbing, or
electrical components.
8. Unless otherwise stated in the Report, the existence of potentially
hazardous or toxic materials which may have been used in the construction
or maintenance or operation of the improvements or may be located at or
about the Property was not considered in the Report. These materials (such
as formaldehyde foam insulation, asbestos insulation, various soil
contaminants, and other potentially hazardous materials) may affect the
value of the Property. The Appraisers are not qualified to detect such
substances, and C&W urges that an expert in this field be employed to
determine the economic impact of these matters, if any, on the property in
the Report.
9. Unless otherwise stated in the Report, compliance with the requirements of
the Americans With Disabilities Act of 1990 (ADA) has not been considered
in the Report. Failure to comply with the requirements of the ADA may
negatively affect the value of the property. C&W recommends that an expert
in this field be employed.
10. If the Report is submitted to a lender or investor with the prior approval
of C&W, such party should consider the Report as one factor, together with
its independent investment considerations and underwriting criteria, in
its overall investment decision.
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CERTIFICATION
================================================================================
We certify that, to the best of our knowledge and belief:
1. Jody L. Garbisch inspected the property, and Michael J. Schaeffer and
Stanley R. Dennis, Jr., MAI, have reviewed and approved the report, but
did not inspect 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 on an action or event (such as the
approval of a loan) resulting from the analyses, opinions, or conclusions
in, or the use of, this report.
6. 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 Ethics and Standards of Professional Practice of the Appraisal
Institute.
7. No one provided significant professional assistance to the persons signing
this 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. As of the date of this report, Stanley R. Dennis, Jr., MAI, has completed
the requirements of the continuing education program of the Appraisal
Institute.
/s/ Michael J. Schaeffer /s/ Jody L. Garbisch /s/ Stanley R. Dennis, Jr.
Michael J. Schaeffer Jody L. Garbisch Stanley R. Dennis, Jr., MAI
Director Associate Appraiser Director, Manager
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<PAGE>
ADDENDA
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POP-FACT SHEETS
LEGAL DESCRIPTION
QUALIFICATIONS OF APPRAISERS
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POP-FACT SHEETS
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<PAGE>
Tue Nov 25, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP FACTS: SUMMARY REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6510
PREPARED FOR
CUSHMAN & WAKEFIELD
GOLDEN TERRACE WEST
GOLDEN, COLORADO COORD: 39:43.14 105:12.27
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- --------------------------------------------------------------------------------
POPULATION
2002 PROJECTION 92,358 502,837
1997 ESTIMATE 86,042 470,332
1990 CENSUS 75,894 424,250
1980 CENSUS 69,781 391,376
GROWTH 1980 - 1990 8.76% 8.40%
HOUSEHOLDS
2002 PROJECTION 39,741 222,605
1997 ESTIMATE 36,074 198,353
1990 CENSUS 30,639 166,770
1980 CENSUS 24,639 143,371
GROWTH 1980 - 1990 24.35% 16.32%
1997 ESTIMATED POPULATION BY RACE 86,042 470,332
WHITE 94.33% 86.99%
BLACK 0.68% 0.85%
ASIAN & PACIFIC ISLANDER 2.41% 2.70%
OTHER RACES 2.58% 9.46%
1997 ESTIMATE POPULATION 86,042 470,332
HISPANIC ORIGIN 6.15% 16.49%
OCCUPIED UNITS 30,639 166,770
OWNER OCCUPIED 65.93% 63.75%
RENTER OCCUPIED 34.07% 36.25%
1990 AVERAGE PERSON PER HH 2.42 2.50
1997 ESTIMATE HH BY INCOME 36,074 198,353
$150,000 + 5.49% 3.40%
$100,000 TO $149,999 8.07% 5.81%
$ 75,000 TO $ 99,999 11.70% 9.03%
$ 50,000 TO $ 74,999 25.52% 22.82%
$ 35,000 T0 $ 49,999 17.34% 17.61%
$ 25,000 TO $ 34,999 10.80% 12.96%
$ 15,000 TO $ 24,999 10.56% 12.90%
$ 5,000 TO $ 14,999 8.13% 12.20%
UNDER $ 5,000 2.39% 3.26%
1997 EST. AVERAGE HH INCOME $67,718 $55,746
1997 EST. MEDIAN HH INCOME $50,768 $42,393
1997 EST. PER CAPITA INCOME $28,566 $23,238
<PAGE>
Tue Nov 25, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP 80-02, HH 80-02, INC 80-02)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6510
PREPARED FOR
CUSHMAN & WAKEFIELD
GOLDEN TERRACE WEST
GOLDEN, COLORADO COORD: 39:43.14 105:12.27
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- --------------------------------------------------------------------------------
POP_80: TOTAL 69,781 391,376
POP_90: TOTAL 75,894 424,250
POP_97: TOTAL (EST.) 86,042 470,332
POP_02: TOTAL (PROJ.) 92,358 502,837
HH_80: TOTAL 24,639 143,371
HH_90: TOTAL 30,639 166,770
HH_97: TOTAL (EST.) 36,074 198,353
HH_02: TOTAL (PROJ.) 39,741 222,605
INC_80: PER CAPITA (EST.) $10,137 $8,867
INC_90: PER CAPITA $19,200 $15,754
INC_97: PER CAPITA (EST.) $28,566 $23,238
INC_02: PER CAPITA (PROJ.) $37,890 $30,812
HH_90_BY INCOME_89: MEDIAN $38,908 $32,979
HH_97_BY INCOME: MEDIAN $50,768 $42,393
HH_02_BY INCOME: MEDIAN $60,979 $50,535
HH_80_BY INCOME_79: AVERAGE $28,708 $24,204
HH_90_BY INCOME_89: AVERAGE $47,270 $39,494
HH_97_BY INCOME: AVERAGE $67,718 $55,746
HH_02_BY INCOME: AVERAGE $87,171 $70,438
<PAGE>
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LEGAL DESCRIPTION
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<PAGE>
LEGAL DESCRIPTION
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A TRACT OF LAND BEING THE NORTHEAST ONE-QUARTER OF THE NORTHEAST ONE-QUARTER OF
SECTION 10, TOWNSHIP 4 SOUTH, RANGE 70 WEST OF THE SIXTH PRINCIPAL MERIDIAN,
EXCEPT THAT PORTION AS DESCRIBED IN BOOK 2001 AT PAGE 134 AND BOOK 1252 AT PAGE
554 OF THE JEFERSON COUNTY RECORDS, STATE OF COLORADO, BEING ADDITIONALLY
DESCRIBED AS FOLLOWS:
COMMENCING AT THE NORTHEAST CORNER OF SAID NORTHESAT ONE-QUARTER OF THE
NORTHEAST ONE-QUARTER, SAID POINT BEING THE POINT OF BEGINNING;
THENCE SOUTHERLY ALONG THE EAST LINE OF SAID SECTION A DISTANCE OF 1316.95
FEET TO THE SOUTHEAST CORNER OF THE SAID NORTHEAST ONE-QUARTER OF THE NORTHEAST
ONE-QUARTER;
THENCE WESTERLY ALONG THE SOUTH LINE OF THE SAID NORTHEAST ONE-QUARTER OF THE
NORTHEAST ONE-QUARTER A DISTANCE OF 516.90 FEET TO A POINT ON THE EAST LINE OF
A TRACT OF LAND AS DESCRIBED IN BOOK 2001 AT PAGE 134;
THENCE NORTHERLY ALONG SAID EAST LINE A DISTANCE OF 36.69 FEET TO THE NORTH
LINE OF A TRACT OF LAND AS DESCRIBED IN BOOK 2001 AT PAGE 134;
THENCE WESTERLY ALONG THE NORTH LINE OF THE TRACT OF LAND AS DESCRIBED IN BOOK
2001 AT PAGE 134 AND ALONG THE NORTH LINE OF A TRACT OF LAND DESCRIBED IN BOOK
1252 AT PAGE 554 A DISTANCE OF 796.81 FEET TO A POINT ON THE WEST LINE OF THE
SAID NORTHEAST ONE-QUARTER OF THE NORTHEAST ONE-QUARTER;
THENCE NORTHERLY ALONG SAID WEST LINE A DISTANCE OF 1270.72 FEET TO THE
NORTHWEST CORNER OF THE SAID NORTHEAST ONE-QUARTER OF THE NORTHEAST
ONE-QUARTER;
THENCE EASTERLY ALONG THE NORTH LINE OF SECTION 10 A DISTANCE OF
1314.09 FEET TO THE POINT OF BEGINNING,
COUNTY OF JEFFERSON,
STATE OF COLORADO.
- --------------------------------------------------------------------------------
<PAGE>
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QUALIFICATIONS OF APPRAISERS
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<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
JODY L. GARBISCH
Education
Bachelor of Science Degree in Finance, concentration in Real Estate, from the
College of Commerce and Business Administration at the University of Illinois,
Urbana-Champaign, Illinois, 1997.
Real Estate Education
The following courses have been completed through the Real Estate Program at the
University of Illinois at Urbana-Champaign:
Urban Real Estate Valuation
Urban Economics
Real Estate Financial Markets
Real Estate Investments
Real Estate Law
Real Estate Fundamentals
Current Position
Associate Appraiser, Cushman & Wakefield of Illinois, Inc., Valuation Advisory
Services.
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
MICHAEL J. SCHAEFFER
Real Estate Experience
Mr. Schaeffer has been active in the appraisal of real estate since 1983.
Appraisal experience includes the valuation of income-producing real estate in
the Chicago area as well as many major cities and small towns throughout the
Midwest. The types of properties appraised include office buildings, regional
malls, shopping centers, country clubs, apartment complexes, subsidized housing
units, industrial buildings, nursing homes, retirement communities, automotive
dealerships, department stores, vacant land, proposed income-producing
properties, and various special purpose properties. Mr. Schaeffer also has had
over 10 years of experience in new construction and renovation of commercial,
industrial, residential and specialized real estate properties.
Education
Bachelor of Arts, University of Cincinnati, Cincinnati, Ohio MBA Graduate Course
Work in Economics and Management, Xavier University, Cincinnati, Ohio
Real Estate Education
The following courses sponsored by the Appraisal Institute have been
successfully completed:
Real Estate Appraisal Principles 1A-1
Basic Valuation Procedures 1A-2
Standards of Professional Practice
Capitalization Theory and Techniques 1BA
Capitalization Theory and Techniques IBB
Advanced Applications 550
Report Writing & Valuation Analysis 540
Mr. Schaeffer has also attended numerous lectures and seminars sponsored by the
Appraisal Institute.
Mr. Schaeffer is currently a candidate for the MAI designation of the Appraisal
Institute, and has completed the educational and experience requirements for the
MAI designation.
Current Position
Director, Appraisal Services, Cushman & Wakefield, Inc., Chicago, Illinois
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
STANLEY R. DENNIS, JR., MAI
Real Estate Experience
Director, Manager, Cushman & Wakefield Valuation Advisory Services, Chicago,
Illinois. Division is responsible for the appraisal and consultation function of
Cushman & Wakefield, Inc., a national full service real estate organization,
1989.
Vice President, Manager, Cushman & Wakefield Appraisal Services, Portland,
Oregon, 1983.
Principal, Stanley R. Dennis & Associates, Portland, Oregon, 1982.
Education
Portland State University, Portland, Oregon
Bachelor of Science Degree, 1977, Finance and Real Estate
Appraisal Institute
Course I-A Fundamentals and Principles of Real Estate Appraisal
Course I-B Capitalization Theory and Techniques
Course II-I Case Studies in Real Estate Valuation
Course II-2 Valuation Analysis and Report Writing
Course II-3 Standards of Professional Practice
Course IV Litigation/Condemnation Valuation
Course VI Investment Analysis
Course VIII Residential Case Studies
Course X Market Analysis
Seminar Feasibility Analysis and Highest and Best Use
Seminar Discounted Cash Flow Analysis
Seminar Cash Equivalency
Seminar Subdivision Analysis
Seminar Rates, Ratios and Reasonableness
Professional Affiliations
American Institute of Real Estate Appraisers, Member (Designation #6754)
Building Owners and Managers Association (BOMA)
National Association of Corporate Real Estate Executives (NACORE)
<PAGE>
================================================================================
MARKET STUDY OF REAL PROPERTY
Casa Village
422 South 24th Street West
Billings, Yellowstone County, Montana
================================================================================
As of December 3, 1997
Prepared For:
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Prepared By:
Cushman & Wakefield of Illinois, Inc.
Valuation Advisory Services
455 North Cityfront Plaza Drive, Suite 2800
Chicago, Illinois 60611-5555
CUSHMAN &
WAKEFIELD(R)
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<PAGE>
[Letterhead of Cushman & Wakefield of Illinois, Inc.]
December 19, 1997
Mr. Edward J. Welch
Director
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Re: Market Study of Real Property
Casa Village
422 South 24th Street West
Billings, Yellowstone County, Montana 59102
Dear Mr. Welch:
In fulfillment of our agreement as outlined in the Letter of Engagement,
Cushman & Wakefield of Illinois, Inc., is pleased to transmit our market study
and consulting report evaluating the above referenced real property.
As specified in the Letter of Engagement, our market study and consulting
report is qualified by certain assumptions, limiting conditions, certifications,
and definitions, which are set forth in the report.
This consulting report was prepared for the Client, and it is intended
only for the specified use of the Client. It may not be distributed to or relied
upon by other persons or entities without written permission of Cushman &
Wakefield, Inc.
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the above
referenced real property, as of the date of our property inspection. The
function of the report is to assist the client, in evaluating the property for
underwriting and rating purposes.
<PAGE>
Mr. Edward J. Welch -2- December 19, 1997
This market study and consulting report was prepared in conformity with
the requirements of the Code of Ethics and Standards of Professional Appraisal
Practice of the Appraisal Institute and the Uniform Standards of Professional
Practice (USPAP) adopted by the Appraisal Standards Board of the Appraisal
Foundation.
This letter is invalid if detached from the report, which contains the
text, exhibits, and the Addenda.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF ILLINOIS, INC.
/s/ Jody L. Carbisch
Jody L. Garbisch
Associate Appraiser
/s/ Michael J. Schaeffer
Michael J. Schaeffer
Director
/s/ Stanley R. Dennis, Jr.
Stanley R. Dennis, Jr., MAI
Director, Manager
CUSHMAN &
WAKEFIELD(R)
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<PAGE>
SUMMARY OF SALIENT FACTS
================================================================================
Property Name: Casa Village
Location: 422 South 24th Street West
Billings, Yellowstone County, Montana
Assessor's Parcel Number: Based on information provided by Yellowstone
County Treasurer's Office, the subject
property is identified by tax parcel
identification numbers D00528 and A28495.
Date of Inspection: The property was inspected December 3, 1997.
Ownership: The subject property is legally entitled to
Rustland Vistas, Inc., an Illinois
corporation.
Land Area: Based on the property's legal plat of
survey, the subject property contains
approximately 66.467 acres of land area, or
2,895,291 square feet.
Zoning: Based on information provided by the City of
Billings Zoning Department, the subject
property is zoned RMH, Residential
Manufactured Housing, and is a legal and
conforming use.
Improvements
Type: A manufactured housing community.
Year Built: The subject property was originally
developed in approximately 1965.
Size: The subject property consists of a 491-site
manufactured housing community, of which
approximately 350 sites are single-wide and
141 sties are double-wide.
Condition: At the time of inspection, the subject
property was in good condition.
Property Rating: Five Star manufactured home community.
Special Assumptions: 1. Information regarding the subject
property, including its physical
characteristics, was provided to us by the
client and the on-site manager, and is
assumed to be accurate.
CUSHMAN &
WAKEFIELD(R)
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<PAGE>
Summary of Salient Facts
================================================================================
2. The existence of potentially hazardous or
toxic materials, which may be located on or
about the property, was not considered in
our evaluation. The appraisers are not
qualified to detect such substances, and
Cushman & Wakefield urges that an expert in
this field be employed to determine the
existence, if any, of hazardous materials
located on or about the site.
3. Our market and consulting report
regarding the subject assumes the subject
property, as presently improved, represents
its highest and best use.
4. It is unknown to the appraiser if the
subject property complies with the Americans
with Disabilities Act (ADA). We recommend a
qualified specialist in the final
determination regarding any ADA compliance
deficiencies that may be present at the
subject property.
5. Please refer to the complete list of
assumptions and limiting conditions included
at the end of this report.
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
TABLE OF CONTENTS
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Page
PHOTOGRAPHS OF SUBJECT PROPERTY................................................1
7
INTRODUCTION...................................................................5
Identification of Property...................................................5
Property Ownership and Recent History........................................5
Purpose and Function of the Market Study and Consulting Assignment...........5
Scope of the Market Study and Consulting Assignment..........................5
Date of Property Inspection..................................................5
Definitions and Other Pertinent Terms........................................5
REGIONAL ANALYSIS..............................................................8
NEIGHBORHOOD ANALYSIS.........................................................10
MARKET ANALYSIS...............................................................15
National Overview...........................................................15
Competition.................................................................22
Comparable Manufactured Housing Community Sales.............................26
Demographic Trends..........................................................28
Expense Analysis............................................................29
Market Supply and Demand....................................................29
Conclusion..................................................................29
PROPERTY DESCRIPTION..........................................................32
Site Description............................................................32
Improvements Description....................................................32
REAL PROPERTY TAXES AND ASSESSMENTS...........................................33
ZONING........................................................................33
CONCLUSION....................................................................34
ASSUMPTIONS AND LIMITING CONDITIONS...........................................35
CERTIFICATION.................................................................37
ADDENDA.......................................................................38
Pop-Fact Sheets
Legal Description
Qualifications of Appraisers
CUSHMAN &
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PHOTOGRAPHS OF SUBJECT PROPERTY
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[PHOTO OMITTED]
Front Entrance of the Subject Property
[PHOTO OMITTED]
Exterior of Management Office
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Photographs of Subject Property
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[PHOTO OMITTED]
Exterior of Community Center and Car Wash
[PHOTO OMITTED]
Exterior of Pool Area and Indoor Spa Building
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Photographs of Subject Property
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[PHOTO OMITTED]
Typical Interior View of the Subject Park
[PHOTO OMITTED]
Typical Interior View of the Subject Park
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Photographs of Subject Property
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[PHOTO OMITTED]
Street Scene Facing North Along South 24th Street West
[PHOTO OMITTED]
Street Scene Facing South Along South 24th Street West
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INTRODUCTION
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Identification of Property
The subject property consists of a 491-site manufactured housing
community, situated on approximately 66.467 acres of land area. Casa Village is
located at the southwest corner of South 24th Street West and Monad Road, in the
City of Billings, Yellowstone County, Montana. The property's street address is
422 South 24th Street West. The property was constructed in 1965, and was 96.0
percent occupied at the time of inspection.
Property Ownership and Recent History
The subject property is currently entitled to Rustland Vistas, Inc., an
Illinois corporation, and was originally developed in 1965.
Purpose and Function of the Market Study and Consulting Assignment
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the subject
property, as of the date of property inspection. The function of the consulting
report is to assist the client in evaluating the property for underwriting and
rating purposes.
Scope of the Market Study and Consulting Assignment
In the process of preparing this report, we inspected the property,
interviewed the on-site manager, conducted market research into asking rental
rates for comparable properties, conducted market investigations, and
ascertained sales prices of comparable properties. Additionally, we conducted
market research and evaluated demographic and economic trends; and, the market
position and rating of the subject property.
Date of Property Inspection
The property was inspected December 3, 1997.
Definitions and Other Pertinent Terms
Definitions of pertinent terms taken from the Dictionary of Real Estate
Appraisal, Third Edition (1993), published by the Appraisal Institute, is as
follows:
Market Rent
The rental income that a property would most probably command on the open
market; indicated by current rents paid and asked for comparable space as
of the date of the appraisal.
Evaluation
Evaluation is a study of the nature, quality, or utility of a parcel of
real estate or interest in, or aspects of, real property, in which a value
estimate is not necessarily required.
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Introduction
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Market Study
A macroeconomic analysis that examines the general market conditions of
supply, demand, and pricing or the demographics of demand for a specific
area or property type.
Legal Description
The subject property is located at the southwest corner of South 24th
Street West and Monad Road, approximately one mile north of Interstate 90, in
the City of Billings, Yellowstone County, Montana. The street address of the
subject property is 422 South 24th Street West, Billings, Montana. The property
is identified by tax parcel identification numbers D00528 and A28495, according
to the Yellowstone Treasurer's Office. The subject property's legal description
is presented in the Addenda of this report, and reference is made thereto.
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LOCATION MAP
[MAP OMITTED]
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REGIONAL ANALYSIS
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The market value of real property is influenced by the economic,
political, physical and social characteristics of the overall economic region of
which it is part. Following is an overview of the Billings region focusing on
some of its more important characteristics.
City of Billings
Billings is situated in the south central part of Montana. Located along
the Yellowstone River, Billings is the largest city in Montana and serves as the
county seat of Yellowstone County. Billings is 224 miles southeast of Helena
(the state capital); 340 miles southeast of Missoula; 130 miles north of
Yellowstone National Park; 540 miles southeast of Spokane, Washington and 131
miles northwest of Sheridan, Wyoming.
Billings serves as the major trade center for eastern Montana and northern
Wyoming. Further, due to the fact that Billings is the largest community in
Montana, as well as the largest city within an adjoining trade area comprising
the states of Wyoming, North Dakota and South Dakota, has enabled Billings to
capture a segment of the service and wholesale sectors within these latter
areas. The city's location along Interstate 90 (I-90), the major transportation
route through Montana, has further helped to maintain the city's dominance in
trade and services for the area.
Population
Billings is the largest city in Montana and, along with Yellowstone
County, are the most populous areas of Montana. Population growth for the area
over the last two decades has been positive, as shown in the following summary.
================================================================================
BILLINGS/YELLOWSTONE COUNTY
POPULATION TRENDS 1970-1996
================================================================================
% Change
1970 1980 1990 1996* 1990 to 1996
- --------------------------------------------------------------------------------
Yellowstone County 87,367 108,035 113,419 126,000 11.1%
City of Billings 61,581 66,798 81,151 87,200 7.5%
================================================================================
* Estimates provided by University of Montana
Source: Billings Chamber of Commerce
================================================================================
Population growth in Yellowstone County between 1970 and 1980 averaged
2.37 percent on an annual basis, between 1980 and 1990 represented a much slower
pattern of 0.50 percent per year, while the period between 1990 and 1996 has
increased to 1.9 percent per year. The City of Billings has witnessed a net
population increase of 25,619 since 1970, with 6,049 new residents between 1990
and 1994. Comparatively, this indicates an annual population growth for the city
of 1.6 percent per year between 1970 and 1996, with a growth of 1.3 percent per
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Regional Analysis
================================================================================
year between 1990 and 1996. It must be noted, however, that there was
considerable annexation by the city over this period which somewhat skews the
actual net growth.
From a historic standpoint, population growth within Yellowstone County
has reflected an average annual growth of approximately 2.2 percent since 1950.
Projected growth for the city and area over the next decade is projected to be
approximately 1.5 percent per year.
The positive growth, which Billings has experienced, has resulted in an
expansion of the commercial and retail/service sectors within the city. The
downtown area has experienced a strong increase in office space, while
maintaining a strong retail presence catering to downtown employees as well as
residents of the Billings trade area. Office development has also spread into
the periphery areas of the city, namely the Billings Heights area in the
northeast and western aspects of the city. Retail development has occurred
throughout the Heights area and the west end, which includes the Rimrock Mall,
the area's largest shopping center. Lodging developments have also expanded from
the downtown to locations throughout the city. The 1990's saw the entry of
regional and national retailers such as Costco, Wal-Mart, Toys-R-Us, Shopko,
Future Shops, Office Max, etc.
Economy
The growth in population and employment in Billings and Yellowstone County
have been a result of the expansion and diversification of the economic base.
The major components of the local and surrounding economy include trade,
agriculture, energy and tourism. Due to its location and size, Billings serves
as the primary trade and service center for a multi-county population of nearly
250,000 due to its predominance of retail and wholesale facilities, cultural,
entertainment and educational resources. Billings is the primary headquarters
for the companies involved in the vast oil, gas and coal resources prevalent
within the central and eastern aspects of the state. Last, Billings' location
along l-90 provides the area with good economic benefits of the tourist draws of
central and western Montana which include Yellowstone National Park, Custer
Battlefield National Monument, as well as Glacier National Park.
The chart on the following tabulates historical, current and projected
labor trends in Yellowstone County, as provided by the Bureau of Business
Economics at the University of Montana.
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Regional Analysis
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Labor Statistics and Trends
Yellowstone County, Montana
================================================================================
Number of Jobs Change in Number
--- Actual --- --- Projected --- --- of Jobs ---
Sector 1980 1990 2000 2010 1980-1990 1990-2010
- --------------------------------------------------------------------------------
Non Farm 59,600 67,700 87,000 99,400 8,100 31,700
Agriculture 400 600 900 1,100 200 500
Mining 800 800 800 900 0 100
Construction 3,500 2,700 4,600 5,200 (800) 2,500
Manufacturing 4,500 3,500 3,600 3,600 (1,000) 100
Transportation 4,900 4,700 5,400 6,000 (200) 1,300
Wholesale Trade 5,800 5,800 7,400 8,200 0 2,400
Retail Trade 12,300 14,000 17,600 19,800 1,700 5,800
FIRE 4,900 5,500 6,300 7,900 600 1,500
Services 14,600 21,300 30,400 36,800 6,700 15,500
Government 7,900 8,800 10,000 10,800 900 2,000
Federal (civilian) 1,600 1,800 2,000 2,000 200 200
Federal (military) 700 900 800 800 200 (100)
State & Local 5,600 6,100 7,200 8,000 1,900 1,900
================================================================================
Source: Bureau of Business Economics, University of Montana
================================================================================
As seen, most sectors of the area's economy are expected to increase over
the short-to-mid term. The only areas with projected decreases are in the
military sector. Similar to most economies today, the greatest number of new
jobs is expected to be in the services and retail trade sectors. Good examples
of this are the previously mentioned entry of numerous national retailers into
the market.
Major Employers
The major employers in Billings are summarized in the following table.
This information was provided by the Billings Chamber of Commerce and is the
most recent data available.
===========================================================
BILLINGS LARGEST EMPLOYERS
EMPLOYER EMPLOYEES
-----------------------------------------------------------
Deaconess Medical Center 1,350
St. Vincent Hospital 1,375
Interstate Brands Corporation 400
Cenex Refinery 382
U.S. West Communications 330
Exxon Refinery 240
Billings Gazette 207
Roscoe Steel 130
Western Sugar 110
===========================================================
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Regional Analysis
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The major employers in Billings consist of the two major medical
facilities in the city, Deaconess Medical Center and St. Vincent Hospital.
Combined, these two facilities employ nearly twice the people as the remaining
employers.
Employment figures for the Billings area has showed a relative increase
since 1988, while indicating a general decrease in the unemployment rate over
this same period from a high of 6.2 percent in 1988 to a rate of approximately
4.6 percent in January, 1996. A further sign of a stabilizing economy is
mirrored by the unemployment rate for the years 1985 through 1987 which was 7.3
percent, 7.7 percent and 7.3 percent, respectively.
Transportation
Billings is well served by all transportation services, including air,
truck, bus, and rail services. Billings is served from the south, east and west
by the interstate highway system, with Interstates 90 and 94 joining at
Billings. I-94 is the direct route to the Midwest, while I-90 serves the Pacific
Northwest, northern and central Rocky Mountains to the west and south. Federal
Highway 87,310 and 212 and State Highway 3 connect Billings with other
communities in Montana and Wyoming.
Billings' Logan International Airport is located two miles northwest of
downtown Billings and the airlines serving Billings include Continental, Delta,
Northwest, United, Horizon, Big Sky and SkyWest. Billings is served by a local
transit system (MET) which serves all points throughout the city. Numerous
local, regional, and national companies provide trucking service, while rail
service is provided by Burlington Northern.
Public/Community Services
The City of Billings is governed by a Mayor/City Council form of
government and provides full-time police and fire services. Yellowstone County
operates under a Board of County Commissioners form of government and provides a
full-time sheriff's department and a rural fire district.
Education/Recreation
The City of Billings is well served by the public school system with this
including 25 elementary schools, four junior (middle) schools, and four high
schools. There are also five private schools within Billings with these all
being church sponsored. Higher education in Billings is available at three
colleges; Eastern Montana College (public), Rocky Mountain College (private),
and Yellowstone Baptist College (private). In addition, there are also three
post-secondary or vocational schools located in the city.
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Regional Analysis
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The city also provides numerous recreational areas and activities for the
residents. These include 40 parks within the city, eight golf courses, eight
public swimming pools, minor-league baseball, five museums, etc. Surrounding
recreation opportunities includes fishing, hunting, skiing and water sports.
MetraPark, Billings' 12,000 seat multi-purpose arena and civic center, is
located near the Heights area in northeast Billings. Shopping areas are well
interspersed throughout the city and range from the strong retail presence
within the downtown to the Rimrock Mall, JC Penney, Montgomery Ward and
Hennessy's within the west aspect of the city.
Summary
The City of Billings and the surrounding county have continued to grow in
terms of population and employment over the last several decades. The Billings
area serves as the primary hub for all commerce within central and eastern
Montana, as well as northern Wyoming and the Dakota's. The area's diversified
economy has been a stabilizing force in the growth of the area and has brought
about increased in-migration to the area. Future growth, however, is expected to
occur at a slower, moderate level.
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NEIGHBORHOOD MAP
[MAP OMITTED]
<PAGE>
NEIGHBORHOOD ANALYSIS
================================================================================
Location
The subject property is located at the southwest corner of South 24th
Street West and Monad Road in the west end of Billings, approximately three
miles west of downtown Billings. The subject's neighborhood is bounded by Grand
Avenue to the north, South 16th Street West to the east, Interstate 90 to the
south and Shiloh Road to the west.
Access
Access to the subject site is from South 24th Street West and Monad Road,
approximately one mile north of Interstate 90. The subject property has
approximately 435 feet of frontage along South 24th Street West and 2,213 feet
of frontage along Monad Road. The primary access routes in the neighborhood
consist of South 24th Street West and Interstate 90. South 24th Street West is a
highly traveled, north/south retail corridor.
Neighborhood Characteristics
The subject neighborhood is located in a developing area, with retail and
residential developments occurring around the subject property. Single-family
and multi-family residential developments are located primarily to the west of
the subject. Retail developments are primarily located along South 24th Street
West. Rimrock Mall is a regional mall located to the north of the subject site,
along with big box, community and neighborhood shopping centers. Retail
developments to the south of the subject include additional retail developments
and automobile dealerships. Some of the "Big Box" retailers in the neighborhood
include: Wal-Mart, K-Mart, Barnes & Noble, Toys "R" Us, Office Max, Eagle
Hardware and Garden and ShopKo. Several gas stations and restaurants scatter the
neighborhood.
Planned Improvements/Demolition
We are not aware of any manufactured housing communities expected to be
developed in the near future in the subject neighborhood that might compete with
the subject. Similarly, we are not aware of any known planned demolitions for
the neighborhood.
Conclusion
In summary, the subject property is situated in an area well suited for
manufactured housing development, which benefits from the growing area, along
with the accessibility and visibility along South 24th Street West, and
accessibility to Interstate 90. Real estate values are anticipated to increase
at a steady pace. The economy in the area is anticipated to be good, with
unemployment steadily decreasing and population anticipated to increase.
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MARKET ANALYSIS
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National Overview
Reportedly, the largest property owners of manufactured housing
communities in the United States are: ROC Communities, headquartered in
Colorado; MHC, Inc., headquartered in Illinois; Ellenburg Capital, headquartered
in Oregon; Lautrec Ltd., headquartered in Michigan; Clayton Homes, headquartered
in Tennessee; Clayton Williams and Sherwood, headquartered in California;
Chateau Properties, Sun Communities and UNIPROP, headquartered in Michigan.
The following represents the top ten manufactured housing community firms,
as reported by GFA Management, as of 1997.
<TABLE>
<CAPTION>
=========================================================================================
1997 Firm Name State No. of Sites No. of Communities
Rank Owned/Managed Owned/Managed
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Sun Communities Michigan 30,295/0 84/0
- -----------------------------------------------------------------------------------------
2 ROC Communities Colorado 22,441/7,167 77/36
- -----------------------------------------------------------------------------------------
3 Manufactured Home Communities Illinois 27,349/838 69/3
- -----------------------------------------------------------------------------------------
4 Ellenburg Capital Florida 25,173/0 63/0
- -----------------------------------------------------------------------------------------
5 Lautrec Ltd. Michigan 22,652/0 58/0
- -----------------------------------------------------------------------------------------
6 Chateau Properties Michigan 20,003/0 47/0
- -----------------------------------------------------------------------------------------
7 Clayton Homes Tennessee 18,000/0 66/0
- -----------------------------------------------------------------------------------------
8 Clayton, Williams and Sherwood California 16,946/0 44/0
- -----------------------------------------------------------------------------------------
9 UNIPROP Michigan 14,931/0 40/0
- -----------------------------------------------------------------------------------------
10 The Bloch Organization Michigan 14,379/0 37/0
=========================================================================================
</TABLE>
According to the U.S. Census Bureau, more than 8,521,000 people were
living in manufactured housing communities as of 1990 compared to 3,838,678 in
1980. This represents an increase in manufactured housing community living of
approximately 122.0 percent over the last ten years. Over the last ten years,
there has been a steady increase in manufactured housing community development
across the country. Among the demographic factors which account for the increase
in manufactured housing community living are: decreasing household size, a
growing demand for smaller housing, as well as an alternative to the increasing
cost of housing. Nationally, the largest percentage of manufactured housing
communities are located in California, Michigan, Colorado, Florida, New York,
Minnesota, Indiana, Arizona, Ohio, and Wisconsin.
The manufactured home industry has dramatically changed over the last 20
years. Manufactured homes are now designed and constructed to accommodate
spacious and
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Market Analysis
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attractive living requirements. Today, approximately one out of sixteen families
live in manufactured housing units. The manufactured housing market share has
been growing steadily over the last 10 years. In 1990, 6.7 percent of Americans
lived in manufactured housing units, up from 2.9 percent compared to 1970,
according to the U.S. Census Bureau, which represents 12.0 to 14.0 percent of
all new housing built since the mid-1980's, according to the Manufactured
Housing Institute in Arlington, Virginia.
In 1990, the average cost of a manufactured housing unit was $27,800
compared to $149,000 for a new house (including land), according to the
Manufactured Housing Institute. This reflects a 28.0 percent increase in the
cost of manufactured housing since 1980 versus a 49.0 percent increase in
conventional housing. Industry experts estimate that a single-family home
selling for $150,000 would require an annual income of $52,671. To purchase a
$27,800 manufactured housing unit, only a $19,984 income level would be
required.
At Fleetwood Enterprises, the nation's largest manufacturer of
manufactured housing units, units may be purchased for up to $100,000, which
would include a three-bedroom, two-bath unit of 2,100 square feet, with vaulted
ceilings.
In 1990, approximately 10.0 percent of manufactured home owners lived in
units worth approximately $40,000, up from 4.0 percent compared to 1981,
according to a study conducted by Foremost Insurance Company in Grand Rapids,
Michigan. Also, according to the study, approximately 21.0 percent of the
manufactured housing households are occupied by people' 65 years of age or
older, slightly lower than the age group for conventional homes, as reported by
Foremost Insurance.
The demand for good quality institutional grade manufactured housing
communities has substantially increased over the last ten years. Manufactured
housing communities provide an affordable alternative to the increasing cost of
housing. Also, manufactured housing communities provide an alternative form of
living for the elderly and retirees, especially for those living on fixed
incomes.
Acquisitions of manufactured housing communities during 1993 and 1994 were
clearly dominated by Real Estate Investment Trusts. During 1994 and 1995
Manufactured Home Communities (MHC) and ROC communities lead the acquisition of
manufactured housing communities nationally. During 1996, Sun Communities
captured the lead and, together with ROC and MHC dominate the Real Estate
Investment Trust market.
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Market Analysis
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The following chart represents the largest Real Estate Investment Trusts,
from 1991 to 1996, as reported by GFA Management
=============================================================================
HOME SITE GROWTH, DEVELOPMENT AMONG THE LARGEST
REAL ESTATE INVESTMENT TRUST (REITS)
- --------------------------------------------------------------------------------
Year ROC MHC Chateau Sun United Total Annual
Growth
- --------------------------------------------------------------------------------
1996 29,608 28,187 20,003 30,295 5,234 113,327 17.0%
- --------------------------------------------------------------------------------
1995 27,910 26,237 19,594 18,000 4,850 96,591 9.0%
- --------------------------------------------------------------------------------
1994 26,231 28,407 15,689 13,500 4,623 88,450 37.8%
- --------------------------------------------------------------------------------
1993 20,142 14,700 15,261 9,036 5,050 64,189 17.8%
- --------------------------------------------------------------------------------
1992 18,745 12,873 10,032 7,600 5,200 54,450 N/A
- --------------------------------------------------------------------------------
1991 9,030 13,079 9,759 N/R N/R N/A N/A
- --------------------------------------------------------------------------------
N/R = No report N/A = Not applicable
- --------------------------------------------------------------------------------
NOTE: The 113,327 sites counted for the top five REITs in 1996 make up 20
percent of the total sites surveyed in the 1997 Allen Report. These rental sites
are located in 339 communities, accounting for about 1 percent of some 50,000
existing manufactured housing communities nationwide. The community counts for
the five major REITs are: ROC (113), MHC (72), Chateau (47), Sun (84) and United
(23). The proportion of communities owned by each of the REITs compared to the
others is: ROC (33%), MHC (21%), Chateau (14%), Sun (25%) and United (7%).
================================================================================
Manufactured Home Communities (MHC) is expected to continue an aggressive
acquisition campaign through 1997 and beyond. As of September 1997, the MHC REIT
had a market cap of $632.0 million, and continues to pursue the acquisition of
manufactured home communities. Aside from the ELL-CAP $300.0 million
transaction, in September 1997 Manufactured Home Communities, Inc. completed a
$107.0 million purchase of 18 manufactured housing communities and two related
commercial properties from partnerships affiliated with Mobileparks West. The
communities, with 3,505 sites, were purchased with about $3.0 million
manufactured home operating units, $16.0 million in cash and $20.0 million of
installment notes and assumed debt. The communities have an average monthly
rental of $349.00. The communities are located in California, Utah, Oregon,
Washington and Nevada. MHC may be the first manufactured home community REIT to
reach $1.0 billion.
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Market Analysis
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The MHC REIT continues to perform and expand, and as of September 1997 was
trading at $25.625, with a current yield of 5.2 percent. The top traded REITs,
are presented as follows.
<TABLE>
<CAPTION>
==========================================================================================
REIT MARKET UPDATE
- ------------------------------------------------------------------------------------------
Company Price Current 52 Week 52 Week Annual 12 Mth Tot
Symbol (9/19/97) Yield High Low Dividend Rtn
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CPJ $29.688 5.8% $31.125 $22.250 1.72 26.6%
- ------------------------------------------------------------------------------------------
MHC $25.625 5.2% $26.428 $18.875 1.32 30.7%
- ------------------------------------------------------------------------------------------
SUI $37.428 5.0% $ 38.00 $27.750 1.88 31.8%
- ------------------------------------------------------------------------------------------
UMH $11.625 6.0% $13.625 $10.875 0.70 -1.7%
- ------------------------------------------------------------------------------------------
Total return figures obtained through Standard & Poors and are for the period
through Sept 1997.
==========================================================================================
</TABLE>
The Southwest and Northwest Regions of the nation are the preferred
locations regarding recent and future manufactured housing community
acquisitions. However, investors seeking moderate, but consistent growth
expectations, are still looking at the midwest region. Also, southern portions
of Florida are still considered a prime area for investors seeking good quality
manufactured housing communities, with good up-side potential. What was once a
stagnant market, the northeast region is now being considered for future
acquisitions.
According to a recent study prepared by Merrill Lynch & Company, ownership
in the manufactured housing community industry is highly fragmented. The top 150
owner-operators account for less than 5.0 percent of the total industry, whereas
a host of "mom-and-pop" private companies account for the other 95.0 percent.
This unglamorous niche industry is ripe for consolidation, and an infusion of
professional management expertise is likely to yield significant economies of
scale. The four REIT's specializing in manufactured housing communities are
already among the top ten owner-operators, and are well positioned to facilitate
and hasten the industry's consolidation to the likely benefit of their
stockholders.
Manufactured homes are the fastest growing component of the nation's
housing inventory, due to their affordability, good quality design and safety
standards. According to the Merrill Lynch & Company Manufactured Housing
Community Industry Report, factory-built homes appeal especially to senior
citizens and to households with limited economic needs, two segments of the
population that are likely to grow rapidly in coming years.
Consistent returns in manufactured housing community investments have been
the
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Market Analysis
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mainstay of the industry. For this reason, as well as the amount of acquisitions
seen by Real Estate Investment Trusts (REITs) from 1991 to 1996, the
availability of good quality manufactured housing communities has been
substantially reduced compared to the 1980's. Good quality manufactured housing
communities still command premium prices, thus driving down overall
capitalization rates.
Cushman & Wakefield's Valuation Advisory Services has tracked sale
transactions of manufactured housing communities since 1985. Overall
capitalization rates have consistently been within the 8.75 to 10.00 percent
range for communities located in moderate to increasing growth markets, and as
low as near 8.0 percent for those communities located in growing markets that
poses significant upside potential. Overall capitalization rates are clearly
affected and are differentiated among the properties relative to rent levels,
age, quality, condition, location, amenities, demographic characteristics,
resident profile, as well as the quality of management.
Manufactured housing communities fall within, and are categorized by their
overall appearance, age, and amenities, but more importantly the strength of the
local market. The various categories of manufactured housing communities,
according to the Woodall Directory, can be ranked as 1 to 5 Star Parks. These
rankings are defined as follows:
One Star Park
The most important consideration for a one star park is overall
appearance. If it is not a decent place to live, it will not be listed in
Woodall's Directory. The following are general requirements:
o Fair overall appearance;
o Patios on most lots. May be concrete, asphalt, wood, or some
suitable material;
o Grass, rock or shell to cover ground;
o Streets fair to good. May be dirt, asphalt or gravel in reasonable
condition;
o Restrooms clean, if any;
o Adequate laundry or laundromat nearby;
o If fences allowed, must be neat;
o Mail service;
o Homes may be old models, but show evidence of care; and,
o Manager available some hours of each day.
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Market Analysis
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Two Star Park
In addition to the requirements for a one star park, a two star park will
have the following:
o Landscaping - some lawns and shrubs;
o Streets in good condition. Must be dust free of crushed rock, gravel
or shell minimum;
o Neat storage;
o Well equipped laundry or laundromat nearby;
o 200 volt connections available;
o If children accepted, park should have play area;
o Park free of clutter, such as old cars and other abandoned
equipment; and,
o Well maintained and managed.
Three Star Park
What a three star park does it does well, but not as uniformly as higher
rated parks. Many three star parks were once higher rated, but original
construction does not allow for today's 10-foot, 12-foot, and double-wides
or the 55-foot and 60-foot lengths. If children are allowed, there should
be adequate play area. However, the disarray caused by children may at
times be the determining factor that keeps a three star park at that level
when it otherwise could be rated higher. In addition to the requirements
for one and two star parks, a three star park must have the following:
o Attractive entrance;
o All homes must be in good condition;
o Awnings and cabana rooms on some homes in southern areas;
o Some spaces for large mobile homes;
o Paved or hard surfaced streets;
o Off-street parking or streets wide enough for safe on-street
parking;
o Good lawns or substitute throughout, shade trees, some shrubs where
climate permits;
o Concrete patios or the equivalent on all lots;
o All lots neat and attractive;
o All park buildings in good repair; and,
o Good management.
Four Star Park
Four star parks are luxury parks. In addition to the requirements for one,
two and three star parks, a four star park must have the following:
o Good landscaping;
o Most homes skirted with metal skirts, concrete block, ornamental
wood or stone;
o Paved streets, edged or curbed.
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Market Analysis
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o Uncrowded lots;
o Underground utilities if permitted by local conditions and
authorities;
o Most tanks, if present, concealed;
o Any hedges or fences must be attractive and uniform;
o Awnings, cabanas, or porches on most homes in southern areas.
(Excepting double-wide units.);
o Most lots to accommodate large mobile homes;
o Where row parking of homes exists, all must be lined up uniformly;
o Community hall and/or swimming pool and/or recreation programs. If a
park is four star in all but this requirement, the fourth star will
be printed as an open star indicating a four star park without
park-centered recreation; and,
o Excellent management.
Five Star Park
Five star parks are the finest. They should be nearly impossible to
improve. In addition to the requirements for one, two, three, and four
star parks, a five star park must have the following:
o Well planned and laid out spacious appearance;
o Good location in regard to accessibility and desirable neighborhood.
In some locations, park should be enclosed by high hedges or
ornamental fence;
o Wide paved streets in perfect condition. Curbs or lawns edged to
streets, sidewalks, street lights, street signs;
o Homes set back from street;
o Exceptionally attractive entrance and park sign;
o Patios at least 8 x 30 feet. (Excepting double-wide units.);
o Paved off-street parking such as carports or planned parking;
o All homes skirted;
o All hitches concealed. Any existing tanks concealed;
o Recreation, some or all of the following: swimming pool (excepting
areas with long, cold winters), shuffleboards, horseshoe pitching,
golf course, hobby shop, hobby classes, games, potlucks, dances or
natural recreational facilities;
o Beautifully equipped recreation hall with kitchen. Room for
community gatherings, tiled restrooms, etc.;
o Uniform storage sheds or central storage facilities;
o All late model homes in excellent condition;
o At least 60 percent occupancy in order to judge quality of residents
which indicates park's ability to maintain a five star rating
between inspections;
o All empty lots grassed, graveled or otherwise well maintained;
o If pets or children allowed, there must be a place for them to run
and play without cluttering the streets and yards. Most five star
parks are for adults only; and,
o Superior management interested in comfort of residents and
maintenance of park.
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Market Analysis
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The demand for good quality institutional grade manufactured housing
communities is anticipated to increase throughout the 1990's, since manufactured
housing communities provide an alternative form of living for the elderly and
retirees, especially for those living on fixed income. Manufactured home
shipments continue to be strong. Shipments rose 20.0 percent in 1992 and 1994,
and 12.0 percent in 1995. The market for good quality manufactured housing
communities is expected to be strong, with yield and capitalization rates and
prices expected to continue to be competitive, with the REITs leading the way.
Competition
We have surveyed six manufactured housing communities located within the
subject's primary market, including the subject property, containing a total of
1,692 sites. The combined occupancy rate of the six manufactured housing
communities, including the subject property, is approximately 99.0 percent.
Excluding the subject property in our survey, the combined occupancy rate is
also approximately 99.0 percent, based on 1,201 sites.
The name and location of the subject property's primary competition, as
well as the number of sites, occupancy levels, amenities offered, monthly rental
rates and services provided in the monthly rental rate, are presented on the
following facing page, along with a map which identifies the location of each
competing park.
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<TABLE>
<CAPTION>
================================================================================================================
SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- ----------------------------------------------------------------------------------------------------------------
Age
Number ---------
Of Sites Condition 3-Year
-------- --------- Services Date Of Average
Comp. Name Occupancy Park Monthly Provided Last Rental Annual Rental
No. Location Level Amenities Rating(1) Rent in Rent Increase Increase
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R-1 Windsor 213 Clubhouse 1969 $245.00/Mo. Water December, 1996 $12.00/Mo.
900 Lake Elmo Road --- Pool/Spa ---- Sewer
Billings, Montana 98% Shuffleboard Good Refuse
Laundry ----
Storage 5
- ----------------------------------------------------------------------------------------------------------------
R-2 Shiloh 285 Clubhouse 1976 $165.00/Mo. Water December, 1996 $20.00/Mo.
3819 Swallow Lane --- Shuffleboard ---- To Sewer
Billings, Montana 99% Storage Good $185.00/Mo. Refuse
----
4*
- ----------------------------------------------------------------------------------------------------------------
R-3 Golden Meadows 422 Clubhouse 1979 $165.00/Mo. Water November, 1994 N/A
3200 King Avenue West --- Shuffleboard ---- Sewer
Billings, Montana 100% Playground Good Refuse
Basketball ----
Laundry 4*
Storage
- ----------------------------------------------------------------------------------------------------------------
R-4 Willow Bend 99 Playground 1979 $160.00/Mo. Water November, 1994 N/A
1100 S. 32nd --- Storage ---- Sewer
Street West 100% Good Refuse
Billings, Montana ----
3*
- ----------------------------------------------------------------------------------------------------------------
R-5 Alder Ridge 182 Playground 1982 $149.00/Mo. None February, 1997 $15.00/Mo.
1091 Milwaukee --- ---- To
Road 99% Good $190.00/Mo.
Laurel, Montana ----
3*
- ----------------------------------------------------------------------------------------------------------------
Subject Casa Village 491 Clubhouse 1965 $242.00/Mo. Water January, 1997 $9.00/Mo.
422 S. 24th --- Pool/Spa ---- Sewer
Street West 96% Car Wash Good Refuse
Billings, Montana Billiard ----
Room 5*
Exercise
Room
Playground
Tennis
Court
Basketball
Laundry
Storage
- ----------------------------------------------------------------------------------------------------------------
(1) Ratings from One Star to Five Star Parks are defined in the National Overview section of this report.
================================================================================================================
</TABLE>
<PAGE>
COMPETING MANUFACTURED HOUSING MAP
[MAP OMITTED]
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Market Analysis
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Rental rates of manufactured housing communities located within the
subject's primary market range from $149.00 to $245.00 per site, on a monthly
basis. The subject property is currently quoting a monthly rental rate within
the upper market range, or at $242.00 per site. The last rental rate increase at
the subject property was as of January, 1997, of $9.00 per month.
The enclosed comparable rentals are considered the most competitive to the
subject property regarding amenities offered, condition, location and overall
ranking.
Comparable R-1, Windsor, is located at 900 Lake Elmo Road, in Billings,
Montana. This comparable property is a family residential community
containing 213 sites, and is approximately 98.0 percent occupied. Windsor
was developed in 1969, and is in overall good condition. Over the last
three years, the annual rental rate increased approximately $12.00 per
month. Monthly rental rates are at $245.00, with water, sewer and refuse
service included in monthly rental payment. Amenities include a clubhouse,
pool, spa, shuffleboard, laundry facility and recreational vehicle
storage.
Comparable R-2, Shiloh, is located at 3819 Swallow Lane, in Billings,
Montana. This comparable property is a family residential community
containing 285 sites, and is approximately 99.0 percent occupied. Shiloh
was developed in 1976, and is in overall good condition. Over the last
three years, the annual rental rate increased approximately $20.00 per
month. Monthly rental rates range from $165.00 to $185.00, with water,
sewer and refuse service included in monthly rental payment. Amenities
include a clubhouse, shuffleboard and recreational vehicle storage.
Comparable R-3, Golden Meadows, is located at 3200 King Avenue West, in
Billings, Montana. This comparable property is a family residential
community containing 422 sites, and is 100.0 percent occupied. Golden
Meadows was developed in 1979, and is in overall good condition. The
annual rental rate has not increased for over three years. Monthly rental
rates are at $165.00, with water, sewer and refuse service included in
monthly rental payment. Amenities include a clubhouse, shuffleboard,
playground, basketball court, laundry facility and recreational vehicle
storage.
Comparable R-4, Willow Bend, is located adjacent to Golden Meadow at 1100
S. 32nd Street West, in Billings, Montana. This comparable property is a
family residential community containing 99 sites, and is 100.0 percent
occupied. Willow Bend was developed in 1979, and is in overall good
condition. The annual rental rate has not increased for over three years.
Monthly rental rates are at $160.00, with water, sewer and refuse service
included in monthly rental payment. Amenities include a playground and
recreational vehicle storage.
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Market Analysis
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Comparable R-5, Alder Ridge, is located at 1091 Milwaukee Road, in Laurel,
Montana. This comparable property is a family residential community
containing 182 sites, and is approximately 99.0 percent occupied. Alder
Ridge was developed in 1982, and is in overall good condition. Over the
last three years, the annual rental rate has increased approximately
$15.00 per month. Monthly rental rates range from $149.00 to $190.00, with
no service included in monthly rental payment. Amenities include
playground.
In our opinion, and based on conversations with the on-site manager,
property R-1 competes most favorably with the subject property, with monthly
rental rates at $245.00 per site. The subject property is currently quoting
monthly rental rates at $242.00 per site, which is slightly below the rental
rate of our more comparable competing property. The subject property competes
most effectively with its primary competitors regarding amenities, condition and
current rent structure.
Comparable Manufactured Housing Community Sales
A search of the subject's market revealed four recent sales of
manufactured housing communities located in the West and Northwestern region.
The following is a brief discussion of each of the manufactured housing sales
located within the subject's market. These sales are summarized on the following
facing page.
Comparable Sale I-1, Cottonwood Village, is located at 11990 S. Boulder
Road, in Layfayette, Colorado. This property contains 241 sites, situated
on 19.36 acres of land area. Cottonwood Village was developed in 1972, and
was in overall good condition at the time of sale. Amenities include a
clubhouse, pool, recreation room, playground and laundry facility. The
property was 100.0 percent occupied at the time of sale. The property was
purchased for $4,800,000, which equates to $19,917 per site.
Comparable Sale I-2, Elmwood, is located at 1400 South Elm Street, in
Canby, Oregon. This property contains 112 sites, situated on 17.0 acres of
land area. Elmwood was developed in 1985, and is in overall good condition
at the time of sale. Amenities include a clubhouse, playground and picnic
area. The property was 99.0 percent occupied at the time of sale. The
property was purchased for $2,700,000, which equates to $24,107 per site.
Comparable Sale I-3, West Meadows, is located at 120 W. Driftwood Road, in
Boise, Idaho. This property contains 175 sites, situated on 29.42 acres of
land area. West Meadows was developed in 1977, and is in overall good
condition at the time of sale. Amenities include a clubhouse and
recreational vehicle storage. The property was 98.0 percent occupied at
the time of sale. The property was
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<TABLE>
<CAPTION>
================================================================================================================
SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- ----------------------------------------------------------------------------------------------------------------
$EGI/Site
Sales Price ---------
Per Site $Expense/Site
Sales Date Land Area Density ---------- EGIM -------------
Comp. Name ----------- --------- --------- Occupancy ---- Expense Ratio
No. Location Sales Price No. Sites Condition At Sale $NOI/Site OAR % Of EGI
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
I-1 Cottonwood Village 9/95 19.36 12.45 $19,917 $1,591 6.45x $3,089
11990 S. Boulder Road ---------- ----- ----- ------- ----- ------
Lafayette, Colorado $4,800,000 241 Good 100% 7.99% $1,498
------
48.50%
- ----------------------------------------------------------------------------------------------------------------
I-2 Elmwood 8/94 17.0 6.59 $24,107 $2,009 6.14x $3,929
1400 South Elm Street ---------- ---- ---- ------- ----- -----
Canby, Oregon $2,700,000 112 Good 99% 8.33% $1,920
-----
48.87%
- ----------------------------------------------------------------------------------------------------------------
I-3 West Meadows 9/91 29.42 5.95 $16,000 $1,209 9.04x $1,770
120 W. Driftwood Road ---------- ----- ---- ------- ----- ------
Boise, Idaho $2,800,000 175 Good 98% 7.56% $561
-----
31.70%
- ----------------------------------------------------------------------------------------------------------------
I-4 Linden Mobile Park 9/91 12.28 8.22 $12,624 $1,210 6.13x $2,059
1276 Fleetwood ---------- ----- ---- ------- ----- ------
Boise, Idaho $1,275,000 101 Average 100% 9.59% $849
----- ------
41.23%
- ----------------------------------------------------------------------------------------------------------------
Subject Casa Village - - - 66.467 7.39 - - - $1,861 N/A $2,926
422 S. 24th Street W. ------ ---- ------
Billings, CO 491 Good 96% $1,065
------
36.40%
- ----------------------------------------------------------------------------------------------------------------
(1) Sale I-1 and I-2 were purchased as a combined transaction.
================================================================================================================
</TABLE>
=================================================================
SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- -----------------------------------------------------------------
Comp. Name Comparability
No. Location to the Subject Comments
- -------------------------------------------------------------------
I-1 Cottonwood Village Similar Developed in 1972;
11990 S. Boulder Road Good condition;
Lafayette, Colorado Amenities include a
clubhouse, pool,
recreation room,
playground and
laundry facility.
- -------------------------------------------------------------------
I-2 Elmwood Inferior Developed in 1985;
1400 South Elm Street Good condition;
Canby, Oregon Amenities include a
clubhouse,
playground and
picnic area.
- -------------------------------------------------------------------
I-3 West Meadows Inferior Developed in 1977;
120 W. Driftwood Road Good condition;
Boise, Idaho Amenities include a
clubhouse and RV
storage.
- -------------------------------------------------------------------
I-4 Linden Mobile Park Inferior Developed in 1970;
1276 Fleetwood Average condition;
Boise, Idaho Amenities include a
clubhouse.
- -------------------------------------------------------------------
Subject Casa Village Subject Developed in 1965;
422 S. 24th Street W. Property Good condition;
Billings, CO Amenities include a
clubhouse, pool,
spa, car wash,
billiard room,
exercise room,
playground, tennis
court, basketball
court, laundry
facility and RV
storage.
- -------------------------------------------------------------------
===================================================================
<PAGE>
Market Analysis
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purchased for $2,800,000, which equates to $16,000 per site.
Comparable Sale I-4, Linden Mobile Park, is located at 1276 Fleetwood, in
Boise, Idaho. This property contains 101 sites, situated on 12.28 acres of
land area. Linden Mobile Park was developed in 1970, and is in overall
average condition at the time of sale. Amenities include a clubhouse. The
property was 100.0 percent occupied at the time of sale. The property was
purchased for $1,275,000, which equates to $12,624 per site.
It should be noted that comparability does not imply an identical or exact
duplicate, but rather the possession of a similar utility and affected by
similar supply and demand forces. Also, relative to the subject property,
differences include: time or date of the transactions; location, which
encompasses differences in accessibility; site characteristics, including
differences in size, topography, access, exposure and development capacities;
and improvement characteristics, which include differences in age, quality,
condition, size and amenities.
Demographic Trends
Based on information provided by National Decision Systems (NDS), the
populations within the subject's primary 5-mile and secondary 10-mile market
areas, as of 1997, are 77,043 and 112,026, respectively. The populations of the
subject's primary and secondary market areas are projected to increase to 80,225
and 120,367, respectively, by the year 2002.
According to NDS, the total number of households within the subject's
primary and secondary market areas, are 33,502 and 46,227, respectively, for
1997. The number of households within the subject's primary 5-mile and secondary
10-mile market areas are projected to increase to 36,028 and 51,169,
respectively, by the year 2002.
The average household income levels within the subject's primary and
secondary market areas, for 1997, are $48,039 and $47,720, respectively, and are
expected to increase to $62,612 and $60,699, respectively, by the year 2002. The
median household income levels within the subject's primary and secondary market
areas, for 1997, are $32,553 and $33,927, respectively, and are expected to
increase to $39,331 and $40,401, respectively, by the year 2002. Per capita
income within the subject's primary and secondary market areas, for 1997, are
$20,823 and $19,590, respectively, and are expected to increase to $27,850 and
$25,622, respectively, by the year 2002.
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Market Analysis
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Based on the above levels, the demographics of the subject's primary
market area appear to indicate a positive growth trend, based on information
provided by NDS. For additional demographic information, please refer to the NDS
summary report in the Addenda of this report.
Expense Analysis
Expenses exhibited by manufactured housing communities nationally are
typically 35.0 to 45.0 percent of effective gross income. However, expense
ratios of manufactured housing communities located in the southeast and
southwest regions of the nation are typically lower by comparison, due to lower
real estate taxes and common area maintenance charges.
As presented in the Summary of Manufactured Housing Communities Sales,
operating expense ratios of competing parks range from 31.70 to 48.87 percent of
effective gross income levels, and $561 to $1,920 on a per site basis. The
subject property is currently reporting expenses, for the 12-month trailing
period of 1997, at 36.40 percent of effective gross income and $1,065 on a per
site basis. Operating expenses appear to be within the range of comparable
properties on a percentage of effective gross income and on a per site basis.
Market Supply and Demand
There are a total of five competing manufactured housing communities
located within the subject's market, which total 1201 sites, with a
corresponding average occupancy rate of 99.0 percent. No specific absorption
statistics were available. The subject property, based on conversations with
management, has historically had occupancy rates consistent with competing
parks, and is currently 96.0 percent occupied. We believe the current occupancy
rate of the subject property is stabilized, and has similar occupancy rates of
competing parks presently presented. Based on the subject's current occupancy
rate and occupancy rates at competing parks, demand appears to be strong, with
steady rental rate increases expected.
Conclusion
Historically, the subject's primary market has sustained occupancy levels
of 95.0 to 100 percent. Rental rates of similar manufactured housing communities
located within the subject's primary market generally range from $149.00 to
$245.00 per site, on a monthly basis. The subject property is currently quoting,
and is currently achieving (based on the most recent rent roll provided), a
monthly rental rate within the upper range of competing parks, or at $242.00 per
site.
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Market Analysis
================================================================================
Based on our research, steady increases in rental rates are anticipated,
based on actual historical performance of competing parks and historical
increases seen at the subject property. Sales transactions of manufactured
housing communities located within the subject's region range from $12,624 to
$24,107 per site, with corresponding overall rates ranging from 7.56 to 9.59
percent. In our opinion, the subject property competes favorably with its
competition regarding amenities, condition, rent structure and overall market
rating.
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<PAGE>
SITE PLAN
[FLOOR PLAN OMITTED]
<PAGE>
PROPERTY DESCRIPTION
================================================================================
Site Description
The subject site is located at the southwest corner of South 24th Street
West and Monad Road, in Billings, Yellowstone County, Montana. The subject site
is irregular in shape and contains approximately 66.467 acres, or 2,895,291
square feet of land area. topographically, the site is generally level and at
street grade.
Primary access to the subject site is available from South 24th Street
West and Monad Road. According to Flood Insurance Rate Map, Community Panel
Number 300085-0015C, effective date January 2, 1981, Casa Village is located in
Zone C, which does not lie in the 500-year flood plain.
The streets within the park have two-lanes, with concrete curbs. Overall,
the subject site is typical of the area and is functionally well suited for its
current use.
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.
Improvements Description
The subject property was originally developed in 1965. The subject
improvements consist of a 491-site manufactured housing community, with a
management office, community center, swimming pool, spa, billiard room, exercise
room, car wash/garage area, playground, tennis court, basketball court, laundry
facility and recreational vehicle storage. Of the 491 sites, approximately 350
sites are single-wide and 141 sites are double-wide.
The management office is located at the main entrance of the property
along South 24th Street, with a laundry facility adjacent to the office
building. The community center is located in the central portion of the park,
and consists of restroom facilities, open-space available for resident use,
fully equipped kitchen, billiard room, exercise room and car wash/garage. The
playground, basketball court, tennis court, swimming pool and indoor spa are
located to the east of the community center.
Off-street parking is available for each resident. Site improvements
within the park include: paved streets, street lighting and signage. Overall,
the site improvements appeared to be in good condition at the time of
inspection.
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Property Description
================================================================================
Casa Village is a functional manufactured housing community with primary
ingress and egress along South 24th Street West. Overall, the subject community
appears to be well maintained and is in good condition. Casa Village is a
functional manufactured housing community and competes favorably with other
existing manufactured housing communities in the area in terms of appearance and
amenities. The subject property would fit the profile of a Five Star Park, as
defined in the National Overview section of this report.
Real Property Taxes and Assessments
The subject property is identified by tax parcel identification numbers
D00528 and A28495. The total amount of real estate taxes for 1996 payable in
1997 for the subject property amounts to $168,121.24. The total amount of real
estate taxes for 1996 payable in 1997 equates to approximately $342.41 per site.
Zoning
According to the City of Billings zoning officials, the subject property
is currently zoned RMH, Residential Manufactured Housing, and is a legal and
conforming use.
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CONCLUSION
================================================================================
Conclusion
o The subject property, Green Acres, is a functional manufactured
housing community, which competes favorably in relation to its
competition;
o Comparable manufactured housing communities located within the
subject's market range in monthly rental rates per site from $290.00
to $395.00;
o The subject property is currently quoting, and is currently
achieving (based on the most recent rent roll provided) monthly
rental rates ranging from $361.00 to $382.00 per site, which is
within the range of competing parks, and appears to be
market-oriented;
o Sale transactions of manufactured housings located within the
subject's region range in unit sales prices per site from $16,552 to
$28,155, with corresponding overall rates ranging from 8.00 to 11.34
percent;
o Operating expenses are within industry standards for a park located
in the eastern region of the country;
o The subject park appears to be operating at economic levels based on
our review of historical and budgeted 1998 income and expenses;
o The demographic characteristics of the area appear to be positive;
o The population profile of the subject property is approximately 45.0
percent families, and 55.0 percent retired adults.
o The current occupancy rate at the subject property of 99.3 percent
is evident by a strong local market and demand;
o No significant manufactured housing communities are expected to be
developed in the near future;
o In our opinion, based on Woodall's criteria, the subject property is
a Four Star Park, and the reader's attention is directed to the
corresponding definition and criteria of a Four Star Park, presented
in the National Overview section of this report; and,
o Based on the subject's location, demographic, economic, market and
physical characteristics, we believe Green Acres will continue to be
a viable manufactured housing community in the foreseeable future,
and is well positioned in the marketplace.
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<PAGE>
ASSUMPTIONS AND LIMITING CONDITIONS
================================================================================
"Report" means the consulting report to which these Assumptions and Limiting
Conditions are annexed.
"Property" means the subject of the Report.
"C&W" means Cushman & Wakefield, Inc. or its subsidiary which issued the Report.
"Appraiser(s)" means the employee(s) of C&W who prepared and signed the Report.
This report is made subject to the following assumptions and limiting
conditions:
1. No responsibility is assumed for the legal description or for any matters
which are legal in nature. 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 Report or upon which the Report 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 Appraisers nor C&W shall be responsible for the
accuracy or completeness of such information, including the correctness of
estimates, opinions, dimensions, sketches, exhibits, and other factual
matters.
3. The information is effective as of the date stated in the Report. Changes
since that date in external and market factors or in the property itself
can significantly affect our analysis.
4. The report is to be used in whole and not in part. No part of the Report
shall be used in conjunction with any other report. Possession of the
Report, or a copy thereof, does not carry with it the right of
publication. Publication of the Report or any portion thereof without the
prior written consent of C&W is prohibited. Except as may be otherwise
expressly stated in the letter of engagement to prepare the Report, C&W
does not permit use of the Report by any person other than the party to
whom it is addressed or for purposes other than those for which it was
prepared. If written permission is given by C&W to use the Report, the
Report must be used in its entirety and only with proper written
qualification as approved by C&W. No part of the Report or the identity of
the Appraiser shall be conveyed to the public through advertising, public
relations, news, sales, or other media or used in any material without
C&W's prior written consent. Reference to the Appraisal Institute or to
the MAI designation is prohibited.
5. The Appraiser shall not be required to give testimony in any court or
administrative proceedings relating to the Property or the Report.
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Assumptions and Limiting Conditions
================================================================================
6. The Report 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 Report; 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 Report is based.
7. The physical condition of the improvements considered by the Report is
based on visual inspection by the Appraiser or other person identified in
the Report. C&W assumes no responsibility for the soundness of structural
members nor for the condition of mechanical equipment, plumbing, or
electrical components.
8. Unless otherwise stated in the Report, the existence of potentially
hazardous or toxic materials which may have been used in the construction
or maintenance or operation of the improvements or may be located at or
about the Property was not considered in the Report. These materials (such
as formaldehyde foam insulation, asbestos insulation, various soil
contaminants, and other potentially hazardous materials) may affect the
value of the Property. The Appraisers are not qualified to detect such
substances, and C&W urges that an expert in this field be employed to
determine the economic impact of these matters, if any, on the property in
the Report.
9. Unless otherwise stated in the Report, compliance with the requirements of
the Americans With Disabilities Act of 1990 (ADA) has not been considered
in the Report. Failure to comply with the requirements of the ADA may
negatively affect the value of the property. C&W recommends that an expert
in this field be employed.
10. If the Report is submitted to a lender or investor with the prior approval
of C&W, such party should consider the Report as one factor, together with
its independent investment considerations and underwriting criteria, in
its overall investment decision.
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CERTIFICATION
================================================================================
We certify that, to the best of our knowledge and belief:
1. Jody L. Garbisch inspected the property, and Michael J. Schaeffer and
Stanley R. Dennis, Jr., MAI, have reviewed and approved the report, but
did not inspect 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 on an action or event (such as the
approval of a loan) resulting from the analyses, opinions, or conclusions
in, or the use of, this report.
6. 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 Ethics and Standards of Professional Practice of the Appraisal
Institute.
7. No one provided significant professional assistance to the persons signing
this 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. As of the date of this report, Stanley R. Dennis, Jr., MAI, has completed
the requirements of the continuing education program of the Appraisal
Institute.
/s/ Michael J. Schaeffer /s/ Jody L. Garbisch /s/ Stanley R. Dennis, Jr.
Michael J. Schaeffer Jody L. Garbisch Stanley R. Dennis, Jr., MAI
Director Associate Appraiser Director, Manager
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<PAGE>
ADDENDA
================================================================================
POP-FACT SHEETS
LEGAL DESCRIPTION
QUALIFICATIONS OF APPRAISERS
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38
<PAGE>
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POP-FACT SHEETS
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<PAGE>
Tue Nov 25, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP FACTS: SUMMARY REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6510
PREPARED FOR
CUSHMAN & WAKEFIELD, INC
CASA VILLAGE
BILLINGS, MT COORD: 45:45.72 108:34.55
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- --------------------------------------------------------------------------------
POPULATION
2002 PROJECTION 80,225 120,367
1997 ESTIMATE 77,043 112,026
1990 CENSUS 71,487 97,787
1980 CENSUS 71,118 92,194
GROWTH 1980 - 1990 0.52% 6.07%
HOUSEHOLDS
2002 PROJECTION 36,028 51,169
1997 ESTIMATE 33,502 46,227
1990 CENSUS 29,652 38,965
1980 CENSUS 27,668 34,579
GROWTH 1980 - 1990 7.17% 12.68%
1997 ESTIMATED POPULATION BY RACE 77,043 112,026
WHITE 94.45% 94.96%
BLACK 0.60% 0.49%
ASIAN & PACIFIC ISLANDER 0.65% 0.63%
OTHER RACES 4.30% 3.91%
1997 ESTIMATED POPULATION 77,043 112,026
HISPANIC ORIGIN 2.99% 2.65%
OCCUPIED UNITS 29,652 38,965
OWNER OCCUPIED 61.53% 64.14%
RENTER OCCUPIED 38.47% 35.86%
1990 AVERAGE PERSON PER HH 2.35 2.46
1997 ESTIMATED HH BY INCOME 33,502 46,227
$150,000 + 3.55% 3.11%
$100,000 TO $149,999 3.80% 3.83%
$ 75,000 TO $ 99,999 4.90% 4.95%
$ 50,000 TO $ 74,999 16.71% 18.01%
$ 35,000 TO $ 49,999 17.44% 18.52%
$ 25,000 TO $ 34,999 14.70% 14.71%
$ 15,000 TO $ 24,999 16.78% 16.02%
$ 5,000 TO $ 14,999 17.17% 16.39%
UNDER $5,000 4.95% 4.46%
1997 EST. AVERAGE HH INCOME $48,039 $47,720
1997 EST. MEDIAN HH INCOME $32,553 $33,927
1997 EST. PER CAPITA INCOME $20,823 $19,590
<PAGE>
Tue Nov 25, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP 80-02, NH 80-02, INC 80-02)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6510
PREPARED FOR
CUSHMAN & WAKEFIELD, INC
CASA VILLAGE
BILLINGS, MT COORD: 45:45.72 108:34.55
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- --------------------------------------------------------------------------------
POP_80: TOTAL 71,118 92,194
POP_90: TOTAL 71,487 97,787
POP_97: TOTAL (EST.) 77,043 112,026
POP_02: TOTAL (PROJ.) 80,225 120,367
NH_80: TOTAL 27,668 34,579
HH_90: TOTAL 29,652 38,965
HH_97: TOTAL (EST.) 33,502 46,227
HH_02: TOTAL (PROJ} 36,028 51,169
INC_80: PER CAPITA (EST.) $8,097 $7,872
INC 90: PER CAPITA $12,916 $12,654
INC_97: PER CAPITA (EST $20,823 $19,590
INC_02: PER CAPITA (PROJ) $27,850 $25,622
HH_90_BY INCOME_89: MEDIAN $24,793 $26,267
HH_97_BY INCOME: MEDIAN $32,553 $33,927
HH_02_BY INCOME: MEDIAN $39,331 $40,401
HH_80_BY INCOME_79: AVERAGE $20,812 $20,989
HH_90_BY INCOME_89: AVERAGE $30,857 $31,495
HH_97_BY INCOME: AVERAGE $48,039 $47,720
HH_02_BY INCOME: AVERAGE $62,612 $60,699
<PAGE>
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LEGAL DESCRIPTION
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<PAGE>
LEGAL DESCRIPTION
- --------------------------------------------------------------------------------
That part of South half of Section 12, Township 1 South, Range 25 East, of the
Principal Montana Meridian, in the City of Billings, Yellowstone County,
Montana, described as Certificate of Survey No. 288 on file in the office of the
Clerk and Recorder of said County, under Document No. 460485;
and
That part of North half Southeast quarter of Section 12, Township 1 South, Range
25 East, of the Principal Montana Meridian, in Yellowstone County, Montana,
described as Tract 2 of Certificate of Survey No. 1163 on file in the office of
the Clerk and Recorder of said County, under Document No. 863225.
- --------------------------------------------------------------------------------
<PAGE>
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QUALIFICATIONS OF APPRAISERS
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<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
JODY L. GARBISCH
Education
Bachelor of Science Degree in Finance, concentration in Real Estate, from the
College of Commerce and Business Administration at the University of Illinois,
Urbana-Champaign, Illinois, 1997.
Real Estate Education
The following courses have been completed through the Real Estate Program at the
University of Illinois at Urbana-Champaign:
Urban Real Estate Valuation
Urban Economics
Real Estate Financial Markets
Real Estate Investments
Real Estate Law
Real Estate Fundamentals
Current Position
Associate Appraiser, Cushman & Wakefield of Illinois, Inc., Valuation Advisory
Services.
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
MICHAEL J. SCHAEFFER
Real Estate Experience
Mr. Schaeffer has been active in the appraisal of real estate since 1983.
Appraisal experience includes the valuation of income-producing real estate in
the Chicago area as well as many major cities and small towns throughout the
Midwest. The types of properties appraised include office buildings, regional
malls, shopping centers, country clubs, apartment complexes, subsidized housing
units, industrial buildings, nursing homes, retirement communities, automotive
dealerships, department stores, vacant land, proposed income-producing
properties, and various special purpose properties. Mr. Schaeffer also has had
over 10 years of experience in new construction and renovation of commercial,
industrial, residential and specialized real estate properties.
Education
Bachelor of Arts, University of Cincinnati, Cincinnati, Ohio MBA Graduate Course
Work in Economics and Management, Xavier University, Cincinnati, Ohio
Real Estate Education
The following courses sponsored by the Appraisal Institute have been
successfully completed:
Real Estate Appraisal Principles 1A-1 Basic Valuation Procedures 1A-2
Standards of Professional Practice Capitalization Theory and
Techniques 1BA Capitalization Theory and Techniques IBB Advanced
Applications 550 Report Writing & Valuation Analysis 540
Mr. Schaeffer has also attended numerous lectures and seminars sponsored by the
Appraisal Institute.
Mr. Schaeffer is currently a candidate for the MAI designation of the Appraisal
Institute, and has completed the educational and experience requirements for the
MAI designation.
Current Position
Director, Appraisal Services, Cushman & Wakefield, Inc., Chicago, Illinois
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
STANLEY R. DENNIS, JR., MAI
Real Estate Experience
Director, Manager, Cushman & Wakefield Valuation Advisory Services, Chicago,
Illinois. Division is responsible for the appraisal and consultation function of
Cushman & Wakefield, Inc., a national full service real estate organization,
1989.
Vice President, Manager, Cushman & Wakefield Appraisal Services, Portland,
Oregon, 1983.
Principal, Stanley R. Dennis & Associates, Portland, Oregon, 1982.
Education
Portland State University, Portland, Oregon
Bachelor of Science Degree, 1977, Finance and Real Estate
Appraisal Institute
Course I-A Fundamentals and Principles of Real Estate Appraisal
Course I-B Capitalization Theory and Techniques
Course II-I Case Studies in Real Estate Valuation
Course II-2 Valuation Analysis and Report Writing
Course II-3 Standards of Professional Practice
Course IV Litigation/Condemnation Valuation
Course VI Investment Analysis
Course VIII Residential Case Studies
Course X Market Analysis
Seminar Feasibility Analysis and Highest and Best Use
Seminar Discounted Cash Flow Analysis
Seminar Cash Equivalency
Seminar Subdivision Analysis
Seminar Rates, Ratios and Reasonableness
Professional Affiliations
American Institute of Real Estate Appraisers, Member (Designation #6754)
Building Owners and Managers Association (BOMA)
National Association of Corporate Real Estate Executives (NACORE)
<PAGE>
================================================================================
MARKET STUDY OF REAL PROPERTY
Central Park
205 West Bell Road
Phoenix, Maricopa County, Arizona
================================================================================
As of December 1, 1997
Prepared For:
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Prepared By:
Cushman & Wakefield of Illinois, Inc.
Valuation Advisory Services
455 North Cityfront Plaza Drive, Suite 2800
Chicago, Illinois 60611-5555
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
[Letterhead of Cushman & Wakefield of Illinois, Inc.]
December 11, 1997
Mr. Edward J. Welch
Director
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Re: Market Study of Real Property
Central Park
205 West Bell Road
Phoenix, Maricopa County, Arizona 49201
Dear Mr. Welch:
In fulfillment of our agreement as outlined in the Letter of Engagement,
Cushman & Wakefield of Illinois, Inc., is pleased to transmit our market study
and consulting report evaluating the above referenced real property.
As specified in the Letter of Engagement, our market study and consulting
report is qualified by certain assumptions, limiting conditions, certifications,
and definitions, which are set forth in the report.
This consulting report was prepared for the Client, and it is intended only
for the specified use of the Client. It may not be distributed to or relied upon
by other persons or entities without written permission of Cushman & Wakefield,
Inc.
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the above
referenced real property, as of the date of our property inspection. The
function of the report is to assist the client, in evaluating the property for
underwriting and rating purposes.
<PAGE>
Mr. Edward J. Welch - 2 - December 11, 1997
This market study and consulting report was prepared in conformity with
the requirements of the Code of Ethics and Standards of Professional Appraisal
Practice of the Appraisal Institute and the Uniform Standards of Professional
Practice (USPAP) adopted by the Appraisal Standards Board of the Appraisal
Foundation.
This letter is invalid if detached from the report, which contains the
text, exhibits, and the Addenda.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF ILLINOIS, INC.
/s/ Jody L. Garbisch
Jody L. Garbisch
Associate Appraiser
/s/ Michael J. Schaeffer
Michael J. Schaeffer
Director
/s/ Stanley R. Dennis, Jr.
Stanley R. Dennis, Jr., MAI
Director, Manager
CUSHMAN &
WAKEFIELD(R)
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<PAGE>
SUMMARY OF SALIENT FACTS
================================================================================
Property Name: Central Park
Location: 205 West Bell Road
Phoenix, Maricopa County, Arizona
Assessor's Parcel Number: Based on information provided by Maricopa
County Treasurer's Office, the subject
property is identified by Assessor's Parcel
Numbers 208-12-012B 6.
Date of Inspection: The property was inspected December 1, 1997.
Ownership: The subject property is legally entitled to
Tanland Vistas, Inc., and Illinois
corporation.
Land Area: Based on measurements taken from the
property's legal plat of survey, the subject
property contains approximately 38.05 acres
of land area, or 1,657,429.2 square feet.
Zoning: Based on information provided by the City of
Phoenix Planning Department, the subject
property is zoned R-3, Multi-Family
Residential. The subject property is a
legal, but non-conforming use.
Improvements
Type: A manufactured housing community.
Year Built: The subject property was originally
developed in approximately 1977.
Size: The subject property consists of a 293-site
manufactured housing community.
Condition: At the time of inspection, the subject
property was in good condition.
Property Rating: Five Star manufactured home community.
Special Assumptions: 1. Information regarding the subject
property, including its physical
characteristics, was provided to us by the
client and the on-site manager, and is
assumed to be accurate.
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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Summary of Salient Facts
================================================================================
2. The existence of potentially hazardous or
toxic materials, which may be located on or
about the property, was not considered in
our evaluation. The appraisers are not
qualified to detect such substances, and
Cushman & Wakefield urges that an expert in
this field be employed to determine the
existence, if any, of hazardous materials
located on or about the site.
3. Our market and consulting report
regarding the subject assumes the subject
property, as presently improved, represents
its highest and best use.
4. It is unknown to the appraiser if the
subject property complies with the Americans
with Disabilities Act (ADA). We recommend a
qualified specialist in the final
determination regarding any ADA compliance
deficiencies that may be present at the
subject property.
5. Please refer to the complete list of
assumptions and limiting conditions included
at the end of this report.
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
TABLE OF CONTENTS
================================================================================
Page
PHOTOGRAPHS OF SUBJECT PROPERTY................................................1
INTRODUCTION...................................................................6
Identification of Property...................................................6
Property Ownership and Recent History........................................6
Purpose and Function of the Market Study and Consulting Assignment...........6
Scope of the Market Study and Consulting Assignment..........................6
Date of Property Inspection..................................................6
Definitions and Other Pertinent Terms........................................6
REGIONAL ANALYSIS..............................................................8
NEIGHBORHOOD ANALYSIS.........................................................30
MARKET ANALYSIS...............................................................31
National Overview...........................................................31
Competition.................................................................38
Comparable Manufactured Housing Community Sales.............................43
Demographic Trends..........................................................46
Expense Analysis............................................................46
Market Supply and Demand....................................................46
Conclusion..................................................................47
PROPERTY DESCRIPTION..........................................................49
Site Description............................................................49
Improvements Description....................................................49
REAL PROPERTY TAXES AND ASSESSMENTS...........................................50
ZONING........................................................................50
CONCLUSION....................................................................51
ASSUMPTIONS AND LIMITING CONDITIONS...........................................52
CERTIFICATION.................................................................54
ADDENDA.......................................................................55
Pop-Fact Sheets
Legal Description
Qualifications of Appraisers
CUSHMAN &
WAKEFIELD(R)
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PHOTOGRAPHS OF SUBJECT PROPERTY
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[PHOTO OMITTED]
Front Entrance of the Subject Property
[PHOTO OMITTED]
Exterior of Community Center
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Photographs of Subject Property
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[PHOTO OMITTED]
Interior View of the Clubhouse
[PHOTO OMITTED]
View of the Pool Area
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Photographs of Subject Property
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[PHOTO OMITTED]
View of the Golf Course
[PHOTO OMITTED]
Typical Interior View of the Subject Park
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Photographs of Subject Property
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[PHOTO OMITTED]
Typical Interior View of the Subject Park
[PHOTO OMITTED]
Typical Interior View of the Subject Park
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Photographs of Subject Property
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Street Scene Facing West Along West Bell Road
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Street Scene Facing East Along West Bell Road
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INTRODUCTION
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Identification of Property
The subject property consists of a 293-site manufactured housing
community, situated on approximately 38.05 acres of land area, located in the
north-central portion of Phoenix, Maricopa County, Arizona. The property's
street address is 205 West Bell Road. The property was constructed in 1977, and
was 95.0 percent occupied at the time of inspection. The subject property is an
adults only park for residents of 55 years or older.
Property Ownership and Recent History
The subject property is currently entitled to Tanland Vistas, Inc., and
Illinois corporation. The subject property was originally developed in 1977,
with 293 manufactured housing sites.
Purpose and Function of the Market Study and Consulting Assignment
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the subject
property, as of the date of property inspection. The function of the consulting
report is to assist the client in evaluating the property for underwriting and
rating purposes.
Scope of the Market Study and Consulting Assignment
In the process of preparing this report, we inspected the property,
interviewed the on-site manager, conducted market research into asking rental
rates for comparable properties, conducted market investigations, and
ascertained sales prices of comparable properties. Additionally, we conducted
market research and evaluated demographic and economic trends; and, the market
position and rating of the subject property.
Date of Property Inspection
The property was inspected December 1, 1997.
Definitions and Other Pertinent Terms
Definitions of pertinent terms taken from the Dictionary of Real Estate
Appraisal, Third Edition (1993), published by the Appraisal Institute, is as
follows:
Market Rent
The rental income that a property would most probably command on the open
market; indicated by current rents paid and asked for comparable space as
of the date of the appraisal.
Evaluation
Evaluation is a study of the nature, quality, or utility of a parcel of
real estate or interest in, or aspects of, real property, in which a value
estimate is not necessarily required.
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Introduction
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Market Study
A macroeconomic analysis that examines the general market conditions of
supply, demand, and pricing or the demographics of demand for a specific
area or property type.
Legal Description
The subject property is located along the south side of West Bell Road,
approximately two miles east of Interstate 17, in the City of Phoenix, Maricopa
County, Arizona. The street address of the subject property is 205 West Bell
Road, Phoenix, Arizona. The property is identified by tax parcel number
208-12-012B 6, according to Maricopa County Treasurer's Office. Due to the
lengthy metes and bounds legal description, the subject property's legal
description is presented in the Addenda of this report, and reference is made
thereto.
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LOCATION MAP
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REGIONAL ANALYSIS - PHOENIX-MESA MSA
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Introduction
The short- and long-term value of real estate is influenced by a variety
of factors and forces which interact within a given region. Regional analysis
serves to identify those forces which affect property value and the role they
play within the region. The four primary forces which influence real property
value include environmental characteristics, governmental forces, social
factors, and economic trends. These forces determine the supply and demand for
real property which, in turn, affect market value.
================================
A. Environmental Characteristics
================================
The primary environmental forces which influence the region include
physical location, geography, and infrastructure. These characteristics provide
a basis for the region's stability and describe the area's overall locational
bearing. Both natural and man-made environmental forces influence real property
values and are best understood in relation to the subject property's location.
General Overview
The Phoenix-Mesa MSA, which includes Maricopa and Pinal Counties, is the
nation's 12th largest MSA by population rank. Maricopa County comprises a
majority of the MSA, containing 23 incorporated cities and towns, and numerous
developed unincorporated areas within its 9,225 square miles. The urbanized area
of the county covers more than 2,000 square miles, making the Phoenix
metropolitan area one of the geographically largest, yet least densely
populated, metro areas in the country.
Over the past several years, Phoenix has been one of the nation's fastest
growing metropolitan areas. During this decade, it has trailed only Atlanta and
Las Vegas in terms of domestic immigration with over 33,000 U.S. residents
relocating here. The urbanized area has five distinct regions: central,
northeast, southeast, northwest, and southwest. The areas are divided by
mountains to the south and north of central Phoenix, by the Salt River Indian
Reservation to the east, and by Interstate 10 and Interstate 17 running north,
south, and west from the Salt River.
The central region contains the area's major office employment centers:
Downtown, the Central Avenue corridor, the Camelback corridor, and the 44th
Street/Sky Harbor International Airport area which is home to a significant
amount of warehouse/distribution and industrial employment.
The northeast region is characterized by an expanding services employment
sector concentrated in south-central Scottsdale, the Paradise Valley Mall area,
and the Scottsdale Airpark. The Scottsdale Airpark area contains a high
concentration of industrial and light manufacturing employment. There is also an
emerging medical service corridor along Shea Boulevard in north Scottsdale.
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The northeast region is, perhaps, best known for its abundance of
high-quality resorts and golf courses and its affluent bedroom communities such
as Scottsdale, Paradise Valley, Fountain Hills, Carefree, Cave Creek, and
northern portions of the City of Phoenix.
The southeast region, often referred to as the East Valley, contains the
cities of Tempe, Mesa, Chandler, Gilbert, Guadalupe, Queen Creek, and the South
Mountain area of Phoenix. Major high-tech and aerospace employers are located in
this region of the MSA, as is the main campus of Arizona State University in
Tempe. Eastern portions of the southeast region contain many retirement
communities that host thousands of winter visitors, as well as year-round
retirees. Continued employment growth in high-tech industries, a diverse housing
market, and transportation improvements are expected to fuel continued
development in the southeast region.
The northwest region includes northwest Phoenix and the communities of
Glendale, Peoria, Youngtown, Surprise, El Mirage, and the unincorporated
retirement communities of Sun City and Sun City West. This region is rapidly
developing its own employment base, including service industries, agriculture,
and high-tech manufacturing. Recent development has tended to follow Bell Road
and the partially completed Agua Fria Freeway.
The rapidly growing southwest region is the least developed of the five
metropolitan areas, but its abundance of relatively inexpensive, developable
land and access to Interstate 10 make it attractive to both developers and
employers. The southwest region, which includes portions of the City of Phoenix,
as well as Goodyear, Litchfield Park, Avondale, Tolleson, and Buckeye, has
traditionally been agricultural in nature. In recent years, the area has
attracted considerable warehouse and distribution development.
Transportation
The Phoenix MSA is generally well served by an integrated transportation
network. The central portion of the MSA contains a majority of the area's
transportation links, supported by surrounding interstates, highways, and local
routes.
Highways & Interstates
The Phoenix region is served by two major interstates: Interstate 10 and
Interstate 17. Interstate 10 is the primary transportation thruway for the MSA,
linking with Southern California to the west, and Tucson and New Mexico to the
southeast. Interstate 17 runs northward, linking Phoenix with Flagstaff.
Superstition Freeway (U.S. Highway 60) runs east from Central Phoenix/Interstate
10 toward Mesa and Gilbert. Other major routes within the region include U.S.
Highways 80 and 89. Several new freeways, in various stages of competition, also
pass through the metro area.
Air Service
Air transportation is available at Phoenix Sky Harbor International
Airport, one of the 25 largest air traffic hubs in the nation. Airlines serving
Sky Harbor include Southwest Airlines, Air West, United, Delta, Northwest,
Alaska, American, USAir, and TWA. The Phoenix Sky Harbor International Airport
handled 30.4 million passengers in 1996, a 9.0 percent increase over 1995,
making it the 11th-busiest passenger airport in the country and
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Regional Analysis
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the 16th-busiest in the world. The airport moved 312,800 tons of cargo, which
also represented a 9.0 percent increase.
The airport is in the midst of two major projects. The first is the
construction of a new, $169 million, 7,800-foot runway (which will be the
airport's third). It is scheduled to become operational in the Spring of 1999.
Construction has begun on a $30.0 million project that will add 14 more
passenger gates. Completion is expected next Spring.
Other Services
Rail transportation is provided by the Southern Pacific, Atchison, and
Topeka and Santa Fe lines. AMTRAK provides passenger service to the region. The
MSA is also serviced by bus lines and motor carriers. Most municipalities
provide local bus routes which run throughout the metropolitan area, while
Greyhound/Trailways provides more regional service.
===============================
B. Governmental Characteristics
===============================
Governmental influences on the region impact property values via political
and legal actions at all levels. The legal climate at a particular time or in a
particular place may overshadow the natural market forces of supply and demand.
Government provides many necessary facilities and services that affect land use
patterns, including public utilities, refuse collection, transportation
networks, zoning codes, and fiscal policies.
Government Structure
Maricopa County contains 23 incorporated cities and towns, and numerous
unincorporated areas within its 9,225 square miles. Local governments provide a
variety of services, including law enforcement, fire safety, planning and
zoning, and other typical government services.
Services & Utilities
Arizona Public Service supplies electricity for most of the Valley,
including Ahwatukee, Foothills, Chandler, Gilbert, and Tempe. Salt River Project
is the other main electric supplier in the region, serving parts of Apache
Junction, Chandler, Mesa, and Tempe. Southwest Gas provides natural gas to the
region. US West Communications is the main telephone supplier in Maricopa
County. Water and sewer service is provided by the local municipalities.
Tax Structure
Tax burdens within the region include state and local sale taxes,
corporate income taxes, and ad valorem property taxes. Arizona's sales tax is
5.0 percent. Maricopa County adds an additional 0.05 percent on retail sales for
freeway construction. The Maricopa County Assessor's Office assesses taxes at
25.0 percent of full value for improved industrial and commercial properties.
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Regional Analysis
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Bond Rating
Moody's Bond Record places the State of Arizona's bond rating as "Aaa"
relative to investment qualities, while Maricopa County is "A". "Aaa" bonds are
judged to be the best quality and carry the smallest degree of investment risk.
"A" bonds are judged to possess many favorable investment attributes and are
considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
================
C. Social Forces
================
Real estate values can be influenced to a large degree by social issues
impacting the region, including population trends, income levels, the profile of
workers in the area, and other quality of life issues. The demographic
composition of the population reveals the potential, basic demand for real
estate services.
Population
The population and its geographic distribution are basic determinants of
the need for real estate. Aggregate population growth is distributed among
regions in response to changing economic opportunities, while the demand for
real estate is created by a population's demand for the goods and services to be
produced or distributed within the region. Thus, population and demographic
trends can influence the demand for services provided by property, thereby
affecting property value.
The Phoenix market is commonly perceived as a market composed primarily of
retirees. This view is valid to a limited extent, since Phoenix still ranks
among the top quartile nationwide in the proportion of residents over the age of
64. But the consumer base has changed as the in-migration of job seekers in
recent years has outpaced the influx of retirees. Members of the "baby boom"
generation (ages 25 through 44) now constitute a slightly higher proportion of
the Phoenix population than the national average. While strong transportation
and educational infrastructures are important assets, a major impetus to
Phoenix's rapid population growth has been its lower living costs relative to
MSAs in Southern California. Overall utility costs and tax collections are also
below national and regional levels.
Population in the Phoenix-Mesa MSA has grown at a relatively healthy pace
over the past decade, showing increases of 3.4 percent per year from 1980 to
1990, and 2.7 percent per year from 1990 to 1997. By comparison, Arizona has
also experienced population growth of 2.7 percent per year over the last seven
years, while the U.S. reports population growth of about 1.0 percent per year
for the same period. Estimates for 1997 place population in the Phoenix MSA at
2,695,900 +/-, an aggregate increase of 20.0 percent over 1990.
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Through 2010, population growth in the MSA is forecasted to be 2.1 percent
per year according to Woods & Poole Economics, slightly higher than the rate of
growth projected for the state as a whole.
Households
Household formation is an important component of demographic analysis
which helps to identify changing patterns or shifts within the population. A
household consists of all people occupying a single housing unit, thus providing
significant sociological information about the region. Household formation also
has a significant influence on demand for real estate. Households, combined with
effective purchasing power, provide the basic demand for housing units and
household needs, thereby transforming needs into effective demand for real
estate improvements.
Like the nation as a whole, household formation has occurred at a rate in
excess of population growth within the subject region. This acceleration has
been the result of several trends, namely the fact that the population is
generally living longer, divorce rates have been on the rise, and many younger
professionals are postponing marriage and/or leaving home at an earlier age, all
resulting in increases of one- and two-person households. The total number of
households in the Phoenix-Mesa MSA has increased from 580,190+/- in 1980 to
1,005,140+/- in 1997, a compound annual increase of about 3.3 percent per year.
Accordingly, the number of persons per household within the MSA has decreased
from 2.74 in 1980 to 2.64 in 1997.
Projections through 2010 by Woods & Poole Economics show household growth
in Phoenix at 2.1 percent per year, similar to population growth forecasts. This
rate of growth will lead the state and far surpass the household growth for the
nation.
Income
Income levels, either on a per capita, per family, or per household basis,
indicate the economic level of residents within the region and form an important
component of economic analysis. Average income has a direct impact on the
ability of residents to satisfy material desires for goods and services,
directly affecting the demand and price levels of real estate.
Phoenix's large retiree population consumes extensive amounts of goods and
services, but adds little to the overall income of the community. Coupled with
the relatively low wage levels in the MSA, this contributes to a slightly
below-average per capita personal income level. Although low costs of living
help to balance the below-average income, housing, taxes, and pension
expenditures claim an above-average percentage of personal income. This tends to
place Phoenix in the bottom quartile of Top 100 MSAs for consumer spending
potential.
On an average household basis (in real 1992 dollars), Phoenix-Mesa has an
average income of $56,337 for 1997, about 8.7 percent higher than the state
level of $51,817 and slightly below the national income level of $57,295.
Maricopa County has a higher average household income figure than the MSA with
$57,122.
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Regional Analysis
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Real per capita income growth has generally kept pace with state and
national trends, experiencing annual growth of roughly 1.07 percent per year
(1980-90); 1.39 percent per year from 1990 to 1997 (not adjusted for inflation).
Income projections by Woods & Poole Economics show per capita income growth of
1.36 percent per year for the Phoenix-Mesa MSA. Areas on the northeast and a
portion of the southwest side of the MSA in Scottsdale and Phoenix are generally
more affluent than other sectors with average income levels between $100,000 and
$180,000.
Effective Buying Income
While income levels are above average for the state, and slightly below
the nation, lower taxes and housing costs also tend to improve the purchasing
power of area residents. As such, the effective disposable income of
residents--adjusted for tax payments, contributions to pension funds, and the
cost of new housing--ranks fairly comparable to other regions of the southeast.
Sales & Marketing Management places median household effective buying income at
$31,340 for Phoenix-Mesa as of 1996, higher than the state median of $28,923 but
lower than the U.S. median household EBI of $33,482.
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D. Economic Trends
==================
Economic forces are significant to real property value. The fundamental
relationships between current and anticipated supply and demand and the economic
ability of the population to satisfy its wants, needs, and demands through
purchasing power are tantamount to such an analysis. Some of the specific market
characteristics considered in economic analysis include employment trends, the
economic base of the region, expansion and new development, and the overall
economic health of the region.
Overview
The Phoenix-Mesa MSA has a relatively diverse economic base. Several
factors contribute to the strength and stability of the local economy, including
a good quality of life, a skilled labor force, low taxes, financial incentives
by government, and a good transportation network.
Over the past several years, the region has seen stable investment from
new companies, as well as expanding industries. Statistics on labor, employment,
investment, and construction show evidence of the region's dynamic economic
growth.
For years, Phoenix has been one of the fastest growing metropolitan areas
in the nation. Low costs, a favorable climate, a well-educated workforce, and
proximity to key markets in Southern California and the Pacific Rim have all
contributed to the area's economic vigor. Despite an economic downturn in the
late-1980s/early-1990s, the factors that previously fueled the MSA's growth
remain in-place, giving Phoenix a positive outlook. The industry mix, although
heavily concentrated in electronics and aerospace, also favors the MSA's
long-term prospects.
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Regional Analysis
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With an improving economy, new growth has stimulated construction activity
and has also increased the movement of thousands of new companies, primarily
from California and the Midwest, into the Valley because of the readily
available work force, low cost of living, quality of living for their employees,
and the pro-business environment.
In terms of real estate, Arizona's phase-out of its sales tax on
commercial leases continues, dropping from 4.0 percent to 3.0 percent in 1994,
2.0 percent in 1995, and 1.0 percent in 1996. The 1.0 percent decrease will
continue until 1997, when the tax will be eliminated altogether.
Also contributing to the large number of companies choosing the Phoenix
metropolitan area are low corporate income tax rates, plus new state regulations
which allow corporations to file consolidated income tax returns. This
regulation allows corporations to claim losses from subsidiaries in other states
on their Arizona tax returns. The end result is the development of buildings for
new companies and existing companies expanding and/or relocating.
Among the Top 100 MSAs in the country, Phoenix ranks about 19th in
economic diversity, with goods and services for sale outside the MSA ranging
from high-tech manufacturing, communications, and tourism. Although only about
10.5 percent of the nation's urban markets lie within a 500-mile radius of the
region, the MSA's convenient access to major markets in Southern California
overshadows its distance from other U.S. regions. Key manufacturing industries
in Phoenix includes the electronics and aerospace sectors. Phoenix has become a
major regional center for communications and business services, providing
support for much of the Southwestern U.S. and Rocky Mountain region.
Tourism employment has continued to grow rapidly as the area's
recreational charms have not abated. Tourism is expected to continue to bolster
the local economy over the coming years as the number of visitors and winter
residents continue to increase.
Employment
The largest sectors of non-agricultural employment in Phoenix are Services
(32.0 percent), Wholesale and Retail Trade (23.7 percent), and Government (12.5
percent). Although continuing to witness growth in manufacturing, this sector of
non-farm employment accounts for a lower percentage of employment than its 14.9
percent share in 1980. Services, on the other hand, have increased its share
from 23.0 percent in 1980 to 32.0 percent today. Finance, Insurance and Real
Estate sectors of employment have generally maintained their percentage of
non-farm employment, while Government has slipped. Both Construction and
Transportation, Communications and Public Utilities have also maintained their
distribution over the past fifteen years.
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Regional Analysis
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Employment Distribution
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Employment Sector 1980 % of Total 1997 % of Total
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Total Non-Farm Employment 796,860 100.00% 1,516,260 100.00%
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Mining 7,380 0.9% 6,290 0.4%
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Construction 59,110 7.4% 99,470 6.6%
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Manufacturing 118,740 14.9% 152,900 10.1%
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T.C.P.U. 33,800 4.2% 72,700 4.8%
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Wholesale/Retail Trade 186,870 23.5% 358,600 23.7%
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F.I.R.E. 84,270 10.6% 149,100 9.8%
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Services 183,000 23.0% 481,900 31.8%
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Government 123,690 15.5% 189,700 12.5%
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Source: Woods & Poole Economics, Inc.
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Between 1980 and 1997 (forecast) the Phoenix MSA added 719,400 jobs,
indicative of an astounding compound annual growth rate of 3.8 percent. During
1996 alone, the region added in excess of 73,000 jobs, or 5.7 percent. According
to Metro Market Facts, (second quarter 1997 report), this increase was the
second largest aggregate gain in the country behind Dallas, Ft. Worth, and the
second largest proportional gain behind Las Vegas.
The region's robustness produced gains in all major employment categories.
The service sector was the big leader in absolute terms, creating 30,800 net new
jobs. Retail trade had the second-largest gain (9,600 new jobs), followed by the
public sector (9,100). Finance, insurance and real estate (FIRE) and wholesale
trade grew by 7,800 and 6,800 new jobs, respectively. the transportation sector
created 4,400 net new jobs. The construction industry added 3,900 workers.
Manufacturing had the least impressive gain, with 300 net new jobs.
Three sectors had percentage gains of over 8 percent. The largest (8.8
percent) occurred in wholesale trade. It was followed by FIRE and services.
Transportation expanded its employment base by 6.8 percent; government by 5.2
percent; construction by 4.3 percent; and retail trade by 3.9 percent.
Manufacturing's gain translated into a minuscule 0.2 percent advance.
Services now account for 31.8 percent of the area's workforce versus 28.6
percent for the nation and 23.0 percent of MSA employment in 1980. Retail trade,
the second largest employment category, with 23.7 percent, is generally
consistent with national averages. Phoenix has a much lower percentage of its
workers employed in manufacturing, 10.1 percent versus 15.1 percent for the
nation.
Owing to its status as the state capital, one of Phoenix's largest
employment categories is state and local government. This tends to mitigate some
of the volatile economic swings seen in regions which depend more heavily on one
particular industry. The construction sector has traditionally comprised a key
segment of the Phoenix economy. Despite faltering in the early-1990s with
overbuilding in most real estate markets, this sector continues to be an
important part of the local economy. As such, construction's 6.6 percent
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of local employment is well above the national average of 4.5 percent. In recent
years, businesses selling goods and services outside the MSA have also been
expanding, including high-tech durable manufacturing, communications, and
tourism.
Based on data through the second quarter of 1997, Phoenix continued to
ride its recent wave of exuberant economic growth; payroll employment advanced
5.8 percent over year ago levels. Broad gains can be found in a number of key
areas: the growth of high-technology manufacturing, increases in the retirement
population, and the city's gains as a distribution hub. These improvements in
turn, produced increases in secondary and tertiary industries, for example
financial services, retail trade and professional services.
Greater Phoenix is home to an increasing number of high-tech companies.
One of the major high-tech players here is Intel, which has a $1.3 billion chip
manufacturing complex (Fab 12) in southwest Chandler. Two of the area's newest
high-tech developments involve Sumitomo and Microchip Technology. Sumitomo/Sitix
just opened a new $400 million, 550,000 square foot water fabrication plant in
northeast Phoenix. The plant employs 200 currently, with expected employment of
up to 500 by 1999.
Microchip Technology has a $137 million expansion underway at its Fab2
manufacturing facility in Tempe that is expected to create 200 new jobs.
Completion is scheduled for early 1998. In addition, the company is planning to
add about 300,000 more square feet (divided between manufacturing and office
space) at its plant in Chandler. The $1 billion expansion is scheduled to take
place over the next eight years, with construction beginning in 1998. If built
out as currently envisioned, the company expects to hire another 2,000 workers
for the Chandler site by 2003.
Avnet, a distributor of electronics and computer products, which currently
employs 1,700 throughout greater Phoenix, has announced plans to move its
Electronic Marketing Group into a 176,000 square foot facility at Phoenix
Airport Center. The move is expected to create several hundred new jobs.
The growth of the area's high-tech industry has been part of the reason
for Phoenix's high ranking in Cognetics' annual survey of "Entrepreneurial Hot
Sports". The metropolitan area received the fourth-highest ranking in 1996
(behind Salt Lake City, Atlanta and Birmingham, Alabama).
Another industry, aerospace, is pumping new life into some quarters here.
The merger between McDonnel-Douglas and Boeing, is expected to have positive
ramifications for the area.
The metropolitan area continues to lure high-profile back-office
operations and many companies with existing facilities are looking for room to
grow. Excell Agent Services, a directory services firm that already has 2,400
employees in the area (in Phoenix, Tempe and Mesa), has announced plans to hire
500 more during the next six months.
Bank of America plans to hire about 1,000 more workers at its telephone
banking center in Tempe. Bank One Arizona has announced plans to add 1,000 new
jobs in a consolidation of the company's telephone operations.
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Employment Growth
Over the past five years, it is clear that employment growth in the
Phoenix-Mesa MSA has slowed over the growth experienced between 1980 and 1990.
Total employment grew at a compound annual rate of 4.5 percent per year from
1980 to 1990, decreasing to an annual rate of 2.8 percent from 1990 to 1997.
Services, Transportation/Public Utilities, Finance, Insurance and Real Estate,
Wholesale/Retail Trade, and Government have led employment growth, while
Manufacturing increases have slowed.
The consensus opinion is that while Phoenix's growth in employment will
slow over the next decade, it will remain one of the top performing areas in the
nation. Employment forecasts by a variety of econometric firms show a consensus
growth of approximately 2.5 to 3.0 percent per annum.
Major Employers
The relative diversity of the Phoenix economy can also be seen in the list
of major MSA employers. Motorola is greater Phoenix's largest private sector
employer, with 19,400 workers on its local payroll. Samaritan Health System is
next, with an employee roster of 10,800. AlliedSignal (engineering and aerospace
firm) employs 8,700. Pinnacle West Capital (the holding company for Arizona
Public Service), US West, American Express, and Bank of America employ over
7,000 each. Both Intel and Banc One locally employ approximately 6,500.
Other companies with more than 3,000 employees include: America West
Airlines, Fry's Food Stores, Wells Fargo Bank, Honeywell Inc., Tosco/Circle K,
Safeway, the Salt River Project (water and power utility), Bashas
(supermarkets), McDonnell-Douglas, TRW, AT&T, Southwest Airlines, and Gosnell
Builders.
Unemployment Rates
Unemployment rates in the Phoenix-Mesa MSA have historically been below
state and national figures. As of October 1997, the unadjusted unemployment rate
for Phoenix-Mesa was 2.5 percent, 110 basis points below year end 1996 and 140
points below the state unemployment rate of 3.9 percent. Mirroring national
trends, unemployment in the MSA peaked between 1992-1993, followed by a
declining trend through 1996.
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Historic Unemployment Rates
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Year Phoenix MSA Arizona United States
================================================================================
Oct-97 2.5% 3.9% 4.7%
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1996 3.7% 5.5% 5.4%
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1995 3.5% 5.1% 5.6%
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1994 5.0% 6.4% 6.1%
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1993 5.1% 6.2% 6.8%
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1992 6.4% 7.4% 7.4%
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1991 4.9% 5.7% 6.7%
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1990 4.3% 5.3% 5.5%
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Source: Employment & Earnings; Bureau of Labor Statistics
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Regional Analysis
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Although it is too soon to know what the 1996 annual adjusted rate will be
for the Phoenix region, it appears that unemployment declines have slowed within
the MSA as a whole through the third quarter of this year.
Retail Sales
Another measure of the economic health of a region is retail sales
patterns. Consumers drive the economy by creating demand for goods and services
and, in turn, generate the need for housing, office space, retail centers, and
warehouse/distribution facilities. It is estimated that consumer spending
accounts for two-thirds of all economic activity in the United Sates today. As
such, retail sales patterns have become an important indicator of the economic
health of a region. The following table summarizes historic retail sales in the
Phoenix MSA and State of Arizona for the period 1985 - 1996.
================================================================================
Retail Sales (1985-1996)
================================================================================
Year Phoenix MSA (000) State of Arizona (000)
================================================================================
1985 $11,710,860 $18,401,358
- --------------------------------------------------------------------------------
1991 $17,241,381 $26,893,039
- --------------------------------------------------------------------------------
1996 $28,007,212 $42,748,487
- --------------------------------------------------------------------------------
CAGR 1985-1996 8.2% 8.0%
- --------------------------------------------------------------------------------
CAGR 1991-1996 10.2% 9.7%
================================================================================
Source: Sales and Marketing Management Survey of Buying Power
================================================================================
Retail sales growth has been very good in the Phoenix area, increasing at
a compound annual rate of 8.2 percent over the past 11 years. More recently,
growth has increased to 10.2 percent per annum which is higher than the 9.7
percent growth experienced by the state as a whole. Going forward, Sales &
Marketing Management forecasts an increase of 31.9 percent in sales to $36.9
billion versus 30.5 percent for the state as a whole. The significance of the
Phoenix market is evidenced by the fact that with approximately 61.0 percent of
the state's population, it accounts for nearly 66.0 percent of total retail
sales. Woods & Poole Economics forecasts the MSA to see annual retail sales
growth of 2.7 percent per year above inflation through 2010 (adjusted to 1987
dollars).
The purchasing profile of area residents tends to reflect the demographic
characteristics of the city. Drugs/Pharmaceuticals, and health and beauty aids
claim a disproportionately large share of retail sales, attributable in part to
the area's high proportion of retirees. Sporting goods and recreational vehicles
are also featured, reflecting the region's opportunities for leisure-time
activities and the favorable climate. Those categories expected to have the
greatest growth potential are seen in General Merchandise and Eating and
Drinking places.
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==========================
E. Tourism/Visitor Profile
==========================
Overview
According to the Phoenix & Valley of the Sun Convention & Visitors Bureau,
Tourism represents the second largest industry in the metropolitan area, behind
high-technology. It is estimated that over 10.0 million people visit Phoenix
each year, while more than 24.0 million visit the State of Arizona as a whole.
Visitors to the Valley account for nearly $4.0 billion in total expenditures
annually, with retail sales comprising $400.0 million.
================================================================================
Visitor Economic Impact
================================================================================
Year: 1995
================================================================================
Estimated Number of Visitors: 10.86 Million
- --------------------------------------------------------------------------------
Average Length of Stay: 4.7 Nights
- --------------------------------------------------------------------------------
Mean Expenditure Per Trip: $476
- --------------------------------------------------------------------------------
Total Economic Impact for Maricopa County: $5.35 Billion
================================================================================
Source: Arizona Hospitality Research & Resource Center 1996
================================================================================
Expenditures
The majority of visitor expenditures go toward food & beverage which
accounts for 28.6 percent of all expenditures; lodging accounts for 21.5
percent, transportation 20.0 percent, and retail sales 15.0 percent. The
following chart presents a breakdown of visitor expenditures by category.
================================================================================
Visitor Expenditures
================================================================================
Category Percent 1995 Expenditures(000)
================================================================================
Food & Beverage: 28.6% $1,530,946
- --------------------------------------------------------------------------------
Lodging: 21.5% $1,150,886
- --------------------------------------------------------------------------------
Transportation: 20.0% $1,070,591
- --------------------------------------------------------------------------------
Retail Sales: 15.0% $ 802,944
- --------------------------------------------------------------------------------
Entertainment: 9.0% $ 481,766
- --------------------------------------------------------------------------------
Other: 5.9% $ 315,824
- --------------------------------------------------------------------------------
Total: 100.0% $5,352,957
================================================================================
Source: Arizona Hospitality Research & Resource Center 1996
================================================================================
Based upon the 11+/- million visitors in 1995, the direct economic impact
was calculated to be $5.35 billion. Business and convention travelers accounted
for 38.0 percent of all visitations in 1995.
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Business/Convention Travelers
Business and convention-oriented travelers to the Phoenix area comprise
about 38.0 percent of all visitors to the region. The following chart summarizes
the profile of business and convention travelers to the region.
================================================================================
Business/Convention Traveler Profile
================================================================================
Average Age: 41.6 Years
- --------------------------------------------------------------------------------
Average Income: $74,700
- --------------------------------------------------------------------------------
Average Party Size: 1.51 People
- --------------------------------------------------------------------------------
Average Daily Spending: $193
- --------------------------------------------------------------------------------
Average Length of Stay: 3.8 Nights
- --------------------------------------------------------------------------------
Major Activities
- --------------------------------------------------------------------------------
Shopping: 52.0%
- --------------------------------------------------------------------------------
Sightseeing: 40.0%
- --------------------------------------------------------------------------------
Swimming/Sunbathing: 36.0%
- --------------------------------------------------------------------------------
Nightclubs: 25.0%
- --------------------------------------------------------------------------------
Golf: 19.0%
================================================================================
Source: Behavior Research, Inc.
================================================================================
From the data we see that the average business/convention visitor is 41.6
years of age with an average income of $74,700. According to Behavior Research,
52.0 percent of those surveyed cited shopping as one of their major activities
while visiting.
Leisure Travelers/Winter Visitors
Leisure travelers to the Phoenix area comprise approximately 62.0 percent
of all visitors to the region. Their average age is slightly higher than the
business/convention traveler at 42.8 years, with a significantly lower average
income of $51,100. About 73.0 percent of all leisure travelers surveyed said
that shopping was one of their primary activities. The following chart
summarizes the profile of leisure travelers to the region.
================================================================================
Leisure Traveler Profile
================================================================================
Average Age: 42.8 Years
- --------------------------------------------------------------------------------
Average Income: $51,100
- --------------------------------------------------------------------------------
Average Party Size: 2.12 People
- --------------------------------------------------------------------------------
Average Daily Spending: $174
- --------------------------------------------------------------------------------
Average Length of Stay: 5.3 Nights
- --------------------------------------------------------------------------------
Major Activities
- --------------------------------------------------------------------------------
Shopping: 73.0%
- --------------------------------------------------------------------------------
Sightseeing: 74.0%
- --------------------------------------------------------------------------------
Swimming/Sunbathing: 46.0%
- --------------------------------------------------------------------------------
Museums: 39.0%
- --------------------------------------------------------------------------------
Golf: 16.0%
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Source: Behavior Research, Inc.
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In the table below, only visitors staying in mobile homes or travel
trailers were portrayed. In general, winter visitors arrive in the Valley by
October and return to their state of origin by May. Median length of stay is
estimated at slightly more than four months. In Metro Phoenix, approximately
113,000 winter visitors injected more than $340 million, while statewide,
approximately 201,200 winter visitors injected nearly $1.0 billion in direct
consumer expenditures during the 1995/96 season.
================================================================================
Motor Home & Travel Trailer Winter Visitors - Metro Phoenix
================================================================================
Mobile Home &
Travel Trailer Census 1992/93 1993/94 1994/95 1995/96
================================================================================
Number of Mobile Home Spaces 56,400 57,900 58,400 64,500
- --------------------------------------------------------------------------------
Number of Travel Trailer/R.V. 44,600 44,000 43,500 37,400
Spaces
- --------------------------------------------------------------------------------
Total Spaces Available 101,000 101,900 101,900 101,900
- --------------------------------------------------------------------------------
Spaces Occupied 92,000 94,800 95,800 97,000
- --------------------------------------------------------------------------------
% of Space Occupied by Winter 58% 59% 58% 58%
Visitors
- --------------------------------------------------------------------------------
Number of Winter Visitor 53,200 56,000 56,000 56,700
Households
================================================================================
Source: Arizona State University, College of Business, Center for Business
Research, August 1996
================================================================================
Summary
From this analysis, it is clear that the Phoenix region is greatly
impacted by the tourism and winter visitor industry. With over 10.0 million
visitors each year providing over $400.0 million in retail sales to the region
annually, there is clearly a competitive climate to attract these expenditures.
As noted by the American Express study, roughly 40.6 percent of all retail
expenditures in 1995 were from Non-Phoenix card members. In addition, 74.0
percent of all leisure travelers and 52.0 percent of all business travelers to
the area cited shopping as one of their primary activities while visiting. In
our opinion, the mall portfolio is well positioned to capture a strong market
share of this visitor spending potential upon completion.
======================
F. Real Estate Markets
======================
The real estate markets in Phoenix can be divided primarily into
commercial and residential segments. The commercial segment includes office,
industrial, and retail properties, while the residential market consists of
multi-family and single-family dwellings. The following is a brief overview of
each segment.
Office Market
The Phoenix office market is rebounding from several years of oversupply
which is being absorbed due to continued population and employment growth.
Recent declines in vacancy are attributable to a steady pattern of net
absorption and lack of new construction.
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As a result, effective rents have begun to increase. The decline in the use of
concessions, especially free rent, has increased effective rent levels and,
coupled with increased office space demand, should continue to warrant rental
rate improvement in all submarkets.
According to F.W. Dodge, the total inventory of office space in
metropolitan Phoenix was 103.5 million square feet at year end 1996. This was up
2.3 percent from 1995. Net absorption of 5.4 million square feet resulting in a
reduction in the vacancy rate to 11.1 percent from 14.4 percent. Koll Real
Estate reports that most of the net absorption was in the Class B sector.
Overall, vacancy in the Class A sector was slightly below 6 percent and 11.3
percent among Class B. In the more marginal Class C product, nearly one quarter
remained empty.
Approximately 1.2 million square feet of new suburban office space was
under construction in early 1997, and an additional 3.8 million square feet were
in the planning pipeline. According to Koll, most of the projects are located in
the active Camelback Corridor, Scottsdale, or Tempe submarkets. Scottsdale, with
an inventory of 5.6 million square feet, had an overall vacancy rate of 5.6
percent at year end. In the Class A sector, vacancy was particularly low at 3.4
percent.
The overall tightness in the market has caused prices to rise. According
to Koll, the value of Class A Central Business District space rose 7.0 percent
to $113.40 per square foot while suburban space rose 24 percent to $116.63 per
square foot. With such value increases, it would be expected that the pace of
new construction would accelerate.
F.W. Dodge forecasts that between 1998 and 1999, 7.5 million square feet
of new supply will be available in the market, forcing vacancies above 12
percent. The F.W. Dodge pipeline is currently tracking well over 2.0 million
square feet of new product which is expected to break ground before the close of
the fourth quarter. In subsequent years, developers will heed the warning
signals. They anticipate contract activity to average 2.1 million square feet
per year during the final five years of the forecast, compared with the average
of 1.7 million square feet for the 58 MSAs they surveyed. Fortunately, stable
office employment growth will keep the metro-wide office vacancy rate in the 11
to 12 percent range.
Industrial Market
Arguably the most active market segment, the industrial sector shows
little sign of slowing down. According to Koll, metropolitan Phoenix has an
industrial inventory of approximately 87.6 million square feet, about 9.4
percent of which were vacant in early 1997. Though vacancy was only slightly
below what it was a year earlier, that stability gains new significance when
considering that approximately eight million square feet (half of it
speculative) came on-line here during 1996. According to Koll, another 1.9
million square feet were under construction entering 1997, and 2.9 million more
square feet were in the planning stages. Areas seeing the most growth include
Chandler/Gilbert, Mesa, South Phoenix, and Tempe.
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Regional Analysis
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A breakdown by product type is shown below.
================================================================================
Type Inventory (mil SF) Vacancy
- --------------------------------------------------------------------------------
Distribution Warehouse 33.0 11.0%
- --------------------------------------------------------------------------------
Manufacturing 27.5 6.7%
- --------------------------------------------------------------------------------
Industrial Office 12.7 9.4%
- --------------------------------------------------------------------------------
High Tech 5.2 6.2%
================================================================================
F.W. Dodge reports that the Phoenix industrial market is firmly entrenched
in the development phase of the real estate cycle. During the first six months
of 1997, the MSA has completed more new industrial facilities than any other
metropolitan area surveyed. Although the increase in capital availability has
been an impetus to higher contract activity, demand has been buoyant. The MSA's
gains in manufacturing and the growth in its retail markets together produced
strong demand for inventory storage and distribution centers. Total net
absorption reached a cyclical peak in 1996, but remains healthy in the current
year They do note, however, that gains to inventory will force vacancies to
rise, ending the fourth quarter at 9 percent.
In the final five years of the forecast, supply-demand fundamentals will
remain firm and the market will experience above average returns on investment.
Net absorption in 1998 and 1999 will average 2.9 million square feet per year,
compared with 1.3 million square feet for the 58 MSAs Dodge surveys. However,
industrial properties are extremely sensitive to swings in the GDP. As growth in
the national economy decelerates in the latter portion of the forecast,
absorption will drop to a 2.2 million square feet annual average. Developers
will respond accordingly; after advancing at a 4 percent annual pace, inventory
gains will settle into a more manageable 2.4 percent annual rate for the first
three years of the forecast. Therefore, vacancies will end the period below the
survey average, at 8.2 percent.
Construction will be strongest in the near term, peaking in 1997. On
average, 3.1 million square feet of new warehouse space will be started each
year through 2002. The project pipeline contains over 5.0 million square feet.
The average price for Class A warehouse stood at $34.25 per square foot at
the end of 1996, up 16 percent over 1995.
Retail Market
By all accounts, the retail market remains robust. According to Koll, the
year end vacancy rate declined to 7.7 percent from 9.0 percent among the 80+/-
million square feet they survey. F.W. Dodge reports that since the first quarter
of 1996, the Phoenix market absorbed 5.9 million square feet, more than any
other western MSA. Dodge reports that during the past 6 quarters, 12 million
square feet of new space was completed, with only Atlanta and Philadelphia
experiencing higher inventory gains.
One of the reasons retail is so strong in Phoenix is due to tourism.
Tourists boost the spending totals there. According to Sales & Marketing
Management's 1997 Survey of Buying Power, retail sales in greater Phoenix
averaged $26,482 per household during 1996, while the national metropolitan
average was $24,992 per household and for the state sales were $25,391. Retail
sales were highest in Scottsdale ($45,152 per household).
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Regional Analysis
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By contrast, greater Phoenix's median household EBI for 1996 ($31,346 per
household) was well below the national median ($33,482 per household).
Nonetheless, with a lower cost of living, residents in Phoenix enjoy a higher
percentage of disposable income.
Most of the new construction was in the neighborhood centers segment which
accounts for 25.6 million square feet (32 percent of inventory) and had a
vacancy rate of approximately 7 percent. Power centers, with 6.7 million square
feet of total inventory report the lowest vacancy rate of slightly less than 1
percent. Net absorption was 400,000 square feet in the first quarter of 1997.
Community centers, with 12.2 million square feet had a vacancy rate of
just over 7.0 percent and regional malls had the highest vacancy rate of
approximately 10.0 percent among its 14.2 million square feet. Finally, Koll
reports that nearly all of the 4.8 million square feet of freestanding space was
occupied. Among all of the submarkets, Scottsdale had the lowest vacancy rate of
only 4.0 percent for its 15.2 million square feet of retail inventory.
F.W. Dodge expects that demand for retail space in Phoenix will remain
strong, averaging 3.2 million square feet annually through 2002. The key
determinants of demand are households and incomes, both of which will continue
to grow through the next six years. National chains and investors will respond
to the increasing demographic base by expanding their presence in the market.
Competition from various retail formats will place increasing pressure on profit
margins. However, Phoenix will weather the storm better than most markets.
Strong net absorption will force vacancies to trend downward, driving them to a
low 7.3 percent by 2002.
Phoenix will remain one of the most attractive retail markets in the
country for both institutional investors and new development. F.W. Dodge expects
retail inventory to expand at an average 2.1 percent annual rate over the next
six years. This level of construction will be maintained by the more than 8.0
million square feet in the planning pipeline.
The largest project in the market is the 1.2 million square foot Arizona
Mills scheduled to open in November 1997. The next largest is a 570,000 square
foot power center on Ray Road and 48th Street. Plans are being finalized for a
proposed regional mall in Chandler which could be on line in late 1999.
Hospitality/Lodging Market
F.W. Dodge reports that the building boom currently underway in the
Valley's hospitality industry is negatively affecting the bottom line for many
local area hotel operators. Since January, 639,000 SF of new hotel space has
been added to inventory and another 764,000 SF is slated to be completed in the
final six months of the year, adding more than 3,000 rooms to a marketplace that
is quickly becoming overbuilt. In an attempt to bolster occupancies, hoteliers
across all segments have cut room-rates, relative to last summer. Despite
attractive price incentives, occupancies through June are a percentage point
below year-ago levels at 71.6 percent. Demand has fueled rate increases in the
average daily rate (ADR). In 1996 it stood at 95.34 percent, up 8.9 percent from
$87.56 in 1995 and 20 percent from the $79.18 reported for 1994.
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In the near term, the Phoenix hotel market should experience favorable
demand conditions. Twenty-seven percent of Arizona's domestic out-of-state
visitors come from California; 17 percent of its international visitors are from
Mexico. Given the stabilization of Mexico's peso and California's rebounding
economy, leisure travel to the MSA should be robust. As a result, lodging demand
between 1998 and 2002 will be sturdy, totaling 4.3 msf; but average annual
increases of 4.5 percent in stock will hold occupancies in the 68 percent to 70
percent range.
With 7.5 msf in the planning pipeline it is quite evident that developers
will continue to enter the market at a rapid pace. F.W. Dodge is currently
tracking 17 projects which are scheduled to begin construction before year-end
1997, including: the 200-room Marriott Hotel, a 172 -room Quality Suites Hotel,
a 120-room Holiday Inn Suites, and 160-room, Radisson facility. In 1997, contact
activity will exceed 2.0 msf for the first time in over a decade. However,
rising competition and downward pressure on daily room rates will limit new
construction to a more reasonable 910,000 SF per year between 1998 and 2002.
This rate of construction is still more than double the average of the 58 MSA's
Dodge surveys.
Residential Market
Phoenix continues to be one of the most active housing markets in the
nation. Huge population growth and a sharply revived economy have driven vibrant
new home construction. In 1994, 28,784 single-family units were approved for
construction, the nation's highest total that year. In 1995, the sum in Phoenix
rose again, to 29,104 units. Still more, 29,892 units were authorized in 1996.
For the first half of 1997, 15,960 were permitted, according to preliminary data
from the bureau. Construction is active in a number of areas; the city of
Phoenix, Chandler and Scottsdale hold the lead, but Gilbert, Mesa, Glendale and
Peoria are also active. F.W. Dodge expects that single family construction is
expected to peak in 1997 at 29,800 units, before falling to an average of 24,200
over the next five years.
Prices remain low by national norms, but the gap seems to be quickly
narrowing. According to the National Association of Realtors, the second quarter
1997 median resale price in the metro market was $113,200, 8.5 percent below the
national median of $123,700, and 22.4 percent below the $145,900 median for the
Western U.S. A year earlier, these differences were respectively 14.7 percent
and 34.0 percent.
According to the 1997 Study of Housing Costs, conducted by E&Y Kenneth
Leventhal, Phoenix ranks as the 33rd least expensive housing market of the 75
major metropolitan markets surveyed. After factoring in tax deductions, owning a
home required approximately 22 percent of the median family income. According to
the study, housing costs were approximately the same for renters.
Apartment development in Phoenix has picked up markedly, particularly at
the high end, and particularly (but not only) in the North Phoenix-Scottsdale
area; Mesa, Chandler and Tempe have also been active. Indeed, building permit
numbers here are a good example of the steep cycles characteristic of Phoenix
area real estate markets. After averaging fewer than 1,900 units per year from
1989 through 1993, multi-family building
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permitting leapt to 5,991 units in 1994. It leapt again in 1995, to 8,220 units.
And yet another substantial gain was reported for 1996 with the authorization of
9,754 units.
As large as those numbers may seem, they pale beside the 34,580
multi-family units approved in 1984, and the 25,693 in 1985 (and the 17,821 of
1986). Through the first half of 1997, the pace appears to be cooling:
preliminary date from the U.S. Department of Commerce, Bureau of the Census,
report 3,832 units authorized, a 32 percent decline from the total for the
comparable period of 1996. In 1996, some 7,000 new units came on line, with a
higher total expected for the 1997 year-end tally. F.W. Dodge reports that since
1994, net absorption of 24,000 units was achieved, pushing vacancy rates to a
low of 6.1 percent.
Average vacancy, thus, has increased. Indeed, its been increasing since
1995--although as of first quarter 1997 the vacancy rate was still relatively
low at 5 percent (a far cry from the double-digit levels that persisted from
1985 to 1992). F.W. Dodge reports that since 1994 effective rents have risen at
an annual rate of 5.3 percent compared with 3.2 percent for the nation.
Despite the relatively large increases in inventory, the multi-family
sector continues to function efficiently. During the remainder of the decade the
supply-demand relationship for apartments should gradually improve. In the near
term, demand for market-rate and luxury condominiums will keep net absorption
above a 7,000-unit average per year through 2002. However, long-term demographic
trends indicate that elderly housing and assisted living facilities will be in
greater demand as the decade unfolds. Overall, F.W. Dodge expects Phoenix to
construct more multi-family facilities than any other western region city,
averaging 6,300 units per year between 1997 and 2002.
Summary
Most submarkets in Phoenix will continue to experience new development in
1997-98. Those areas not encountering new development will see increases in
rental rates as current space is absorbed and new construction takes place in
surrounding submarkets. The stimulated market has produced a tightening which
has improved overall vacancy rates and begun to push rental rates upward.
========================
G. Critical Observations
========================
The following bullet points summarize some of our general observations
relating to the subject's region:
o Economy - The Phoenix-Mesa economy is relatively diverse and has
seen strong growth over the past decade. The largest sectors of
employment include Services (32.0%), Wholesale/Retail Trade (23.7%),
Government (12.5%), Manufacturing (10.1%), and F.I.R.E. (9.8%).
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o Employment - Employment growth is projected to be 2.6 percent per
year, led by F.I.R.E., Services, and Transportation, Communications,
and Public Utilities. The Manufacturing base will continue to lag
the other sectors and expand at an annual rate of 1.3 percent per
year through 2010.
o Population - Population growth in the MSA is forecasted to be 2.1
percent per year, while household formation will occur at an annual
rate of 2.1 percent per annum.
o Average Household Income - Income levels are projected to increase
at an annual rate of about 1.4 percent per year through 2010 above
inflation.
o Retail Sales - Sales are forecasted to grow by about 2.7 percent per
year for the MSA as a whole, in real (1992) dollars.
o Consumer Markets - The attractiveness of Phoenix's consumer markets
is mixed. Positive factors include the area's fundamentally strong
growth, both in terms of resident population and income. Conversely,
relatively low per capita disposable income and Phoenix's
historically high level of cyclically tend to detract slightly from
the appeal of its retail markets.
o Strengths - Strengths of the region include low living and operating
costs and proximity to Southern California and Pacific Rim markets.
The MSA also benefits from an efficient transportation network and a
good quality of life. Rapid growth in the working-age population
continues to boost the outlook for expansion in the retail sector.
With wages, energy rates, and construction costs relatively low, the
area continues to keep and attract firms, a trend that continues to
invigorate growth in business-to-business markets.
o Weaknesses - Weaknesses within the MSA include a strained physical
and educational infrastructure which has resulted from the area's
rapid growth, compromising the quality of life within the region.
These are typical growing pains, however, which continue to be a
focus of local government.
Conclusion
The short- and long-term outlook for the Phoenix-Mesa region and its
surrounding area is for good growth in employment and population. The economy is
well diversified, with a relatively low cost of living and good transportation
system. On balance, we are relatively optimistic about the short-term outlook of
the subject region. Long-term, the region should see stability and good growth,
with increasing real estate values.
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NEIGHBORHOOD MAP
[MAP OMITTED]
<PAGE>
NEIGHBORHOOD ANALYSIS
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Neighborhood Description
The subject property's neighborhood is generally bounded by Beardsley Road
to the north, Greenway Road to the south, 32nd Street to the east and North 35th
Avenue to the west. This area is primarily developed with multi-family apartment
complexes, automobile dealerships, retail uses and manufactured housing
communities.
The subject property is situated along the south side of West Bell Road,
approximately two miles east of Interstate 17, in the City of Phoenix, Arizona.
Within the subject's neighborhood, West Bell Road is developed primarily with
retail uses, automobile dealerships and multi-family apartment complexes. The
majority of the retail developments are located to the east of the subject site,
and include: Food 4 Less, Safeway Grocery, Walgreens, Target, Kmart, Craftmart,
MacFrugal's, Ross-Dress for Less, Party City, Chinamart, Miller's Outpost and
Waldenbooks. These retail developments, to the east of the subject, have
occurred only within the past five years, which has increased traffic flow along
West Bell Road and has drawn prospective tenants into Central Park. Other
developments to the east of the subject include Harkins Theatres, LaFitness, and
the following restaurants: Perkins, McDonald's, Tokyo Express and Boston Market.
Automobile dealerships are situated primarily to the west of the subject site,
closer to Interstate 17. Multi-Family apartment complexes are located to the
north, west and south of the subject site, and manufactured housing communities
are located primarily northeast of the subject property.
Transportation in the subject's immediate area is excellent. The subject
property enjoys access and visibility along West Bell Road, an east/west,
four-lane paved roadway, with a middle turning lane. The subject property has
approximately 1,315 feet of frontage along the south side of West Bell Road.
West Bell Road stretches across the City of Phoenix and provides direct access
to Interstate 17 approximately two miles west of the subject property.
Interstate 17 provides access to downtown Phoenix.
In summary, the subject property is located within a retail and
residential area, which benefits from the accessibility and developments along
West Bell Road, and accessibility to Interstate 17.
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MARKET ANALYSIS
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National Overview
Reportedly, the largest property owners of manufactured housing
communities in the United States are: ROC Communities, headquartered in
Colorado; MHC, Inc., headquartered in Illinois; Ellenburg Capital, headquartered
in Oregon; Lautrec Ltd., headquartered in Michigan; Clayton Homes, headquartered
in Tennessee; Clayton Williams and Sherwood, headquartered in California;
Chateau Properties, Sun Communities and UNIPROP, headquartered in Michigan.
The following represents the top ten manufactured housing community firms,
as reported by GFA Management, as of 1997.
<TABLE>
<CAPTION>
=========================================================================================
1997 Firm Name State No. of Sites No. of Communities
Rank Owned/Managed Owned/Managed
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Sun Communities Michigan 30,295/0 84/0
- -----------------------------------------------------------------------------------------
2 ROC Communities Colorado 22,441/7,167 77/36
- -----------------------------------------------------------------------------------------
3 Manufactured Home Communities Illinois 27,349/838 69/3
- -----------------------------------------------------------------------------------------
4 Ellenburg Capital Florida 25,173/0 63/0
- -----------------------------------------------------------------------------------------
5 Lautrec Ltd. Michigan 22,652/0 58/0
- -----------------------------------------------------------------------------------------
6 Chateau Properties Michigan 20,003/0 47/0
- -----------------------------------------------------------------------------------------
7 Clayton Homes Tennessee 18,000/0 66/0
- -----------------------------------------------------------------------------------------
8 Clayton, Williams and Sherwood California 16,946/0 44/0
- -----------------------------------------------------------------------------------------
9 UNIPROP Michigan 14,931/0 40/0
- -----------------------------------------------------------------------------------------
10 The Bloch Organization Michigan 14,379/0 37/0
=========================================================================================
</TABLE>
According to the U.S. Census Bureau, more than 8,521,000 people were
living in manufactured housing communities as of 1990 compared to 3,838,678 in
1980. This represents an increase in manufactured housing community living of
approximately 122.0 percent over the last ten years. Over the last ten years,
there has been a steady increase in manufactured housing community development
across the country. Among the demographic factors which account for the increase
in manufactured housing community living are: decreasing household size, a
growing demand for smaller housing, as well as an alternative to the increasing
cost of housing. Nationally, the largest percentage of manufactured housing
communities are located in California, Michigan, Colorado, Florida, New York,
Minnesota, Indiana, Arizona, Ohio, and Wisconsin.
The manufactured home industry has dramatically changed over the last 20
years. Manufactured homes are now designed and constructed to accommodate
spacious and attractive living requirements. Today, approximately one out of
sixteen families live in manufactured housing units. The manufactured housing
market share has been growing
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Market Analysis
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steadily over the last 10 years. In 1990, 6.7 percent of Americans lived in
manufactured housing units, up from 2.9 percent compared to 1970, according to
the U.S. Census Bureau, which represents 12.0 to 14.0 percent of all new housing
built since the mid-1980's, according to the Manufactured Housing Institute in
Arlington, Virginia.
In 1990, the average cost of a manufactured housing unit was $27,800
compared to $149,000 for a new house (including land), according to the
Manufactured Housing Institute. This reflects a 28.0 percent increase in the
cost of manufactured housing since 1980 versus a 49.0 percent increase in
conventional housing. Industry experts estimate that a single-family home
selling for $150,000 would require an annual income of $52,671. To purchase a
$27,800 manufactured housing unit, only a $19,984 income level would be
required.
At Fleetwood Enterprises, the nation's largest manufacturer of
manufactured housing units, units may be purchased for up to $100,000, which
would include a three-bedroom, two-bath unit of 2,100 square feet, with vaulted
ceilings.
In 1990, approximately 10.0 percent of manufactured home owners lived in
units worth approximately $40,000, up from 4.0 percent compared to 1981,
according to a study conducted by Foremost Insurance Company in Grand Rapids,
Michigan. Also, according to the study, approximately 21.0 percent of the
manufactured housing households are occupied by people' 65 years of age or
older, slightly lower than the age group for conventional homes, as reported by
Foremost Insurance.
The demand for good quality institutional grade manufactured housing
communities has substantially increased over the last ten years. Manufactured
housing communities provide an affordable alternative to the increasing cost of
housing. Also, manufactured housing communities provide an alternative form of
living for the elderly and retirees, especially for those living on fixed
incomes.
Acquisitions of manufactured housing communities during 1993 and 1994 were
clearly dominated by Real Estate Investment Trusts. During 1994 and 1995
Manufactured Home Communities (MHC) and ROC communities lead the acquisition of
manufactured housing communities nationally. During 1996, Sun Communities
captured the lead and, together with ROC and MHC dominate the Real Estate
Investment Trust market.
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Market Analysis
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The following chart represents the largest Real Estate Investment Trusts,
from 1991 to 1996, as reported by GFA Management
=============================================================================
HOME SITE GROWTH, DEVELOPMENT AMONG THE LARGEST
REAL ESTATE INVESTMENT TRUST (REITS)
- --------------------------------------------------------------------------------
Year ROC MHC Chateau Sun United Total Annual
Growth
- --------------------------------------------------------------------------------
1996 29,608 28,187 20,003 30,295 5,234 113,327 17.0%
- --------------------------------------------------------------------------------
1995 27,910 26,237 19,594 18,000 4,850 96,591 9.0%
- --------------------------------------------------------------------------------
1994 26,231 28,407 15,689 13,500 4,623 88,450 37.8%
- --------------------------------------------------------------------------------
1993 20,142 14,700 15,261 9,036 5,050 64,189 17.8%
- --------------------------------------------------------------------------------
1992 18,745 12,873 10,032 7,600 5,200 54,450 N/A
- --------------------------------------------------------------------------------
1991 9,030 13,079 9,759 N/R N/R N/A N/A
- --------------------------------------------------------------------------------
N/R = No report N/A = Not applicable
- --------------------------------------------------------------------------------
NOTE: The 113,327 sites counted for the top five REITs in 1996 make up 20
percent of the total sites surveyed in the 1997 Allen Report. These rental sites
are located in 339 communities, accounting for about 1 percent of some 50,000
existing manufactured housing communities nationwide. The community counts for
the five major REITs are: ROC (113), MHC (72), Chateau (47), Sun (84) and United
(23). The proportion of communities owned by each of the REITs compared to the
others is: ROC (33%), MHC (21%), Chateau (14%), Sun (25%) and United (7%).
================================================================================
Manufactured Home Communities (MHC) is expected to continue an aggressive
acquisition campaign through 1997 and beyond. As of September 1997, the MHC REIT
had a market cap of $632.0 million, and continues to pursue the acquisition of
manufactured home communities. Aside from the ELL-CAP $300.0 million
transaction, in September 1997 Manufactured Home Communities, Inc. completed a
$107.0 million purchase of 18 manufactured housing communities and two related
commercial properties from partnerships affiliated with Mobileparks West. The
communities, with 3,505 sites, were purchased with about $3.0 million
manufactured home operating units, $16.0 million in cash and $20.0 million of
installment notes and assumed debt. The communities have an average monthly
rental of $349.00. The communities are located in California, Utah, Oregon,
Washington and Nevada. MHC may be the first manufactured home community REIT to
reach $1.0 billion.
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33
<PAGE>
Market Analysis
================================================================================
The MHC REIT continues to perform and expand, and as of September 1997 was
trading at $25.625, with a current yield of 5.2 percent. The top traded REITs,
are presented as follows.
<TABLE>
<CAPTION>
================================================================================================================
REIT MARKET UPDATE
- ----------------------------------------------------------------------------------------------------------------
Company Symbol Price Current Yield 52 Week High 52 Week Low Annual 12 Mth Tot Rtn
(9/19/97) Dividend
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CPJ $29.688 5.8% $31.125 $22.250 1.72 26.6%
- ----------------------------------------------------------------------------------------------------------------
MHC $25.625 5.2% $26.428 $18.875 1.32 30.7%
- ----------------------------------------------------------------------------------------------------------------
SUI $37.428 5.0% $ 38.00 $27.750 1.88 31.8%
- ----------------------------------------------------------------------------------------------------------------
UMH $11.625 6.0% $13.625 $10.875 0.70 -1.7%
- ----------------------------------------------------------------------------------------------------------------
Total return figures obtained through Standard & Poors and are for the period
through Sept 1997.
================================================================================================================
</TABLE>
The Southwest and Northwest Regions of the nation are the preferred
locations regarding recent and future manufactured housing community
acquisitions. However, investors seeking moderate, but consistent growth
expectations, are still looking at the midwest region. Also, southern portions
of Florida are still considered a prime area for investors seeking good quality
manufactured housing communities, with good up-side potential. What was once a
stagnant market, the northeast region is now being considered for future
acquisitions.
According to a recent study prepared by Merrill Lynch & Company, ownership
in the manufactured housing community industry is highly fragmented. The top 150
owner-operators account for less than 5.0 percent of the total industry, whereas
a host of "mom-and-pop" private companies account for the other 95.0 percent.
This unglamorous niche industry is ripe for consolidation, and an infusion of
professional management expertise is likely to yield significant economies of
scale. The four REIT's specializing in manufactured housing communities are
already among the top ten owner-operators, and are well positioned to facilitate
and hasten the industry's consolidation to the likely benefit of their
stockholders.
Manufactured homes are the fastest growing component of the nation's
housing inventory, due to their affordability, good quality design and safety
standards. According to the Merrill Lynch & Company Manufactured Housing
Community Industry Report, factory-built homes appeal especially to senior
citizens and to households with limited economic needs, two segments of the
population that are likely to grow rapidly in coming years.
Consistent returns in manufactured housing community investments have been
the mainstay of the industry. For this reason, as well as the amount of
acquisitions seen by Real Estate Investment Trusts (REITs) from 1991 to 1996,
the availability of good quality manufactured housing communities has been
substantially reduced compared to the 1980's.
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Market Analysis
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Good quality manufactured housing communities still command premium prices, thus
driving down overall capitalization rates.
Cushman & Wakefield's Valuation Advisory Services has tracked sale
transactions of manufactured housing communities since 1985. Overall
capitalization rates have consistently been within the 8.75 to 10.00 percent
range for communities located in moderate to increasing growth markets, and as
low as near 8.0 percent for those communities located in growing markets that
poses significant upside potential. Overall capitalization rates are clearly
affected and are differentiated among the properties relative to rent levels,
age, quality, condition, location, amenities, demographic characteristics,
resident profile, as well as the quality of management.
Manufactured housing communities fall within, and are categorized by their
overall appearance, age, and amenities, but more importantly the strength of the
local market. The various categories of manufactured housing communities,
according to the Woodall Directory, can be ranked as 1 to 5 Star Parks. These
rankings are defined as follows:
One Star Park
The most important consideration for a one star park is overall
appearance. If it is not a decent place to live, it will not be listed in
Woodall's Directory. The following are general requirements:
o Fair overall appearance;
o Patios on most lots. May be concrete, asphalt, wood, or some
suitable material;
o Grass, rock or shell to cover ground;
o Streets fair to good. May be dirt, asphalt or gravel in reasonable
condition;
o Restrooms clean, if any;
o Adequate laundry or laundromat nearby;
o If fences allowed, must be neat;
o Mail service;
o Homes may be old models, but show evidence of care; and,
o Manager available some hours of each day.
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Market Analysis
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Two Star Park
In addition to the requirements for a one star park, a two star park will
have the following:
o Landscaping - some lawns and shrubs;
o Streets in good condition. Must be dust free of crushed rock, gravel
or shell minimum;
o Neat storage;
o Well equipped laundry or laundromat nearby;
o 200 volt connections available;
o If children accepted, park should have play area;
o Park free of clutter, such as old cars and other abandoned
equipment; and,
o Well maintained and managed.
Three Star Park
What a three star park does it does well, but not as uniformly as higher
rated parks. Many three star parks were once higher rated, but original
construction does not allow for today's 10-foot, 12-foot, and double-wides
or the 55-foot and 60-foot lengths. If children are allowed, there should
be adequate play area. However, the disarray caused by children may at
times be the determining factor that keeps a three star park at that level
when it otherwise could be rated higher. In addition to the requirements
for one and two star parks, a three star park must have the following:
o Attractive entrance;
o All homes must be in good condition;
o Awnings and cabana rooms on some homes in southern areas;
o Some spaces for large mobile homes;
o Paved or hard surfaced streets;
o Off-street parking or streets wide enough for safe on-street
parking;
o Good lawns or substitute throughout, shade trees, some shrubs where
climate permits;
o Concrete patios or the equivalent on all lots;
o All lots neat and attractive;
o All park buildings in good repair;
o and, Good management.
Four Star Park
Four star parks are luxury parks. In addition to the requirements for one,
two and three star parks, a four star park must have the following:
o Good landscaping;
o Most homes skirted with metal skirts, concrete block, ornamental
wood or stone;
o Paved streets, edged or curbed.
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Market Analysis
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o Uncrowded lots;
o Underground utilities if permitted by local conditions and
authorities;
o Most tanks, if present, concealed;
o Any hedges or fences must be attractive and uniform;
o Awnings, cabanas, or porches on most homes in southern areas.
(Excepting double-wide units.);
o Most lots to accommodate large mobile homes;
o Where row parking of homes exists, all must be lined up uniformly;
o Community hall and/or swimming pool and/or recreation programs. If a
park is four star in all but this requirement, the fourth star will
be printed as an open star indicating a four star park without
park-centered recreation; and,
o Excellent management.
Five Star Park
Five star parks are the finest. They should be nearly impossible to
improve. In addition to the requirements for one, two, three, and four
star parks, a five star park must have the following:
o Well planned and laid out spacious appearance;
o Good location in regard to accessibility and desirable neighborhood.
In some locations, park should be enclosed by high hedges or
ornamental fence;
o Wide paved streets in perfect condition. Curbs or lawns edged to
streets, sidewalks, street lights, street signs;
o Homes set back from street;
o Exceptionally attractive entrance and park sign;
o Patios at least 8 x 30 feet. (Excepting double-wide units.);
o Paved off-street parking such as carports or planned parking;
o All homes skirted;
o All hitches concealed. Any existing tanks concealed;
o Recreation, some or all of the following: swimming pool (excepting
areas with long, cold winters), shuffleboards, horseshoe pitching,
golf course, hobby shop, hobby classes, games, potlucks, dances or
natural recreational facilities;
o Beautifully equipped recreation hall with kitchen. Room for
community gatherings, tiled restrooms, etc.;
o Uniform storage sheds or central storage facilities;
o All late model homes in excellent condition;
o At least 60 percent occupancy in order to judge quality of residents
which indicates park's ability to maintain a five star rating
between inspections;
o All empty lots grassed, graveled or otherwise well maintained;
o If pets or children allowed, there must be a place for them to run
and play without cluttering the streets and yards. Most five star
parks are for adults only; and,
o Superior management interested in comfort of residents and
maintenance of park.
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<PAGE>
Market Analysis
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The demand for good quality institutional grade manufactured housing
communities is anticipated to increase throughout the 1990's, since manufactured
housing communities provide an alternative form of living for the elderly and
retirees, especially for those living on fixed income. Manufactured home
shipments continue to be strong. Shipments rose 20.0 percent in 1992 and 1994,
and 12.0 percent in 1995. The market for good quality manufactured housing
communities is expected to be strong, with yield and capitalization rates and
prices expected to continue to be competitive, with the REITs leading the way.
Competition
We have surveyed seven manufactured housing communities located within the
subject's primary market, including the subject property, containing a total of
1,659 sites. The combined occupancy rate of these seven manufactured housing
communities, including the subject property, is approximately 98.0 percent.
Excluding the subject property in our survey, the combined occupancy rate is
also approximately 99.0 percent, based on 1,366 sites.
The name and location of the subject property's primary competition, as
well as the number of sites, occupancy levels, amenities offered, monthly rental
rates and services provided in the monthly rental rate, are presented on the
following facing page, along with a map which identifies the location of each
competing park.
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<PAGE>
<TABLE>
<CAPTION>
==============================================================================================================================
SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- ------------------------------------------------------------------------------------------------------------------------------
Number Age
Of Sites ---------
-------- Condition Services Date Of
Comp. Name Occupancy --------- Monthly Provided Last Rental
No. Location Level Amenities Park Rating(1) Rent in Rent Increase
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
R-1 Orangewood Village 393 Clubhouse 1975 $332.00/Mo. Water July, 1997
2650 W. Union Hills --- Pool/Spa ---- To Sewer
Phoenix, Arizona 98% Billiard Room Good $347.00/Mo. Refuse
Shuffleboard ----
Golf Course 5*
Laundry
Storage
- ------------------------------------------------------------------------------------------------------------------------------
R-2 Phoenix North 138 Clubhouse 1978 $294.00/Mo. Water February, 1997
17825 N. 7th Street --- Pool/Spa ---- To Sewer
Phoenix, Arizona 99% Shuffleboard Good $309.00/Mo. Refuse
Golf Course ----
Library 5*
Laundry
Storage
- ------------------------------------------------------------------------------------------------------------------------------
R-3 Boulder Ridge 264 Clubhouse 1983 $240.00/Mo. None July, 1997
2233 E. Barron Drive --- Pool/Spa ---- To
Phoenix, Arizona 100% Tennis Courts Good $340.00/Mo.
Billiard Room ----
Laundry 5*
Storage
- ------------------------------------------------------------------------------------------------------------------------------
R-4 Bonaventure 281 Clubhouse 1976 $280.00/Mo. Water Annual
19401 N. 7th Street --- Pool/Spa ---- Sewer
Phoenix, Arizona 99% Shuffleboard Good Refuse
Billiard Room ----
Laundry 4*
Storage
- ------------------------------------------------------------------------------------------------------------------------------
R-5 Desert Skies 175 Clubhouse 1984 $266.00/Mo. None January, 1997
19802 N. 32nd Street --- Pool/Spa ---- To
Phoenix, Arizona 98% Billiard Room Good $286.00/Mo.
Exercise Room ----
Putting Green 5*
Laundry
Storage
==============================================================================================================================
<CAPTION>
========================================================
SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- --------------------------------------------------------
3-Year
Average
Comp. Name Annual Rental
No. Location Increase
- --------------------------------------------------------
<S> <C> <C>
R-1 Orangewood Village $12.00/Mo.
2650 W. Union Hills
Phoenix, Arizona
- --------------------------------------------------------
R-2 Phoenix North $16.00/Mo.
17825 N. 7th Street
Phoenix, Arizona
- --------------------------------------------------------
R-3 Boulder Ridge $15.00/Mo.
2233 E. Barron Drive
Phoenix, Arizona
- --------------------------------------------------------
R-4 Bonaventure $15.00/Mo.
19401 N. 7th Street
Phoenix, Arizona
- --------------------------------------------------------
R-5 Desert Skies $12.00/Mo.
19802 N. 32nd Street
Phoenix, Arizona
========================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- ------------------------------------------------------------------------------------------------------------------------------------
Number Age
Of Sites ---------
-------- Condition Services Date Of
Comp. Name Occupancy --------- Monthly Provided Last Rental
No. Location Level Amenities Park Rating(1) Rent in Rent Increase
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
R-6 Shadow Hills 115 Pool/Spa 1983 $265.00/Mo. None Annual
1802 E. Campo Bello --- Playground ---- To
Phoenix, Arizona 100% Tennis Courts Good $275.00/Mo.
Basketball Court ----
Volleyball Court 4*
Laundry
Storage
- ------------------------------------------------------------------------------------------------------------------------------------
Subject Central Park 293 Clubhouse 1977 $326.00/Mo. None October, 1997
205 West Bell Road --- Pool/Spa ---- To
Phoenix, Arizona 95% Golf Course Good $334.00/Mo.
Billiard Room ----
Shuffleboard 5*
Storage
====================================================================================================================================
<CAPTION>
===========================================================================================================
SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- -----------------------------------------------------------------------------------------------------------
3-Year
Average
Comp. Name Annual Rental
No. Location Increase
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
R-6 Shadow Hills $10.00/Mo.
1802 E. Campo Bello
Phoenix, Arizona
- -----------------------------------------------------------------------------------------------------------
Subject Central Park $15.00/Mo.
205 West Bell Road
Phoenix, Arizona
===========================================================================================================
(1) Ratings from One Star to Five Star Parks are defined in the National Overview section of this report.
===========================================================================================================
</TABLE>
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
COMPETING MANUFACTURED HOUSING MAP
[MAP OMITTED]
<PAGE>
Rental rates of manufactured housing communities located within the
subject's primary market range from $240.00 to $347.00 per site, on a monthly
basis. The subject property is currently quoting monthly rental rates within the
market range, or $326.00 to $335.00 per site. The last rental rate increase at
the subject property was October, 1997, of approximately $15.00 per month, which
represents a 4.46 to 4.48 percent increase.
The enclosed comparable rentals are considered the most competitive to the
subject property regarding amenities offered, condition, location and overall
ranking.
Comparable R-1, Orangewood Village, is located at 2650 W. Union Hills, in
Peoria, Arizona. This comparable property is a 55-year-old and greater
residential community, which contains 393 sites, and is 98.0 percent
occupied. Orangewood Village was developed in 1975, and is in overall good
condition. Over the last three years, the annual rental rate increased
approximately $12.00 per month. Monthly rental rates range from $332.00 to
$347.00, with water, sewer and refuse service included in monthly rental
payment. Amenities include a clubhouse, pool, spa, billiard room,
shuffleboard, golf course, laundry facility and recreational vehicle
storage.
Comparable R-2, Phoenix North, is located at 17825 N. 7th Street, in
Phoenix, Arizona. This comparable property is a 55-year-old and greater
residential community, which contains 138 sites, and is 99.0 percent
occupied. Phoenix North was developed in 1978, and is in overall good
condition. Over the last three years, the annual rental rate increased
approximately $16.00 per month. Monthly rental rates range from $294.00 to
$309.00, with water sewer and refuse service included in monthly rental
payment. Amenities include a clubhouse, pool, spa, shuffleboard, golf
course, library, laundry facility and recreational vehicle storage.
Comparable R-3, Boulder Ridge, is located at 2233 E. Barron Drive, in
Phoenix, Arizona. This comparable property is a 55-year-old and greater
residential community, which contains 264 sites, and is 100.0 percent
occupied. Boulder Ridge was developed in 1983, and is in overall good
condition. Over the last three years, the annual rental rate increased
approximately $15.00 per month. Monthly rental rates range from $240.00 to
$340.00, with no services included in monthly rental payment. Amenities
include two clubhouses, two pools, two spas, tennis courts, billiard room,
laundry facility and recreational vehicle storage.
Comparable R-4, Bonaventure, is located at 19401 N. 7th Street, in Phoenix
Arizona. This comparable property is a family residential community, which
contains 281 sites, and is 99.0 percent occupied. Bonaventure was
developed in 1976, and is in overall good condition. Over the last three
years, the annual rental rate increased approximately $15.00 per month.
Monthly rental rates are $280.00, with water, sewer and refuse service
included in monthly rental payment. Amenities include a clubhouse, pool,
spa, shuffleboard, billiard room, laundry facility and recreational
vehicle storage.
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<PAGE>
Comparable R-5, Desert Skies, is located at 19802 N. 32nd Street, in
Phoenix, Arizona. This comparable property is a 55-year-old and greater
residential community, which contains 175 sites, and is 98.0 percent
occupied. Desert Skies was developed in 1984, and is in overall good
condition. Over the last three years, the annual rental rate increased
approximately $12.00 per month. Monthly rental rates range from $266.00 to
$286.00, with no services provided in monthly rental payment. Amenities
include a clubhouse, pool, spa, billiard room, exercise room, putting
green, laundry facility and recreational vehicle storage.
Comparable R-6, Shadow Hills, is located at 1802 E. Campo Bello Road, in
Phoenix, Arizona. This comparable property is a family residential
community, which contains 115 sites, and is 100.0 percent occupied. Shadow
Hills was developed in 1983, and is in overall good condition. Over the
last three years, the annual rental rate increased approximately $10.00
per month. Monthly rental rates range from $265.00 to $275.00, with no
services provided in monthly rental payment. Amenities include a pool,
spa, playground, tennis courts, basketball court, volleyball court,
laundry facility and recreational vehicle storage.
In our opinion, and based on conversations with the on-site manager,
property R-1 competes most favorably with the subject property, with monthly
rental rates ranging from $332.00 to $347.00 per site. The subject property is
currently quoting monthly rental rates ranging from $326.00 to $335.00 per site,
which is within the range of rental rates of our more comparable properties. The
subject property competes very effectively with its primary competitors
regarding amenities, condition and current rent structure.
Comparable Manufactured Housing Community Sales
A search of the subject's market revealed six recent sales of manufactured
housing communities located in the Phoenix-Mesa MSA. The following is a brief
discussion of each of the manufactured housing sales located within the
subject's market. These sales are summarized on the following facing page.
Comparable Sale I-1, Mesa Village, is located at 2701 E. Allred Avenue, in
Mesa, Arizona. This property contains 201 sites, situated on 18.36 acres
of land area. The property was in good condition at the time of sale and
was developed in 1964. Amenities include a pool, laundry facility and
shuffleboard. The property was approximately 99.0 percent occupied at the
time of sale. The property was purchased for $5,000,000, which equates to
$24,876 per site.
Comparable Sale I-2, Chaparral Mobile Village, is located at 400 W.
Baseline Road, in Tempe, Arizona. This property contains 359 sites,
situated on 41.10 acres of land area. The property was in average
condition at the time of sale and was developed in 1971. Amenities
includes a pool. The property was 100.0 percent occupied at the time of
sale. The property was purchased for $7,800,000, which equates to $21,727
per site.
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<PAGE>
<TABLE>
<CAPTION>
===========================================================================================================================
SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- ---------------------------------------------------------------------------------------------------------------------------
$EGI/Site
Sales Price ---------
Per Site $Expense/Site
Sales Date Land Area Density -------- EGIM -------------
Comp. Name ---------- --------- -------- Occupancy ---- Expense Ratio
No. Location Sales Price No. Sites Condition At Sale $NOI/Site OAR % Of EGI
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
I-1 Mesa Village 1/97 18.36 10.95 $24,876 N/A N/A N/A
2701 E. Allred Avenue ---- ----- ----- -------
Mesa, Arizona $5,000,000 201 Good 99%
- ---------------------------------------------------------------------------------------------------------------------------
I-2 Chaparral Mobile 12/96 41.10 8.73 $21,727 N/A N/A N/A
Village ----- ----- ---- -------
400 W. Baseline Road $7,800,000 359 Average 100%
Tempe, Arizona
- ---------------------------------------------------------------------------------------------------------------------------
I-3 Casa del Sol I Resort 10/96 30.886 7.96 $35,000 $2,642 9.16x $3,821
11411 N. 91st Avenue ----- ------ ---- ------- ----- ------
Peoria, Arizona $8,610,000 246 Good 99% 7.55% $1,179
------
30.86%
- ---------------------------------------------------------------------------------------------------------------------------
I-4 Casa del Sol II 10/96 28.872 8.28 $35,021 $3,096 8.13x $4,310
Resort ----- ------ ---- ------- ----- ------
10960 N. 67th Avenue $8,370,000 239 Good 99% 8.84% $1,213
Peoria, Arizona ------
28.14%
- ---------------------------------------------------------------------------------------------------------------------------
I-5 Brentwood Southern 4/96 60.06 5.75 $30,551 $2,520 8.49x $3,600
8103 E. Southern Ave. ---- ----- ---- ------- ----- ------
Mesa, Arizona $10,540,000 345 Good 100% 8.25% $1,080
------
30.0%
- ---------------------------------------------------------------------------------------------------------------------------
I-6 Sunrise Heights 2/94 28.0 7.14 $20,000 $1,680 7.38x $2,710
17801 North 16th ---- ---- ---- ------- ----- ------
Street $4,000,000 200 Good 95% 8.40% $1,030
Phoenix, Arizona ------
38.01%
- ---------------------------------------------------------------------------------------------------------------------------
Subject Central Park - - - 38.05 7.70 - - - $2,634 N/A $3,801
205 West Bell Road ----- ---- ------
Phoenix, Arizona 293 Good 95% $1,167
------
30.70%
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
======================================================================================
SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- --------------------------------------------------------------------------------------
Comp. Name Comparability to
No. Location to the Subject Comments
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
I-1 Mesa Village Inferior Developed in 1964;
2701 E. Allred Avenue Good condition; Amenities
Mesa, Arizona include: pool, laundry
facility and shuffleboard.
- --------------------------------------------------------------------------------------
I-2 Chaparral Mobile Inferior Developed in 1971; Average
Village condition; Amenities
400 W. Baseline Road includes a pool.
Tempe, Arizona
- --------------------------------------------------------------------------------------
I-3 Casa del Sol I Resort Similar Developed in 1972; Good
11411 N. 91st Avenue condition; Amenities
Peoria, Arizona include a clubhouse, pool,
spa, saunas, library,
activity center, billiard
room, exercise room,
shuffleboards, golf course
and laundry facility.
- --------------------------------------------------------------------------------------
I-4 Casa del Sol II Similar Developed in 1977; Good
Resort condition; Amenities
10960 N. 67th Avenue include: clubhouse, pool,
Peoria, Arizona spa, saunas, library,
billiard room, exercise
room, golf course, laundry
facility and RV storage.
- --------------------------------------------------------------------------------------
I-5 Brentwood Southern Similar Developed in 1983;
8103 E. Southern Ave. Good condition; Amenities
Mesa, Arizona include: clubhouse, two
pools, two spas, horseshoes
and shuffleboard.
- --------------------------------------------------------------------------------------
I-6 Sunrise Heights Inferior Developed in 1981; Good
17801 North 16th condition; Amenities
Street include: clubhouse, pool,
Phoenix, Arizona spa and tennis court.
- --------------------------------------------------------------------------------------
Subject Central Park Subject Property Developed in 1977; Good
205 West Bell Road condition; Amenities
Phoenix, Arizona include: clubhouse, pool,
spa, golf course, billiard
room, shuffleboard, laundry
facility and RV storage.
======================================================================================
</TABLE>
<PAGE>
Market Analysis
================================================================================
Comparable Sale I-3, Casa del Sol I Resort, is located at 11411 N. 91st
Avenue, in Peoria, Arizona. This property contains 246 sites, situated on
30.886 acres of land area. The property was in good condition at the time
of sale and was developed in 1972. Amenities include a clubhouse, pool,
spa, saunas, library, activity center, billiard room, exercise room,
shuffleboards, golf course and laundry facility. The property was
approximately 99.0 percent occupied at the time of sale. The property was
purchased for $8,610,000, which equates to $35,000 per site.
Comparable Sale I-4, Casa del Sol II Resort, is located at 10960 N. 67th
Avenue, in Peoria, Arizona. This property contains 239 sites, situated on
28.872 acres of land area. The property was in good condition at the time
of sale and was developed in 1977. Amenities include a clubhouse, pool,
spa, saunas, library, billiard room, exercise room, golf course, laundry
facility and recreational vehicle storage. The property was approximately
99.0 percent occupied at the time of sale. The property was purchased for
$8,370,000, which equates to $35,021 per site.
Comparable Sale I-5, Brentwood Southern, is located at 8103 E. Southern
Avenue, in Mesa, Arizona. This property contains 345 sites, situated on
60.06 acres of land area. The property was in good condition at the time
of sale and was developed in 1983. Amenities include a clubhouse, two
pools, two spas, horseshoes and shuffleboard. The property was 100.0
percent occupied at the time of sale. The property was purchased for
$10,540,000, which equates to $30,551 per site.
Comparable Sale I-6, Sunrise Heights, is located at 17801 N. 16th Street,
in Phoenix, Arizona. This property contains 200 sites, situated on 28.0
acres of land area. The property was in good condition at the time of sale
and was developed in 1981. Amenities include a clubhouse, pool, spa and
tennis court. The property was approximately 95.0 percent occupied at the
time of sale. The property was purchased for $4,000,000, which equates to
$20,000 per site.
It should be noted that comparability does not imply an identical or exact
duplicate, but rather the possession of a similar utility and affected by
similar supply and demand forces. Also, relative to the subject property,
differences include: time or date of the transactions; location, which
encompasses differences in accessibility; site characteristics, including
differences in size, topography, access, exposure and development capacities;
and improvement characteristics, which include differences in age, quality,
condition, size and amenities.
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Market Analysis
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Demographic Trends
Based on information provided by National Decision Systems (NDS), the
populations within the subject's primary 5-mile and secondary 10-mile market
areas, as of 1997, are 307,119 and 832,099, respectively. The populations of the
subject's primary and secondary market areas are projected to increase to
355,431 and 935,324, respectively, by the year 2002.
According to NDS, the total number of households within the subject's
primary and secondary market areas, are 123,947 and 335,301, respectively, for
1997. The number of households within the subject's primary 5-mile and secondary
10-mile market areas are projected to increase to 147,895 and 390,956,
respectively, by the year 2002.
The average household income levels within the subject's primary and
secondary market areas, for 1997, are $53,367 and $60,629, respectively. The
median household income levels within the subject's primary and secondary market
areas, for 1997, are $40,241 and $42,642, respectively. Per capita income within
the subject's primary and secondary market areas, for 1997, are $21,572 and
$24,424, respectively.
Based on the above levels, the demographics of the subject's primary
market area appear to indicate a positive growth trend, based on information
provided by NDS. For additional demographic information, please refer to the NDS
summary report in the Addenda of this report.
Expense Analysis
Expenses exhibited by manufactured housing communities nationally are
typically 35.0 to 45.0 percent of effective gross income. However, expense
ratios of manufactured housing communities located in the southeast and
southwest regions of the nation are typically lower by comparison, due to lower
real estate taxes and common area maintenance charges.
As presented in the Summary of Manufactured Housing Community Sales,
operating expense ratios of competing parks range from 28.14 to 38.01 percent of
effective gross income, and $1,030 to $1,213 on a per site basis. The subject
property is currently reporting expenses, for the 12-month trailing period of
1997, at 30.70 percent of effective gross income and $1,167 on a per site basis.
Operating expenses appear to be within the range of comparable properties on
both a percentage of effective gross income and a per site basis.
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Market Analysis
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Market Supply and Demand
There are a total of six competing manufactured housing communities
located within the subject's market, which total 1,366 sites, with a
corresponding average occupancy rate of 99.0 percent. No specific absorption
statistics were available. The subject property, based on conversations with
management, has historically had occupancy rates consistent with competing
parks, and is currently 95.0 percent occupied. We believe the current occupancy
rate of the subject property is stabilized, and has similar occupancy rates of
competing parks presently presented. Based on the subject's current occupancy
rate and occupancy rates at competing parks, demand appears to be strong, with
steady rental rate increases expected.
Conclusion
Historically, the subject's primary market has sustained occupancy levels
of 95.0 to 100 percent. Rental rates of similar manufactured housing communities
located within the subject's primary market generally range from $240.00 to
$347.00 per site, on a monthly basis. The subject property is currently quoting,
and is currently achieving (based on the most recent rent roll provided), a
monthly rental rate within the range of competing parks, or at $326.00 to
$335.00 per site.
Based on our research, steady increases in rental rates are anticipated,
based on actual historical performance of competing parks and historical
increases seen at the subject property. Sales transactions of manufactured
housing communities located within the subject's region range from $20,000 to
$35,021 per site, with corresponding overall rates ranging from 7.55 to 8.84
percent. In our opinion, the subject property competes favorably with its
competition regarding amenities, condition, rent structure and overall market
rating.
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SITE PLAN
[GRAPHIC OMITTED]
<PAGE>
PROPERTY DESCRIPTION
================================================================================
Site Description
The subject site is located along the south side of West Bell Road,
approximately two miles east of Interstate 17, in Phoenix, Maricopa County,
Arizona. The subject site is rectangular in shape and contains approximately
38.05 acres, or 1,657,429.2 square feet of land area. Topographically, the site
is basically level and at street grade.
Sewer and water are provided by the city, while natural gas is supplied by
Southwest Gas Corporation, electricity by Arizona Public Service and telephone
by U.S. West Communications. Primary access to the subject site is available
from West Bell Road Avenue. Reported by the City of Phoenix Flood Information
Department, the subject property is located in Zone X, minimal flood hazard
area, as stated on the Flood Insurance Rate Map, Community Panel No. 12158,
dated September 30, 1995.
The streets within the park have two-lanes, with concrete curbs and street
lights. Overall, the subject site is typical of the area and is functionally
well suited for its current use.
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.
Improvements Description
The subject property was originally developed in 1977. The subject
improvements consist of a 293-site manufactured housing community, with a
community center, swimming pool, spa, golf course, billiard room, shuffleboard,
laundry facility and recreational vehicle storage. Of the 293 total sites, 131
sites are single-wide, while the remaining 162 sites are double-wide.
The community center consists of a manager's office, restroom facilities,
open-space available for resident use, billiard room and a fully equipped
kitchen area. The exterior of the one-story community center is brick, and
appeared to be in overall good condition at the time of inspection.
The swimming pool and spa are located adjacent to the community center,
while the golf course runs through the center of the park. Off-street parking is
available for each resident. Site improvements within the park include: paved
streets, dirt sites, street lighting and signage. Overall, the site improvements
appeared to be in good condition at the time of inspection.
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Central Park is a functional manufactured housing community with good
ingress and egress along West Bell Road. Overall, the subject community appears
to be well maintained and is in good condition. Central Park is a functional
manufactured housing community and competes favorably with other existing
manufactured housing communities in the area in terms of appearance and
amenities. The subject property would fit the profile of a Five Star Park, as
defined in the National Overview section of this report.
Real Property Taxes and Assessments
Assessed value of commercial property in Maricopa County is assessed at
25.0 percent of the Assessor's opinion of market value. The subject property is
identified by tax parcel number 208-12-012B 6.
The total amount of real estate taxes for 1996 payable in 1997 for the
subject property amounts to $57,726.48. The total amount of real estate taxes
for 1996 payable in 1997 equates to approximately $197.01 per site.
Zoning
According to the City of Phoenix zoning officials, the subject property is
currently zoned R-3, Multi-Family Residential. Based on conversations with the
City of Phoenix zoning officials, the subject property is a legal, but
non-conforming use for this zoned district.
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CONCLUSION
================================================================================
Conclusion
o The subject property, Central Park, is a functional manufactured
housing community, which competes favorably in relation to its
competition;
o Comparable manufactured housing communities located within the
subject's market range in monthly rental rates per site from $240.00
to $347.00;
o The subject property is currently quoting, and is currently
achieving (based on the most recent rent roll provided) a monthly
rental rate ranging from $326.00 to $335.00 per site, which is
within the range of competing parks;
o Sale transactions of manufactured housings located within the
subject's region range in unit sales prices per site from $20,000 to
$35,021, with corresponding overall rates ranging from 7.55 to 8.84
percent;
o Operating expenses are within industry standards for a park located
in the southwestern region of the country;
o The subject park appears to be operating at economic levels based on
our review of historical and budgeted 1998 income and expenses;
o The demographic characteristics of the area appear to be positive;
o The population profile of the subject property is 100 percent adult;
o The current occupancy rate at the subject property of 95.0 percent
is evident by a strong local market and demand;
o No significant manufactured housing communities are expected to be
developed in the near future;
o In our opinion, based on Woodall's criteria, the subject property is
a Five Star Park, and the reader's attention is directed to the
corresponding definition and criteria of a Five Star Park, presented
in the National Overview section of this report; and,
o Based on the subject's location, demographic, economic, market and
physical characteristics, we believe Central Park will continue to
be a viable manufactured housing community in the foreseeable
future, and is well positioned in the marketplace.
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ASSUMPTIONS AND LIMITING CONDITIONS
================================================================================
"Report" means the consulting report to which these Assumptions and Limiting
Conditions are annexed.
"Property" means the subject of the Report.
"C&W" means Cushman & Wakefield, Inc. or its subsidiary which issued the Report.
"Appraiser(s)" means the employee(s) of C&W who prepared and signed the Report.
This report is made subject to the following assumptions and limiting
conditions:
1. No responsibility is assumed for the legal description or for any matters
which are legal in nature. 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 Report or upon which the Report 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 Appraisers nor C&W shall be responsible for the
accuracy or completeness of such information, including the correctness of
estimates, opinions, dimensions, sketches, exhibits, and other factual
matters.
3. The information is effective as of the date stated in the Report. Changes
since that date in external and market factors or in the property itself
can significantly affect our analysis.
4. The report is to be used in whole and not in part. No part of the Report
shall be used in conjunction with any other report. Possession of the
Report, or a copy thereof, does not carry with it the right of
publication. Publication of the Report or any portion thereof without the
prior written consent of C&W is prohibited. Except as may be otherwise
expressly stated in the letter of engagement to prepare the Report, C&W
does not permit use of the Report by any person other than the party to
whom it is addressed or for purposes other than those for which it was
prepared. If written permission is given by C&W to use the Report, the
Report must be used in its entirety and only with proper written
qualification as approved by C&W. No part of the Report or the identity of
the Appraiser shall be conveyed to the public through advertising, public
relations, news, sales, or other media or used in any material without
C&W's prior written consent. Reference to the Appraisal Institute or to
the MAI designation is prohibited.
5. The Appraiser shall not be required to give testimony in any court or
administrative proceedings relating to the Property or the Report.
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Assumptions and Limiting Conditions
================================================================================
6. The Report 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 Report; 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 Report is based.
7. The physical condition of the improvements considered by the Report is
based on visual inspection by the Appraiser or other person identified in
the Report. C&W assumes no responsibility for the soundness of structural
members nor for the condition of mechanical equipment, plumbing, or
electrical components.
8. Unless otherwise stated in the Report, the existence of potentially
hazardous or toxic materials which may have been used in the construction
or maintenance or operation of the improvements or may be located at or
about the Property was not considered in the Report. These materials (such
as formaldehyde foam insulation, asbestos insulation, various soil
contaminants, and other potentially hazardous materials) may affect the
value of the Property. The Appraisers are not qualified to detect such
substances, and C&W urges that an expert in this field be employed to
determine the economic impact of these matters, if any, on the property in
the Report.
9. Unless otherwise stated in the Report, compliance with the requirements of
the Americans With Disabilities Act of 1990 (ADA) has not been considered
in the Report. Failure to comply with the requirements of the ADA may
negatively affect the value of the property. C&W recommends that an expert
in this field be employed.
10. If the Report is submitted to a lender or investor with the prior approval
of C&W, such party should consider the Report as one factor, together with
its independent investment considerations and underwriting criteria, in
its overall investment decision.
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CERTIFICATION
================================================================================
We certify that, to the best of our knowledge and belief:
1. Jody L. Garbisch inspected the property, and Michael J. Schaeffer and
Stanley R. Dennis, Jr., MAI, have reviewed and approved the report, but
did not inspect 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 on an action or event (such as the
approval of a loan) resulting from the analyses, opinions, or conclusions
in, or the use of, this report.
6. 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 Ethics and Standards of Professional Practice of the Appraisal
Institute.
7. No one provided significant professional assistance to the persons signing
this 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. As of the date of this report, Stanley R. Dennis, Jr., MAI, has completed
the requirements of the continuing education program of the Appraisal
Institute.
/s/ Michael J. Schaeffer /s/ Jody L. Garbisch /s/ Stanley R. Dennis, Jr., MAI
Michael J. Schaeffer Jody L. Garbisch Stanley R. Dennis, Jr., MAI
Director Associate Appraiser Director, Manager
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<PAGE>
ADDENDA
================================================================================
POP-FACT SHEETS
LEGAL DESCRIPTION
QUALIFICATIONS OF APPRAISERS
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55
<PAGE>
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POP-FACT SHEETS
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<PAGE>
Mon Nov 24, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP FACTS: SUMMARY REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6511
PREPARED FOR
Cushman & Wakefield
W. Bell Road & 3rd Avenue
Phoenix, Arizona COORD: 33:38.40 112:04.68
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- --------------------------------------------------------------------------------
POPULATION
2002 PROJECTION 355,431 935,324
1997 ESTIMATE 307,119 832,099
1990 CENSUS 244,993 690,522
1980 CENSUS 152,148 499,505
GROWTH 1980 - 1990 61.02% 38.24%
HOUSEHOLDS
2002 PROJECTION 147,895 390,956
1997 ESTIMATE 123,947 335,301
1990 CENSUS 94,998 268,555
1980 CENSUS 52,525 180,270
GROWTH 1980 - 1990 80.86% 48.97%
1997 ESTIMATED POPULATION BY RACE 307,119 832,099
WHITE 92.42% 89.59%
BLACK 1.60% 2.21%
ASIAN & PACIFIC ISLANDER 2.18% 2.28%
OTHER RACES 3.79% 5.92%
1997 ESTIMATED POPULATION 307,119 832,099
HISPANIC ORIGIN 9.82% 12.17%
OCCUPIED UNITS 94,998 268,555
OWNER OCCUPIED 63.60% 63.60%
RENTER OCCUPIED 36.40% 36.40%
1990 AVERAGE PERSON PER HH 2.57 2.55
1997 ESTIMATED HH BY INCOME 123,947 335,301
$150,000 + 3.01% 5.14%
$100,000 TO $149,999 5.65% 6.10%
$ 75,000 TO $ 99,999 7.84% 8.58%
$ 50,000 TO $ 74,999 21.26% 21.46%
$ 35,000 TO $ 49,999 18.81% 17.76%
$ 25,000 TO $ 34,999 13.97% 12.97%
$ 15,000 TO $ 24,999 14.71% 13.72%
$ 5,000 TO $ 14,999 11.73% 11.01%
UNDER $ 5,000 3.02% 3.24%
1997 EST. AVERAGE HH INCOME $53,367 $60,629
1997 EST. MEDIAN HH INCOME $40,241 $42,642
1997 EST. PER CAPITA INCOME $21,572 $24,424
<PAGE>
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LEGAL DESCRIPTION
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<PAGE>
LEGAL DESCRIPTION
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Lot 3, Section 5, Township 3 North, Range 3 East of the Gila and Salt River Base
and Meridian, Maricopa County, Arizona;
Except that part of Lot 3 in the Northwest quarter of Section 5, Township 3
North, Range 3 East of the Gila and Salt River Base and Meridian, Maricopa
County, Arizona, described as follows:
Commencing at the intersection of the South line of the North 65 feet of said
Lot 3 and the East line of the West 30 feet thereof;
Thence Easterly along said line a distance of 7 feet to the Point of Beginning;
Thence continuing Easterly along said South line a distance of 7 feet;
Thence Southwesterly to a point on said East line which is 14 feet Southerly of
the Point of Commencement;
Thence Northerly along said East line a distance of 7 feet;
Thence Northeasterly to the Point of Beginning.
NOTE: Lot 3 is sometime erroneously described as the Northeast quarter of the
Northwest quarter of said Section 5.
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QUALIFICATIONS OF APPRAISERS
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<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
JODY L. GARBISCH
Education
Bachelor of Science Degree in Finance, concentration in Real Estate, from the
College of Commerce and Business Administration at the University of Illinois,
Urbana-Champaign, Illinois, 1997.
Real Estate Education
The following courses have been completed through the Real Estate Program at the
University of Illinois at Urbana-Champaign:
Urban Real Estate Valuation
Urban Economics
Real Estate Financial Markets
Real Estate Investments
Real Estate Law
Real Estate Fundamentals
Current Position
Associate Appraiser, Cushman & Wakefield of Illinois, Inc., Valuation Advisory
Services.
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
MICHAEL J. SCHAEFFER
Real Estate Experience
Mr. Schaeffer has been active in the appraisal of real estate since 1983.
Appraisal experience includes the valuation of income-producing real estate in
the Chicago area as well as many major cities and small towns throughout the
Midwest. The types of properties appraised include office buildings, regional
malls, shopping centers, country clubs, apartment complexes, subsidized housing
units, industrial buildings, nursing homes, retirement communities, automotive
dealerships, department stores, vacant land, proposed income-producing
properties, and various special purpose properties. Mr. Schaeffer also has had
over 10 years of experience in new construction and renovation of commercial,
industrial, residential and specialized real estate properties.
Education
Bachelor of Arts, University of Cincinnati, Cincinnati, Ohio MBA Graduate Course
Work in Economics and Management, Xavier University, Cincinnati, Ohio
Real Estate Education
The following courses sponsored by the Appraisal Institute have been
successfully completed:
Real Estate Appraisal Principles 1A-1
Basic Valuation Procedures 1A-2
Standards of Professional Practice
Capitalization Theory and Techniques 1BA
Capitalization Theory and Techniques IBB
Advanced Applications 550
Report Writing & Valuation Analysis 540
Mr. Schaeffer has also attended numerous lectures and seminars sponsored by the
Appraisal Institute.
Mr. Schaeffer is currently a candidate for the MAI designation of the Appraisal
Institute, and has completed the educational and experience requirements for the
MAI designation.
Current Position
Director, Appraisal Services, Cushman & Wakefield, Inc., Chicago, Illinois
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
STANLEY R. DENNIS, JR., MAI
Real Estate Experience
Director, Manager, Cushman & Wakefield Valuation Advisory Services, Chicago,
Illinois. Division is responsible for the appraisal and consultation function of
Cushman & Wakefield, Inc., a national full service real estate organization,
1989.
Vice President, Manager, Cushman & Wakefield Appraisal Services, Portland,
Oregon, 1983.
Principal, Stanley R. Dennis & Associates, Portland, Oregon, 1982.
Education
Portland State University, Portland, Oregon
Bachelor of Science Degree, 1977, Finance and Real Estate
Appraisal Institute
Course I-A Fundamentals and Principles of Real Estate Appraisal
Course I-B Capitalization Theory and Techniques
Course II-I Case Studies in Real Estate Valuation
Course II-2 Valuation Analysis and Report Writing
Course II-3 Standards of Professional Practice
Course IV Litigation/Condemnation Valuation
Course VI Investment Analysis
Course VIII Residential Case Studies
Course X Market Analysis
Seminar Feasibility Analysis and Highest and Best Use
Seminar Discounted Cash Flow Analysis
Seminar Cash Equivalency
Seminar Subdivision Analysis
Seminar Rates, Ratios and Reasonableness
Professional Affiliations
American Institute of Real Estate Appraisers, Member (Designation #6754)
Building Owners and Managers Association (BOMA)
National Association of Corporate Real Estate Executives (NACORE)
<PAGE>
================================================================================
MARKET STUDY OF REAL PROPERTY
Camelot Acres
14750 West Burnsville Parkway
Burnsville, Dakota County, Minnesota
================================================================================
As of November 24, 1997
Prepared For:
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Prepared By:
Cushman & Wakefield of Illinois, Inc.
Valuation Advisory Services
455 North Cityfront Plaza Drive, Suite 2800
Chicago, Illinois 60611-5555
CUSHMAN &
WAKEFIELD(R)
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<PAGE>
[Letterhead of Cushman & Wakefield of Illinois, Inc.]
December 22, 1997
Mr. Edward J. Welch
Director
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Re: Market Study of Real Property
Camelot Acres
14750 West Burnsville Parkway
Burnsville, Dakota County, Minnesota 55306
Dear Mr. Welch:
In fulfillment of our agreement as outlined in the Letter of Engagement,
Cushman & Wakefield of Illinois, Inc., is pleased to transmit our market study
and consulting report evaluating the above referenced real property.
As specified in the Letter of Engagement, our market study and consulting
report is qualified by certain assumptions, limiting conditions, certifications,
and definitions, which are set forth in the report.
This consulting report was prepared for the Client, and it is intended
only for the specified use of the Client. It may not be distributed to or relied
upon by other persons or entities without written permission of Cushman &
Wakefield, Inc.
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the above
referenced real property, as of the date of our property inspection. The
function of the report is to assist the client, in evaluating the property for
underwriting and rating purposes.
<PAGE>
Mr. Edward J. Welch - 2 - December 22, 1997
This market study and consulting report was prepared in conformity with
the requirements of the Code of Ethics and Standards of Professional Appraisal
Practice of the Appraisal Institute and the Uniform Standards of Professional
Practice (USPAP) adopted by the Appraisal Standards Board of the Appraisal
Foundation.
This letter is invalid if detached from the report, which contains the
text, exhibits, and the Addenda.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF ILLINOIS, INC.
/s/ Michael J. Schaeffer
Michael J. Schaeffer
Director
/s/ Stanley R. Dennis, Jr.
Stanley R. Dennis, Jr., MAI
Director, Manager
CUSHMAN &
WAKEFIELD(R)
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<PAGE>
SUMMARY OF SALIENT FACTS
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Property Name: Camelot Acres
Location: 14750 West Burnsville Parkway
Burnsville, Dakota County, Minnesota
Assessor's Parcel Number: Based on information provided by the client,
the subject property is identified by
Assessor's Parcel Numbers 02-02700-011-88
and 02-02700-010-90.
Date of Inspection: The property was inspected on November
24, 1997.
Ownership: The subject property is legally entitled to
Aqua Marineland Vistas, an Illinois
Corporation, and MHC Financing Limited
Partnership, as beneficiary.
Land Area: Based on information provided by the
property's legal plat of survey, the subject
property contains approximately 68.45 acres
of land area, or 2,981,682 square feet,
according to county records.
Zoning: Based on information provided by the
Burnsville Zoning Department, the subject
property is zoned R-3 D, Mobile Home Park.
The subject property is a legal and
conforming use in the R-3 D, Mobile Home
Park District.
Improvements
Type: A manufactured housing community.
Year Built: The subject property was originally
developed in 1971.
Size: The subject property consists of a 319-site
manufactured housing community.
Condition: At the time of inspection, the subject
property was in good condition.
Property Rating: Four Star manufactured home community.
Special Assumptions: 1. Information regarding the subject
property, including its physical
characteristics, was provided to us by the
client and the on-site manager, and is
assumed to be accurate.
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Summary of Salient Facts
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2. The existence of potentially hazardous or
toxic materials, which may be located on or
about the property, was not considered in
our evaluation. The appraisers are not
qualified to detect such substances, and
Cushman & Wakefield urges that an expert in
this field be employed to determine the
existence, if any, of hazardous materials
located on or about the site.
3. Our market and consulting report
regarding the subject assumes the subject
property, as presently improved, represents
its highest and best use.
4. It is unknown to the appraiser if the
subject property complies with the Americans
with Disabilities Act (ADA). We recommend a
qualified specialist in the final
determination regarding any ADA compliance
deficiencies that may be present at the
subject property.
5. Please refer to the complete list of
assumptions and limiting conditions included
at the end of this report.
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TABLE OF CONTENTS
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Page
PHOTOGRAPHS OF SUBJECT PROPERTY................................................1
INTRODUCTION...................................................................5
Identification of Property...................................................5
Property Ownership and Recent History........................................5
Purpose and Function of the Market Study and Consulting Assignment...........5
Scope of the Market Study and Consulting Assignment..........................5
Date of Property Inspection..................................................5
Definitions and Other Pertinent Terms........................................5
REGIONAL ANALYSIS..............................................................8
NEIGHBORHOOD ANALYSIS.........................................................16
MARKET ANALYSIS...............................................................18
National Overview...........................................................18
Competition.................................................................25
Comparable Manufactured Housing Community Sales.............................29
Demographic Trends..........................................................31
Expense Analysis............................................................31
Market Supply and Demand....................................................32
Conclusion..................................................................32
PROPERTY DESCRIPTION..........................................................34
Site Description............................................................34
Improvements Description....................................................34
REAL PROPERTY TAXES AND ASSESSMENTS...........................................35
ZONING........................................................................35
CONCLUSION....................................................................36
ASSUMPTIONS AND LIMITING CONDITIONS...........................................37
CERTIFICATION.................................................................39
ADDENDA.......................................................................40
Pop-Fact Sheets
Legal Description
Qualifications of Appraisers
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PHOTOGRAPHS OF SUBJECT PROPERTY
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[PHOTO OMITTED]
Front Entrance of the Subject Property
[PHOTO OMITTED]
Exterior View of the Clubhouse
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Photographs of Subject Property
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[PHOTO OMITTED]
Interior View of the Clubhouse
[PHOTO OMITTED]
Typical Interior View of the Subject Park
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Photographs of Subject Property
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[PHOTO OMITTED]
Typical Interior View of the Subject Park
[PHOTO OMITTED]
Typical Interior View of the Subject Park
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Photographs of Subject Property
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[PHOTO OMITTED]
Street Scene Facing North Along West Burnsville Parkway
[PHOTO OMITTED]
Street Scene Facing South Along West Burnsville Parkway
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INTRODUCTION
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Identification of Property
The subject property consists of a 319-site manufactured housing
community, situated on approximately 68.45 acres of land area, along the east
side of West Burnsville Parkway, in Burnsville, Dakota County, Minnesota. The
property's street address is 14750 West Burnsville Parkway. The property was
developed in 1971, and was 98.1 percent occupied at the time of inspection.
Property Ownership and Recent History
The subject property is currently entitled to Aqua Marineland Vistas, an
Illinois corporation, and MHC Financing Limited Partnership, as beneficiary. The
subject property was originally developed in 1971, with 319 manufactured housing
sites.
Purpose and Function of the Market Study and Consulting Assignment
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the subject
property, as of the date of property inspection. The function of the consulting
report is to assist the client in evaluating the property for underwriting and
rating purposes.
Scope of the Market Study and Consulting Assignment
In the process of preparing this report, we inspected the property,
interviewed the on-site manager, conducted market research into asking rental
rates for comparable properties, conducted market investigations, and
ascertained sales prices of comparable properties. Additionally, we conducted
market research and evaluated demographic and economic trends; and, the market
position and rating of the subject property.
Date of Property Inspection
The property was inspected November 24, 1997.
Definitions and Other Pertinent Terms
Definitions of pertinent terms taken from the Dictionary of Real Estate
Appraisal, Third Edition (1993), published by the Appraisal Institute, is as
follows:
Market Rent
The rental income that a property would most probably command on the open
market; indicated by current rents paid and asked for comparable space as
of the date of the appraisal.
Evaluation
Evaluation is a study of the nature, quality, or utility of a parcel of
real estate or interest in, or aspects of, real property, in which a value
estimate is not necessarily required.
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Introduction
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Market Study
A macroeconomic analysis that examines the general market conditions of
supply, demand, and pricing or the demographics of demand for a specific
area or property type.
Legal Description
The subject property is located along the east side of West Burnsville
Parkway, in Burnsville, Dakota County, Minnesota. The street address of the
subject property is 14750 West Burnsville Parkway. The property is identified by
tax parcel numbers 02-02700-011-88 and 02-02700-010-90, according to information
provided by the client. The subject property's legal description is presented in
the Addenda of this report, and reference is made thereto.
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LOCATION MAP
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REGIONAL ANALYSIS
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Introduction
The market value of real property is influenced by the economic,
political, physical and social characteristics of the overall economic region in
which it is located. The subject property is located in the City of Burnsville,
which is part of the Minneapolis/St. Paul metropolitan area, the Twin Cities
metropolitan area. The following is an overview of the Twin Cities Metropolitan
Area.
Definition of the Region
Most of the following information pertains to the seven county Twin Cities
Area consisting of Anoka, Carver, Dakota, Hennepin, Ramsey, Scott and Washington
Counties. If data is drawn from sources that use the federally designated
11-county Metropolitan Statistical Area (MSA), or the 13-county Consolidated
Metropolitan Statistical Area (CMSA), it is specifically noted. The 11-county
MSA consists of the seven counties mentioned above plus Wright, Chicago, and
Isanti Counties in Minnesota, and St. Croix County in Wisconsin. Even though the
MSA includes areas outside the seven-county area, these seven counties contain
the majority of the population and economic base of the MSA.
Location and Boundaries
The subject property is located within the City of Burnsville, Dakota
County, Minnesota. The city is located approximately fifteen miles south of
downtown Minneapolis, and is bounded on the north by the City of Bloomington, on
the east by the cities of Apple Valley and Eagan, on the west by the City of
Savage, and on the south by the City of Lakeville.
Population
The Twin Cities Metropolitan Area, located in the southeastern part of
Minnesota, is home to over half of the state's population. The Twin Cities
Metropolitan Area, as defined by Sales & Marketing Management, includes eleven
counties in Minnesota and two counties in Wisconsin. Sales & Marketing
Management estimates the total population of the Twin Cities Metro Area at 2.705
million people, as of January 1995; which ranks the Twin Cities as the 12th
largest MSA in the United States. Based on a suburban population of 2.086
million, the metropolitan area ranks tenth in the United States.
The historical and projected population growth trends for the seven
primary counties in the Twin Cities Metropolitan area are summarized in the
table on the following page.
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Regional Analysis
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TWIN CITIES METROPOLITAN AREA
POPULATION STATISTICS - 1980 THRU 2000
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Compound Annual Compound
Change Annual
County 1980 1995 1980-1995 2000 Change 1995-2000
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Hennepin 941,411 1,052,800 0.75% 1,109,820 1.06%
Minneapolis 370,951 356,800 -0.26% 370,500 0.76%
Suburban 570,460 696,000 1.33% 739,320 1.21%
Anoka 195,998 273,600 2.15% 285,190 0.83%
Carver 37,046 57,700 3.00% 62,920 1.75%
Dakota 194,279 310,600 3.18% 346,130 2.19%
Ramsey 459,784 482,700 0.32% 504,110 0.87%
Scott 43,784 68,800 3.06% 77,410 2.39%
Washington 113,571 177,300 3.01% 180,180 0.32%
Total 1,985,873 2,423,500 1.34% 2,565,760 1.15%
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Source: 1980 Census, Sales & Marketing Management 1995 Survey of Buying Power
and Metropolitan Council, "Forecasts of Population, Households and Employment:
2000 to 2020."
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The population of the metropolitan area increased by a compound average
annual rate of 1.34 percent, between 1980 and 1995. Dakota and Scott Counties,
which geographically comprise the southern half of the metropolitan area, and
Anoka and Carver Counties located in the northern portion, led the other
counties in population growth through 1995. Going forward, the projected
population growth in Dakota and Scott counties should continue to exceed the
growth projected for the other five counties in the Metropolitan area.
Hennepin County, along with Ramsey County, forms the central core of the
metropolitan area. Population trends in the Minneapolis-St. Paul area are
typical of an expanding metropolitan area. As the development density of the
central core increases and the relative affordability decreases, the population
migrates to the outlying areas.
The population shift from the city to the suburbs becomes evident when one
looks at the county population as a percentage of the total population. These
figures are presented in the table on the following page.
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COUNTY POPULATION AS A PERCENTAGE OF THE TOTAL
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County 1980 1995 2000(1)
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Hennepin: 47.4% 43.4% 43.3%
Minneapolis 18.7% 14.7% 14.4%
Suburban 28.7% 28.7% 28.8%
Anoka 9.9% 11.3% 11.1%
Carver 1.9% 2.4% 2.5%
Dakota 9.8% 12.8% 13.5%
Ramsey 23.2% 19.9% 19.7%
Scott 2.2% 2.8% 3.0%
Washington 5.7% 7.3% 7.0%
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(1) Projected population
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The preceding table shows a steady flow of population growth outward from
the city toward the suburbs. The trend is commonly known as "urban sprawl" and
will continue as the central cities and inner rings of the metropolitan area
near their maximum development potential. The collar counties of Anoka, Carver,
Dakota, Scott and Washington increased their share of the regional population
from 29.0 percent in 1980 to nearly 37.0 percent in 1995.
The population shift from the city to the suburban areas, is common among
most major cities located throughout the Great Lakes and Northeastern regions,
and is expected to continue for the foreseeable future.
Employment
The Twin Cities economy, like most major metropolitan areas, began as a
manufacturing center. However, today the Twin Cities' economic growth is no
longer solely based on the manufacturing sector, but is distributed among
wholesale and retail trade, health care, education, and financial services. The
table on the following page, summarizes the current and projected employment
trends for the eleven county Twin Cities metropolitan area.
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WAGE AND SALARY EMPLOYMENT AS OF OCTOBER 1995 AND 2005
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2005 Compound
Industry 1995 Percent Projected Percent Change
Group Employment of Total Employment of Total 1995-2005
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Manufacturing 276,500 17.7% 280,100 15.4% 0.13%
Construction 59,600 3.8% 63,900 3.5% 0.70%
TCU 85,600 5.5% 98,000 5.4% 1.36%
Trade 366,400 23.4% 421,000 23.2% 1.40%
FIRE 111,600 7.1% 129,200 7.1% 1.48%
Services 445,800 28.5% 585,900 32.3% 2.77%
Government 216,800 13.9% 235,900 13.0% 0.85%
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Total 1,562,900 99.9% 1,814,000 100.0% 1.50%
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Source: WEFA
(1) Transportation, Communications & Utilities
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Manufacturing had been the Twin Cities' major employer up to the
early-1980's, when employment in the trade and service industries matched that
of manufacturing, and subsequently surpassed it. Over the next ten years, the
capture rate for the manufacturing industry is expected to decrease from 17.7 to
15.4 percent.
The Twin Cities' service industry produced substantial growth in
employment from 1980 to 1995; employment growth during this time period
generated 135,100 new service jobs. The most significant addition to the Twin
Cities service sector during the 1990's was the 4.2 million square foot Mall of
America located in Bloomington, Minnesota. The $625.0 million
retail/entertainment complex, which opened in 1992, created more than 11,000 new
permanent jobs, and has substantially boosted the tourism and services
industries. According to ownership, approximately one-third of the 38.0 million
people who visit the Mall each year are tourists. During the forecasted period
from 1995 to 2005, the service industry in the Twin Cities is projected to add
140,100 jobs, and increase its market share by 380 basis points.
With over 1,300 technology-intensive firms, this area has one of the
largest concentrations of high-technology businesses in the nation. The
educational resources of the University of Minnesota and other local educational
institutions provide an excellent supply of engineers and scientists, as well as
applied research to high-technology firms.
Despite the departure of the North Stars professional hockey team, the
Twin Cities will remain a center for professional sports, the arts and other
forms of recreation and cultural activities, providing new jobs in these fields.
A number of tribal casinos have been constructed in both the metropolitan area
and statewide, since 1989. Employment in this part of the entertainment industry
has expanded rapidly since 1989, and is expected to be a
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Regional Analysis
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continued source of new employment opportunities in the foreseeable future.
The strength and diversity of the local economy is supported by the number
of public and privately owned companies who have chosen the Twin Cities for
their corporate headquarters. Many other firms also have regional headquarters
in the Twin Cities area.
As illustrated in the table below, 15 of the Fortune 500 corporations
operate within the Twin Cities MSA.
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FORTUNE 500 Largest U.S. Corporations
Located in the Twin Cities Metropolitan Area
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1994 Sales Sales Assets
Company Rank (millions) (millions)
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Dayton Hudson Corporation 30 $21,311.0 $11,697.0
SuperValu, Inc. 50 $15,936.9 $4,042.4
3M 58 $15,079.0 $13,496.0
Northwest Airlines 125 $9,142.9 $8,070.1
General Mills 135 $8,516.9 $5,198.3
Honeywell 195 $6,057.0 $4,885.9
Northwest Corporation 197 $6,032.0 N/A
The St. Paul Companies, Inc. 243 $4,701.3 N/A
United Healthcare 303 $3,768.9 $3,489.5
Best Buy 373 $3,006.5 $952.5
Nash Finch 398 $2,832.0 $531.6
Northern States Power Co. 452 $2,486.5 N/A
First Bank Systems 470 $2,375.1 N/A
International Multifoods 495 $2,224.7 814.8
Lutheran Brotherhood 496 $2,222.7 N/A
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Regional Analysis
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The strength and diversity of the local economy is supported by the top 10
employers in the Twin Cities Metropolitan Area.
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10 LARGEST TWIN CITIES METROPOLITAN AREA EMPLOYERS
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Name Minnesota Employees Type of Company
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State of Minnesota 41,991 Government
United State Government 34,178 Government
University of Minnesota 34,000 Education
3M Company 23,127 Manufacturing
Dayton Hudson Co. 22,800 Retail
NWA Inc. 16,933 Service
Allied Health System 16,900 Healthcare
Hennepin County 10,326 Government
Norwest Corp. 10,037 Banking
City of Minneapolis 10,000 Government
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Source: TCMA Chamber of Commerce.
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Transportation
The Twin Cities Metropolitan Area is serviced by several interstate
highway systems. Interstate 94 generally runs east-west and through the area,
Interstate 35E and 35W run north-south through the area, Interstates 494 and 694
are bi-passes around the metropolitan area.
The Minneapolis-St. Paul International Airport provides passenger
air-service to more than 80 major U.S. Cities, as well as direct international
flights. The Minneapolis-St. Paul International Airport is the 11th busiest
airport in the nation, and has eight major airlines, 16 all-cargo airlines and
21 charter airlines.
The Twin Cities Metropolitan Area is one of the countries major trucking
centers, with more than 150 lines serving the area. The average commuting time
in the Minneapolis-St. Paul area is 21.1 minutes, which is the lowest average of
the nation's largest metropolitan areas. The Twin Cities area road system ranks
second lowest in the nation for congestion. Six railway companies serve the Twin
Cities area. Railroad service is integrated with the national railroad system,
as well as the Canadian national railway system.
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Regional Analysis
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Culture/Recreation/Education/Health
The University of Minnesota's main campus is located in Minneapolis.
Nearly 45,000 full-time students are offered the ability to earn degrees in 250
fields of study. Former students and faculty have been awarded twelve Nobel
Prizes for physics, medicine, chemistry, economics and peace.
Sports fans support Minnesota Twins baseball, Minnesota Vikings football,
and Minnesota Timberwolves basketball, as well as numerous minor league hockey,
soccer, baseball and volleyball teams. Minnesota is home to the nation's largest
shopping and entertainment complex, the Mall of America. According to the
American Automobile Associations, the Mall of America is the third most popular
tourist destination in the United States. Over 100.0 million people have visited
the Mall since it opened in August of 1992.
Conclusion
Although the Twin Cities Metropolitan Area will continue to be subject to
national economic trends and conditions, the diversity of the local economy will
insulate the area from volatile economic growth. The continuation of the Twin
Cities Metropolitan Area's healthy business climate, as well as its economic
stability, should ensure a favorable environment for real estate development and
investment over the long-term.
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NEIGHBORHOOD MAP
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NEIGHBORHOOD ANALYSIS
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The subject property is located along the east side of West Burnsville
Parkway, in Burnsville, Dakota County, Minnesota. Burnsville Parkway runs
northeast through the City of Burnsville. The immediate neighborhood of the
subject property is developed primarily with single-family residential housing,
industrial developments and manufactured housing communities.
Regional access to the subject property is very good, as the subject
property is located just south of County Highway 42, which provides access to
Interstate 35W. Interstate 35W runs north and south through the Minneapolis
metropolitan area, and connects with Interstate Highways 494, 94, and 694.
Interstate 35E, which runs northeast through the Minneapolis metropolitan area
also serves the Burnsville area. Neighborhood access to the subject property is
very good, as West Burnsville Parkway and County Highway 42 are major
thoroughfares in the Burnsville area.
Development in the immediate neighborhood of the subject property consists
of single-family residential housing, industrial developments and manufactured
housing developments. According to Sales and Marketing Management's 1997 Survey
of Buying Power, the 1996 estimated population of the City of Burnsville is
59,100. The 1990 estimated population of Burnsville, according to the U.S.
Bureau of the Census, was 51,288. The indicated increase in the Burnsville
population between 1990 and 1996 was 15.23 percent.
According to the U.S. Bureau of the Census and the State Demographer, the
percentage of owner-occupied housing in the City of Burnsville is 65 percent.
The median value of owner-occupied housing is $108,100. The median rent is
estimated to be $537.00 per month.
Rosemount, Inc. is the largest employer in the City of Burnsville. The
largest employers in the Burnsville area are presented in the table on the
following page.
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Neighborhood Analysis
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LARGEST EMPLOYERS
IN CITY OF BURNSVILLE
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COMPANY/ORGANIZATION PRODUCTS/ SERVICE NUMBER OF EMPLOYEES
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Rosemount, Inc. Aerospace 3,200
Engineering/Manufacturing
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Burnsville Center Regional Retail Center 2,965
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School District #191 Education 1,100
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Fairview Ridges Hospital Healthcare 950
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Pepsi Cola Company Bottle Soft Drinks 530
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Yellow Freight Trucking 510
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Frontier Communications Communications 350
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Northern Handyman Equipment Sales 350
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Skyline Displays Displays 270
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Byerlys Groceries 210
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SOURCE: COMMUNITY PROFILE, BURNSVILLE CHAMBER OF COMMERCE
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The subject property is situated in an area well suited for manufactured
housing development. Real estate values are anticipated to increase at a steady
pace. The economy in the area is anticipated to be good, and the growth in
population is anticipated to continue to increase at a steady pace.
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MARKET ANALYSIS
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National Overview
Reportedly, the largest property owners of manufactured housing
communities in the United States are: ROC Communities, headquartered in
Colorado; MHC, Inc., headquartered in Illinois; Ellenburg Capital, headquartered
in Oregon; Lautrec Ltd., headquartered in Michigan; Clayton Homes, headquartered
in Tennessee; Clayton Williams and Sherwood, headquartered in California;
Chateau Properties, Sun Communities and UNIPROP, headquartered in Michigan.
The following represents the top ten manufactured housing community firms,
as reported by GFA Management, as of 1997.
<TABLE>
<CAPTION>
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1997 Firm Name State No. of Sites No. of Communities
Rank Owned/Managed Owned/Managed
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<S> <C> <C> <C> <C>
1 Sun Communities Michigan 30,295/0 84/0
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2 ROC Communities Colorado 22,441/7,167 77/36
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3 Manufactured Home Communities Illinois 27,349/838 69/3
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4 Ellenburg Capital Florida 25,173/0 63/0
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5 Lautrec Ltd. Michigan 22,652/0 58/0
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6 Chateau Properties Michigan 20,003/0 47/0
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7 Clayton Homes Tennessee 18,000/0 66/0
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8 Clayton, Williams and Sherwood California 16,946/0 44/0
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9 UNIPROP Michigan 14,931/0 40/0
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10 The Bloch Organization Michigan 14,379/0 37/0
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</TABLE>
According to the U.S. Census Bureau, more than 8,521,000 people were
living in manufactured housing communities as of 1990 compared to 3,838,678 in
1980. This represents an increase in manufactured housing community living of
approximately 122.0 percent over the last ten years. Over the last ten years,
there has been a steady increase in manufactured housing community development
across the country. Among the demographic factors which account for the increase
in manufactured housing community living are: decreasing household size, a
growing demand for smaller housing, as well as an alternative to the increasing
cost of housing. Nationally, the largest percentage of manufactured housing
communities are located in California, Michigan, Colorado, Florida, New York,
Minnesota, Indiana, Arizona, Ohio, and Wisconsin.
The manufactured home industry has dramatically changed over the last 20
years. Manufactured homes are now designed and constructed to accommodate
spacious and attractive living requirements. Today, approximately one out of
sixteen families live in manufactured housing units. The manufactured housing
market share has been growing
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Market Analysis
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steadily over the last 10 years. In 1990, 6.7 percent of Americans lived in
manufactured housing units, up from 2.9 percent compared to 1970, according to
the U.S. Census Bureau, which represents 12.0 to 14.0 percent of all new housing
built since the mid-1980's, according to the Manufactured Housing Institute in
Arlington, Virginia.
In 1990, the average cost of a manufactured housing unit was $27,800
compared to $149,000 for a new house (including land), according to the
Manufactured Housing Institute. This reflects a 28.0 percent increase in the
cost of manufactured housing since 1980 versus a 49.0 percent increase in
conventional housing. Industry experts estimate that a single-family home
selling for $150,000 would require an annual income of $52,671. To purchase a
$27,800 manufactured housing unit, only a $19,984 income level would be
required.
At Fleetwood Enterprises, the nation's largest manufacturer of
manufactured housing units, units may be purchased for up to $100,000, which
would include a three-bedroom, two-bath unit of 2,100 square feet, with vaulted
ceilings.
In 1990, approximately 10.0 percent of manufactured home owners lived in
units worth approximately $40,000, up from 4.0 percent compared to 1981,
according to a study conducted by Foremost Insurance Company in Grand Rapids,
Michigan. Also, according to the study, approximately 21.0 percent of the
manufactured housing households are occupied by people' 65 years of age or
older, slightly lower than the age group for conventional homes, as reported by
Foremost Insurance.
The demand for good quality institutional grade manufactured housing
communities has substantially increased over the last ten years. Manufactured
housing communities provide an affordable alternative to the increasing cost of
housing. Also, manufactured housing communities provide an alternative form of
living for the elderly and retirees, especially for those living on fixed
incomes.
Acquisitions of manufactured housing communities during 1993 and 1994 were
clearly dominated by Real Estate Investment Trusts. During 1994 and 1995
Manufactured Home Communities (MHC) and ROC communities lead the acquisition of
manufactured housing communities nationally. During 1996, Sun Communities
captured the lead and, together with ROC and MHC dominate the Real Estate
Investment Trust market.
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Market Analysis
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The following chart represents the largest Real Estate Investment Trusts,
from 1991 to 1996, as reported by GFA Management
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HOME SITE GROWTH, DEVELOPMENT AMONG THE LARGEST
REAL ESTATE INVESTMENT TRUST (REITS)
- --------------------------------------------------------------------------------
Year ROC MHC Chateau Sun United Total Annual
Growth
- --------------------------------------------------------------------------------
1996 29,608 28,187 20,003 30,295 5,234 113,327 17.0%
- --------------------------------------------------------------------------------
1995 27,910 26,237 19,594 18,000 4,850 96,591 9.0%
- --------------------------------------------------------------------------------
1994 26,231 28,407 15,689 13,500 4,623 88,450 37.8%
- --------------------------------------------------------------------------------
1993 20,142 14,700 15,261 9,036 5,050 64,189 17.8%
- --------------------------------------------------------------------------------
1992 18,745 12,873 10,032 7,600 5,200 54,450 N/A
- --------------------------------------------------------------------------------
1991 9,030 13,079 9,759 N/R N/R N/A N/A
- --------------------------------------------------------------------------------
N/R = No report N/A = Not applicable
- --------------------------------------------------------------------------------
NOTE: The 113,327 sites counted for the top five REITs in 1996 make up 20
percent of the total sites surveyed in the 1997 Allen Report. These rental sites
are located in 339 communities, accounting for about 1 percent of some 50,000
existing manufactured housing communities nationwide. The community counts for
the five major REITs are: ROC (113), MHC (72), Chateau (47), Sun (84) and United
(23). The proportion of communities owned by each of the REITs compared to the
others is: ROC (33%), MHC (21%), Chateau (14%), Sun (25%) and United (7%).
================================================================================
Manufactured Home Communities (MHC) is expected to continue an aggressive
acquisition campaign through 1997 and beyond. As of September 1997, the MHC REIT
had a market cap of $632.0 million, and continues to pursue the acquisition of
manufactured home communities. Aside from the ELL-CAP $300.0 million
transaction, in September 1997 Manufactured Home Communities, Inc. completed a
$107.0 million purchase of 18 manufactured housing communities and two related
commercial properties from partnerships affiliated with Mobileparks West. The
communities, with 3,505 sites, were purchased with about $3.0 million
manufactured home operating units, $16.0 million in cash and $20.0 million of
installment notes and assumed debt. The communities have an average monthly
rental of $349.00. The communities are located in California, Utah, Oregon,
Washington and Nevada. MHC may be the first manufactured home community REIT to
reach $1.0 billion.
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Market Analysis
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The MHC REIT continues to perform and expand, and as of September 1997 was
trading at $25.625, with a current yield of 5.2 percent. The top traded REITs,
are presented as follows.
<TABLE>
<CAPTION>
==========================================================================================
REIT MARKET UPDATE
- ------------------------------------------------------------------------------------------
Company Symbol Price Current Yield 52 Week High 52 Week Low Annual 12 Mth Tot
(9/19/97) Dividend Rtn
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CPJ $29.688 5.8% $31.125 $22.250 1.72 26.6%
- ------------------------------------------------------------------------------------------
MHC $25.625 5.2% $26.428 $18.875 1.32 30.7%
- ------------------------------------------------------------------------------------------
SUI $37.428 5.0% $ 38.00 $27.750 1.88 31.8%
- ------------------------------------------------------------------------------------------
UMH $11.625 6.0% $13.625 $10.875 0.70 -1.7%
- ------------------------------------------------------------------------------------------
Total return figures obtained through Standard & Poors and are for the period through Sept
1997.
==========================================================================================
</TABLE>
The Southwest and Northwest Regions of the nation are the preferred
locations regarding recent and future manufactured housing community
acquisitions. However, investors seeking moderate, but consistent growth
expectations, are still looking at the midwest region. Also, southern portions
of Florida are still considered a prime area for investors seeking good quality
manufactured housing communities, with good up-side potential. What was once a
stagnant market, the northeast region is now being considered for future
acquisitions.
According to a recent study prepared by Merrill Lynch & Company, ownership
in the manufactured housing community industry is highly fragmented. The top 150
owner-operators account for less than 5.0 percent of the total industry, whereas
a host of "mom-and-pop" private companies account for the other 95.0 percent.
This unglamorous niche industry is ripe for consolidation, and an infusion of
professional management expertise is likely to yield significant economies of
scale. The four REIT's specializing in manufactured housing communities are
already among the top ten owner-operators, and are well positioned to facilitate
and hasten the industry's consolidation to the likely benefit of their
stockholders.
Manufactured homes are the fastest growing component of the nation's
housing inventory, due to their affordability, good quality design and safety
standards. According to the Merrill Lynch & Company Manufactured Housing
Community Industry Report, factory-built homes appeal especially to senior
citizens and to households with limited economic needs, two segments of the
population that are likely to grow rapidly in coming years.
Consistent returns in manufactured housing community investments have been
the mainstay of the industry. For this reason, as well as the amount of
acquisitions seen by Real Estate Investment Trusts (REITs) from 1991 to 1996,
the availability of good quality manufactured housing communities has been
substantially reduced compared to the 1980's.
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Market Analysis
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Good quality manufactured housing communities still command premium prices, thus
driving down overall capitalization rates.
Cushman & Wakefield's Valuation Advisory Services has tracked sale
transactions of manufactured housing communities since 1985. Overall
capitalization rates have consistently been within the 8.75 to 10.00 percent
range for communities located in moderate to increasing growth markets, and as
low as near 8.0 percent for those communities located in growing markets that
poses significant upside potential. Overall capitalization rates are clearly
affected and are differentiated among the properties relative to rent levels,
age, quality, condition, location, amenities, demographic characteristics,
resident profile, as well as the quality of management.
Manufactured housing communities fall within, and are categorized by their
overall appearance, age, and amenities, but more importantly the strength of the
local market. The various categories of manufactured housing communities,
according to the Woodall Directory, can be ranked as 1 to 5 Star Parks These
rankings are defined as follows:
One Star Park
The most important consideration for a one star park is overall
appearance. If it is not a decent place to live, it will not be listed in
Woodall's Directory. The following are general requirements:
o Fair overall appearance;
o Patios on most lots. May be concrete, asphalt, wood, or some
suitable material;
o Grass, rock or shell to cover ground;
o Streets fair to good. May be dirt, asphalt or gravel in reasonable
condition;
o Restrooms clean, if any;
o Adequate laundry or laundromat nearby;
o If fences allowed, must be neat;
o Mail service;
o Homes may be old models, but show evidence of care; and,
o Manager available some hours of each day.
Two Star Park
In addition to the requirements for a one star park, a two star park will
have the following:
o Landscaping - some lawns and shrubs;
o Streets in good condition. Must be dust free of crushed rock, gravel
or shell minimum;
o Neat storage;
o Well equipped laundry or laundromat nearby;
o 200 volt connections available;
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Market Analysis
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o If children accepted, park should have play area;
o Park free of clutter, such as old cars and other abandoned
equipment; and,
o Well maintained and managed.
Three Star Park
What a three star park does it does well, but not as uniformly as higher
rated parks. Many three star parks were once higher rated, but original
construction does not allow for today's 10-foot, 12-foot, and double-wides
or the 55-foot and 60-foot lengths. If children are allowed, there should
be adequate play area. However, the disarray caused by children may at
times be the determining factor that keeps a three star park at that level
when it otherwise could be rated higher. In addition to the requirements
for one and two star parks, a three star park must have the following:
o Attractive entrance;
o All homes must be in good condition;
o Awnings and cabana rooms on some homes in southern areas;
o Some spaces for large mobile homes;
o Paved or hard surfaced streets;
o Off-street parking or streets wide enough for safe on-street
parking;
o Good lawns or substitute throughout, shade trees, some shrubs where
climate permits;
o Concrete patios or the equivalent on all lots;
o All lots neat and attractive;
o All park buildings in good repair; and,
o Good management.
Four Star Park
Four star parks are luxury parks. In addition to the requirements for one,
two and three star parks, a four star park must have the following:
o Good landscaping;
o Most homes skirted with metal skirts, concrete block, ornamental
wood or stone;
o Paved streets, edged or curbed.
o Uncrowded lots;
o Underground utilities if permitted by local conditions and
authorities;
o Most tanks, if present, concealed;
o Any hedges or fences must be attractive and uniform;
o Awnings, cabanas, or porches on most homes in southern areas.
(Excepting double-wide units.);
o Most lots to accommodate large mobile homes;
o Where row parking of homes exists, all must be lined up uniformly;
o Community hall and/or swimming pool and/or recreation programs. If a
park is four star in all but this requirement, the fourth star will
be printed as an open star indicating a four star park without
park-centered recreation; and,
o Excellent management.
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Market Analysis
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Five Star Park
Five star parks are the finest. They should be nearly impossible to
improve. In addition to the requirements for one, two, three, and four
star parks, a five star park must have the following:
o Well planned and laid out spacious appearance;
o Good location in regard to accessibility and desirable neighborhood.
In some locations, park should be enclosed by high hedges or
ornamental fence;
o Wide paved streets in perfect condition. Curbs or lawns edged to
streets, sidewalks, street lights, street signs;
o Homes set back from street;
o Exceptionally attractive entrance and park sign;
o Patios at least 8 x 30 feet. (Excepting double-wide units.);
o Paved off-street parking such as carports or planned parking;
o All homes skirted;
o All hitches concealed. Any existing tanks concealed;
o Recreation, some or all of the following: swimming pool (excepting
areas with long, cold winters), shuffleboards, horseshoe pitching,
golf course, hobby shop, hobby classes, games, potlucks, dances or
natural recreational facilities;
o Beautifully equipped recreation hall with kitchen. Room for
community gatherings, tiled restrooms, etc.;
o Uniform storage sheds or central storage facilities;
o All late model homes in excellent condition;
o At least 60 percent occupancy in order to judge quality of residents
which indicates park's ability to maintain a five star rating
between inspections;
o All empty lots grassed, graveled or otherwise well maintained;
o If pets or children allowed, there must be a place for them to run
and play without cluttering the streets and yards. Most five star
parks are for adults only; and,
o Superior management interested in comfort of residents and
maintenance of park.
The demand for good quality institutional grade manufactured housing
communities is anticipated to increase throughout the 1990's, since manufactured
housing communities provide an alternative form of living for the elderly and
retirees, especially for those living on fixed income. Manufactured home
shipments continue to be strong. Shipments rose 20.0 percent in 1992 and 1994,
and 12.0 percent in 1995. The market for good quality manufactured housing
communities is expected to be strong, with yield and capitalization rates and
prices expected to continue to be competitive, with the REITs leading the way.
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Market Analysis
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Competition
We have surveyed six manufactured housing communities located within the
subject's primary market, including the subject property, containing a total of
1,598 sites. The combined occupancy rate of these six manufactured housing
communities, including the subject property, is approximately 99.5 percent.
Excluding the subject property in our survey, the combined occupancy rate is
approximately 99.8 percent, based on 1,279 sites.
The name and location of the subject property's primary competition, as
well as the number of sites, occupancy levels, amenities offered, monthly rental
rates and services provided in the monthly rental rate, are presented on the
following facing page, along with a map which identifies the location of each
competing park.
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<TABLE>
<CAPTION>
===========================================================================================================================
SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- ---------------------------------------------------------------------------------------------------------------------------
Number Age
Of Sites ---
-------- Condition Services Date Of
Comp. Name Occupancy --------- Monthly Provided Last Rental
No. Location Level Amenities Park Rating(1) Rent in Rent Increase
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
R-1 Ardmore Village 337 Clubhouse 1970 $307.00/Mo. Sewer January, 1997
20990 Cedar Avenue South --- Pool ---- To Refuse
Lakeville, Minnesota 99% Playground Good $312.00/Mo. Snow Removal
Storage ----
Basketball 4*
- ---------------------------------------------------------------------------------------------------------------------------
R-2 Rambush Estates 223 Clubhouse 1970 $344.00/Mo. Water March, 1997
14709 North Burnsville --- Pool ---- (Average) Sewer
Parkway 100% Playground Good Refuse
Burnsville, Minnesota Laundry ----
Security 4*
- ---------------------------------------------------------------------------------------------------------------------------
R-3 Rosemount Woods 182 Playground 1982 $336.00/Mo. Water January, 1997
140 St. West at Diamond Path --- Laundry ---- (Average) Sewer
Rosemount, Minnesota 100% Good Refuse
----
4*
- ---------------------------------------------------------------------------------------------------------------------------
R-4 North Creek 164 Clubhouse 1984 $280.00/Mo. Refuse May, 1997
Pilot Knob Road --- Playground ---- To Snow Removal
Lakeville, Minnesota 100% Basketball Good $290.00/Mo.
----
3*
- ---------------------------------------------------------------------------------------------------------------------------
R-5 Country View 373 Clubhouse 1971 $287.00/Mo. Refuse May, 1995
5775 Country View Trail --- Pool ----
Farmington, Minnesota 100% Playground Good
Laundry ----
Basketball 3*
Baseball
- ---------------------------------------------------------------------------------------------------------------------------
Subject Camelot Acres 319 Clubhouse 1971 $338.00/Mo. Water September, 1996
14750 West Burnsville --- Pool ---- Sewer
Parkway 98% Storage Good
Burnsville, Minnesota Basketball ----
Playground 4*
- ---------------------------------------------------------------------------------------------------------------------------
(1) Ratings from One Star to Five Star Parks are defined in the National Overview section of this report.
===========================================================================================================================
</TABLE>
========================================================
SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- --------------------------------------------------------
3-Year
Average
Comp. Name Annual Rental
No. Location Increase
- ---------------------------------------------------------
R-1 Ardmore Village $5.00/Mo.
20990 Cedar Avenue South
Lakeville, Minnesota
- ---------------------------------------------------------
R-2 Rambush Estates $15.00/Mo.
14709 North Burnsville (Last increase)
Parkway
Burnsville, Minnesota
- ---------------------------------------------------------
R-3 Rosemount Woods $17.00/Mo.
140 St. West at Diamond Path (Last Increase)
Rosemount, Minnesota
- ---------------------------------------------------------
R-4 North Creek $11.00/Mo.
Pilot Knob Road
Lakeville, Minnesota
- ---------------------------------------------------------
R-5 Country View $9.00/Mo.
5775 Country View Trail (Last Increase)
Farmington, Minnesota
- ---------------------------------------------------------
Subject Camelot Acres $15.00/Mo.
14750 West Burnsville (Last Increase)
Parkway
Burnsville, Minnesota
- ---------------------------------------------------------
(1) Ratings from One Star to Five Star Parks are defined
in the National Overview section of this report.
=========================================================
<PAGE>
COMPETING MANUFACTURED HOUSING MAP
[MAP OMITTED]
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Market Analysis
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Rental rates of manufactured housing communities located within the
subject's primary market range from $280.00 to $344.00 per site, on a monthly
basis. The subject property is currently quoting a monthly rental rate within
the market range, or at $338.00 per site. The last rental rate increase at the
subject property was as of September, 1996.
The enclosed comparable rentals are considered the most competitive to the
subject property regarding amenities offered, condition, location and overall
ranking.
Comparable R-1, Ardmore Village, is located at 20990 Cedar Avenue South,
in Lakeville, Minnesota. This comparable property contains 337 sites, and
is 99 percent occupied. Ardmore Village was developed in 1970, and is in
overall good condition. Amenities include a clubhouse, pool, playground,
storage area, and basketball courts. Over the last three years, the
average annual rental rate increase was approximately $5.00 per month. The
monthly rental rates range from $307.00 to $312.00, with sewer, refuse,
and snow removal included in the monthly rental payment.
Comparable R-2, Rambush Estates, is located at 14709 North Burnsville
Parkway, in Burnsville, Minnesota. Rambush Estates contains 223 sites, and
is 100 percent occupied. Rambush Estates was developed in 1970, and is in
overall good condition. Amenities include a clubhouse, pool, playground,
laundry facilities, and security. The last rental rate increase occurred
in March, 1997, and was $15.00 per month. The average monthly rental rate
is $344.00, with water, sewer, and refuse included in the monthly rental
payment.
Comparable R-3, Rosemount Woods, is located at 140 Street West and Diamond
Path, in Rosemount, Minnesota. Rosemount Woods contains 182 sites, and is
100 percent occupied. Rosemount Woods was developed in 1982, and is in
overall good condition. Rosemount Woods contains a playground and laundry
facilities as amenities. The last rental rate increase occurred in
January, 1997, and was $17.00 per month. The average monthly rental rate
is $336.00, with water, sewer and refuse included in the monthly rental
payment.
Comparable R-4, North Creek, is located along Pilot Knob Road, in
Lakeville, Minnesota. North Creek contains 164 sites, and is 100 percent
occupied. North Creek was developed in 1984, and is in overall good
condition. Amenities include a clubhouse, playground, and basketball
courts. Over the last three years, the average annual rental rate increase
was $11.00 per month. The monthly rental rates range from $280.00 to
$290.00 per month, with refuse and snow removal included in the monthly
rental payment.
Comparable R-5, Country View, is located at 5775 Country View Trail, in
Farmington, Minnesota. Country View contains 373 sites, and is 100 percent
occupied. Country View was developed in 1971, and is in overall good
condition. Amenities include a clubhouse, pool, playground, laundry,
basketball courts, and a baseball field. The last rental rate increase
occurred in May, 1995, and was
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Market Analysis
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$9.00 per month. The monthly rental rate is $287.00 per month, with refuse
service included in the monthly rental payment.
In our opinion, and based on conversations with the on-site manager,
properties R-1, R-2 and R-3 compete most favorably with the subject property,
with monthly rental rates ranging from $307.00 to $344.00 per month per site.
The subject property is currently quoting a monthly rental rate of $338.00 per
site, which is within the range of rental rates of the most comparable competing
properties. The subject property competes most effectively with its primary
competitors regarding amenities, condition and current rent structure.
Comparable Manufactured Housing Community Sales
A search of the subject's market revealed four sales of manufactured
housing communities in the Minneapolis-St. Paul area, with two located in Dakota
County. We have presented these three sales of manufactured housing communities
below. The following is a brief discussion of each of the manufactured housing
sales. These sales are summarized on the following facing page.
Comparable Sale I-1, Northstar Mobile Home Park, is located at 3001
Country Drive, in Little Canada, Minnesota. This property contains 210
sites, and is situated on 33.22 acres of land area. The property was in
average condition at the time of sale and was developed in 1971. Northstar
Mobile Home Park contains minimal amenities. The property was 100 percent
occupied at the time of sale. The property was purchased for $3,563,000,
which equates to $16,967 per site.
Comparable Sale I-2, Rosemount Woods, is located at 13925 Burnratty
Avenue, in Rosemount, Minnesota. This property contains 182 sites, and is
situated on 46.70 acres of land area. The property was in good condition
at the time of sale, and was developed in 1982. Rosemount Woods contains
laundry facilities and a playground as amenities. The property was 100
percent occupied at the time of sale. The property was purchased for
$4,277,000, which equates to $23,500 per site. Rosemount Woods is a
competing park as detailed in the previous section.
Comparable Sale I-3, Cedar Knolls, is located at 12571 Garland Avenue, in
Apple Valley, Minnesota. This property contains 462 sites, and is situated
on 87.8 acres of land area. The property was in average condition at the
time of sale and was developed in 1969. Amenities include a clubhouse,
playground, and a pool. The property was 97.0 percent occupied at the time
of sale. The property was purchased for $8,708,000, which equates to
$18,848 per site.
Comparable Sale I-4, Landfall Terrace, is located at 2937 Hudson Road, in
St. Paul, Minnesota. This property contains 369 sites, and is situated on
40.0 acres of land area. The property was in good condition at the time of
sale. Amenities include a playground area, a small lake and tennis courts.
The property was 85.0 percent occupied, at the time of sale. The property
was purchased for $6,000,000 which equates to $16,260 per site.
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<TABLE>
<CAPTION>
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SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- -----------------------------------------------------------------------------------------------------------------------
Sales Price
Per Site
Sales Date Land Area Density -------- EGIM
Comp. Name ---------- --------- -------- Occupancy ----
No. Location Sales Price No. Sites Condition At Sale $NOI/Site OAR
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
I-1 Northstar Mobile Home Park 1/96 33.22 6.32 $16,969 N/A N/A
3001 Country Drive ---- ----- ---- -------
Little Canada, Minnesota $3,563,000 210 Average 100%
- -----------------------------------------------------------------------------------------------------------------------
I-2 Rosemount Woods 11/94 46.70 3.90 $23,500 N/A 6.58x
140 Street West at Diamond ----- ----- ---- -------
Park $4,277,000 182 Average 100% N/A
Rosemount, Minnesota
- -----------------------------------------------------------------------------------------------------------------------
I-3 Cedar Knolls 11/94 87.80 5.26 $18,848 N/A 4.86x
12571 Garland Avenue ----- ----- ---- -------
Apple Valley, Minnesota $8,708,000 462 Average 97% N/A
- -----------------------------------------------------------------------------------------------------------------------
I-4 Landfall Terrace 12/91 40.0 9.23 $16,260 $1,481 6.88
2937 Hudson Road ----- ----- ---- -------
St. Paul, Minnesota $6,000,000 369 Good 85 9.11%
- -----------------------------------------------------------------------------------------------------------------------
Subject Camelot Acres - - - 68.45 4.66 98% $2,354(1) N/A
14750 West Burnsville ----- ----
Parkway 319 Good
Burnsville, Minnesota
- -----------------------------------------------------------------------------------------------------------------------
(1) 1997 Trailing 12 months
=======================================================================================================================
<CAPTION>
=====================================================================================================
SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- -----------------------------------------------------------------------------------------------------
$EGI/Site
---------
$Expense/Site
-------------
Comp. Name Expense Ratio Comparability to
No. Location % Of EGI to the Subject Comments
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
I-1 Northstar Mobile Home Park N/A Inferior Developed in 1971;
3001 Country Drive ----- Average condition;
Little Canada, Minnesota N/A Minimal amenities.
----
N/A
- -----------------------------------------------------------------------------------------------------
I-2 Rosemount Woods $3,570 Similar Developed in 1982; Good
140 Street West at Diamond ------ condition; Amenities
Park N/A include: laundry
Rosemount, Minnesota --- facilities.
N/A
- -----------------------------------------------------------------------------------------------------
I-3 Cedar Knolls $3,875 Similar Developed in 1969;
12571 Garland Avenue ------ Average condition;
Apple Valley, Minnesota N/A Amenities include:
--- clubhouse, pool, and
N/A playground.
- -----------------------------------------------------------------------------------------------------
I-4 Landfall Terrace $2,363 Inferior Developed in 1969; Good
2937 Hudson Road ------ Condition; Amenities
St. Paul, Minnesota $882 include: playground,
---- tennis courts and a small
37.33% lake.
- -----------------------------------------------------------------------------------------------------
Subject Camelot Acres $4,420 Subject Developed in from 1971;
14750 West Burnsville ------ Property Good condition;
Parkway $2,066 Amenities include:
Burnsville, Minnesota ------ clubhouse, pool,
46.75% basketball court, and
playground.
- -----------------------------------------------------------------------------------------------------
(1) 1997 Trailing 12 months
=====================================================================================================
</TABLE>
<PAGE>
Market Analysis
================================================================================
It should be noted that comparability does not imply an identical or exact
duplicate, but rather the possession of a similar utility and affected by
similar supply and demand forces. Also, relative to the subject property,
differences include: time or date of the transactions; location, which
encompasses differences in accessibility; site characteristics, including
differences in size, topography, access, exposure and development capacities;
and improvement characteristics, which include differences in age, quality,
condition, size and amenities.
Demographic Trends
Based on information provided by National Decision Systems (NDS), the
populations within the subject's primary 5-mile and secondary 10-mile market
areas, as of 1997, are 126,037 and 403,093, respectively. The populations of the
subject's primary and secondary market areas are projected to increase to
140,798 and 441,873, respectively, by the year 2002.
According to NDS, the total number of households within the subject's
primary and secondary market areas, are 47,129 and 159,183, respectively, for
1997. The number of households within the subject's primary 5-mile and secondary
10-mile market areas are projected to increase to 54,253 and 179,803,
respectively, by the year 2002.
The average household income levels within the subject's primary and
secondary market areas, for 1997, are $77,594 and $75,305, respectively, and are
expected to increase to $93,425 and $90,829, respectively, by the year 2002. The
median household income levels within the subject's primary and secondary market
areas, for 1997, are $57,180 and $54,649, respectively, and are expected to
increase to $63,188 and $61,365, respectively, by the year 2002. Per capita
income within the subject's primary and secondary market areas, for 1997, are
$29,120 and $29,858, respectively, and are expected to increase to $36,157 and
$37,145, respectively, by the year 2002.
Based on the above levels, the demographics of the subject's primary
market area appear to indicate a positive growth trend, based on information
provided by NDS. For additional demographic information, please refer to the NDS
summary report in the Addenda of this report.
Expense Analysis
Expenses exhibited by manufactured housing communities nationally are
typically 35.0 to 45.0 percent of effective gross income. However, expense
ratios of manufactured housing communities located in the southeast and
southwest regions of the nation are typically lower by comparison, due to lower
real estate taxes and common area maintenance charges.
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Market Analysis
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Expense ratios and expenses on a per site basis for the previously
presented comparable manufactured housing community sales were not available,
except for I-4. The subject property, however, is currently reporting expenses
for the 12-month trailing period of 1997, at 46.75 percent of effective gross
income and $2,066 on a per site basis. Operating expenses as a percentage of
effective gross income for the subject property are slightly above national
averages, due to higher real estate taxes, by comparison.
Market Supply and Demand
There are a total of five competing manufactured housing communities
located within the subject's market, which total 1,279 sites, with a
corresponding average occupancy rate of 99.8 percent. No specific absorption
statistics were available, since the subject's competing parks have historically
reported occupancy rates at, or above 95.0 percent. The occupancy rate at the
subject property, based on conversations with management, has historically been
consistent with competing parks, and is currently 98.1 percent. We believe the
current occupancy rate of the subject property is stabilized, and is within the
range of the occupancy rates of competing parks presently presented. Based on
the subject's current occupancy rate and occupancy rates at competing parks,
demand appears to be very strong, with steady rental rate increases expected.
Conclusion
Historically, the subject's primary market has sustained high occupancy
levels of 95.0 to 100 percent. Rental rates of similar manufactured housing
communities located within the subject's primary market generally range from
$280.00 to $344.00 per site, on a monthly basis. The subject property is
currently quoting, and is currently achieving (based on the most recent rent
roll provided), a monthly rental rate within the range of competing parks, or at
$338.00 per site, which we believe is market-orientated.
Based on our research, steady increases in rental rates are anticipated,
based on actual historical performance of competing parks and historical
increases seen at the subject property. Sales transactions of manufactured
housing communities located within the subject's market area range from $16,260
to $23,500 per site. In our opinion, the subject property competes favorably
with its competition regarding amenities, condition, rent structure and overall
market rating.
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<PAGE>
SITE PLAN
[GRAPHIC OMITTED]
<PAGE>
PROPERTY DESCRIPTION
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Site Description
The subject site is located along the east side of West Burnsville
Parkway, just south of County Highway 42, in Burnsville, Minnesota. The subject
site is irregular in shape and contains approximately 68.45 acres, or 2,981,682
square feet of land area. Topographically, the site is basically level and at
street grade.
Sewer and water service is provided by the City of Burnsville. Electric
Service is provided by the Northern States Power Company. Gas service is
provided by Minnegasco, and U.S. West Communications provides telephone service.
The subject property is accessible via West Burnsville Parkway. The City
of Burnsville Planning Department, indicated all areas of the subject property
are located in Zone A, the 100 year flood plain. We recommend a qualified
engineer to determine the existence of any serious flood hazard areas that may
exist on or about the subject property.
Each developed site has a concrete or asphalt-paved driveway. The streets
within the park have two-lanes. Overall, the subject site is typical of the area
and is functionally well suited for its current use.
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.
Improvements Description
The subject property was originally developed in 1971. The subject
improvements consist of a 319-site manufactured housing community, with a
clubhouse, pool, basketball court, and playground.
The clubhouse consists of open-space available for resident use, and a
kitchen. The exterior of the two-story clubhouse consists of masonry, and
appeared to be in overall good condition at the time of inspection.
The pool is adjacent to the clubhouse. Off-street parking is available for
each resident. Site improvements within the park include: paved streets,
concrete or asphalt-paved driveways, some street lighting and signage. Overall,
the site improvements appeared to be in good condition at the time of
inspection.
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Property Description
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Camelot Acres is a functional manufactured housing community with good
ingress and egress from West Burnsville Parkway. Overall, the subject community
appears to be maintained and in good condition. Camelot Acres is a functional
manufactured housing community and competes favorably with other existing
manufactured housing communities in the area in terms of appearance and
amenities. The subject property would fit the profile of a Four Star Park, as
defined in the National Overview section of this report.
Real Property Taxes and Assessments
Assessed value of commercial property in Dakota County is assessed at 100
percent of the Assessor's opinion of market value. The subject property is
identified by tax parcel numbers 02-02700-011-88 and 02-02700-010-90.
Real estate taxes are assessed in arrears in Dakota County, with 1996
taxes payable in 1997. The total amount of real estate taxes for 1996, payable
in 1997, for the subject property, amounts to $154,667.90. The total amount of
real estate taxes for 1996 equates to approximately $484.85 per site.
Zoning
According to zoning officials of the City of Burnsville, the subject
property is currently zoned R-3 D, Mobile Home Park District. Based on
conversations with zoning officials of the City of Burnsville, the subject
property is a legal and conforming use in the R-3 D, Mobile Home Park District.
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CONCLUSION
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Conclusion
o The subject property, Camelot Acres, is a functional manufactured
housing community, which competes favorably in relation to its
competition;
o Comparable manufactured housing communities located within the
subject's market range in monthly rental rates per site from $280.00
to $344.00;
o The subject property is currently quoting, and is currently
achieving (based on the most recent rent roll provided) a monthly
rental rate of $338.00 per site, which is within the range of
competing parks, and appears to be market-oriented;
o Sale transactions of manufactured housings located within the
subject's region range in unit sales prices per site from $16,260 to
$23,500.
o Operating expenses are slightly above national industry standards
for manufactured housing communities; due to higher real estate
taxes, by comparasion.
o The subject park appears to be operating at economic levels based on
our review of historical and budgeted 1998 income and expenses;
o The demographic characteristics of the area appear to be positive;
o The population profile of the subject property is approximately 94.0
percent families, and 6.0 percent retired adults.
o The current occupancy rate at the subject property of 98.1 percent
is evident by a very strong local market and demand;
o No significant manufactured housing communities are expected to be
developed in the near future;
o In our opinion, based on Woodall's criteria, the subject property is
a Four Star Park, and the reader's attention is directed to the
corresponding definition and criteria of a Four Star Park, presented
in the National Overview section of this report; and,
o Based on the subject's location, demographic, economic, market and
physical characteristics, we believe Camelot Acres will continue to
be a viable manufactured housing community in the foreseeable
future, and is well positioned in the marketplace.
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WAKEFIELD(R)
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ASSUMPTIONS AND LIMITING CONDITIONS
================================================================================
"Report" means the consulting report to which these Assumptions and Limiting
Conditions are annexed.
"Property" means the subject of the Report.
"C&W" means Cushman & Wakefield, Inc. or its subsidiary which issued the Report.
"Appraiser(s)" means the employee(s) of C&W who prepared and signed the Report.
This report is made subject to the following assumptions and limiting
conditions:
1. No responsibility is assumed for the legal description or for any matters
which are legal in nature. 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 Report or upon which the Report 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 Appraisers nor C&W shall be responsible for the
accuracy or completeness of such information, including the correctness of
estimates, opinions, dimensions, sketches, exhibits, and other factual
matters.
3. The information is effective as of the date stated in the Report. Changes
since that date in external and market factors or in the property itself
can significantly affect our analysis.
4. The report is to be used in whole and not in part. No part of the Report
shall be used in conjunction with any other report. Possession of the
Report, or a copy thereof, does not carry with it the right of
publication. Publication of the Report or any portion thereof without the
prior written consent of C&W is prohibited. Except as may be otherwise
expressly stated in the letter of engagement to prepare the Report, C&W
does not permit use of the Report by any person other than the party to
whom it is addressed or for purposes other than those for which it was
prepared. If written permission is given by C&W to use the Report, the
Report must be used in its entirety and only with proper written
qualification as approved by C&W. No part of the Report or the identity of
the Appraiser shall be conveyed to the public through advertising, public
relations, news, sales, or other media or used in any material without
C&W's prior written consent. Reference to the Appraisal Institute or to
the MAI designation is prohibited.
5. The Appraiser shall not be required to give testimony in any court or
administrative proceedings relating to the Property or the Report.
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Assumptions and Limiting Conditions
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6. The Report 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 Report; 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 Report is based.
7. The physical condition of the improvements considered by the Report is
based on visual inspection by the Appraiser or other person identified in
the Report. C&W assumes no responsibility for the soundness of structural
members nor for the condition of mechanical equipment, plumbing, or
electrical components.
8. Unless otherwise stated in the Report, the existence of potentially
hazardous or toxic materials which may have been used in the construction
or maintenance or operation of the improvements or may be located at or
about the Property was not considered in the Report. These materials (such
as formaldehyde foam insulation, asbestos insulation, various soil
contaminants, and other potentially hazardous materials) may affect the
value of the Property. The Appraisers are not qualified to detect such
substances, and C&W urges that an expert in this field be employed to
determine the economic impact of these matters, if any, on the property in
the Report.
9. Unless otherwise stated in the Report, compliance with the requirements of
the Americans With Disabilities Act of 1990 (ADA) has not been considered
in the Report. Failure to comply with the requirements of the ADA may
negatively affect the value of the property. C&W recommends that an expert
in this field be employed.
10. If the Report is submitted to a lender or investor with the prior approval
of C&W, such party should consider the Report as one factor, together with
its independent investment considerations and underwriting criteria, in
its overall investment decision.
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CERTIFICATION
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We certify that, to the best of our knowledge and belief:
1. Michael J. Schaeffer inspected the property, and Stanley R. Dennis, Jr.,
MAI, Director, has reviewed and approved the report, but did not inspect
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 on an action or event (such as the
approval of a loan) resulting from the analyses, opinions, or conclusions
in, or the use of, this report.
6. 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 Ethics and Standards of Professional Practice of the Appraisal
Institute.
7. No one provided significant professional assistance to the persons signing
this 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. As of the date of this report, Stanley R. Dennis, Jr., MAI, has completed
the requirements of the continuing education program of the Appraisal
Institute.
/s/ Michael J. Schaeffer /s/ Stanley R. Dennis, Jr., MAI
Michael J. Schaeffer Stanley R. Dennis, Jr., MAI
Director Director, Manager
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ADDENDA
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POP-FACT SHEETS
LEGAL DESCRIPTION
QUALIFICATIONS OF APPRAISERS
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40
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POP-FACT SHEETS
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<PAGE>
Tue Nov 25, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP FACTS: SUMMARY REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6510
PREPARED FOR
CUSHMAN & WAKEFIELD, INC
BURNSVILLE PKWY & COUNTY RD 42
BURNSVILLE, MN COORD: 44:44.78 93:19.38
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- --------------------------------------------------------------------------------
POPULATION
2002 PROJECTION 140,798 441,873
1997 ESTIMATE 126,037 403,093
1990 CENSUS 101,625 346,431
1980 CENSUS 68,839 257,897
GROWTH 1980 - 1990 47.63% 34.33%
HOUSEHOLDS
2002 PROJECTION 54,253 179,803
1997 ESTIMATE 47,129 159,183
1990 CENSUS 36,189 130,426
1980 CENSUS 22,059 89,499
GROWTH 1980 - 1990 64.05% 45.73%
1997 ESTIMATED POPULATION BY RACE 126,037 403,093
WHITE 95.77% 95.12%
BLACK 1.82% 1.98%
ASIAN & PACIFIC ISLANDER 1.92% 2.33%
OTHER RACES 0.49% 0.58%
1997 ESTIMATED POPULATION 126,037 403,093
HISPANIC ORIGIN 1.14% 1.19%
OCCUPIED UNITS 36,189 130,426
OWNER OCCUPIED 75.21% 72.15%
RENTER OCCUPIED 24.79% 27.85%
1990 AVERAGE PERSON PER HH 2.79 2.64
1997 ESTIMATED HH BY INCOME 47,129 159,183
$150,000 + 7.63% 7.42%
$100,000 TO $149,999 8.30% 8.36%
$ 75,000 TO $ 99,999 12.67% 11.66%
$ 50,000 TO $ 74,999 30.01% 27.71%
$ 35,000 TO $ 49,999 17.61% 17.82%
$ 25,000 TO $ 34,999 9.97% 10.55%
$ 15,000 TO $ 24,999 7.83% 9.32%
$ 5,000 TO $ 14,999 4.94% 5.85%
UNDER $ 5,000 1.02% 1.30%
1997 EST. AVERAGE HH INCOME $ 77,594 $ 75,305
1997 EST. MEDIAN HH INCOME $ 57,180 $ 54,649
1997 EST. PER CAPITA INCOME $ 29,120 $ 29,858
<PAGE>
Tue Nov 25, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP 80-02, HH 80-02, INC 80-02)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6510
PREPARED FOR
CUSHMAN & WAKEFIELD, INC
BURNSVILLE PKWY & COUNTY RD 42
BURNSVILLE, MN COORD: 44:44.78 93:19.38
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- --------------------------------------------------------------------------------
POP_80: TOTAL 68,839 257,897
POP_90: TOTAL 101,625 346,431
POP_97: TOTAL (EST.) 126,037 403,093
POP_02: TOTAL (PROJ.) 140,798 441,873
HH_80: TOTAL 22,059 89,499
HH_90: TOTAL 36,189 130,426
HH_97: TOTAL (EST.) 47,129 159,183
HH 02: TOTAL (PROJ.) 54,253 179,803
INC_80: PER CAPITA (EST.) $ 9,833 $ 9,930
INC_90: PER CAPITA $ 18,722 $ 19,227
INC_97: PER CAPITA (EST. $ 29,120 $ 29,858
INC_02: PER CAPITA (PROJ $ 36,157 $ 37,145
HH_90_BY INCOME_89: MEDIAN $ 46,060 $ 43,453
HH_97_BY INCOME: MEDIAN $ 57,180 $ 54,649
HH_02_BY INCOME: MEDIAN $ 63,188 $ 61,365
HH_80_BY INCOME_79: AVERAGE $ 30,685 $ 28,614
HH_90_BY INCOME_89: AVERAGE $ 52,353 $ 50,890
HH_97_BY INCOME: AVERAGE $ 77,594 $ 75,305
HH_02_BY INCOME: AVERAGE $ 93,425 $ 90,829
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LEGAL DESCRIPTION
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<PAGE>
LEGAL DESCRIPTION
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All of the W 1/2 of the Southeast 1/4 of Section 27, Township 115, Range 21 in
Dakota County, Minnesota, except that part lying Southerly of the center line of
Burnsville Crosstown Highway as it is now laid out and travelled across said
West 1/2 of the Southeast 1/4.
Dakota County, Minnesota
Abstract.
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QUALIFICATIONS OF APPRAISERS
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<PAGE>
STATEMENT OF QUALIFICATIONS
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MICHAEL J. SCHAEFFER
Real Estate Experience
Mr. Schaeffer has been active in the appraisal of real estate since 1983.
Appraisal experience includes the valuation of income-producing real estate in
the Chicago area as well as many major cities and small towns throughout the
Midwest. The types of properties appraised include office buildings, regional
malls, shopping centers, country clubs, apartment complexes, subsidized housing
units, industrial buildings, nursing homes, retirement communities, automotive
dealerships, department stores, vacant land, proposed income-producing
properties, and various special purpose properties. Mr. Schaeffer also has had
over 10 years of experience in new construction and renovation of commercial,
industrial, residential and specialized real estate properties.
Education
Bachelor of Arts, University of Cincinnati, Cincinnati, Ohio MBA Graduate Course
Work in Economics and Management, Xavier University, Cincinnati, Ohio
Real Estate Education
The following courses sponsored by the Appraisal Institute have been
successfully completed:
Real Estate Appraisal Principles 1A-1
Basic Valuation Procedures 1A-2
Standards of Professional Practice
Capitalization Theory and Techniques 1BA
Capitalization Theory and Techniques IBB
Advanced Applications 550
Report Writing & Valuation Analysis 540
Mr. Schaeffer has also attended numerous lectures and seminars sponsored by the
Appraisal Institute.
Mr. Schaeffer is currently a candidate for the MAI designation of the Appraisal
Institute, and has completed the educational and experience requirements for the
MAI designation.
Current Position
Director, Appraisal Services, Cushman & Wakefield, Inc., Chicago, Illinois
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
STANLEY R. DENNIS, JR., MAI
Real Estate Experience
Director, Manager, Cushman & Wakefield Valuation Advisory Services, Chicago,
Illinois. Division is responsible for the appraisal and consultation function of
Cushman & Wakefield, Inc., a national full service real estate organization,
1989.
Vice President, Manager, Cushman & Wakefield Appraisal Services, Portland,
Oregon, 1983.
Principal, Stanley R. Dennis & Associates, Portland, Oregon, 1982.
Education
Portland State University, Portland, Oregon
Bachelor of Science Degree, 1977, Finance and Real Estate
Appraisal Institute
Course I-A Fundamentals and Principles of Real Estate Appraisal
Course I-B Capitalization Theory and Techniques
Course II-I Case Studies in Real Estate Valuation
Course II-2 Valuation Analysis and Report Writing
Course II-3 Standards of Professional Practice
Course IV Litigation/Condemnation Valuation
Course VI Investment Analysis
Course VIII Residential Case Studies
Course X Market Analysis
Seminar Feasibility Analysis and Highest and Best Use
Seminar Discounted Cash Flow Analysis
Seminar Cash Equivalency
Seminar Subdivision Analysis
Seminar Rates, Ratios and Reasonableness
Professional Affiliations
American Institute of Real Estate Appraisers, Member (Designation #6754)
Building Owners and Managers Association (BOMA)
National Association of Corporate Real Estate Executives (NACORE)
<PAGE>
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MARKET STUDY OF REAL PROPERTY
Casa del Sol II
10960 North 67th Avenue
Peoria, Maricopa County, Arizona
================================================================================
As of December 1, 1997
Prepared For:
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Prepared By:
Cushman & Wakefield of Illinois, Inc.
Valuation Advisory Services
455 North Cityfront Plaza Drive, Suite 2800
Chicago, Illinois 60611-5555
CUSHMAN &
WAKEFIELD(R)
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<PAGE>
[Letterhead of Cushman & Wakefield of Illinois, Inc.]
December 10, 1997
Mr. Edward J. Welch
Director
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Re: Market Study of Real Property
Casa del Sol II
10960 North 67th Avenue
Peoria, Maricopa County, Arizona 49201
Dear Mr. Welch:
In fulfillment of our agreement as outlined in the Letter of Engagement,
Cushman & Wakefield of Illinois, Inc., is pleased to transmit our market study
and consulting report evaluating the above referenced real property.
As specified in the Letter of Engagement, our market study and consulting
report is qualified by certain assumptions, limiting conditions, certifications,
and definitions, which are set forth in the report.
This consulting report was prepared for the Client, and it is intended
only for the specified use of the Client. It may not be distributed to or relied
upon by other persons or entities without written permission of Cushman &
Wakefield, Inc.
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the above
referenced real property, as of the date of our property inspection. The
function of the report is to assist the client, in evaluating the property for
underwriting and rating purposes.
<PAGE>
Mr. Edward J. Welch - 2 - December 10, 1997
This market study and consulting report was prepared in conformity with
the requirements of the Code of Ethics and Standards of Professional Appraisal
Practice of the Appraisal Institute and the Uniform Standards of Professional
Practice (USPAP) adopted by the Appraisal Standards Board of the Appraisal
Foundation.
This letter is invalid if detached from the report, which contains the
text, exhibits, and the Addenda.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF ILLINOIS, INC.
/s/ Jody L. Garbisch
Jody L. Garbisch
Associate Appraiser
/s/ Michael J. Schaeffer
Michael J. Schaeffer
Director
/s/ Stanley R. Dennis, Jr.
Stanley R. Dennis, Jr., MAI
Director, Manager
CUSHMAN &
WAKEFIELD(R)
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SUMMARY OF SALIENT FACTS
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Property Name: Casa del Sol II
Location: 10960 North 67th Avenue
Peoria, Maricopa County, Arizona
Assessor's Parcel Number: Based on information provided by
Maricopa County Treasurer's Office,
the subject property is identified
by Assessor's Parcel Numbers
143-05-004L 5.
Date of Inspection: The property was inspected December
1, 1997.
Ownership: The subject property is legally
entitled to MHC Operating Limited
Partnership, an Illinois limited
partnership.
Land Area: Based on information provided by the
property's legal plat of survey, the
subject property contains
approximately 28.872 acres of land
area, or 1,257,686.52 square feet.
Zoning: Based on information provided by the
City of Peoria Zoning Department,
the subject property is zoned RMH-2,
Residential Mobile Home.
Improvements
Type: A manufactured housing community.
Year Built: The subject property was originally
developed in approximately 1977.
Size: The subject property consists of a
239-site manufactured housing
community.
Condition: At the time of inspection, the
subject property was in good
condition.
Property Rating: Five Star manufactured home
community.
Special Assumptions: 1. Information regarding the subject
property, including its physical
characteristics, was provided to us
by the client and the on-site
manager, and is assumed to be
accurate.
CUSHMAN &
WAKEFIELD(R)
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Summary of Salient Facts
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2. The existence of potentially
hazardous or toxic materials, which
may be located on or about the
property, was not considered in our
evaluation. The appraisers are not
qualified to detect such substances,
and Cushman & Wakefield urges that
an expert in this field be employed
to determine the existence, if any,
of hazardous materials located on or
about the site.
3. Our market and consulting report
regarding the subject assumes the
subject property, as presently
improved, represents its highest and
best use.
4. It is unknown to the appraiser if
the subject property complies with
the Americans with Disabilities Act
(ADA). We recommend a qualified
specialist in the final
determination regarding any ADA
compliance deficiencies that may be
present at the subject property.
5. Please refer to the complete list
of assumptions and limiting
conditions included at the end of
this report.
CUSHMAN &
WAKEFIELD(R)
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TABLE OF CONTENTS
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Page
PHOTOGRAPHS OF SUBJECT PROPERTY................................................1
INTRODUCTION...................................................................5
Identification of Property..................................................5
Property Ownership and Recent History.......................................5
Purpose and Function of the Market Study and Consulting Assignment..........5
Scope of the Market Study and Consulting Assignment.........................5
Date of Property Inspection.................................................5
Definitions and Other Pertinent Terms.......................................5
REGIONAL ANALYSIS..............................................................8
NEIGHBORHOOD ANALYSIS.........................................................29
MARKET ANALYSIS...............................................................31
National Overview..........................................................31
Competition................................................................38
Comparable Manufactured Housing Community Sales............................43
Demographic Trends.........................................................46
Expense Analysis...........................................................46
Market Supply and Demand...................................................47
Conclusion.................................................................47
PROPERTY DESCRIPTION..........................................................49
Site Description...........................................................49
Improvements Description...................................................49
REAL PROPERTY TAXES AND ASSESSMENTS...........................................50
ZONING........................................................................50
CONCLUSION....................................................................51
ASSUMPTIONS AND LIMITING CONDITIONS...........................................52
CERTIFICATION.................................................................54
ADDENDA.......................................................................55
Pop-Fact Sheets
Legal Description
Qualifications of Appraisers
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PHOTOGRAPHS OF SUBJECT PROPERTY
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[PHOTO OMITTED]
Front Entrance of the Subject Property
[PHOTO OMITTED]
Exterior of Community Center
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Photographs of Subject Property
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[PHOTO OMITTED]
Typical Interior View of the Subject Park
[PHOTO OMITTED]
Exterior View of Pool Area
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Photographs of Subject Property
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[PHOTO OMITTED]
Typical Interior View of the Subject Park
[PHOTO OMITTED]
Typical Interior View of the Subject Park
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Photographs of Subject Property
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[PHOTO OMITTED]
Street Scene Facing North Along North 67th Avenue
[PHOTO OMITTED]
Street Scene Facing South Along North 67th Avenue
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INTRODUCTION
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Identification of Property
The subject property consists of a 239-site manufactured housing
community, situated on approximately 28.872 acres of land area for residents 55
years old or greater, located approximately 15 miles northwest of downtown
Phoenix, in the City of Peoria, Maricopa County, Arizona. The property's street
address is 10960 North 67th Avenue. The property was constructed in 1977, and
was 99.0 percent occupied at the time of inspection.
Property Ownership and Recent History
The subject property is currently entitled to MHC Operating Limited
Partnership, an Illinois limited partnership. The subject property was
originally developed in 1977, with 239 manufactured housing sites.
Purpose and Function of the Market Study and Consulting Assignment
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the subject
property, as of the date of property inspection. The function of the consulting
report is to assist the client in evaluating the property for underwriting and
rating purposes.
Scope of the Market Study and Consulting Assignment
In the process of preparing this report, we inspected the property,
interviewed the on-site manager, conducted market research into asking rental
rates for comparable properties, conducted market investigations, and
ascertained sales prices of comparable properties. Additionally, we conducted
market research and evaluated demographic and economic trends; and, the market
position and rating of the subject property.
Date of Property Inspection
The property was inspected December 1, 1997.
Definitions and Other Pertinent Terms
Definitions of pertinent terms taken from the Dictionary of Real Estate
Appraisal, Third Edition (1993), published by the Appraisal Institute, is as
follows:
Market Rent
The rental income that a property would most probably command on the open
market; indicated by current rents paid and asked for comparable space as
of the date of the appraisal.
Evaluation
Evaluation is a study of the nature, quality, or utility of a parcel of
real estate or interest in, or aspects of, real property, in which a value
estimate is not necessarily required.
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Introduction
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Market Study
A macroeconomic analysis that examines the general market conditions of
supply, demand, and pricing or the demographics of demand for a specific
area or property type.
Legal Description
The subject property is located along the west side of North 67th Avenue,
approximately two miles north of U.S. Highway 60 (Grand Avenue), in the City of
Peoria, Maricopa County, Arizona. The street address of the subject property is
10960 North 67th Avenue, Peoria, Arizona. The property is identified by tax
parcel number 143-05-004L 5, according to Maricopa County Treasurer's Office.
Due to the lengthy metes and bounds legal description, the subject property's
legal description is presented in the Addenda of this report, and reference is
made thereto.
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LOCATION MAP
[MAP OMITTED]
<PAGE>
REGIONAL ANALYSIS - PHOENIX-MESA MSA
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Introduction
The short- and long-term value of real estate is influenced by a variety
of factors and forces which interact within a given region. Regional analysis
serves to identify those forces which affect property value and the role they
play within the region. The four primary forces which influence real property
value include environmental characteristics, governmental forces, social
factors, and economic trends. These forces determine the supply and demand for
real property which, in turn, affect market value.
=======================================
A. Environmental Characteristics
=======================================
The primary environmental forces which influence the region include
physical location, geography, and infrastructure. These characteristics provide
a basis for the region's stability and describe the area's overall locational
bearing. Both natural and man-made environmental forces influence real property
values and are best understood in relation to the subject property's location.
General Overview
The Phoenix-Mesa MSA, which includes Maricopa and Pinal Counties, is the
nation's 12th largest MSA by population rank. Maricopa County comprises a
majority of the MSA, containing 23 incorporated cities and towns, and numerous
developed unincorporated areas within its 9,225 square miles. The urbanized area
of the county covers more than 2,000 square miles, making the Phoenix
metropolitan area one of the geographically largest, yet least densely
populated, metro areas in the country.
Over the past several years, Phoenix has been one of the nation's fastest
growing metropolitan areas. During this decade, it has trailed only Atlanta and
Las Vegas in terms of domestic immigration with over 33,000 U.S. residents
relocating here. The urbanized area has five distinct regions: central,
northeast, southeast, northwest, and southwest. The areas are divided by
mountains to the south and north of central Phoenix, by the Salt River Indian
Reservation to the east, and by Interstate 10 and Interstate 17 running north,
south, and west from the Salt River.
The central region contains the area's major office employment centers:
Downtown, the Central Avenue corridor, the Camelback corridor, and the 44th
Street/Sky Harbor International Airport area which is home to a significant
amount of warehouse/distribution and industrial employment.
The northeast region is characterized by an expanding services employment
sector concentrated in south-central Scottsdale, the Paradise Valley Mall area,
and the Scottsdale Airpark. The Scottsdale Airpark area contains a high
concentration of industrial and light manufacturing employment. There is also an
emerging medical service corridor along Shea Boulevard in north Scottsdale.
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The northeast region is, perhaps, best known for its abundance of
high-quality resorts and golf courses and its affluent bedroom communities such
as Scottsdale, Paradise Valley, Fountain Hills, Carefree, Cave Creek, and
northern portions of the City of Phoenix.
The southeast region, often referred to as the East Valley, contains the
cities of Tempe, Mesa, Chandler, Gilbert, Guadalupe, Queen Creek, and the South
Mountain area of Phoenix. Major high-tech and aerospace employers are located in
this region of the MSA, as is the main campus of Arizona State University in
Tempe. Eastern portions of the southeast region contain many retirement
communities that host thousands of winter visitors, as well as year-round
retirees. Continued employment growth in high-tech industries, a diverse housing
market, and transportation improvements are expected to fuel continued
development in the southeast region.
The northwest region includes northwest Phoenix and the communities of
Glendale, Peoria, Youngtown, Surprise, El Mirage, and the unincorporated
retirement communities of Sun City and Sun City West. This region is rapidly
developing its own employment base, including service industries, agriculture,
and high-tech manufacturing. Recent development has tended to follow Bell Road
and the partially completed Agua Fria Freeway.
The rapidly growing southwest region is the least developed of the five
metropolitan areas, but its abundance of relatively inexpensive, developable
land and access to Interstate 10 make it attractive to both developers and
employers. The southwest region, which includes portions of the City of Phoenix,
as well as Goodyear, Litchfield Park, Avondale, Tolleson, and Buckeye, has
traditionally been agricultural in nature. In recent years, the area has
attracted considerable warehouse and distribution development.
Transportation
The Phoenix MSA is generally well served by an integrated transportation
network. The central portion of the MSA contains a majority of the area's
transportation links, supported by surrounding interstates, highways, and local
routes.
Highways & Interstates
The Phoenix region is served by two major interstates: Interstate 10 and
Interstate 17. Interstate 10 is the primary transportation thruway for the MSA,
linking with Southern California to the west, and Tucson and New Mexico to the
southeast. Interstate 17 runs northward, linking Phoenix with Flagstaff.
Superstition Freeway (U.S. Highway 60) runs east from Central Phoenix/Interstate
10 toward Mesa and Gilbert. Other major routes within the region include U.S.
Highways 80 and 89. Several new freeways, in various stages of competition, also
pass through the metro area.
Air Service
Air transportation is available at Phoenix Sky Harbor International
Airport, one of the 25 largest air traffic hubs in the nation. Airlines serving
Sky Harbor include Southwest Airlines, Air West, United, Delta, Northwest,
Alaska, American, USAir, and TWA. The Phoenix Sky Harbor International Airport
handled 30.4 million passengers in 1996, a 9.0 percent increase over 1995,
making it the 11th-busiest passenger airport in the country and
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Regional Analysis
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the 16th-busiest in the world. The airport moved 312,800 tons of cargo, which
also represented a 9.0 percent increase.
The airport is in the midst of two major projects. The first is the
construction of a new, $169 million, 7,800-foot runway (which will be the
airport's third). It is scheduled to become operational in the Spring of 1999.
Construction has begun on a $30.0 million project that will add 14 more
passenger gates. Completion is expected next Spring.
Other Services
Rail transportation is provided by the Southern Pacific, Atchison, and
Topeka and Santa Fe lines. AMTRAK provides passenger service to the region. The
MSA is also serviced by bus lines and motor carriers. Most municipalities
provide local bus routes which run throughout the metropolitan area, while
Greyhound/Trailways provides more regional service.
=======================================
B. Governmental Characteristics
=======================================
Governmental influences on the region impact property values via political
and legal actions at all levels. The legal climate at a particular time or in a
particular place may overshadow the natural market forces of supply and demand.
Government provides many necessary facilities and services that affect land use
patterns, including public utilities, refuse collection, transportation
networks, zoning codes, and fiscal policies.
Government Structure
Maricopa County contains 23 incorporated cities and towns, and numerous
unincorporated areas within its 9,225 square miles. Local governments provide a
variety of services, including law enforcement, fire safety, planning and
zoning, and other typical government services.
Services & Utilities
Arizona Public Service supplies electricity for most of the Valley,
including Ahwatukee, Foothills, Chandler, Gilbert, and Tempe. Salt River Project
is the other main electric supplier in the region, serving parts of Apache
Junction, Chandler, Mesa, and Tempe. Southwest Gas provides natural gas to the
region. US West Communications is the main telephone supplier in Maricopa
County. Water and sewer service is provided by the local municipalities.
Tax Structure
Tax burdens within the region include state and local sale taxes,
corporate income taxes, and ad valorem property taxes. Arizona's sales tax is
5.0 percent. Maricopa County adds an additional 0.05 percent on retail sales for
freeway construction. The Maricopa County Assessor's Office assesses taxes at
25.0 percent of full value for improved industrial and commercial properties.
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Bond Rating
Moody's Bond Record places the State of Arizona's bond rating as "Aaa"
relative to investment qualities, while Maricopa County is "A". "Aaa" bonds are
judged to be the best quality and carry the smallest degree of investment risk.
"A" bonds are judged to possess many favorable investment attributes and are
considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
=======================================
C. Social Forces
=======================================
Real estate values can be influenced to a large degree by social issues
impacting the region, including population trends, income levels, the profile of
workers in the area, and other quality of life issues. The demographic
composition of the population reveals the potential, basic demand for real
estate services.
Population
The population and its geographic distribution are basic determinants of
the need for real estate. Aggregate population growth is distributed among
regions in response to changing economic opportunities, while the demand for
real estate is created by a population's demand for the goods and services to be
produced or distributed within the region. Thus, population and demographic
trends can influence the demand for services provided by property, thereby
affecting property value.
The Phoenix market is commonly perceived as a market composed primarily of
retirees. This view is valid to a limited extent, since Phoenix still ranks
among the top quartile nationwide in the proportion of residents over the age of
64. But the consumer base has changed as the in-migration of job seekers in
recent years has outpaced the influx of retirees. Members of the "baby boom"
generation (ages 25 through 44) now constitute a slightly higher proportion of
the Phoenix population than the national average. While strong transportation
and educational infrastructures are important assets, a major impetus to
Phoenix's rapid population growth has been its lower living costs relative to
MSAs in Southern California. Overall utility costs and tax collections are also
below national and regional levels.
Population in the Phoenix-Mesa MSA has grown at a relatively healthy pace
over the past decade, showing increases of 3.4 percent per year from 1980 to
1990, and 2.7 percent per year from 1990 to 1997. By comparison, Arizona has
also experienced population growth of 2.7 percent per year over the last seven
years, while the U.S. reports population growth of about 1.0 percent per year
for the same period. Estimates for 1997 place population in the Phoenix MSA at
2,695,900 +/-, an aggregate increase of 20.0 percent over 1990.
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Through 2010, population growth in the MSA is forecasted to be 2.1 percent
per year according to Woods & Poole Economics, slightly higher than the rate of
growth projected for the state as a whole.
Households
Household formation is an important component of demographic analysis
which helps to identify changing patterns or shifts within the population. A
household consists of all people occupying a single housing unit, thus providing
significant sociological information about the region. Household formation also
has a significant influence on demand for real estate. Households, combined with
effective purchasing power, provide the basic demand for housing units and
household needs, thereby transforming needs into effective demand for real
estate improvements.
Like the nation as a whole, household formation has occurred at a rate in
excess of population growth within the subject region. This acceleration has
been the result of several trends, namely the fact that the population is
generally living longer, divorce rates have been on the rise, and many younger
professionals are postponing marriage and/or leaving home at an earlier age, all
resulting in increases of one- and two-person households. The total number of
households in the Phoenix-Mesa MSA has increased from 580,190+/- in 1980 to
1,005,140+/- in 1997, a compound annual increase of about 3.3 percent per year.
Accordingly, the number of persons per household within the MSA has decreased
from 2.74 in 1980 to 2.64 in 1997.
Projections through 2010 by Woods & Poole Economics show household growth
in Phoenix at 2.1 percent per year, similar to population growth forecasts. This
rate of growth will lead the state and far surpass the household growth for the
nation.
Income
Income levels, either on a per capita, per family, or per household basis,
indicate the economic level of residents within the region and form an important
component of economic analysis. Average income has a direct impact on the
ability of residents to satisfy material desires for goods and services,
directly affecting the demand and price levels of real estate.
Phoenix's large retiree population consumes extensive amounts of goods and
services, but adds little to the overall income of the community. Coupled with
the relatively low wage levels in the MSA, this contributes to a slightly
below-average per capita personal income level. Although low costs of living
help to balance the below-average income, housing, taxes, and pension
expenditures claim an above-average percentage of personal income. This tends to
place Phoenix in the bottom quartile of Top 100 MSAs for consumer spending
potential.
On an average household basis (in real 1992 dollars), Phoenix-Mesa has an
average income of $56,337 for 1997, about 8.7 percent higher than the state
level of $51,817 and slightly below the national income level of $57,295.
Maricopa County has a higher average household income figure than the MSA with
$57,122.
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Real per capita income growth has generally kept pace with state and
national trends, experiencing annual growth of roughly 1.07 percent per year
(1980-90); 1.39 percent per year from 1990 to 1997 (not adjusted for inflation).
Income projections by Woods & Poole Economics show per capita income growth of
1.36 percent per year for the Phoenix-Mesa MSA. Areas on the northeast and a
portion of the southwest side of the MSA in Scottsdale and Phoenix are generally
more affluent than other sectors with average income levels between $100,000 and
$180,000.
Effective Buying Income
While income levels are above average for the state, and slightly below
the nation, lower taxes and housing costs also tend to improve the purchasing
power of area residents. As such, the effective disposable income of
residents--adjusted for tax payments, contributions to pension funds, and the
cost of new housing--ranks fairly comparable to other regions of the southeast.
Sales & Marketing Management places median household effective buying income at
$31,340 for Phoenix-Mesa as of 1996, higher than the state median of $28,923 but
lower than the U.S. median household EBI of $33,482.
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D. Economic Trends
=======================================
Economic forces are significant to real property value. The fundamental
relationships between current and anticipated supply and demand and the economic
ability of the population to satisfy its wants, needs, and demands through
purchasing power are tantamount to such an analysis. Some of the specific market
characteristics considered in economic analysis include employment trends, the
economic base of the region, expansion and new development, and the overall
economic health of the region.
Overview
The Phoenix-Mesa MSA has a relatively diverse economic base. Several
factors contribute to the strength and stability of the local economy, including
a good quality of life, a skilled labor force, low taxes, financial incentives
by government, and a good transportation network.
Over the past several years, the region has seen stable investment from
new companies, as well as expanding industries. Statistics on labor, employment,
investment, and construction show evidence of the region's dynamic economic
growth.
For years, Phoenix has been one of the fastest growing metropolitan areas
in the nation. Low costs, a favorable climate, a well-educated workforce, and
proximity to key markets in Southern California and the Pacific Rim have all
contributed to the area's economic vigor. Despite an economic downturn in the
late-1980s/early-1990s, the factors that previously fueled the MSA's growth
remain in-place, giving Phoenix a positive outlook. The industry mix, although
heavily concentrated in electronics and aerospace, also favors the MSA's
long-term prospects.
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With an improving economy, new growth has stimulated construction activity
and has also increased the movement of thousands of new companies, primarily
from California and the Midwest, into the Valley because of the readily
available work force, low cost of living, quality of living for their employees,
and the pro-business environment.
In terms of real estate, Arizona's phase-out of its sales tax on
commercial leases continues, dropping from 4.0 percent to 3.0 percent in 1994,
2.0 percent in 1995, and 1.0 percent in 1996. The 1.0 percent decrease will
continue until 1997, when the tax will be eliminated altogether.
Also contributing to the large number of companies choosing the Phoenix
metropolitan area are low corporate income tax rates, plus new state regulations
which allow corporations to file consolidated income tax returns. This
regulation allows corporations to claim losses from subsidiaries in other states
on their Arizona tax returns. The end result is the development of buildings for
new companies and existing companies expanding and/or relocating.
Among the Top 100 MSAs in the country, Phoenix ranks about 19th in
economic diversity, with goods and services for sale outside the MSA ranging
from high-tech manufacturing, communications, and tourism. Although only about
10.5 percent of the nation's urban markets lie within a 500-mile radius of the
region, the MSA's convenient access to major markets in Southern California
overshadows its distance from other U.S. regions. Key manufacturing industries
in Phoenix includes the electronics and aerospace sectors. Phoenix has become a
major regional center for communications and business services, providing
support for much of the Southwestern U.S. and Rocky Mountain region.
Tourism employment has continued to grow rapidly as the area's
recreational charms have not abated. Tourism is expected to continue to bolster
the local economy over the coming years as the number of visitors and winter
residents continue to increase.
Employment
The largest sectors of non-agricultural employment in Phoenix are Services
(32.0 percent), Wholesale and Retail Trade (23.7 percent), and Government (12.5
percent). Although continuing to witness growth in manufacturing, this sector of
non-farm employment accounts for a lower percentage of employment than its 14.9
percent share in 1980. Services, on the other hand, have increased its share
from 23.0 percent in 1980 to 32.0 percent today. Finance, Insurance and Real
Estate sectors of employment have generally maintained their percentage of
non-farm employment, while Government has slipped. Both Construction and
Transportation, Communications and Public Utilities have also maintained their
distribution over the past fifteen years.
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Employment Distribution
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Employment Sector 1980 % of Total 1997 % of Total
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Total Non-Farm Employment 796,860 100.00% 1,516,260 100.00%
- --------------------------------------------------------------------------------
Mining 7,380 0.9 % 6,290 0.4%
- --------------------------------------------------------------------------------
Construction 59,110 7.4% 99,470 6.6%
- --------------------------------------------------------------------------------
Manufacturing 118,740 14.9% 152,900 10.1%
- --------------------------------------------------------------------------------
T.C.P.U. 33,800 4.2% 72,700 4.8%
- --------------------------------------------------------------------------------
Wholesale/Retail Trade 186,870 23.5% 358,600 23.7%
- --------------------------------------------------------------------------------
F.I.R.E. 84,270 10.6% 149,100 9.8%
- --------------------------------------------------------------------------------
Services 183,000 23.0% 481,900 31.8%
- --------------------------------------------------------------------------------
Government 123,690 15.5% 189,700 12.5%
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Source: Woods & Poole Economics, Inc.
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Between 1980 and 1997 (forecast) the Phoenix MSA added 719,400 jobs,
indicative of an astounding compound annual growth rate of 3.8 percent. During
1996 alone, the region added in excess of 73,000 jobs, or 5.7 percent. According
to Metro Market Facts, (second quarter 1997 report), this increase was the
second largest aggregate gain in the country behind Dallas, Ft. Worth, and the
second largest proportional gain behind Las Vegas.
The region's robustness produced gains in all major employment categories.
The service sector was the big leader in absolute terms, creating 30,800 net new
jobs. Retail trade had the second-largest gain (9,600 new jobs), followed by the
public sector (9,100). Finance, insurance and real estate (FIRE) and wholesale
trade grew by 7,800 and 6,800 new jobs, respectively. the transportation sector
created 4,400 net new jobs. The construction industry added 3,900 workers.
Manufacturing had the least impressive gain, with 300 net new jobs.
Three sectors had percentage gains of over 8 percent. The largest (8.8
percent) occurred in wholesale trade. It was followed by FIRE and services.
Transportation expanded its employment base by 6.8 percent; government by 5.2
percent; construction by 4.3 percent; and retail trade by 3.9 percent.
Manufacturing's gain translated into a minuscule 0.2 percent advance.
Services now account for 31.8 percent of the area's workforce versus 28.6
percent for the nation and 23.0 percent of MSA employment in 1980. Retail trade,
the second largest employment category, with 23.7 percent, is generally
consistent with national averages. Phoenix has a much lower percentage of its
workers employed in manufacturing, 10.1 percent versus 15.1 percent for the
nation.
Owing to its status as the state capital, one of Phoenix's largest
employment categories is state and local government. This tends to mitigate some
of the volatile economic swings seen in regions which depend more heavily on one
particular industry. The construction sector has traditionally comprised a key
segment of the Phoenix economy. Despite faltering in the early-1990s with
overbuilding in most real estate markets, this sector continues to be an
important part of the local economy. As such, construction's 6.6 percent
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of local employment is well above the national average of 4.5 percent. In recent
years, businesses selling goods and services outside the MSA have also been
expanding, including high-tech durable manufacturing, communications, and
tourism.
Based on data through the second quarter of 1997, Phoenix continued to
ride its recent wave of exuberant economic growth; payroll employment advanced
5.8 percent over year ago levels. Broad gains can be found in a number of key
areas: the growth of high-technology manufacturing, increases in the retirement
population, and the city's gains as a distribution hub. These improvements in
turn, produced increases in secondary and tertiary industries, for example
financial services, retail trade and professional services.
Greater Phoenix is home to an increasing number of high-tech companies.
One of the major high-tech players here is Intel, which has a $1.3 billion chip
manufacturing complex (Fab 12) in southwest Chandler. Two of the area's newest
high-tech developments involve Sumitomo and Microchip Technology. Sumitomo/Sitix
just opened a new $400 million, 550,000 square foot water fabrication plant in
northeast Phoenix. The plant employs 200 currently, with expected employment of
up to 500 by 1999.
Microchip Technology has a $137 million expansion underway at its Fab2
manufacturing facility in Tempe that is expected to create 200 new jobs.
Completion is scheduled for early 1998. In addition, the company is planning to
add about 300,000 more square feet (divided between manufacturing and office
space) at its plant in Chandler. The $1 billion expansion is scheduled to take
place over the next eight years, with construction beginning in 1998. If built
out as currently envisioned, the company expects to hire another 2,000 workers
for the Chandler site by 2003.
Avnet, a distributor of electronics and computer products, which currently
employs 1,700 throughout greater Phoenix, has announced plans to move its
Electronic Marketing Group into a 176,000 square foot facility at Phoenix
Airport Center. The move is expected to create several hundred new jobs.
The growth of the area's high-tech industry has been part of the reason
for Phoenix's high ranking in Cognetics' annual survey of "Entrepreneurial Hot
Sports". The metropolitan area received the fourth-highest ranking in 1996
(behind Salt Lake City, Atlanta and Birmingham, Alabama).
Another industry, aerospace, is pumping new life into some quarters here.
The merger between McDonnel-Douglas and Boeing, is expected to have positive
ramifications for the area.
The metropolitan area continues to lure high-profile back-office
operations and many companies with existing facilities are looking for room to
grow. Excell Agent Services, a directory services firm that already has 2,400
employees in the area (in Phoenix, Tempe and Mesa), has announced plans to hire
500 more during the next six months.
Bank of America plans to hire about 1,000 more workers at its telephone
banking center in Tempe. Bank One Arizona has announced plans to add 1,000 new
jobs in a consolidation of the company's telephone operations.
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Employment Growth
Over the past five years, it is clear that employment growth in the
Phoenix-Mesa MSA has slowed over the growth experienced between 1980 and 1990.
Total employment grew at a compound annual rate of 4.5 percent per year from
1980 to 1990, decreasing to an annual rate of 2.8 percent from 1990 to 1997.
Services, Transportation/Public Utilities, Finance, Insurance and Real Estate,
Wholesale/Retail Trade, and Government have led employment growth, while
Manufacturing increases have slowed.
The consensus opinion is that while Phoenix's growth in employment will
slow over the next decade, it will remain one of the top performing areas in the
nation. Employment forecasts by a variety of econometric firms show a consensus
growth of approximately 2.5 to 3.0 percent per annum.
Major Employers
The relative diversity of the Phoenix economy can also be seen in the list
of major MSA employers. Motorola is greater Phoenix's largest private sector
employer, with 19,400 workers on its local payroll. Samaritan Health System is
next, with an employee roster of 10,800. AlliedSignal (engineering and aerospace
firm) employs 8,700. Pinnacle West Capital (the holding company for Arizona
Public Service), US West, American Express, and Bank of America employ over
7,000 each. Both Intel and Banc One locally employ approximately 6,500.
Other companies with more than 3,000 employees include: America West
Airlines, Fry's Food Stores, Wells Fargo Bank, Honeywell Inc., Tosco/Circle K,
Safeway, the Salt River Project (water and power utility), Bashas
(supermarkets), McDonnell-Douglas, TRW, AT&T, Southwest Airlines, and Gosnell
Builders.
Unemployment Rates
Unemployment rates in the Phoenix-Mesa MSA have historically been below
state and national figures. As of October 1997, the unadjusted unemployment rate
for Phoenix-Mesa was 2.5 percent, 110 basis points below year end 1996 and 140
points below the state unemployment rate of 3.9 percent. Mirroring national
trends, unemployment in the MSA peaked between 1992-1993, followed by a
declining trend through 1996.
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Historic Unemployment Rates
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Year Phoenix MSA Arizona United States
------------------------------------------------------------------------------
Oct-97 2.5% 3.9% 4.7%
------------------------------------------------------------------------------
1996 3.7% 5.5 % 5.4 %
------------------------------------------------------------------------------
1995 3.5% 5.1% 5.6%
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1994 5.0% 6.4% 6.1%
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1993 5.1% 6.2% 6.8%
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1992 6.4% 7.4% 7.4%
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1991 4.9% 5.7% 6.7%
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1990 4.3% 5.3% 5.5%
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Source: Employment & Earnings; Bureau of Labor Statistics
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Although it is too soon to know what the 1996 annual adjusted rate will be
for the Phoenix region, it appears that unemployment declines have slowed within
the MSA as a whole through the third quarter of this year.
Retail Sales
Another measure of the economic health of a region is retail sales
patterns. Consumers drive the economy by creating demand for goods and services
and, in turn, generate the need for housing, office space, retail centers, and
warehouse/distribution facilities. It is estimated that consumer spending
accounts for two-thirds of all economic activity in the United Sates today. As
such, retail sales patterns have become an important indicator of the economic
health of a region. The following table summarizes historic retail sales in the
Phoenix MSA and State of Arizona for the period 1985 - 1996.
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Retail Sales (1985-1996)
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Year Phoenix MSA (000) State of Arizona (000)
---------------------------------------------------------------------------
1985 $11,710,860 $18,401,358
---------------------------------------------------------------------------
1991 $17,241,381 $26,893,039
---------------------------------------------------------------------------
1996 $28,007,212 $42,748,487
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CAGR 1985-1996 8.2% 8.0%
---------------------------------------------------------------------------
CAGR 1991-1996 10.2% 9.7%
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Source: Sales and Marketing Management Survey of Buying Power
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Retail sales growth has been very good in the Phoenix area, increasing at
a compound annual rate of 8.2 percent over the past 11 years. More recently,
growth has increased to 10.2 percent per annum which is higher than the 9.7
percent growth experienced by the state as a whole. Going forward, Sales &
Marketing Management forecasts an increase of 31.9 percent in sales to $36.9
billion versus 30.5 percent for the state as a whole. The significance of the
Phoenix market is evidenced by the fact that with approximately 61.0 percent of
the state's population, it accounts for nearly 66.0 percent of total retail
sales. Woods & Poole Economics forecasts the MSA to see annual retail sales
growth of 2.7 percent per year above inflation through 2010 (adjusted to 1987
dollars).
The purchasing profile of area residents tends to reflect the demographic
characteristics of the city. Drugs/Pharmaceuticals, and health and beauty aids
claim a disproportionately large share of retail sales, attributable in part to
the area's high proportion of retirees. Sporting goods and recreational vehicles
are also featured, reflecting the region's opportunities for leisure-time
activities and the favorable climate. Those categories expected to have the
greatest growth potential are seen in General Merchandise and Eating and
Drinking places.
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E. Tourism/Visitor Profile
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Overview
According to the Phoenix & Valley of the Sun Convention & Visitors Bureau,
Tourism represents the second largest industry in the metropolitan area, behind
high-technology. It is estimated that over 10.0 million people visit Phoenix
each year, while more than 24.0 million visit the State of Arizona as a whole.
Visitors to the Valley account for nearly $4.0 billion in total expenditures
annually, with retail sales comprising $400.0 million.
================================================================================
Visitor Economic Impact
================================================================================
Year: 1995
================================================================================
Estimated Number of Visitors: 10.86 Million
- --------------------------------------------------------------------------------
Average Length of Stay: 4.7 Nights
- --------------------------------------------------------------------------------
Mean Expenditure Per Trip: $476
- --------------------------------------------------------------------------------
Total Economic Impact for Maricopa County: $5.35 Billion
================================================================================
Source: Arizona Hospitality Research & Resource Center 1996
================================================================================
Expenditures
The majority of visitor expenditures go toward food & beverage which
accounts for 28.6 percent of all expenditures; lodging accounts for 21.5
percent, transportation 20.0 percent, and retail sales 15.0 percent. The
following chart presents a breakdown of visitor expenditures by category.
================================================================================
Visitor Expenditures
================================================================================
Category Percent 1995 Expenditures(000)
================================================================================
Food & Beverage: 28.6% $1,530,946
- --------------------------------------------------------------------------------
Lodging: 21.5% $1,150,886
- --------------------------------------------------------------------------------
Transportation: 20.0% $1,070,591
- --------------------------------------------------------------------------------
Retail Sales: 15.0% $ 802,944
- --------------------------------------------------------------------------------
Entertainment: 9.0% $ 481,766
- --------------------------------------------------------------------------------
Other: 5.9% $ 315,824
- --------------------------------------------------------------------------------
Total: 100.0% $5,352,957
================================================================================
Source: Arizona Hospitality Research & Resource Center 1996
================================================================================
Based upon the 11+/-million visitors in 1995, the direct economic impact
was calculated to be $5.35 billion. Business and convention travelers accounted
for 38.0 percent of all visitations in 1995.
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Regional Analysis
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Business/Convention Travelers
Business and convention-oriented travelers to the Phoenix area comprise
about 38.0 percent of all visitors to the region. The following chart summarizes
the profile of business and convention travelers to the region.
================================================================================
Business/Convention Traveler Profile
================================================================================
Average Age: 41.6 Years
- --------------------------------------------------------------------------------
Average Income: $74,700
- --------------------------------------------------------------------------------
Average Party Size: 1.51 People
- --------------------------------------------------------------------------------
Average Daily Spending: $193
- --------------------------------------------------------------------------------
Average Length of Stay: 3.8 Nights
- --------------------------------------------------------------------------------
Major Activities
- --------------------------------------------------------------------------------
Shopping: 52.0%
- --------------------------------------------------------------------------------
Sightseeing: 40.0%
- --------------------------------------------------------------------------------
Swimming/Sunbathing: 36.0%
- --------------------------------------------------------------------------------
Nightclubs: 25.0%
- --------------------------------------------------------------------------------
Golf: 19.0%
================================================================================
Source: Behavior Research, Inc.
================================================================================
From the data we see that the average business/convention visitor is 41.6
years of age with an average income of $74,700. According to Behavior Research,
52.0 percent of those surveyed cited shopping as one of their major activities
while visiting.
Leisure Travelers/Winter Visitors
Leisure travelers to the Phoenix area comprise approximately 62.0 percent
of all visitors to the region. Their average age is slightly higher than the
business/convention traveler at 42.8 years, with a significantly lower average
income of $51,100. About 73.0 percent of all leisure travelers surveyed said
that shopping was one of their primary activities. The following chart
summarizes the profile of leisure travelers to the region.
===================================================================
Leisure Traveler Profile
===================================================================
Average Age: 42.8 Years
-------------------------------------------------------------------
Average Income: $51,100
-------------------------------------------------------------------
Average Party Size: 2.12 People
-------------------------------------------------------------------
Average Daily Spending: $174
-------------------------------------------------------------------
Average Length of Stay: 5.3 Nights
-------------------------------------------------------------------
Major Activities
-------------------------------------------------------------------
Shopping: 73.0%
-------------------------------------------------------------------
Sightseeing: 74.0%
-------------------------------------------------------------------
Swimming/Sunbathing: 46.0%
-------------------------------------------------------------------
Museums: 39.0%
-------------------------------------------------------------------
Golf: 16.0%
===================================================================
Source: Behavior Research, Inc.
===================================================================
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Regional Analysis
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In the table below, only visitors staying in mobile homes or travel
trailers were portrayed. In general, winter visitors arrive in the Valley by
October and return to their state of origin by May. Median length of stay is
estimated at slightly more than four months. In Metro Phoenix, approximately
113,000 winter visitors injected more than $340 million, while statewide,
approximately 201,200 winter visitors injected nearly $1.0 billion in direct
consumer expenditures during the 1995/96 season.
================================================================================
Motor Home & Travel Trailer Winter Visitors - Metro Phoenix
================================================================================
Mobile Home &
Travel Trailer Census 1992/93 1993/94 1994/95 1995/96
================================================================================
Number of Mobile Home Spaces 56,400 57,900 58,400 64,500
- --------------------------------------------------------------------------------
Number of Travel Trailer/R.V. Spaces 44,600 44,000 43,500 37,400
- --------------------------------------------------------------------------------
Total Spaces Available 101,000 101,900 101,900 101,900
- --------------------------------------------------------------------------------
Spaces Occupied 92,000 94,800 95,800 97,000
- --------------------------------------------------------------------------------
% of Space Occupied by Winter Visitors 58% 59% 58% 58%
- --------------------------------------------------------------------------------
Number of Winter Visitor Households 53,200 56,000 56,000 56,700
================================================================================
Source: Arizona State University, College of Business, Center for Business
Research, August 1996
================================================================================
Summary
From this analysis, it is clear that the Phoenix region is greatly
impacted by the tourism and winter visitor industry. With over 10.0 million
visitors each year providing over $400.0 million in retail sales to the region
annually, there is clearly a competitive climate to attract these expenditures.
As noted by the American Express study, roughly 40.6 percent of all retail
expenditures in 1995 were from Non-Phoenix card members. In addition, 74.0
percent of all leisure travelers and 52.0 percent of all business travelers to
the area cited shopping as one of their primary activities while visiting. In
our opinion, the mall portfolio is well positioned to capture a strong market
share of this visitor spending potential upon completion.
====================================
F. Real Estate Markets
====================================
The real estate markets in Phoenix can be divided primarily into
commercial and residential segments. The commercial segment includes office,
industrial, and retail properties, while the residential market consists of
multi-family and single-family dwellings. The following is a brief overview of
each segment.
Office Market
The Phoenix office market is rebounding from several years of oversupply
which is being absorbed due to continued population and employment growth.
Recent declines in vacancy are attributable to a steady pattern of net
absorption and lack of new construction.
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As a result, effective rents have begun to increase. The decline in the use of
concessions, especially free rent, has increased effective rent levels and,
coupled with increased office space demand, should continue to warrant rental
rate improvement in all submarkets.
According to F.W. Dodge, the total inventory of office space in
metropolitan Phoenix was 103.5 million square feet at year end 1996. This was up
2.3 percent from 1995. Net absorption of 5.4 million square feet resulting in a
reduction in the vacancy rate to 11.1 percent from 14.4 percent. Koll Real
Estate reports that most of the net absorption was in the Class B sector.
Overall, vacancy in the Class A sector was slightly below 6 percent and 11.3
percent among Class B. In the more marginal Class C product, nearly one quarter
remained empty.
Approximately 1.2 million square feet of new suburban office space was
under construction in early 1997, and an additional 3.8 million square feet were
in the planning pipeline. According to Koll, most of the projects are located in
the active Camelback Corridor, Scottsdale, or Tempe submarkets. Scottsdale, with
an inventory of 5.6 million square feet, had an overall vacancy rate of 5.6
percent at year end. In the Class A sector, vacancy was particularly low at 3.4
percent.
The overall tightness in the market has caused prices to rise. According
to Koll, the value of Class A Central Business District space rose 7.0 percent
to $113.40 per square foot while suburban space rose 24 percent to $116.63 per
square foot. With such value increases, it would be expected that the pace of
new construction would accelerate.
F.W. Dodge forecasts that between 1998 and 1999, 7.5 million square feet
of new supply will be available in the market, forcing vacancies above 12
percent. The F.W. Dodge pipeline is currently tracking well over 2.0 million
square feet of new product which is expected to break ground before the close of
the fourth quarter. In subsequent years, developers will heed the warning
signals. They anticipate contract activity to average 2.1 million square feet
per year during the final five years of the forecast, compared with the average
of 1.7 million square feet for the 58 MSAs they surveyed. Fortunately, stable
office employment growth will keep the metro-wide office vacancy rate in the 11
to 12 percent range.
Industrial Market
Arguably the most active market segment, the industrial sector shows
little sign of slowing down. According to Koll, metropolitan Phoenix has an
industrial inventory of approximately 87.6 million square feet, about 9.4
percent of which were vacant in early 1997. Though vacancy was only slightly
below what it was a year earlier, that stability gains new significance when
considering that approximately eight million square feet (half of it
speculative) came on-line here during 1996. According to Koll, another 1.9
million square feet were under construction entering 1997, and 2.9 million more
square feet were in the planning stages. Areas seeing the most growth include
Chandler/Gilbert, Mesa, South Phoenix, and Tempe.
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Regional Analysis
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A breakdown by product type is shown below.
==============================================================
Type Inventory (mil SF) Vacancy
--------------------------------------------------------------
Distribution Warehouse 33.0 11.0%
--------------------------------------------------------------
Manufacturing 27.5 6.7%
--------------------------------------------------------------
Industrial Office 12.7 9.4%
--------------------------------------------------------------
High Tech 5.2 6.2%
==============================================================
F.W. Dodge reports that the Phoenix industrial market is firmly entrenched
in the development phase of the real estate cycle. During the first six months
of 1997, the MSA has completed more new industrial facilities than any other
metropolitan area surveyed. Although the increase in capital availability has
been an impetus to higher contract activity, demand has been buoyant. The MSA's
gains in manufacturing and the growth in its retail markets together produced
strong demand for inventory storage and distribution centers. Total net
absorption reached a cyclical peak in 1996, but remains healthy in the current
year They do note, however, that gains to inventory will force vacancies to
rise, ending the fourth quarter at 9 percent.
In the final five years of the forecast, supply-demand fundamentals will
remain firm and the market will experience above average returns on investment.
Net absorption in 1998 and 1999 will average 2.9 million square feet per year,
compared with 1.3 million square feet for the 58 MSAs Dodge surveys. However,
industrial properties are extremely sensitive to swings in the GDP. As growth in
the national economy decelerates in the latter portion of the forecast,
absorption will drop to a 2.2 million square feet annual average. Developers
will respond accordingly; after advancing at a 4 percent annual pace, inventory
gains will settle into a more manageable 2.4 percent annual rate for the first
three years of the forecast. Therefore, vacancies will end the period below the
survey average, at 8.2 percent.
Construction will be strongest in the near term, peaking in 1997. On
average, 3.1 million square feet of new warehouse space will be started each
year through 2002. The project pipeline contains over 5.0 million square feet.
The average price for Class A warehouse stood at $34.25 per square foot at
the end of 1996, up 16 percent over 1995.
Retail Market
By all accounts, the retail market remains robust. According to Koll, the
year end vacancy rate declined to 7.7 percent from 9.0 percent among the 80+/-
million square feet they survey. F.W. Dodge reports that since the first quarter
of 1996, the Phoenix market absorbed 5.9 million square feet, more than any
other western MSA. Dodge reports that during the past 6 quarters, 12 million
square feet of new space was completed, with only Atlanta and Philadelphia
experiencing higher inventory gains.
One of the reasons retail is so strong in Phoenix is due to tourism.
Tourists boost the spending totals there. According to Sales & Marketing
Management's 1997 Survey of Buying Power, retail sales in greater Phoenix
averaged $26,482 per household during 1996, while the national metropolitan
average was $24,992 per household and for the state sales were $25,391. Retail
sales were highest in Scottsdale ($45,152 per household).
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Regional Analysis
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By contrast, greater Phoenix's median household EBI for 1996 ($31,346 per
household) was well below the national median ($33,482 per household).
Nonetheless, with a lower cost of living, residents in Phoenix enjoy a higher
percentage of disposable income.
Most of the new construction was in the neighborhood centers segment which
accounts for 25.6 million square feet (32 percent of inventory) and had a
vacancy rate of approximately 7 percent. Power centers, with 6.7 million square
feet of total inventory report the lowest vacancy rate of slightly less than 1
percent. Net absorption was 400,000 square feet in the first quarter of 1997.
Community centers, with 12.2 million square feet had a vacancy rate of
just over 7.0 percent and regional malls had the highest vacancy rate of
approximately 10.0 percent among its 14.2 million square feet. Finally, Koll
reports that nearly all of the 4.8 million square feet of freestanding space was
occupied. Among all of the submarkets, Scottsdale had the lowest vacancy rate of
only 4.0 percent for its 15.2 million square feet of retail inventory.
F.W. Dodge expects that demand for retail space in Phoenix will remain
strong, averaging 3.2 million square feet annually through 2002. The key
determinants of demand are households and incomes, both of which will continue
to grow through the next six years. National chains and investors will respond
to the increasing demographic base by expanding their presence in the market.
Competition from various retail formats will place increasing pressure on profit
margins. However, Phoenix will weather the storm better than most markets.
Strong net absorption will force vacancies to trend downward, driving them to a
low 7.3 percent by 2002.
Phoenix will remain one of the most attractive retail markets in the
country for both institutional investors and new development. F.W. Dodge expects
retail inventory to expand at an average 2.1 percent annual rate over the next
six years. This level of construction will be maintained by the more than 8.0
million square feet in the planning pipeline.
The largest project in the market is the 1.2 million square foot Arizona
Mills scheduled to open in November 1997. The next largest is a 570,000 square
foot power center on Ray Road and 48th Street. Plans are being finalized for a
proposed regional mall in Chandler which could be on line in late 1999.
Hospitality/Lodging Market
F.W. Dodge reports that the building boom currently underway in the
Valley's hospitality industry is negatively affecting the bottom line for many
local area hotel operators. Since January, 639,000 SF of new hotel space has
been added to inventory and another 764,000 SF is slated to be completed in the
final six months of the year, adding more than 3,000 rooms to a marketplace that
is quickly becoming overbuilt. In an attempt to bolster occupancies, hoteliers
across all segments have cut room-rates, relative to last summer. Despite
attractive price incentives, occupancies through June are a percentage point
below year-ago levels at 71.6 percent. Demand has fueled rate increases in the
average daily rate (ADR). In 1996 it stood at 95.34 percent, up 8.9 percent from
$87.56 in 1995 and 20 percent from the $79.18 reported for 1994.
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Regional Analysis
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In the near term, the Phoenix hotel market should experience favorable
demand conditions. Twenty-seven percent of Arizona's domestic out-of-state
visitors come from California; 17 percent of its international visitors are from
Mexico. Given the stabilization of Mexico's peso and California's rebounding
economy, leisure travel to the MSA should be robust. As a result, lodging demand
between 1998 and 2002 will be sturdy, totaling 4.3 msf; but average annual
increases of 4.5 percent in stock will hold occupancies in the 68 percent to 70
percent range.
With 7.5 msf in the planning pipeline it is quite evident that developers
will continue to enter the market at a rapid pace. F.W. Dodge is currently
tracking 17 projects which are scheduled to begin construction before year-end
1997, including: the 200-room Marriott Hotel, a 172 -room Quality Suites Hotel,
a 120-room Holiday Inn Suites, and 160-room, Radisson facility. In 1997, contact
activity will exceed 2.0 msf for the first time in over a decade. However,
rising competition and downward pressure on daily room rates will limit new
construction to a more reasonable 910,000 SF per year between 1998 and 2002.
This rate of construction is still more than double the average of the 58 MSA's
Dodge surveys.
Residential Market
Phoenix continues to be one of the most active housing markets in the
nation. Huge population growth and a sharply revived economy have driven vibrant
new home construction. In 1994, 28,784 single-family units were approved for
construction, the nation's highest total that year. In 1995, the sum in Phoenix
rose again, to 29,104 units. Still more, 29,892 units were authorized in 1996.
For the first half of 1997, 15,960 were permitted, according to preliminary data
from the bureau. Construction is active in a number of areas; the city of
Phoenix, Chandler and Scottsdale hold the lead, but Gilbert, Mesa, Glendale and
Peoria are also active. F.W. Dodge expects that single family construction is
expected to peak in 1997 at 29,800 units, before falling to an average of 24,200
over the next five years.
Prices remain low by national norms, but the gap seems to be quickly
narrowing. According to the National Association of Realtors, the second quarter
1997 median resale price in the metro market was $113,200, 8.5 percent below the
national median of $123,700, and 22.4 percent below the $145,900 median for the
Western U.S. A year earlier, these differences were respectively 14.7 percent
and 34.0 percent.
According to the 1997 Study of Housing Costs, conducted by E&Y Kenneth
Leventhal, Phoenix ranks as the 33rd least expensive housing market of the 75
major metropolitan markets surveyed. After factoring in tax deductions, owning a
home required approximately 22 percent of the median family income. According to
the study, housing costs were approximately the same for renters.
Apartment development in Phoenix has picked up markedly, particularly at
the high end, and particularly (but not only) in the North Phoenix-Scottsdale
area; Mesa, Chandler and Tempe have also been active. Indeed, building permit
numbers here are a good example of the steep cycles characteristic of Phoenix
area real estate markets. After averaging fewer than 1,900 units per year from
1989 through 1993, multi-family building
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Regional Analysis
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permitting leapt to 5,991 units in 1994. It leapt again in 1995, to 8,220 units.
And yet another substantial gain was reported for 1996 with the authorization of
9,754 units.
As large as those numbers may seem, they pale beside the 34,580
multi-family units approved in 1984, and the 25,693 in 1985 (and the 17,821 of
1986). Through the first half of 1997, the pace appears to be cooling:
preliminary date from the U.S. Department of Commerce, Bureau of the Census,
report 3,832 units authorized, a 32 percent decline from the total for the
comparable period of 1996. In 1996, some 7,000 new units came on line, with a
higher total expected for the 1997 year-end tally. F.W. Dodge reports that since
1994, net absorption of 24,000 units was achieved, pushing vacancy rates to a
low of 6.1 percent.
Average vacancy, thus, has increased. Indeed, its been increasing since
1995-- although as of first quarter 1997 the vacancy rate was still relatively
low at 5 percent (a far cry from the double-digit levels that persisted from
1985 to 1992). F.W. Dodge reports that since 1994 effective rents have risen at
an annual rate of 5.3 percent compared with 3.2 percent for the nation.
Despite the relatively large increases in inventory, the multi-family
sector continues to function efficiently. During the remainder of the decade the
supply-demand relationship for apartments should gradually improve. In the near
term, demand for market-rate and luxury condominiums will keep net absorption
above a 7,000-unit average per year through 2002. However, long-term demographic
trends indicate that elderly housing and assisted living facilities will be in
greater demand as the decade unfolds. Overall, F.W. Dodge expects Phoenix to
construct more multi-family facilities than any other western region city,
averaging 6,300 units per year between 1997 and 2002.
Summary
Most submarkets in Phoenix will continue to experience new development in
1997-98. Those areas not encountering new development will see increases in
rental rates as current space is absorbed and new construction takes place in
surrounding submarkets. The stimulated market has produced a tightening which
has improved overall vacancy rates and begun to push rental rates upward.
====================================
G. Critical Observations
====================================
The following bullet points summarize some of our general observations
relating to the subject's region:
o Economy - The Phoenix-Mesa economy is relatively diverse and has
seen strong growth over the past decade. The largest sectors of
employment include Services (32.0%), Wholesale/Retail Trade (23.7%),
Government (12.5%), Manufacturing (10.1%), and F.I.R.E. (9.8%).
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Regional Analysis
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o Employment - Employment growth is projected to be 2.6 percent per
year, led by F.I.R.E., Services, and Transportation, Communications,
and Public Utilities. The Manufacturing base will continue to lag
the other sectors and expand at an annual rate of 1.3 percent per
year through 2010.
o Population - Population growth in the MSA is forecasted to be 2.1
percent per year, while household formation will occur at an annual
rate of 2.1 percent per annum.
o Average Household Income - Income levels are projected to increase
at an annual rate of about 1.4 percent per year through 2010 above
inflation.
o Retail Sales - Sales are forecasted to grow by about 2.7 percent per
year for the MSA as a whole, in real (1992) dollars.
o Consumer Markets - The attractiveness of Phoenix's consumer markets
is mixed. Positive factors include the area's fundamentally strong
growth, both in terms of resident population and income. Conversely,
relatively low per capita disposable income and Phoenix's
historically high level of cyclically tend to detract slightly from
the appeal of its retail markets.
o Strengths - Strengths of the region include low living and operating
costs and proximity to Southern California and Pacific Rim markets.
The MSA also benefits from an efficient transportation network and a
good quality of life. Rapid growth in the working-age population
continues to boost the outlook for expansion in the retail sector.
With wages, energy rates, and construction costs relatively low, the
area continues to keep and attract firms, a trend that continues to
invigorate growth in business-to-business markets.
o Weaknesses - Weaknesses within the MSA include a strained physical
and educational infrastructure which has resulted from the area's
rapid growth, compromising the quality of life within the region.
These are typical growing pains, however, which continue to be a
focus of local government.
Conclusion
The short- and long-term outlook for the Phoenix-Mesa region and its
surrounding area is for good growth in employment and population. The economy is
well diversified, with a relatively low cost of living and good transportation
system. On balance, we are relatively optimistic about the short-term outlook of
the subject region. Long-term, the region should see stability and good growth,
with increasing real estate values.
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COMPETING MANUFACTURED HOUSING MAP
[MAP OMITTED]
<PAGE>
NEIGHBORHOOD ANALYSIS
================================================================================
The City of Peoria
According to the Peoria Chamber of Commerce, Peoria is one of the fastest
growing municipalities in the United States, located in the northwest portion of
the Phoenix-Mesa MSA. Peoria is bordered on the west by Sun City, on the east by
Phoenix and Glendale, on the south by Glendale and on the north by Lake
Pleasant. The estimated population for the City of Peoria, Maricopa County and
the State of Arizona is shown below.
- --------------------------------------------------------------------------------
Population
- --------------------------------------------------------------------------------
1980 1990 1996
- --------------------------------------------------------------------------------
Peoria 12,171 50,168 78,310
- --------------------------------------------------------------------------------
Maricopa County 1,509,175 2,122,101 2,634,625
- --------------------------------------------------------------------------------
Arizona 2,716,546 3,665,228 4,462,300
- --------------------------------------------------------------------------------
Source: Arizona Department of Economic Security and U.S. Census Bureau.
- --------------------------------------------------------------------------------
The Peoria Economic Development Group facilitates new business and
industry moving to the city. Formerly an agricultural town, Peoria is today a
business and medical hub for the Northwest Valley area. Peoria's major employers
include: Plaza del Rio, a senior citizen/medical complex, employing roughly
1,100 employees and Peoria Bell Road Auto Mall, employing approximately 500
employees. Many of Peoria's residents commute to nearby companies in northwest
Phoenix, such as, Honeywell Flight Systems with 5,000 employees, American
Express with 3,000 employees and Bull Information Systems with 1,000 employees.
Transportation has improved with a fairly new freeway, Arizona 101 (part
of the metropolitan Phoenix Outer Loop), connected to I-17 and I-10, and U.S.
Highway 60 (connecting Phoenix and Las Vegas). The Santa Fe Railway also serves
the area. Sky Harbor International Airport is located 20 miles southeast of
Peoria, which is served by 16 major airlines and offers non-stop flights to
every major U.S. city. Locally, Glendale Municipal Airport is located two miles
southwest of Peoria.
Neighborhood Description
The subject property's neighborhood is generally bounded by Cactus Road to
the north, Northern Avenue to the south, North 59th Avenue to the east and North
83rd Avenue to the west. This area is primarily developed with single-family
homes, retail uses and mobile home park communities.
The subject property is situated along the west side of North 67th Avenue,
approximately two miles north of U.S. Highway 60 (Grand Avenue), in the City of
Peoria, Arizona. Within the subject's neighborhood, North 67th Avenue is
developed primarily with retail uses. Crossroads Plaza Shopping Center is
located adjacent to the southern portion of
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Neighborhood Analysis
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the subject site, and is anchored by PetsMart, Blockbuster and Craftmart. Peoria
Station community shopping center is located south of Crossroads Plaza Shopping
Center, at the southwest corner of Peoria Avenue, and contains Safeway grocery
and Video Update. Other retail establishments include neighborhood retail
centers, convenience stores, gas stations and fast food restaurants, such as:
Burger King, McDonalds, Taco Bell, Kentucky Fried Chicken, Long John Silver and
Popeye's. The accessibility to the retail area is a benefit for Casa del Sol II
residents since many of the residents do not have vehicles.
Residential developments are noted to the east and west of the subject
property, with mobile home park communities to the west and south of the subject
property. Mobile home park communities to the west of the subject property
includes Casa del Sol III and Sun Crest, located along the north side of Peoria
Avenue, while Peoria Mobile Estates and Orange Grove are located south of the
subject property. Other developments in the immediate area include the Glendale
Community College, which is located approximately one mile southeast of the
subject site.
Transportation in the subject's immediate area is excellent. The subject
property enjoys access and visibility along North 67th Avenue, a north/south,
four-lane paved roadway, with a middle turning lane, that provides direct access
to U.S. Highway 60 (Grand Avenue) approximately two miles south of the subject
property. The subject property has approximately 703 feet of frontage along the
west side of North 67th Avenue. U.S. Highway 60 can also be accessed two miles
east of the subject site via Peoria Avenue. Peoria Avenue is an east/south,
four-lane paved roadway, with a middle turning lane, located just south of the
subject property. Other major highways include State Highway 101, which is
located approximately three and one-half miles west of the subject site.
The subject's immediate neighborhood is conveniently accessed and located
approximately 15 miles from downtown Phoenix. U.S. Highway 60, approximately two
miles to the west or south of the subject site, provides direct access to
downtown Phoenix.
In summary, the subject property is located in an area well suited for
manufactured housing development, which benefits from the accessibility from the
nearby major highways.
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MARKET ANALYSIS
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National Overview
Reportedly, the largest property owners of manufactured housing
communities in the United States are: ROC Communities, headquartered in
Colorado; MHC, Inc., headquartered in Illinois; Ellenburg Capital, headquartered
in Oregon; Lautrec Ltd., headquartered in Michigan; Clayton Homes, headquartered
in Tennessee; Clayton Williams and Sherwood, headquartered in California;
Chateau Properties, Sun Communities and UNIPROP, headquartered in Michigan.
The following represents the top ten manufactured housing community firms,
as reported by GFA Management, as of 1997.
<TABLE>
<CAPTION>
=========================================================================================
1997 Firm Name State No. of Sites No. of Communities
Rank Owned/Managed Owned/Managed
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Sun Communities Michigan 30,295/0 84/0
- -----------------------------------------------------------------------------------------
2 ROC Communities Colorado 22,441/7,167 77/36
- -----------------------------------------------------------------------------------------
3 Manufactured Home Communities Illinois 27,349/838 69/3
- -----------------------------------------------------------------------------------------
4 Ellenburg Capital Florida 25,173/0 63/0
- -----------------------------------------------------------------------------------------
5 Lautrec Ltd. Michigan 22,652/0 58/0
- -----------------------------------------------------------------------------------------
6 Chateau Properties Michigan 20,003/0 47/0
- -----------------------------------------------------------------------------------------
7 Clayton Homes Tennessee 18,000/0 66/0
- -----------------------------------------------------------------------------------------
8 Clayton, Williams and Sherwood California 16,946/0 44/0
- -----------------------------------------------------------------------------------------
9 UNIPROP Michigan 14,931/0 40/0
- -----------------------------------------------------------------------------------------
10 The Bloch Organization Michigan 14,379/0 37/0
=========================================================================================
</TABLE>
According to the U.S. Census Bureau, more than 8,521,000 people were
living in manufactured housing communities as of 1990 compared to 3,838,678 in
1980. This represents an increase in manufactured housing community living of
approximately 122.0 percent over the last ten years. Over the last ten years,
there has been a steady increase in manufactured housing community development
across the country. Among the demographic factors which account for the increase
in manufactured housing community living are: decreasing household size, a
growing demand for smaller housing, as well as an alternative to the increasing
cost of housing. Nationally, the largest percentage of manufactured housing
communities are located in California, Michigan, Colorado, Florida, New York,
Minnesota, Indiana, Arizona, Ohio, and Wisconsin.
The manufactured home industry has dramatically changed over the last 20
years. Manufactured homes are now designed and constructed to accommodate
spacious and attractive living requirements. Today, approximately one out of
sixteen families live in manufactured housing units. The manufactured housing
market share has been growing
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Market Analysis
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steadily over the last 10 years. In 1990, 6.7 percent of Americans lived in
manufactured housing units, up from 2.9 percent compared to 1970, according to
the U.S. Census Bureau, which represents 12.0 to 14.0 percent of all new housing
built since the mid-1980's, according to the Manufactured Housing Institute in
Arlington, Virginia.
In 1990, the average cost of a manufactured housing unit was $27,800
compared to $149,000 for a new house (including land), according to the
Manufactured Housing Institute. This reflects a 28.0 percent increase in the
cost of manufactured housing since 1980 versus a 49.0 percent increase in
conventional housing. Industry experts estimate that a single-family home
selling for $150,000 would require an annual income of $52,671. To purchase a
$27,800 manufactured housing unit, only a $19,984 income level would be
required.
At Fleetwood Enterprises, the nation's largest manufacturer of
manufactured housing units, units may be purchased for up to $100,000, which
would include a three-bedroom, two-bath unit of 2,100 square feet, with vaulted
ceilings.
In 1990, approximately 10.0 percent of manufactured home owners lived in
units worth approximately $40,000, up from 4.0 percent compared to 1981,
according to a study conducted by Foremost Insurance Company in Grand Rapids,
Michigan. Also, according to the study, approximately 21.0 percent of the
manufactured housing households are occupied by people' 65 years of age or
older, slightly lower than the age group for conventional homes, as reported by
Foremost Insurance.
The demand for good quality institutional grade manufactured housing
communities has substantially increased over the last ten years. Manufactured
housing communities provide an affordable alternative to the increasing cost of
housing. Also, manufactured housing communities provide an alternative form of
living for the elderly and retirees, especially for those living on fixed
incomes.
Acquisitions of manufactured housing communities during 1993 and 1994 were
clearly dominated by Real Estate Investment Trusts. During 1994 and 1995
Manufactured Home Communities (MHC) and ROC communities lead the acquisition of
manufactured housing communities nationally. During 1996, Sun Communities
captured the lead and, together with ROC and MHC dominate the Real Estate
Investment Trust market.
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Market Analysis
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The following chart represents the largest Real Estate Investment Trusts,
from 1991 to 1996, as reported by GFA Management
================================================================================
HOME SITE GROWTH, DEVELOPMENT AMONG THE LARGEST
REAL ESTATE INVESTMENT TRUST (REITS)
- --------------------------------------------------------------------------------
Year ROC MHC Chateau Sun United Total Annual
Growth
- --------------------------------------------------------------------------------
1996 29,608 28,187 20,003 30,295 5,234 113,327 17.0%
- --------------------------------------------------------------------------------
1995 27,910 26,237 19,594 18,000 4,850 96,591 9.0%
- --------------------------------------------------------------------------------
1994 26,231 28,407 15,689 13,500 4,623 88,450 37.8%
- --------------------------------------------------------------------------------
1993 20,142 14,700 15,261 9,036 5,050 64,189 17.8%
- --------------------------------------------------------------------------------
1992 18,745 12,873 10,032 7,600 5,200 54,450 N/A
- --------------------------------------------------------------------------------
1991 9,030 13,079 9,759 N/R N/R N/A N/A
- --------------------------------------------------------------------------------
N/R = No report N/A = Not applicable
- --------------------------------------------------------------------------------
NOTE: The 113,327 sites counted for the top five REITs in 1996 make up 20
percent of the total sites surveyed in the 1997 Allen Report. These rental sites
are located in 339 communities, accounting for about 1 percent of some 50,000
existing manufactured housing communities nationwide. The community counts for
the five major REITs are: ROC (113), MHC (72), Chateau (47), Sun (84) and United
(23). The proportion of communities owned by each of the REITs compared to the
others is: ROC (33%), MHC (21%), Chateau (14%), Sun (25%) and United (7%).
================================================================================
Manufactured Home Communities (MHC) is expected to continue an aggressive
acquisition campaign through 1997 and beyond. As of September 1997, the MHC REIT
had a market cap of $632.0 million, and continues to pursue the acquisition of
manufactured home communities. Aside from the ELL-CAP $300.0 million
transaction, in September 1997 Manufactured Home Communities, Inc. completed a
$107.0 million purchase of 18 manufactured housing communities and two related
commercial properties from partnerships affiliated with Mobileparks West. The
communities, with 3,505 sites, were purchased with about $3.0 million
manufactured home operating units, $16.0 million in cash and $20.0 million of
installment notes and assumed debt. The communities have an average monthly
rental of $349.00. The communities are located in California, Utah, Oregon,
Washington and Nevada. MHC may be the first manufactured home community REIT to
reach $1.0 billion.
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Market Analysis
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The MHC REIT continues to perform and expand, and as of September 1997 was
trading at $25.625, with a current yield of 5.2 percent. The top traded REITs,
are presented as follows.
<TABLE>
<CAPTION>
==========================================================================================
REIT MARKET UPDATE
- ------------------------------------------------------------------------------------------
Company Symbol Price Current Yield 52 Week High 52 Week Low Annual 12 Mth Tot
(9/19/97) Dividend Rtn
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CPJ $29.688 5.8% $31.125 $22.250 1.72 26.6%
- ------------------------------------------------------------------------------------------
MHC $25.625 5.2% $26.428 $18.875 1.32 30.7%
- ------------------------------------------------------------------------------------------
SUI $37.428 5.0% $ 38.00 $27.750 1.88 31.8%
- ------------------------------------------------------------------------------------------
UMH $11.625 6.0% $13.625 $10.875 0.70 -1.7%
- ------------------------------------------------------------------------------------------
Total return figures obtained through Standard & Poors and are for the period
through Sept 1997.
==========================================================================================
</TABLE>
The Southwest and Northwest Regions of the nation are the preferred
locations regarding recent and future manufactured housing community
acquisitions. However, investors seeking moderate, but consistent growth
expectations, are still looking at the midwest region. Also, southern portions
of Florida are still considered a prime area for investors seeking good quality
manufactured housing communities, with good up-side potential. What was once a
stagnant market, the northeast region is now being considered for future
acquisitions.
According to a recent study prepared by Merrill Lynch & Company, ownership
in the manufactured housing community industry is highly fragmented. The top 150
owner-operators account for less than 5.0 percent of the total industry, whereas
a host of "mom-and-pop" private companies account for the other 95.0 percent.
This unglamorous niche industry is ripe for consolidation, and an infusion of
professional management expertise is likely to yield significant economies of
scale. The four REIT's specializing in manufactured housing communities are
already among the top ten owner-operators, and are well positioned to facilitate
and hasten the industry's consolidation to the likely benefit of their
stockholders.
Manufactured homes are the fastest growing component of the nation's
housing inventory, due to their affordability, good quality design and safety
standards. According to the Merrill Lynch & Company Manufactured Housing
Community Industry Report, factory-built homes appeal especially to senior
citizens and to households with limited economic needs, two segments of the
population that are likely to grow rapidly in coming years.
Consistent returns in manufactured housing community investments have been
the mainstay of the industry. For this reason, as well as the amount of
acquisitions seen by Real Estate Investment Trusts (REITs) from 1991 to 1996,
the availability of good quality manufactured housing communities has been
substantially reduced compared to the 1980's.
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Market Analysis
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Good quality manufactured housing communities still command premium prices, thus
driving down overall capitalization rates.
Cushman & Wakefield's Valuation Advisory Services has tracked sale
transactions of manufactured housing communities since 1985. Overall
capitalization rates have consistently been within the 8.75 to 10.00 percent
range for communities located in moderate to increasing growth markets, and as
low as near 8.0 percent for those communities located in growing markets that
poses significant upside potential. Overall capitalization rates are clearly
affected and are differentiated among the properties relative to rent levels,
age, quality, condition, location, amenities, demographic characteristics,
resident profile, as well as the quality of management.
Manufactured housing communities fall within, and are categorized by their
overall appearance, age, and amenities, but more importantly the strength of the
local market. The various categories of manufactured housing communities,
according to the Woodall Directory, can be ranked as 1 to 5 Star Parks. These
rankings are defined as follows:
One Star Park
The most important consideration for a one star park is overall
appearance. If it is not a decent place to live, it will not be listed in
Woodall's Directory. The following are general requirements:
o Fair overall appearance;
o Patios on most lots. May be concrete, asphalt, wood, or some
suitable material;
o Grass, rock or shell to cover ground;
o Streets fair to good. May be dirt, asphalt or gravel in reasonable
condition;
o Restrooms clean, if any;
o Adequate laundry or laundromat nearby;
o If fences allowed, must be neat;
o Mail service;
o Homes may be old models, but show evidence of care; and,
o Manager available some hours of each day.
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Market Analysis
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Two Star Park
In addition to the requirements for a one star park, a two star park will
have the following:
o Landscaping - some lawns and shrubs;
o Streets in good condition. Must be dust free of crushed rock, gravel
or shell minimum;
o Neat storage;
o Well equipped laundry or laundromat nearby;
o 200 volt connections available;
o If children accepted, park should have play area;
o Park free of clutter, such as old cars and other abandoned
equipment; and,
o Well maintained and managed.
Three Star Park
What a three star park does it does well, but not as uniformly as higher
rated parks. Many three star parks were once higher rated, but original
construction does not allow for today's 10-foot, 12-foot, and double-wides
or the 55-foot and 60-foot lengths. If children are allowed, there should
be adequate play area. However, the disarray caused by children may at
times be the determining factor that keeps a three star park at that level
when it otherwise could be rated higher. In addition to the requirements
for one and two star parks, a three star park must have the following:
o Attractive entrance;
o All homes must be in good condition;
o Awnings and cabana rooms on some homes in southern areas;
o Some spaces for large mobile homes;
o Paved or hard surfaced streets;
o Off-street parking or streets wide enough for safe on-street
parking;
o Good lawns or substitute throughout, shade trees, some shrubs where
climate permits;
o Concrete patios or the equivalent on all lots;
o All lots neat and attractive;
o All park buildings in good repair; and,
o Good management.
Four Star Park
Four star parks are luxury parks. In addition to the requirements for one,
two and three star parks, a four star park must have the following:
o Good landscaping;
o Most homes skirted with metal skirts, concrete block, ornamental
wood or stone;
o Paved streets, edged or curbed.
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Market Analysis
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o Uncrowded lots;
o Underground utilities if permitted by local conditions and
authorities;
o Most tanks, if present, concealed;
o Any hedges or fences must be attractive and uniform;
o Awnings, cabanas, or porches on most homes in southern areas.
(Excepting double-wide units.);
o Most lots to accommodate large mobile homes;
o Where row parking of homes exists, all must be lined up uniformly;
o Community hall and/or swimming pool and/or recreation programs. If a
park is four star in all but this requirement, the fourth star will
be printed as an open star indicating a four star park without
park-centered recreation; and,
o Excellent management.
Five Star Park
Five star parks are the finest. They should be nearly impossible to
improve. In addition to the requirements for one, two, three, and four
star parks, a five star park must have the following:
o Well planned and laid out spacious appearance;
o Good location in regard to accessibility and desirable neighborhood.
In some locations, park should be enclosed by high hedges or
ornamental fence;
o Wide paved streets in perfect condition. Curbs or lawns edged to
streets, sidewalks, street lights, street signs;
o Homes set back from street;
o Exceptionally attractive entrance and park sign;
o Patios at least 8 x 30 feet. (Excepting double-wide units.);
o Paved off-street parking such as carports or planned parking;
o All homes skirted;
o All hitches concealed. Any existing tanks concealed;
o Recreation, some or all of the following: swimming pool (excepting
areas with long, cold winters), shuffleboards, horseshoe pitching,
golf course, hobby shop, hobby classes, games, potlucks, dances or
natural recreational facilities;
o Beautifully equipped recreation hall with kitchen. Room for
community gatherings, tiled restrooms, etc.;
o Uniform storage sheds or central storage facilities;
o All late model homes in excellent condition;
o At least 60 percent occupancy in order to judge quality of residents
which indicates park's ability to maintain a five star rating
between inspections;
o All empty lots grassed, graveled or otherwise well maintained;
o If pets or children allowed, there must be a place for them to run
and play without cluttering the streets and yards. Most five star
parks are for adults only; and,
o Superior management interested in comfort of residents and
maintenance of park.
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Market Analysis
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The demand for good quality institutional grade manufactured housing
communities is anticipated to increase throughout the 1990's, since manufactured
housing communities provide an alternative form of living for the elderly and
retirees, especially for those living on fixed income. Manufactured home
shipments continue to be strong. Shipments rose 20.0 percent in 1992 and 1994,
and 12.0 percent in 1995. The market for good quality manufactured housing
communities is expected to be strong, with yield and capitalization rates and
prices expected to continue to be competitive, with the REITs leading the way.
Competition
We have surveyed six manufactured housing communities located within the
subject's primary market, including the subject property, containing a total of
1,373 sites. The combined occupancy rate of these six manufactured housing
communities, including the subject property, is approximately 98.0 percent.
Excluding the subject property in our survey, the combined occupancy rate is
also approximately 98.0 percent, based on 1,134 sites.
The name and location of the subject property's primary competition, as
well as the number of sites, occupancy levels, amenities offered, monthly rental
rates and services provided in the monthly rental rate, are presented on the
following facing page, along with a map which identifies the location of each
competing park.
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<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
====================================================================================================================================
Age
Number --- 3-Year
Of Sites Condition Services Date Of Average
Comp. Name Occupancy ------------- Monthly Provided Last Rental Annual Rental
No. Location Level Amenities Park Rating(1) Rent in Rent Increase Increase
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R-1 Casa del Sol III 237 Clubhouse 1983 $342.00/Mo. Water January, 1997 $10.00/Mo.
6960 W. Peoria --- Pool/Spa ---- To Sewer
Avenue 97% Library Good $459.00/Mo. Refuse
Peoria, Arizona Billiard Room ----
Laundry 5*
Storage
- ------------------------------------------------------------------------------------------------------------------------------------
R-2 Peoria Mobile 126 Clubhouse 1976 $228.00/Mo. Water March, 1997 $8.00/Mo.
Estates ---- Pool/Spa ---- To Sewer
6942 W. Olive 100% Tennis Courts Good $245.00/Mo. Refuse
Avenue Shuffleboard ----
Peoria, Arizona Laundry 4*
Storage
- ------------------------------------------------------------------------------------------------------------------------------------
R-3 Casa del Sol I 246 Clubhouse 1972 $345.10/Mo. Water July, 1997 $15.00/Mo.
11411 N. 91st --- Pool/Spa ---- To Sewer
Avenue 99% Saunas Good $457.77/Mo. Refuse
Peoria, Arizona Library ----
Activity 5*
Center
Billiard Room
Exercise Room
Shuffleboards
Golf Course
Laundry
- ------------------------------------------------------------------------------------------------------------------------------------
R-4 The Peoria 287 Clubhouse 1982 $219.00/Mo. Sewer October, 1997 $5.00/Mo.
Polynesian --- Pool/Spa ---- To Refuse
10951 N. 91st 99% Playground Good $244.00/Mo.
Avenue Billiard Room ----
Peoria, Arizona Exercise Room 4*-5*
Laundry
Storage
====================================================================================================================================
</TABLE>
<PAGE>
Market Analysis
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<TABLE>
<CAPTION>
====================================================================================================================================
SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
====================================================================================================================================
Age
Number --- 3-Year
Of Sites Condition Services Date Of Average
Comp. Name Occupancy ------------- Monthly Provided Last Rental Annual Rental
No. Location Level Amenities Park Rating(1) Rent in Rent Increase Increase
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R-5 Apollo Village 238 Clubhouse 1970 $317.70/Mo. Water January, 1997 $16.00/Mo.
10701 N. 99th --- Pool/Spa ---- To Sewer
Avenue 93% Library Good $327.85/Mo. Refuse
Peoria, Arizona Activity ----
Center 5*
Laundry
Storage
- ------------------------------------------------------------------------------------------------------------------------------------
Subject Casa del Sol II 239 Clubhouse 1977 $360.00/Mo. Water August, 1997 $16.00/Mo.
10960 N. 67th 99% Pool/Spa ---- To Sewer
Avenue Saunas Good $475.00/Mo. Refuse
Peoria, Arizona Library ----
Billiard Room 5*
Exercise Room
Shuffleboards
Laundry
Storage
====================================================================================================================================
(1) Ratings from One Star to Five Star Parks are defined in the National Overview section of this report.
====================================================================================================================================
</TABLE>
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<PAGE>
NEIGHBORHOOD MAP
[MAP OMITTED]
<PAGE>
Market Analysis
================================================================================
Rental rates of manufactured housing communities located within the
subject's primary market range from $219.00 to $459.00 per site, on a monthly
basis. The subject property is currently quoting monthly rental rates within to
slightly above the market range, or at $360.00 to $475.00 per site. The last
rental rate increase at the subject property was as of August, 1997 of $18.00
per month, which represents a 3.8 to 5.0 percent increase.
The enclosed comparable rentals are considered the most competitive to the
subject property regarding amenities offered, condition, location and overall
ranking.
Comparable R-1, Casa del Sol III, is located at 6960 W. Peoria Avenue, in
Peoria, Arizona. This comparable property is a 55-year-old and greater
residential community, which contains 237 sites, and is 97.0 percent
occupied. Casa del Sol III was developed in 1983, and is in overall good
condition. Over the last three years, the annual rental rate increased
approximately $10.00 per month. Monthly rental rates range from $342.00 to
$459.00, with water, sewer and refuse service included in monthly rental
payment. Amenities include a clubhouse, pool, spa, library, billiard room,
laundry facility and recreational vehicle storage.
Comparable R-2, Peoria Mobile Estates, is located at 6942 W. Olive Avenue,
in Peoria, Arizona. This comparable property is a 55-year-old and greater
residential community, which contains 126 sites, and is 100.0 percent
occupied. Peoria Mobile Estates was developed in 1976, and is in overall
good condition. Over the last three years, the annual rental rate
increased approximately $8.00 per month. Monthly rental rates range from
$228.00 to $245.00 per month, with water, sewer and refuse service
included in monthly rental payment. Amenities include a clubhouse, pool,
spa, tennis courts, shuffleboard, laundry facility and recreational
vehicle storage.
Comparable R-3, Casa del Sol I, is located at 11411 N. 91st Avenue, in
Peoria, Arizona. This comparable property is a 55-year-old and greater
residential community, which contains 246 sites, and is 99.0 percent
occupied. Casa del Sol I was developed in 1972, and is in overall good
condition. Over the last three years, the annual rental rate increased
approximately $15.00. Monthly rental rates range from $345.10 to $457.77
per month, with water sewer and refuse service included in monthly rental
payment. Amenities include a clubhouse, pool/spa, saunas, library,
activity center, billiard room, exercise room, shuffleboards, golf course
and laundry facility.
Comparable R-4, The Peoria Polynesian Village, is located at 10951 N. 91st
Street, in Peoria, Arizona. This comparable property is a family
residential community, which contains 287 sites, and is 99.0 percent
occupied. The Peoria Polynesian Village was developed in 1982, and in
overall good condition. Over the last three years, the annual rental rate
increased approximately $5.00 per month. . Monthly rental rates range from
$219.00 to $244.00, with sewer and refuse service included in monthly
rental payment. Amenities include a clubhouse, pool, spa, playground,
billiard room, exercise room, laundry facility and recreational vehicle
storage.
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Market Analysis
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Comparable R-5, Apollo Village, is located at 10701 N. 99th Avenue, in
Peoria, Arizona. This comparable property is a 55-year-old and greater
residential community, which contains 238 sites and is 93.0 percent
occupied. Apollo Village was developed in 1970, and is in overall good
condition. Over the last three years, the annual rental rate increased
approximately $16.00 per month. Monthly rental rates range from $317.70 to
$327.85 per month, with water, sewer and refuse service included in
monthly rental payment. Amenities include a clubhouse, pool, spa, library,
activity center, laundry facility and recreational vehicle storage.
In our opinion, and based on conversations with the on-site manager,
property R-1 competes most favorably with the subject property, with monthly
rental rates ranging from $342.00 to $459.00 per site. The subject property is
currently quoting monthly rental rates ranging from $360.00 to $475.00 per site,
which is within to slightly above the range of rental rates of our more
comparable competing property, which is also owned by Manufactured Home
Community. The subject property competes most effectively with its primary
competitors regarding amenities, condition and current rent structure.
Comparable Manufactured Housing Community Sales
A search of the subject's market revealed six recent sales of manufactured
housing communities located in the Phoenix-Mesa MSA. The following is a brief
discussion of each of the manufactured housing sales located within the
subject's market. These sales are summarized on the following facing page.
Comparable Sale I-1, Mesa Village, is located at 2701 E. Allred Avenue, in
Mesa, Arizona. This property contains 201 sites, situated on 18.36 acres
of land area. The property was in good condition at the time of sale and
was developed in 1964. Amenities include a pool, laundry facility and
shuffleboard. The property was approximately 99.0 percent occupied at the
time of sale. The property was purchased for $5,000,000, which equates to
$24,876 per site.
Comparable Sale I-2, Chaparral Mobile Village, is located at 400 W.
Baseline Road, in Tempe, Arizona. This property contains 359 sites,
situated on 41.10 acres of land area. The property was in average
condition at the time of sale and was developed in 1971. Amenities
includes a pool. The property was 100.0 percent occupied at the time of
sale. The property was purchased for $7,800,000, which equates to $21,727
per site.
Comparable Sale I-3, Casa del Sol I Resort, is located at 11411 N. 91st
Avenue, in Peoria, Arizona. This property contains 246 sites, situated on
30.886 acres of land area. The property was in good condition at the time
of sale and was developed in 1972. Amenities include a clubhouse, pool,
spa, saunas, library, activity center, billiard room, exercise room,
shuffleboards, golf course and laundry facility. The property was
approximately 99.0 percent occupied at the time of sale. The property was
purchased for $8,610,000, which equates to $35,000 per site.
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Market Analysis
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Comparable Sale I-4, Casa del Sol II Resort, is the sale of the subject,
is located at 10960 N. 67th Avenue, in Peoria, Arizona. This property
contains 239 sites, situated on 28.872 acres of land area. The property
was in good condition at the time of sale and was developed in 1977.
Amenities include a clubhouse, pool, spa, saunas, library, billiard room,
exercise room, golf course, laundry facility and recreational vehicle
storage. The property was approximately 99.0 percent occupied at the time
of sale. The property was purchased for $8,370,000, which equates to
$35,021 per site.
Comparable Sale I-5, Brentwood Southern, is located at 8103 E. Southern
Avenue, in Mesa, Arizona. This property contains 345 sites, situated on
60.06 acres of land area. The property was in good condition at the time
of sale and was developed in 1983. Amenities include a clubhouse, two
pools, two spas, horseshoes and shuffleboard. The property was 100.0
percent occupied at the time of sale. The property was purchased for
$10,540,000, which equates to $30,551 per site.
Comparable Sale I-6, Sunrise Heights, is located at 17801 N. 16th Street,
in Phoenix, Arizona. This property contains 200 sites, situated on 28.0
acres of land area. The property was in good condition at the time of sale
and was developed in 1981. Amenities include a clubhouse, pool, spa and
tennis court. The property was approximately 95.0 percent occupied at the
time of sale. The property was purchased for $4,000,000, which equates to
$20,000 per site.
It should be noted that comparability does not imply an identical or exact
duplicate, but rather the possession of a similar utility and affected by
similar supply and demand forces. Also, relative to the subject property,
differences include: time or date of the transactions; location, which
encompasses differences in accessibility; site characteristics, including
differences in size, topography, access, exposure and development capacities;
and improvement characteristics, which include differences in age, quality,
condition, size and amenities.
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<PAGE>
<TABLE>
<CAPTION>
=======================================================================================================================
SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- -----------------------------------------------------------------------------------------------------------------------
Sales Price
Per Site
Sales Date Land Area Density -------- EGIM
Comp. Name ---------- --------- -------- Occupancy ----
No. Location Sales Price No. Sites Condition At Sale $NOI/Site OAR
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
I-1 Mesa Village 1/97 18.36 10.95 $24,876 N/A N/A
2701 E. Allred Avenue ---------- ----- ------- -------
Mesa, Arizona $5,000,000 201 Good 99%
- -----------------------------------------------------------------------------------------------------------------------
I-2 Chaparral Mobile 12/96 41.10 8.73 $21,727 N/A N/A
Village ---------- ----- ------- -------
400 W. Baseline Road $7,800,000 359 Average 100%
Tempe, Arizona
- -----------------------------------------------------------------------------------------------------------------------
I-3 Casa del Sol I Resort 10/96 30.886 7.96 $35,000 $2,642 9.16x
11411 N. 91st Avenue ---------- ----- ------- ------- -----
Peoria, Arizona $8,610,000 246 Good 99% 7.55%
- -----------------------------------------------------------------------------------------------------------------------
I-4 Casa del Sol II 10/96 28.872 8.28 $35,021 $3,096 8.13x
Resort ---------- ----- ------- ------- -----
10960 N. 67th Avenue $8,370,000 239 Good 99% 8.84%
Peoria, Arizona
- -----------------------------------------------------------------------------------------------------------------------
I-5 Brentwood Southern 4/96 60.06 5.75 $30,551 $2,520 8.49x
8103 E. Southern Ave. ----------- ----- ------- ------- -----
Mesa, Arizona $10,540,000 345 Good 100% 8.25%
- -----------------------------------------------------------------------------------------------------------------------
I-6 Sunrise Heights 2/94 28.0 7.14 $20,000 $1,680 7.38x
17801 North 16th ----------- ----- ------- ------- -----
Street $4,000,000 200 Good 95% 8.40%
Phoenix, Arizona
- -----------------------------------------------------------------------------------------------------------------------
Subject Casa del Sol II - - - 28.872 8.28 - - - $3,369 N/A
10960 N. 67th Avenue ----- ------- -------
Peoria, Arizona 239 Good 99%
=======================================================================================================================
<CAPTION>
=====================================================================================================
SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- -----------------------------------------------------------------------------------------------------
$EGI/Site
---------
$Expense/Site
-------------
Comp. Name Expense Ratio Comparability to
No. Location % Of EGI to the Subject Comments
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
I-1 Mesa Village N/A Inferior Developed in 1964;
2701 E. Allred Avenue Good condition; Amenities
Mesa, Arizona include: pool, laundry
facility and shuffleboard.
- -----------------------------------------------------------------------------------------------------
I-2 Chaparral Mobile N/A Inferior Developed in 1971; Average
Village condition; Amenities
400 W. Baseline Road includes a pool.
Tempe, Arizona
- -----------------------------------------------------------------------------------------------------
I-3 Casa del Sol I Resort $3,821 Similar Developed in 1972; Good
11411 N. 91st Avenue ------ condition; Amenities
Peoria, Arizona $1,179 include a clubhouse, pool,
------ spa, saunas, library,
30.86% activity center, billiard
room, exercise room,
shuffleboards, golf course
and laundry facility.
- -----------------------------------------------------------------------------------------------------
I-4 Casa del Sol II $4,310 Similar Developed in 1977; Good
Resort ------ condition; Amenities
10960 N. 67th Avenue $1,213 include: clubhouse, pool,
Peoria, Arizona ------ spa, saunas, library,
28.14% billiard room, exercise
room, golf course, laundry
facility and RV storage.
- -----------------------------------------------------------------------------------------------------
I-5 Brentwood Southern $3,600 Similar Developed in 1983;
8103 E. Southern Ave. ------ Good condition; Amenities
Mesa, Arizona $1,080 include: clubhouse, two
------ pools, two spas, horseshoes
30.0% and shuffleboard.
- -----------------------------------------------------------------------------------------------------
I-6 Sunrise Heights $2,710 Inferior Developed in 1981; Good
17801 North 16th ------ condition; Amenities
Street $1,030 include: clubhouse, pool,
Phoenix, Arizona ------ spa and tennis court.
38.01%
- -----------------------------------------------------------------------------------------------------
Subject Casa del Sol II $4,526 Subject Property Developed in 1977; Good
10960 N. 67th Avenue ------ condition; Amenities
Peoria, Arizona $1,157 include: clubhouse, pool,
------ spa, saunas, library,
25.56% billiard room, exercise
room, golf course, laundry
facility and RV storage.
=====================================================================================================
</TABLE>
<PAGE>
Market Analysis
================================================================================
Demographic Trends
Based on information provided by National Decision Systems (NDS), the
populations within the subject's primary 5-mile and secondary 10-mile market
areas, as of 1997, are 336,611 and 983,439, respectively. The populations of the
subject's primary and secondary market areas are projected to increase to
373,686 and 1,094,576, respectively, by the year 2002.
According to NDS, the total number of households within the subject's
primary and secondary market areas, are 130,999 and 393,229, respectively, for
1997. The number of households within the subject's primary 5-mile and secondary
10-mile market areas are projected to increase to 152,308 and 451,467,
respectively, by the year 2002.
The average household income levels within the subject's primary and
secondary market areas, for 1997, are $51,312 and $52,926, respectively. The
median household income levels within the subject's primary and secondary market
areas, for 1997, are $40,053 and $38,240, respectively. Per capita income within
the subject's primary and secondary market areas, for 1997, are $20,008 and
$21,185, respectively.
Based on the above levels, the demographics of the subject's primary
market area appear to indicate a positive growth trend, based on information
provided by the NDS Report, a copy of which is provided in the Addenda to this
report.
Expense Analysis
Expenses exhibited by manufactured housing communities nationally are
typically 35.0 to 45.0 percent of effective gross income. However, expense
ratios of manufactured housing communities located in the southeast and
southwest regions of the nation are typically lower by comparison, due to lower
real estate taxes and common area maintenance charges.
As presented in the Summary of Manufactured Housing Communities Sales,
operating expense ratios of competing parks range from 28.14 to 38.01 percent of
effective gross income levels, and $1,030 to $1,213 on a per site basis. The
subject property is currently reporting expenses, for the 12-month trailing
period of 1997, at 25.56 percent of effective gross income and $1,157 on a per
site basis. Operating expenses appear to be within the range of comparable
properties on a per site basis, but slightly below the range of competing
communities as a percentage of effective gross income, which is consistent with
the subject's comparatively higher rent structure.
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Market Analysis
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Market Supply and Demand
There are a total of five competing manufactured housing communities
located within the subject's market, which total 1,134 sites, with a
corresponding average occupancy rate of 98.0 percent. No specific absorption
statistics were available. The subject property, based on conversations with
management, has historically had occupancy rates consistent with competing
parks, and is currently 99.0 percent occupied. We believe the current occupancy
rate of the subject property is stabilized, and has similar occupancy rates of
competing parks presently presented. Based on the subject's current occupancy
rate and occupancy rates at competing parks, demand appears to be strong, with
steady rental rate increases expected.
Conclusion
Historically, the subject's primary market has sustained occupancy levels
of 95.0 to 100 percent. Rental rates of similar manufactured housing communities
located within the subject's primary market generally range from $219.00 to
$459.00 per site, on a monthly basis. The subject property is currently quoting,
and is currently achieving (based on the most recent rent roll provided), a
monthly rental rate within to slightly above the range of competing parks, or at
$360.00 to $475.00 per site.
Based on our research, steady increases in rental rates are anticipated,
based on actual historical performance of competing parks and historical
increases seen at the subject property. Sales transactions of manufactured
housing communities located within the subject's region range from $20,000 to
$35,021 per site, with corresponding overall rates ranging from 7.55 to 8.84
percent. In our opinion, the subject property competes favorably with its
competition regarding amenities, condition, rent structure and overall market
rating.
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SITE PLAN
[GRAPHIC OMITTED]
<PAGE>
PROPERTY DESCRIPTION
================================================================================
Site Description
The subject site is located along the west side of North 67th Avenue,
approximately two miles north of U.S. Highway 60, in Peoria, Maricopa County,
Arizona. The subject site is irregular in shape and contains 28.872 acres, or
1,257,686.52 square feet of land area. Topographically, the site is basically
level and at street grade.
Sewer and water are provided by the city, while natural gas is supplied by
Southwest Gas Corporation, electricity by Arizona Public Service and telephone
by U.S. West Communications. Primary access to the subject site is available
from North 67th Avenue. According to flood insurance rate map No. 04013C2630E,
dated April 15, 1996, the subject property is located in Zone B.
Each developed site is equipped with a dirt site and off-street parking.
The streets within the park have two-lanes, with concrete curbs. Overall, the
subject site is typical of the area and is functionally well suited for its
current use.
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.
Improvements Description
The subject property was originally developed in 1977. The subject
improvements consist of a 239-site manufactured housing community, with a
community center, swimming pool, spa, saunas, library, billiard room, exercise
room, golf course, laundry facility and recreational vehicle storage.
The community center consists of a manager's office, restroom facilities,
open-space available for resident use, library, billiard room, exercise room,
laundry room and a fully-equipped kitchen area. The exterior of the one-story
community center is concrete block, and appeared to be in overall good condition
at the time of inspection.
The swimming pool, spa, and golf course are located adjacent to the
community center. Concrete fencing surrounds the pool. Off-street parking is
available for each resident. Site improvements within the park include: paved
streets, dirt sites, street lighting and signage. Overall, the site improvements
appeared to be in good condition at the time of inspection.
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Property Description
================================================================================
Casa del Sol II is a functional manufactured housing community with good
ingress and egress along North 67th Avenue. Overall, the subject community
appears to be well maintained and is in good condition. Casa del Sol II is a
functional manufactured housing community and competes favorably with other
existing manufactured housing communities in the area in terms of appearance and
amenities. The subject property would fit the profile of a Five Star Park, as
defined in the National Overview section of this report.
Real Property Taxes and Assessments
Assessed value of commercial property in Maricopa County is assessed at
25.0 percent of the Assessor's opinion of market value. The subject property is
identified by tax parcel number 143-05-004L 5.
The total amount of real estate taxes for 1996 payable in 1997 for the
subject property amounts to $36,485.02. The total amount of real estate taxes
for 1996 payable in 1997 equates to approximately $152.66 per site.
Zoning
According to the City of Peoria zoning officials, the subject property is
currently zoned RMH-2, Residential Mobile Home. Based on conversations with the
City of Peoria zoning officials, the subject property is of legal and conforming
use for this zoned district.
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CONCLUSION
================================================================================
Conclusion
o The subject property, Casa del Sol II, is a functional manufactured
housing community, which competes favorably in relation to its
competition;
o Comparable manufactured housing communities located within the
subject's market range in monthly rental rates per site from $219.00
to $459.00;
o The subject property is currently quoting, and is currently
achieving (based on the most recent rent roll provided) a monthly
rental rate ranging from $360.00 to $475.00 per site, which is
within to slightly above the range of competing parks;
o Sale transactions of manufactured housings located within the
subject's region range in unit sales prices per site from $20,000 to
$35,021, with corresponding overall rates ranging from 7.55 to 8.84
percent;
o Operating expenses are within industry standards for a park located
in the southwestern region of the country;
o The subject park appears to be operating at economic levels based on
our review of historical and budgeted 1998 income and expenses;
o The demographic characteristics of the area appear to be positive;
o The population profile of the subject property is 100 percent adult;
o The current occupancy rate at the subject property of 99.0 percent
is evident by a strong local market and demand;
o No significant manufactured housing communities are expected to be
developed in the near future;
o In our opinion, based on Woodall's criteria, the subject property is
a Five Star Park, and the reader's attention is directed to the
corresponding definition and criteria of a Five Star Park, presented
in the National Overview section of this report; and,
o Based on the subject's location, demographic, economic, market and
physical characteristics, we believe Casa del Sol II will continue
to be a viable manufactured housing community in the foreseeable
future, and is well positioned in the marketplace.
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<PAGE>
ASSUMPTIONS AND LIMITING CONDITIONS
================================================================================
"Report" means the consulting report to which these Assumptions and Limiting
Conditions are annexed.
"Property" means the subject of the Report.
"C&W" means Cushman & Wakefield, Inc. or its subsidiary which issued the Report.
"Appraiser(s)" means the employee(s) of C&W who prepared and signed the Report.
This report is made subject to the following assumptions and limiting
conditions:
1. No responsibility is assumed for the legal description or for any matters
which are legal in nature. 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 Report or upon which the Report 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 Appraisers nor C&W shall be responsible for the
accuracy or completeness of such information, including the correctness of
estimates, opinions, dimensions, sketches, exhibits, and other factual
matters.
3. The information is effective as of the date stated in the Report. Changes
since that date in external and market factors or in the property itself
can significantly affect our analysis.
4. The report is to be used in whole and not in part. No part of the Report
shall be used in conjunction with any other report. Possession of the
Report, or a copy thereof, does not carry with it the right of
publication. Publication of the Report or any portion thereof without the
prior written consent of C&W is prohibited. Except as may be otherwise
expressly stated in the letter of engagement to prepare the Report, C&W
does not permit use of the Report by any person other than the party to
whom it is addressed or for purposes other than those for which it was
prepared. If written permission is given by C&W to use the Report, the
Report must be used in its entirety and only with proper written
qualification as approved by C&W. No part of the Report or the identity of
the Appraiser shall be conveyed to the public through advertising, public
relations, news, sales, or other media or used in any material without
C&W's prior written consent. Reference to the Appraisal Institute or to
the MAI designation is prohibited.
5. The Appraiser shall not be required to give testimony in any court or
administrative proceedings relating to the Property or the Report.
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Assumptions and Limiting Conditions
================================================================================
6. The Report 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 Report; 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 Report is based.
7. The physical condition of the improvements considered by the Report is
based on visual inspection by the Appraiser or other person identified in
the Report. C&W assumes no responsibility for the soundness of structural
members nor for the condition of mechanical equipment, plumbing, or
electrical components.
8. Unless otherwise stated in the Report, the existence of potentially
hazardous or toxic materials which may have been used in the construction
or maintenance or operation of the improvements or may be located at or
about the Property was not considered in the Report. These materials (such
as formaldehyde foam insulation, asbestos insulation, various soil
contaminants, and other potentially hazardous materials) may affect the
value of the Property. The Appraisers are not qualified to detect such
substances, and C&W urges that an expert in this field be employed to
determine the economic impact of these matters, if any, on the property in
the Report.
9. Unless otherwise stated in the Report, compliance with the requirements of
the Americans With Disabilities Act of 1990 (ADA) has not been considered
in the Report. Failure to comply with the requirements of the ADA may
negatively affect the value of the property. C&W recommends that an expert
in this field be employed.
10. If the Report is submitted to a lender or investor with the prior approval
of C&W, such party should consider the Report as one factor, together with
its independent investment considerations and underwriting criteria, in
its overall investment decision.
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CERTIFICATION
================================================================================
We certify that, to the best of our knowledge and belief:
1. Jody L. Garbisch inspected the property, and Michael J. Schaeffer and
Stanley R. Dennis, Jr., MAI, have reviewed and approved the report, but
did not inspect 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 on an action or event (such as the
approval of a loan) resulting from the analyses, opinions, or conclusions
in, or the use of, this report.
6. 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 Ethics and Standards of Professional Practice of the Appraisal
Institute.
7. No one provided significant professional assistance to the persons signing
this 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. As of the date of this report, Stanley R. Dennis, Jr., MAI, has completed
the requirements of the continuing education program of the Appraisal
Institute.
/s/ Michael J. Schaeffer /s/ Jody L. Garbisch /s/ Stanley R. Dennis, Jr., MAI
Michael J. Schaeffer Jody L. Garbisch Stanley R. Dennis, Jr., MAI
Director Associate Appraiser Director, Manager
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<PAGE>
ADDENDA
================================================================================
POP-FACT SHEETS
LEGAL DESCRIPTION
QUALIFICATIONS OF APPRAISERS
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55
<PAGE>
================================================================================
POP-FACT SHEETS
================================================================================
<PAGE>
Mon Nov 24, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP FACTS: SUMMARY REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6511
PREPARED FOR
Cushman & Wakefield
N. 91st Avenue & Grand Avenue
Peoria, Arizona COORD: 33:35.53 112:15.27
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- --------------------------------------------------------------------------------
POPULATION
2002 PROJECTION 242,500 863,120
1997 ESTIMATE 210,459 769,283
1990 CENSUS 162,346 644,996
1980 CENSUS 96,250 474,251
GROWTH 1980 - 1990 68.67% 36.00%
HOUSEHOLDS
2002 PROJECTION 102,179 351,966
1997 ESTIMATE 86,334 302,932
1990 CENSUS 67,297 244,423
1980 CENSUS 41,517 166,761
GROWTH 1980 - 1990 62.09% 46.57%
1997 ESTIMATED POPULATION BY RACE 210,459 769,283
WHITE 86.74% 83.49%
BLACK 2.22% 3.70%
ASIAN & PACIFIC ISLANDER 1.93% 2.33%
OTHER RACES 9.12% 10.48%
1997 ESTIMATED POPULATION 210,459 769,283
HISPANIC ORIGIN 15.48% 17.82%
OCCUPIED UNITS 67,297 244,423
OWNER OCCUPIED 78.97% 67.55%
RENTER OCCUPIED 21.03% 32.45%
1990 AVERAGE PERSON PER HH 2.38 2.62
1997 ESTIMATED HH BY INCOME 86,334 302,932
$150,000 + 2.74% 2.93%
$100,000 TO $149,999 4.30% 4.53%
$ 75,000 TO $ 99,999 7.20% 7.09%
$ 50,000 TO $ 74,999 20.69% 20.92%
$ 35,000 TO $ 49,999 19.63% 19.29%
$ 25,000 TO $ 34,999 14.89% 14.80%
$ 15,000 TO $ 24,999 15.19% 15.09%
$ 5,000 TO $ 14,999 11.87% 11.76%
UNDER $ 5,000 3.47% 3.59%
1997 EST. AVERAGE HH INCOME $50,655 $51,399
1997 EST. MEDIAN HH INCOME $38,493 $38,704
1997 EST. PER CAPITA INCOME $20,994 $20,316
<PAGE>
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LEGAL DESCRIPTION
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<PAGE>
LEGAL DESCRIPTION
- --------------------------------------------------------------------------------
THAT PART OF THE WEST HALF OF SECTION 22. TOWNSHIP 3 NORTH, RANGE 1 EAST OF THE
GILA AND SALT RIVER BASE AND MERIDIAN, MARICOPA COUNTY, ARIZONA, DESCRIBED AS
FOLLOWS:
FROM THE SOUTHWEST CORNER OF SAID SECTION 22;
THENCE EAST (ASSUMED BEARING) 2641.21 FEET ALONG THE SOUTH LINE OF SAID SECTION
22 TO THE SOUTH QUARTER CORNER OF SAID SECTION 22;
THENCE SOUTH 89 DEGREES 56 MINUTES 08 SECONDS EAST 28.00 FEET ALONG THE SOUTH
LINE OF SAID SECTION 22;
THENCE NORTH 00 DEGREES 38 MINUTES 00 SECONDS EAST 1745.37 FEET ALONG A FENCE
LINE TO A PIPE FOUND WHICH IS LOCATED AT A POINT 41.30 FEET EAST OF THE
MID-SECTION LINE OF SAID SECTION 22;
THENCE SOUTH 89 DEGREES 48 MINUTES 41 SECONDS WEST 1841.49 FEET TO A PIPE FOUND
WHICH IS THE POINT OF BEGINNING;
THENCE NORTH 00 DEGREES 51 MINUTES 00 SECONDS EAST 1569.00 FEET ALONG A FENCE
LINE;
THENCE NORTH 89 DEGREES 09 MINUTES 00 SECONDS WEST 864.31 FEET TO A POINT ON THE
WEST LINE OF SAID SECTION 22;
THENCE SOUTH 00 DEGREES 31 MINUTES 23 SECONDS WEST 672.71 FEET ALONG THE WEST
LINE OF SAID SECTION 22 TO THE WEST QUARTER CORNER OF SAID SECTION 22;
THENCE SOUTH 00 DEGREES 00 MINUTES O5 SECONDS EAST 896.40 FEET ALONG THE WEST
LINE OF SAID SECTION 22;
THENCE SOUTH 89 DEGREES 09 MINUTES 00 SECONDS EAST 847.15 FEET TO THE POINT OF
BEGINNING.
BEING THE SAME LAND CONVEYED TO CASA DEL SOL MOBILE HOME COMMUNITY, A CALIFORNIA
LIMITED PARTNERSHIP, BY DEED FROM CASA DEL SOL MOBILE HOME COMMUNITIES. AN
ARIZONA CORPORATION, DATED DECEMBER 20, 1974, AND RECORDED IN DOCKET 11215, PAGE
531
- --------------------------------------------------------------------------------
<PAGE>
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QUALIFICATIONS OF APPRAISERS
================================================================================
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
JODY L. GARBISCH
Education
Bachelor of Science Degree in Finance, concentration in Real Estate, from the
College of Commerce and Business Administration at the University of Illinois,
Urbana-Champaign, Illinois, 1997.
Real Estate Education
The following courses have been completed through the Real Estate Program at the
University of Illinois at Urbana-Champaign:
Urban Real Estate Valuation
Urban Economics
Real Estate Financial Markets
Real Estate Investments
Real Estate Law
Real Estate Fundamentals
Current Position
Associate Appraiser, Cushman & Wakefield of Illinois, Inc., Valuation Advisory
Services.
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
MICHAEL J. SCHAEFFER
Real Estate Experience
Mr. Schaeffer has been active in the appraisal of real estate since 1983.
Appraisal experience includes the valuation of income-producing real estate in
the Chicago area as well as many major cities and small towns throughout the
Midwest. The types of properties appraised include office buildings, regional
malls, shopping centers, country clubs, apartment complexes, subsidized housing
units, industrial buildings, nursing homes, retirement communities, automotive
dealerships, department stores, vacant land, proposed income-producing
properties, and various special purpose properties. Mr. Schaeffer also has had
over 10 years of experience in new construction and renovation of commercial,
industrial, residential and specialized real estate properties.
Education
Bachelor of Arts, University of Cincinnati, Cincinnati, Ohio MBA Graduate Course
Work in Economics and Management, Xavier University, Cincinnati, Ohio
Real Estate Education
The following courses sponsored by the Appraisal Institute have been
successfully completed:
Real Estate Appraisal Principles 1A-1
Basic Valuation Procedures 1A-2
Standards of Professional Practice
Capitalization Theory and Techniques 1BA
Capitalization Theory and Techniques IBB
Advanced Applications 550
Report Writing & Valuation Analysis 540
Mr. Schaeffer has also attended numerous lectures and seminars sponsored by the
Appraisal Institute.
Mr. Schaeffer is currently a candidate for the MAI designation of the Appraisal
Institute, and has completed the educational and experience requirements for the
MAI designation.
Current Position
Director, Appraisal Services, Cushman & Wakefield, Inc., Chicago, Illinois
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
STANLEY R. DENNIS, JR., MAI
Real Estate Experience
Director, Manager, Cushman & Wakefield Valuation Advisory Services, Chicago,
Illinois. Division is responsible for the appraisal and consultation function of
Cushman & Wakefield, Inc., a national full service real estate organization,
1989.
Vice President, Manager, Cushman & Wakefield Appraisal Services, Portland,
Oregon, 1983.
Principal, Stanley R. Dennis & Associates, Portland, Oregon, 1982.
Education
Portland State University, Portland, Oregon
Bachelor of Science Degree, 1977, Finance and Real Estate
Appraisal Institute
Course I-A Fundamentals and Principles of Real Estate Appraisal
Course I-B Capitalization Theory and Techniques
Course II-I Case Studies in Real Estate Valuation
Course II-2 Valuation Analysis and Report Writing
Course II-3 Standards of Professional Practice
Course IV Litigation/Condemnation Valuation
Course VI Investment Analysis
Course VIII Residential Case Studies
Course X Market Analysis
Seminar Feasibility Analysis and Highest and Best Use
Seminar Discounted Cash Flow Analysis
Seminar Cash Equivalency
Seminar Subdivision Analysis
Seminar Rates, Ratios and Reasonableness
Professional Affiliations
American Institute of Real Estate Appraisers, Member (Designation #6754)
Building Owners and Managers Association (BOMA)
National Association of Corporate Real Estate Executives (NACORE)
<PAGE>
================================================================================
MARKET STUDY OF REAL PROPERTY
Casa del Sol I
11411 North 91st Avenue
Peoria, Maricopa County, Arizona
================================================================================
As of December 1, 1997
Prepared For:
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Prepared By:
Cushman & Wakefield of Illinois, Inc.
Valuation Advisory Services
455 North Cityfront Plaza Drive, Suite 2800
Chicago, Illinois 60611-5555
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
[Letterhead of Cushman & Wakefield of Illinois, Inc.]
December 10, 1997
Mr. Edward J. Welch
Director
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Re: Market Study of Real Property
Casa del Sol I
11411 North 91st Avenue
Peoria, Maricopa County, Arizona 49201
Dear Mr. Welch:
In fulfillment of our agreement as outlined in the Letter of Engagement,
Cushman & Wakefield of Illinois, Inc., is pleased to transmit our market study
and consulting report evaluating the above referenced real property.
As specified in the Letter of Engagement, our market study and consulting
report is qualified by certain assumptions, limiting conditions, certifications,
and definitions, which are set forth in the report.
This consulting report was prepared for the Client, and it is intended
only for the specified use of the Client. It may not be distributed to or relied
upon by other persons or entities without written permission of Cushman &
Wakefield, Inc.
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the above
referenced real property, as of the date of our property inspection. The
function of the report is to assist the client, in evaluating the property for
underwriting and rating purposes.
<PAGE>
Mr. Edward J. Welch -2- December 10, 1997
This market study and consulting report was prepared in conformity with
the requirements of the Code of Ethics and Standards of Professional Appraisal
Practice of the Appraisal Institute and the Uniform Standards of Professional
Practice (USPAP) adopted by the Appraisal Standards Board of the Appraisal
Foundation.
This letter is invalid if detached from the report, which contains the
text, exhibits, and the Addenda.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF ILLINOIS, INC.
/s/ Jody L. Garbisch
Jody L. Garbisch
Associate Appraiser
/s/ Michael J. Schaeffer
Michael J. Schaeffer
Director
/s/ Stanley R. Dennis, Jr.
Stanley R. Dennis, Jr., MAI
Director, Manager
CUSHMAN &
WAKEFIELD(R)
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<PAGE>
SUMMARY OF SALIENT FACTS
================================================================================
Property Name: Casa del Sol I
Location: 11411 North 91st Avenue Peoria, Maricopa
County, Arizona
Assessor's Parcel Number: Based on information provided by
Maricopa County Treasurer's Office, the
subject property is identified by
Assessor's Parcel Numbers 142-45-004D 7.
Date of Inspection: The property was inspected December 1,
1997.
Ownership: The subject property is legally entitled
to MHC Operating Limited Partnership, an
Illinois limited partnership.
Land Area: Based on information provided by the
property's legal plat of survey, the
subject property contains approximately
30.886 acres of land area, or
1,345,401.6 square feet.
Zoning: Based on information provided by the
City of Peoria Zoning Department, the
subject property is zoned RMH 2,
Residential Mobile Home.
Improvements
Type: A manufactured housing community.
Year Built: The subject property was originally
developed in approximately 1972.
Size: The subject property consists of a
246-site manufactured housing community.
Condition: At the time of inspection, the subject
property was in good condition.
Property Rating: Five Star manufactured home community.
Special Assumptions: 1. Information regarding the subject
property, including its physical
characteristics, was provided to us by
the client and the on-site manager, and
is assumed to be accurate.
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Summary Of Salient Facts
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2. The existence of potentially
hazardous or toxic materials, which may
be located on or about the property, was
not considered in our evaluation. The
appraisers are not qualified to detect
such substances, and Cushman & Wakefield
urges that an expert in this field be
employed to determine the existence, if
any, of hazardous materials located on
or about the site.
3. Our market and consulting report
regarding the subject assumes the
subject property, as presently improved,
represents its highest and best use.
4. It is unknown to the appraiser if the
subject property complies with the
Americans with Disabilities Act (ADA).
We recommend a qualified specialist in
the final determination regarding any
ADA compliance deficiencies that may be
present at the subject property.
5. Please refer to the complete list of
assumptions and limiting conditions
included at the end of this report.
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TABLE OF CONTENTS
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Page
PHOTOGRAPHS OF SUBJECT PROPERTY................................................1
INTRODUCTION...................................................................5
Identification of Property..................................................5
Property Ownership and Recent History.......................................5
Purpose and Function of the Market Study and Consulting Assignment..........5
Scope of the Market Study and Consulting Assignment.........................5
Date of Property Inspection.................................................5
Definitions and Other Pertinent Terms.......................................5
REGIONAL ANALYSIS..............................................................8
NEIGHBORHOOD ANALYSIS.........................................................29
MARKET ANALYSIS...............................................................31
National Overview..........................................................31
Competition................................................................38
Comparable Manufactured Housing Community Sales............................43
Demographic Trends.........................................................46
Expense Analysis...........................................................46
Market Supply and Demand...................................................47
Conclusion.................................................................47
PROPERTY DESCRIPTION..........................................................49
Site Description...........................................................49
Improvements Description...................................................49
REAL PROPERTY TAXES AND ASSESSMENTS...........................................50
ZONING........................................................................50
CONCLUSION....................................................................51
ASSUMPTIONS AND LIMITING CONDITIONS...........................................52
CERTIFICATION.................................................................54
ADDENDA.......................................................................55
Pop-Fact Sheets
Legal Description
Qualifications of Appraisers
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PHOTOGRAPHS OF SUBJECT PROPERTY
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Front Entrance of the Subject Property
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Exterior of Community Center
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Photographs of Subject Property
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Exterior View of Pool Area
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Typical Interior View of the Subject Park
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Photographs of Subject Property
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[PHOTO OMITTED]
Typical Interior View of the Subject Park
[PHOTO OMITTED]
Typical Interior View of the Subject Park
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Photographs of Subject Property
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[PHOTO OMITTED]
Street Scene Facing North Along North 91st Avenue
[PHOTO OMITTED]
Street Scene Facing South Along North 91st Avenue
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INTRODUCTION
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Identification of Property
The subject property consists of a 246-site manufactured housing
community, situated on approximately 30.886 acres of land area for residents 55
years old or greater, located approximately 15 miles northwest of downtown
Phoenix in the City of Peoria, Maricopa County, Arizona. The property's street
address is 11411 North 91st Avenue. The property was constructed in 1972, and
was 99.0 percent occupied at the time of inspection.
Property Ownership and Recent History
The subject property is currently entitled to MHC Operating Limited
Partnership, an Illinois limited partnership. The subject property was
originally developed in 1972, with 246 manufactured housing sites.
Purpose and Function of the Market Study and Consulting Assignment
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the subject
property, as of the date of property inspection. The function of the consulting
report is to assist the client in evaluating the property for underwriting and
rating purposes.
Scope of the Market Study and Consulting Assignment
In the process of preparing this report, we inspected the property,
interviewed the on-site manager, conducted market research into asking rental
rates for comparable properties, conducted market investigations, and
ascertained sales prices of comparable properties. Additionally, we conducted
market research and evaluated demographic and economic trends; and, the market
position and rating of the subject property.
Date of Property Inspection
The property was inspected December 1, 1997.
Definitions and Other Pertinent Terms
Definitions of pertinent terms taken from the Dictionary of Real Estate
Appraisal, Third Edition (1993), published by the Appraisal Institute, is as
follows:
Market Rent
The rental income that a property would most probably command on the open
market; indicated by current rents paid and asked for comparable space as
of the date of the appraisal.
Evaluation
Evaluation is a study of the nature, quality, or utility of a parcel of
real estate or interest in, or aspects of, real property, in which a value
estimate is not necessarily required.
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Introduction
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Market Study
A macroeconomic analysis that examines the general market conditions of
supply, demand, and pricing or the demographics of demand for a specific
area or property type.
Legal Description
The subject property is located along the east side of North 91st Avenue,
just south of U.S. Highway 60 (Grand Avenue), in the City of Peoria, Maricopa
County, Arizona. The street address of the subject property is 11411 North 91st
Avenue, Peoria, Arizona. The property is identified by tax parcel number
142-45-004D 7, according to Maricopa County Treasurer's Office. Due to the
lengthy metes and bounds legal description, the subject property's legal
description is presented in the Addenda of this report, and reference is made
thereto.
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LOCATION MAP
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REGIONAL ANALYSIS - PHOENIX-MESA MSA
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Introduction
The short- and long-term value of real estate is influenced by a variety
of factors and forces which interact within a given region. Regional analysis
serves to identify those forces which affect property value and the role they
play within the region. The four primary forces which influence real property
value include environmental characteristics, governmental forces, social
factors, and economic trends. These forces determine the supply and demand for
real property which, in turn, affect market value.
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A. Environmental Characteristics
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The primary environmental forces which influence the region include
physical location, geography, and infrastructure. These characteristics provide
a basis for the region's stability and describe the area's overall locational
bearing. Both natural and man-made environmental forces influence real property
values and are best understood in relation to the subject property's location.
General Overview
The Phoenix-Mesa MSA, which includes Maricopa and Pinal Counties, is the
nation's 12th largest MSA by population rank. Maricopa County comprises a
majority of the MSA, containing 23 incorporated cities and towns, and numerous
developed unincorporated areas within its 9,225 square miles. The urbanized area
of the county covers more than 2,000 square miles, making the Phoenix
metropolitan area one of the geographically largest, yet least densely
populated, metro areas in the country.
Over the past several years, Phoenix has been one of the nation's fastest
growing metropolitan areas. During this decade, it has trailed only Atlanta and
Las Vegas in terms of domestic immigration with over 33,000 U.S. residents
relocating here. The urbanized area has five distinct regions: central,
northeast, southeast, northwest, and southwest. The areas are divided by
mountains to the south and north of central Phoenix, by the Salt River Indian
Reservation to the east, and by Interstate 10 and Interstate 17 running north,
south, and west from the Salt River.
The central region contains the area's major office employment centers:
Downtown, the Central Avenue corridor, the Camelback corridor, and the 44th
Street/Sky Harbor International Airport area which is home to a significant
amount of warehouse/distribution and industrial employment.
The northeast region is characterized by an expanding services employment
sector concentrated in south-central Scottsdale, the Paradise Valley Mall area,
and the Scottsdale Airpark. The Scottsdale Airpark area contains a high
concentration of industrial and light manufacturing employment. There is also an
emerging medical service corridor along Shea Boulevard in north Scottsdale.
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The northeast region is, perhaps, best known for its abundance of
high-quality resorts and golf courses and its affluent bedroom communities such
as Scottsdale, Paradise Valley, Fountain Hills, Carefree, Cave Creek, and
northern portions of the City of Phoenix.
The southeast region, often referred to as the East Valley, contains the
cities of Tempe, Mesa, Chandler, Gilbert, Guadalupe, Queen Creek, and the South
Mountain area of Phoenix. Major high-tech and aerospace employers are located in
this region of the MSA, as is the main campus of Arizona State University in
Tempe. Eastern portions of the southeast region contain many retirement
communities that host thousands of winter visitors, as well as year-round
retirees. Continued employment growth in high-tech industries, a diverse housing
market, and transportation improvements are expected to fuel continued
development in the southeast region.
The northwest region includes northwest Phoenix and the communities of
Glendale, Peoria, Youngtown, Surprise, El Mirage, and the unincorporated
retirement communities of Sun City and Sun City West. This region is rapidly
developing its own employment base, including service industries, agriculture,
and high-tech manufacturing. Recent development has tended to follow Bell Road
and the partially completed Agua Fria Freeway.
The rapidly growing southwest region is the least developed of the five
metropolitan areas, but its abundance of relatively inexpensive, developable
land and access to Interstate 10 make it attractive to both developers and
employers. The southwest region, which includes portions of the City of Phoenix,
as well as Goodyear, Litchfield Park, Avondale, Tolleson, and Buckeye, has
traditionally been agricultural in nature. In recent years, the area has
attracted considerable warehouse and distribution development.
Transportation
The Phoenix MSA is generally well served by an integrated transportation
network. The central portion of the MSA contains a majority of the area's
transportation links, supported by surrounding interstates, highways, and local
routes.
Highways & Interstates
The Phoenix region is served by two major interstates: Interstate 10 and
Interstate 17. Interstate 10 is the primary transportation thruway for the MSA,
linking with Southern California to the west, and Tucson and New Mexico to the
southeast. Interstate 17 runs northward, linking Phoenix with Flagstaff.
Superstition Freeway (U.S. Highway 60) runs east from Central Phoenix/Interstate
10 toward Mesa and Gilbert. Other major routes within the region include U.S.
Highways 80 and 89. Several new freeways, in various stages of competition, also
pass through the metro area.
Air Service
Air transportation is available at Phoenix Sky Harbor International
Airport, one of the 25 largest air traffic hubs in the nation. Airlines serving
Sky Harbor include Southwest Airlines, Air West, United, Delta, Northwest,
Alaska, American, USAir, and TWA. The Phoenix Sky Harbor International Airport
handled 30.4 million passengers in 1996, a 9.0 percent increase over 1995,
making it the 11th-busiest passenger airport in the country and
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Regional Analysis
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the 16th-busiest in the world. The airport moved 312,800 tons of cargo, which
also represented a 9.0 percent increase.
The airport is in the midst of two major projects. The first is the
construction of a new, $169 million, 7,800-foot runway (which will be the
airport's third). It is scheduled to become operational in the Spring of 1999.
Construction has begun on a $30.0 million project that will add 14 more
passenger gates. Completion is expected next Spring.
Other Services
Rail transportation is provided by the Southern Pacific, Atchison, and
Topeka and Santa Fe lines. AMTRAK provides passenger service to the region. The
MSA is also serviced by bus lines and motor carriers. Most municipalities
provide local bus routes which run throughout the metropolitan area, while
Greyhound/Trailways provides more regional service.
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B. Governmental Characteristics
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Governmental influences on the region impact property values via political
and legal actions at all levels. The legal climate at a particular time or in a
particular place may overshadow the natural market forces of supply and demand.
Government provides many necessary facilities and services that affect land use
patterns, including public utilities, refuse collection, transportation
networks, zoning codes, and fiscal policies.
Government Structure
Maricopa County contains 23 incorporated cities and towns, and numerous
unincorporated areas within its 9,225 square miles. Local governments provide a
variety of services, including law enforcement, fire safety, planning and
zoning, and other typical government services.
Services & Utilities
Arizona Public Service supplies electricity for most of the Valley,
including Ahwatukee, Foothills, Chandler, Gilbert, and Tempe. Salt River Project
is the other main electric supplier in the region, serving parts of Apache
Junction, Chandler, Mesa, and Tempe. Southwest Gas provides natural gas to the
region. US West Communications is the main telephone supplier in Maricopa
County. Water and sewer service is provided by the local municipalities.
Tax Structure
Tax burdens within the region include state and local sale taxes,
corporate income taxes, and ad valorem property taxes. Arizona's sales tax is
5.0 percent. Maricopa County adds an additional 0.05 percent on retail sales for
freeway construction. The Maricopa County Assessor's Office assesses taxes at
25.0 percent of full value for improved industrial and commercial properties.
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Bond Rating
Moody's Bond Record places the State of Arizona's bond rating as "Aaa"
relative to investment qualities, while Maricopa County is "A". "Aaa" bonds are
judged to be the best quality and carry the smallest degree of investment risk.
"A" bonds are judged to possess many favorable investment attributes and are
considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
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C. Social Forces
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Real estate values can be influenced to a large degree by social issues
impacting the region, including population trends, income levels, the profile of
workers in the area, and other quality of life issues. The demographic
composition of the population reveals the potential, basic demand for real
estate services.
Population
The population and its geographic distribution are basic determinants of
the need for real estate. Aggregate population growth is distributed among
regions in response to changing economic opportunities, while the demand for
real estate is created by a population's demand for the goods and services to be
produced or distributed within the region. Thus, population and demographic
trends can influence the demand for services provided by property, thereby
affecting property value.
The Phoenix market is commonly perceived as a market composed primarily of
retirees. This view is valid to a limited extent, since Phoenix still ranks
among the top quartile nationwide in the proportion of residents over the age of
64. But the consumer base has changed as the in-migration of job seekers in
recent years has outpaced the influx of retirees. Members of the "baby boom"
generation (ages 25 through 44) now constitute a slightly higher proportion of
the Phoenix population than the national average. While strong transportation
and educational infrastructures are important assets, a major impetus to
Phoenix's rapid population growth has been its lower living costs relative to
MSAs in Southern California. Overall utility costs and tax collections are also
below national and regional levels.
Population in the Phoenix-Mesa MSA has grown at a relatively healthy pace
over the past decade, showing increases of 3.4 percent per year from 1980 to
1990, and 2.7 percent per year from 1990 to 1997. By comparison, Arizona has
also experienced population growth of 2.7 percent per year over the last seven
years, while the U.S. reports population growth of about 1.0 percent per year
for the same period. Estimates for 1997 place population in the Phoenix MSA at
2,695,900 +/-, an aggregate increase of 20.0 percent over 1990.
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Through 2010, population growth in the MSA is forecasted to be 2.1 percent
per year according to Woods & Poole Economics, slightly higher than the rate of
growth projected for the state as a whole.
Households
Household formation is an important component of demographic analysis
which helps to identify changing patterns or shifts within the population. A
household consists of all people occupying a single housing unit, thus providing
significant sociological information about the region. Household formation also
has a significant influence on demand for real estate. Households, combined with
effective purchasing power, provide the basic demand for housing units and
household needs, thereby transforming needs into effective demand for real
estate improvements.
Like the nation as a whole, household formation has occurred at a rate in
excess of population growth within the subject region. This acceleration has
been the result of several trends, namely the fact that the population is
generally living longer, divorce rates have been on the rise, and many younger
professionals are postponing marriage and/or leaving home at an earlier age, all
resulting in increases of one- and two-person households. The total number of
households in the Phoenix-Mesa MSA has increased from 580,190+/- in 1980 to
1,005,140+/- in 1997, a compound annual increase of about 3.3 percent per year.
Accordingly, the number of persons per household within the MSA has decreased
from 2.74 in 1980 to 2.64 in 1997.
Projections through 2010 by Woods & Poole Economics show household growth
in Phoenix at 2.1 percent per year, similar to population growth forecasts. This
rate of growth will lead the state and far surpass the household growth for the
nation.
Income
Income levels, either on a per capita, per family, or per household basis,
indicate the economic level of residents within the region and form an important
component of economic analysis. Average income has a direct impact on the
ability of residents to satisfy material desires for goods and services,
directly affecting the demand and price levels of real estate.
Phoenix's large retiree population consumes extensive amounts of goods and
services, but adds little to the overall income of the community. Coupled with
the relatively low wage levels in the MSA, this contributes to a slightly
below-average per capita personal income level. Although low costs of living
help to balance the below-average income, housing, taxes, and pension
expenditures claim an above-average percentage of personal income. This tends to
place Phoenix in the bottom quartile of Top 100 MSAs for consumer spending
potential.
On an average household basis (in real 1992 dollars), Phoenix-Mesa has an
average income of $56,337 for 1997, about 8.7 percent higher than the state
level of $51,817 and slightly below the national income level of $57,295.
Maricopa County has a higher average household income figure than the MSA with
$57,122.
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Real per capita income growth has generally kept pace with state and
national trends, experiencing annual growth of roughly 1.07 percent per year
(1980-90); 1.39 percent per year from 1990 to 1997 (not adjusted for inflation).
Income projections by Woods & Poole Economics show per capita income growth of
1.36 percent per year for the Phoenix-Mesa MSA. Areas on the northeast and a
portion of the southwest side of the MSA in Scottsdale and Phoenix are generally
more affluent than other sectors with average income levels between $100,000 and
$180,000.
Effective Buying Income
While income levels are above average for the state, and slightly below
the nation, lower taxes and housing costs also tend to improve the purchasing
power of area residents. As such, the effective disposable income of
residents--adjusted for tax payments, contributions to pension funds, and the
cost of new housing--ranks fairly comparable to other regions of the southeast.
Sales & Marketing Management places median household effective buying income at
$31,340 for Phoenix-Mesa as of 1996, higher than the state median of $28,923 but
lower than the U.S. median household EBI of $33,482.
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D. Economic Trends
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Economic forces are significant to real property value. The fundamental
relationships between current and anticipated supply and demand and the economic
ability of the population to satisfy its wants, needs, and demands through
purchasing power are tantamount to such an analysis. Some of the specific market
characteristics considered in economic analysis include employment trends, the
economic base of the region, expansion and new development, and the overall
economic health of the region.
Overview
The Phoenix-Mesa MSA has a relatively diverse economic base. Several
factors contribute to the strength and stability of the local economy, including
a good quality of life, a skilled labor force, low taxes, financial incentives
by government, and a good transportation network.
Over the past several years, the region has seen stable investment from
new companies, as well as expanding industries. Statistics on labor, employment,
investment, and construction show evidence of the region's dynamic economic
growth.
For years, Phoenix has been one of the fastest growing metropolitan areas
in the nation. Low costs, a favorable climate, a well-educated workforce, and
proximity to key markets in Southern California and the Pacific Rim have all
contributed to the area's economic vigor. Despite an economic downturn in the
late-1980s/early-1990s, the factors that previously fueled the MSA's growth
remain in-place, giving Phoenix a positive outlook. The industry mix, although
heavily concentrated in electronics and aerospace, also favors the MSA's
long-term prospects.
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With an improving economy, new growth has stimulated construction activity
and has also increased the movement of thousands of new companies, primarily
from California and the Midwest, into the Valley because of the readily
available work force, low cost of living, quality of living for their employees,
and the pro-business environment.
In terms of real estate, Arizona's phase-out of its sales tax on
commercial leases continues, dropping from 4.0 percent to 3.0 percent in 1994,
2.0 percent in 1995, and 1.0 percent in 1996. The 1.0 percent decrease will
continue until 1997, when the tax will be eliminated altogether.
Also contributing to the large number of companies choosing the Phoenix
metropolitan area are low corporate income tax rates, plus new state regulations
which allow corporations to file consolidated income tax returns. This
regulation allows corporations to claim losses from subsidiaries in other states
on their Arizona tax returns. The end result is the development of buildings for
new companies and existing companies expanding and/or relocating.
Among the Top 100 MSAs in the country, Phoenix ranks about 19th in
economic diversity, with goods and services for sale outside the MSA ranging
from high-tech manufacturing, communications, and tourism. Although only about
10.5 percent of the nation's urban markets lie within a 500-mile radius of the
region, the MSA's convenient access to major markets in Southern California
overshadows its distance from other U.S. regions. Key manufacturing industries
in Phoenix includes the electronics and aerospace sectors. Phoenix has become a
major regional center for communications and business services, providing
support for much of the Southwestern U.S. and Rocky Mountain region.
Tourism employment has continued to grow rapidly as the area's
recreational charms have not abated. Tourism is expected to continue to bolster
the local economy over the coming years as the number of visitors and winter
residents continue to increase.
Employment
The largest sectors of non-agricultural employment in Phoenix are Services
(32.0 percent), Wholesale and Retail Trade (23.7 percent), and Government (12.5
percent). Although continuing to witness growth in manufacturing, this sector of
non-farm employment accounts for a lower percentage of employment than its 14.9
percent share in 1980. Services, on the other hand, have increased its share
from 23.0 percent in 1980 to 32.0 percent today. Finance, Insurance and Real
Estate sectors of employment have generally maintained their percentage of
non-farm employment, while Government has slipped. Both Construction and
Transportation, Communications and Public Utilities have also maintained their
distribution over the past fifteen years.
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Employment Distribution
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Employment Sector 1980 % of Total 1997 % of Total
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Total Non-Farm Employment 796,860 100.00% 1,516,260 100.00%
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Mining 7,380 0.9% 6,290 0.4%
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Construction 59,110 7.4% 99,470 6.6%
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Manufacturing 118,740 14.9% 152,900 10.1%
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T.C.P.U 33,800 4.2% 72,700 4.8%
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Wholesale/Retail Trade 186,870 23.5% 358,600 23.7%
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F.I.R.E 84,270 10.6% 149,100 9.8%
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Services 183,000 23.0% 481,900 31.8%
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Government 123,690 15.5% 189,700 12.5%
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Source: Woods & Poole Economics, Inc.
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Between 1980 and 1997 (forecast) the Phoenix MSA added 719,400 jobs,
indicative of an astounding compound annual growth rate of 3.8 percent. During
1996 alone, the region added in excess of 73,000 jobs, or 5.7 percent. According
to Metro Market Facts, (second quarter 1997 report), this increase was the
second largest aggregate gain in the country behind Dallas, Ft. Worth, and the
second largest proportional gain behind Las Vegas.
The region's robustness produced gains in all major employment categories.
The service sector was the big leader in absolute terms, creating 30,800 net new
jobs. Retail trade had the second-largest gain (9,600 new jobs), followed by the
public sector (9,100). Finance, insurance and real estate (FIRE) and wholesale
trade grew by 7,800 and 6,800 new jobs, respectively. the transportation sector
created 4,400 net new jobs. The construction industry added 3,900 workers.
Manufacturing had the least impressive gain, with 300 net new jobs.
Three sectors had percentage gains of over 8 percent. The largest (8.8
percent) occurred in wholesale trade. It was followed by FIRE and services.
Transportation expanded its employment base by 6.8 percent; government by 5.2
percent; construction by 4.3 percent; and retail trade by 3.9 percent.
Manufacturing's gain translated into a minuscule 0.2 percent advance.
Services now account for 31.8 percent of the area's workforce versus 28.6
percent for the nation and 23.0 percent of MSA employment in 1980. Retail trade,
the second largest employment category, with 23.7 percent, is generally
consistent with national averages. Phoenix has a much lower percentage of its
workers employed in manufacturing, 10.1 percent versus 15.1 percent for the
nation.
Owing to its status as the state capital, one of Phoenix's largest
employment categories is state and local government. This tends to mitigate some
of the volatile economic swings seen in regions which depend more heavily on one
particular industry. The construction sector has traditionally comprised a key
segment of the Phoenix economy. Despite faltering in the early-1990s with
overbuilding in most real estate markets, this sector continues to be an
important part of the local economy. As such, construction's 6.6 percent
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of local employment is well above the national average of 4.5 percent. In recent
years, businesses selling goods and services outside the MSA have also been
expanding, including high-tech durable manufacturing, communications, and
tourism.
Based on data through the second quarter of 1997, Phoenix continued to
ride its recent wave of exuberant economic growth; payroll employment advanced
5.8 percent over year ago levels. Broad gains can be found in a number of key
areas: the growth of high-technology manufacturing, increases in the retirement
population, and the city's gains as a distribution hub. These improvements in
turn, produced increases in secondary and tertiary industries, for example
financial services, retail trade and professional services.
Greater Phoenix is home to an increasing number of high-tech companies.
One of the major high-tech players here is Intel, which has a $1.3 billion chip
manufacturing complex (Fab 12) in southwest Chandler. Two of the area's newest
high-tech developments involve Sumitomo and Microchip Technology. Sumitomo/Sitix
just opened a new $400 million, 550,000 square foot water fabrication plant in
northeast Phoenix. The plant employs 200 currently, with expected employment of
up to 500 by 1999.
Microchip Technology has a $137 million expansion underway at its Fab2
manufacturing facility in Tempe that is expected to create 200 new jobs.
Completion is scheduled for early 1998. In addition, the company is planning to
add about 300,000 more square feet (divided between manufacturing and office
space) at its plant in Chandler. The $1 billion expansion is scheduled to take
place over the next eight years, with construction beginning in 1998. If built
out as currently envisioned, the company expects to hire another 2,000 workers
for the Chandler site by 2003.
Avnet, a distributor of electronics and computer products, which currently
employs 1,700 throughout greater Phoenix, has announced plans to move its
Electronic Marketing Group into a 176,000 square foot facility at Phoenix
Airport Center. The move is expected to create several hundred new jobs.
The growth of the area's high-tech industry has been part of the reason
for Phoenix's high ranking in Cognetics' annual survey of "Entrepreneurial Hot
Sports". The metropolitan area received the fourth-highest ranking in 1996
(behind Salt Lake City, Atlanta and Birmingham, Alabama).
Another industry, aerospace, is pumping new life into some quarters here.
The merger between McDonnel-Douglas and Boeing, is expected to have positive
ramifications for the area.
The metropolitan area continues to lure high-profile back-office
operations and many companies with existing facilities are looking for room to
grow. Excell Agent Services, a directory services firm that already has 2,400
employees in the area (in Phoenix, Tempe and Mesa), has announced plans to hire
500 more during the next six months.
Bank of America plans to hire about 1,000 more workers at its telephone
banking center in Tempe. Bank One Arizona has announced plans to add 1,000 new
jobs in a consolidation of the company's telephone operations.
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Employment Growth
Over the past five years, it is clear that employment growth in the
Phoenix-Mesa MSA has slowed over the growth experienced between 1980 and 1990.
Total employment grew at a compound annual rate of 4.5 percent per year from
1980 to 1990, decreasing to an annual rate of 2.8 percent from 1990 to 1997.
Services, Transportation/Public Utilities, Finance, Insurance and Real Estate,
Wholesale/Retail Trade, and Government have led employment growth, while
Manufacturing increases have slowed.
The consensus opinion is that while Phoenix's growth in employment will
slow over the next decade, it will remain one of the top performing areas in the
nation. Employment forecasts by a variety of econometric firms show a consensus
growth of approximately 2.5 to 3.0 percent per annum.
Major Employers
The relative diversity of the Phoenix economy can also be seen in the list
of major MSA employers. Motorola is greater Phoenix's largest private sector
employer, with 19,400 workers on its local payroll. Samaritan Health System is
next, with an employee roster of 10,800. AlliedSignal (engineering and aerospace
firm) employs 8,700. Pinnacle West Capital (the holding company for Arizona
Public Service), US West, American Express, and Bank of America employ over
7,000 each. Both Intel and Banc One locally employ approximately 6,500.
Other companies with more than 3,000 employees include: America West
Airlines, Fry's Food Stores, Wells Fargo Bank, Honeywell Inc., Tosco/Circle K,
Safeway, the Salt River Project (water and power utility), Bashas
(supermarkets), McDonnell-Douglas, TRW, AT&T, Southwest Airlines, and Gosnell
Builders.
Unemployment Rates
Unemployment rates in the Phoenix-Mesa MSA have historically been below
state and national figures. As of October 1997, the unadjusted unemployment rate
for Phoenix-Mesa was 2.5 percent, 110 basis points below year end 1996 and 140
points below the state unemployment rate of 3.9 percent. Mirroring national
trends, unemployment in the MSA peaked between 1992-1993, followed by a
declining trend through 1996.
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Historic Unemployment Rates
================================================================================
Year Phoenix MSA Arizona United States
================================================================================
Oct-97 2.5% 3.9% 4.7%
- --------------------------------------------------------------------------------
1996 3.7% 5.5 % 5.4%
- --------------------------------------------------------------------------------
1995 3.5% 5.1% 5.6%
- --------------------------------------------------------------------------------
1994 5.0% 6.4% 6.1%
- --------------------------------------------------------------------------------
1993 5.1% 6.2% 6.8%
- --------------------------------------------------------------------------------
1992 6.4% 7.4% 7.4%
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1991 4.9% 5.7% 6.7%
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1990 4.3% 5.3% 5.5%
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Source: Employment & Earnings; Bureau of Labor Statistics
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Although it is too soon to know what the 1996 annual adjusted rate will be
for the Phoenix region, it appears that unemployment declines have slowed within
the MSA as a whole through the third quarter of this year.
Retail Sales
Another measure of the economic health of a region is retail sales
patterns. Consumers drive the economy by creating demand for goods and services
and, in turn, generate the need for housing, office space, retail centers, and
warehouse/distribution facilities. It is estimated that consumer spending
accounts for two-thirds of all economic activity in the United Sates today. As
such, retail sales patterns have become an important indicator of the economic
health of a region. The following table summarizes historic retail sales in the
Phoenix MSA and State of Arizona for the period 1985 - 1996.
================================================================================
Retail Sales (1985-1996)
================================================================================
Year Phoenix MSA (000) State of Arizona (000)
================================================================================
1985 $11,710,860 $18,401,358
- --------------------------------------------------------------------------------
1991 $17,241,381 $26,893,039
- --------------------------------------------------------------------------------
1996 $28,007,212 $42,748,487
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CAGR 1985-1996 8.2% 8.0%
- --------------------------------------------------------------------------------
CAGR 1991-1996 10.2% 9.7%
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Source: Sales and Marketing Management Survey of Buying Power
================================================================================
Retail sales growth has been very good in the Phoenix area, increasing at
a compound annual rate of 8.2 percent over the past 11 years. More recently,
growth has increased to 10.2 percent per annum which is higher than the 9.7
percent growth experienced by the state as a whole. Going forward, Sales &
Marketing Management forecasts an increase of 31.9 percent in sales to $36.9
billion versus 30.5 percent for the state as a whole. The significance of the
Phoenix market is evidenced by the fact that with approximately 61.0 percent of
the state's population, it accounts for nearly 66.0 percent of total retail
sales. Woods & Poole Economics forecasts the MSA to see annual retail sales
growth of 2.7 percent per year above inflation through 2010 (adjusted to 1987
dollars).
The purchasing profile of area residents tends to reflect the demographic
characteristics of the city. Drugs/Pharmaceuticals, and health and beauty aids
claim a disproportionately large share of retail sales, attributable in part to
the area's high proportion of retirees. Sporting goods and recreational vehicles
are also featured, reflecting the region's opportunities for leisure-time
activities and the favorable climate. Those categories expected to have the
greatest growth potential are seen in General Merchandise and Eating and
Drinking places.
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- --------------------------
E. Tourism/Visitor Profile
- --------------------------
Overview
According to the Phoenix & Valley of the Sun Convention & Visitors Bureau,
Tourism represents the second largest industry in the metropolitan area, behind
high-technology. It is estimated that over 10.0 million people visit Phoenix
each year, while more than 24.0 million visit the State of Arizona as a whole.
Visitors to the Valley account for nearly $4.0 billion in total expenditures
annually, with retail sales comprising $400.0 million.
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Visitor Economic Impact
================================================================================
Year: 1995
================================================================================
Estimated Number of Visitors: 10.86 Million
- --------------------------------------------------------------------------------
Average Length of Stay: 4.7 Nights
- --------------------------------------------------------------------------------
Mean Expenditure Per Trip: $476
- --------------------------------------------------------------------------------
Total Economic Impact for Maricopa County: $5.35 Billion
================================================================================
Source: Arizona Hospitality Research & Resource Center 1996
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Expenditures
The majority of visitor expenditures go toward food & beverage which
accounts for 28.6 percent of all expenditures; lodging accounts for 21.5
percent, transportation 20.0 percent, and retail sales 15.0 percent. The
following chart presents a breakdown of visitor expenditures by category.
================================================================================
Visitor Expenditures
================================================================================
Category Percent 1995 Expenditures(000)
================================================================================
Food & Beverage: 28.6% $1,530,946
- --------------------------------------------------------------------------------
Lodging: 21.5% $1,150,886
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Transportation: 20.0% $1,070,591
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Retail Sales: 15.0% $ 802,944
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Entertainment: 9.0% $ 481,766
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Other: 5.9% $ 315,824
- --------------------------------------------------------------------------------
Total: 100.0% $5,352,957
================================================================================
Source: Arizona Hospitality Research & Resource Center 1996
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Based upon the 11+/- million visitors in 1995, the direct economic impact
was calculated to be $5.35 billion. Business and convention travelers accounted
for 38.0 percent of all visitations in 1995.
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Business/Convention Travelers
Business and convention-oriented travelers to the Phoenix area comprise
about 38.0 percent of all visitors to the region. The following chart summarizes
the profile of business and convention travelers to the region.
================================================================================
Business/Convention Traveler Profile
================================================================================
Average Age: 41.6 Years
- --------------------------------------------------------------------------------
Average Income: $74,700
- --------------------------------------------------------------------------------
Average Party Size: 1.51 People
- --------------------------------------------------------------------------------
Average Daily Spending: $193
- --------------------------------------------------------------------------------
Average Length of Stay: 3.8 Nights
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Major Activities
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Shopping: 52.0%
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Sightseeing: 40.0%
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Swimming/Sunbathing: 36.0%
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Nightclubs: 25.0%
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Golf: 19.0%
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Source: Behavior Research, Inc.
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From the data we see that the average business/convention visitor is 41.6
years of age with an average income of $74,700. According to Behavior Research,
52.0 percent of those surveyed cited shopping as one of their major activities
while visiting.
Leisure Travelers/Winter Visitors
Leisure travelers to the Phoenix area comprise approximately 62.0 percent
of all visitors to the region. Their average age is slightly higher than the
business/convention traveler at 42.8 years, with a significantly lower average
income of $51,100. About 73.0 percent of all leisure travelers surveyed said
that shopping was one of their primary activities. The following chart
summarizes the profile of leisure travelers to the region.
================================================================================
Leisure Traveler Profile
================================================================================
Average Age: 42.8 Years
- --------------------------------------------------------------------------------
Average Income: $51,100
- --------------------------------------------------------------------------------
Average Party Size: 2.12 People
- --------------------------------------------------------------------------------
Average Daily Spending: $174
- --------------------------------------------------------------------------------
Average Length of Stay: 5.3 Nights
- --------------------------------------------------------------------------------
Major Activities
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Shopping: 73.0%
- --------------------------------------------------------------------------------
Sightseeing: 74.0%
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Swimming/Sunbathing: 46.0%
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Museums: 39.0%
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Golf: 16.0%
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Source: Behavior Research, Inc.
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In the table below, only visitors staying in mobile homes or travel
trailers were portrayed. In general, winter visitors arrive in the Valley by
October and return to their state of origin by May. Median length of stay is
estimated at slightly more than four months. In Metro Phoenix, approximately
113,000 winter visitors injected more than $340 million, while statewide,
approximately 201,200 winter visitors injected nearly $1.0 billion in direct
consumer expenditures during the 1995/96 season.
================================================================================
Motor Home & Travel Trailer Winter Visitors - Metro Phoenix
===============================================================================
Mobile Home &
Travel Trailer Census 1992/93 1993/94 1994/95 1995/96
================================================================================
Number of Mobile Home Spaces 56,400 57,900 58,400 64,500
- --------------------------------------------------------------------------------
Number of Travel Trailer/R.V. Spaces 44,600 44,000 43,500 37,400
- --------------------------------------------------------------------------------
Total Spaces Available 101,000 101,900 101,900 101,900
- --------------------------------------------------------------------------------
Spaces Occupied 92,000 94,800 95,800 97,000
- --------------------------------------------------------------------------------
% of Space Occupied by Winter Visitors 58% 59% 58% 58%
- --------------------------------------------------------------------------------
Number of Winter Visitor Households 53,200 56,000 56,000 56,700
================================================================================
Source: Arizona State University, College of Business, Center for Business
Research, August 1996
================================================================================
Summary
From this analysis, it is clear that the Phoenix region is greatly
impacted by the tourism and winter visitor industry. With over 10.0 million
visitors each year providing over $400.0 million in retail sales to the region
annually, there is clearly a competitive climate to attract these expenditures.
As noted by the American Express study, roughly 40.6 percent of all retail
expenditures in 1995 were from Non-Phoenix card members. In addition, 74.0
percent of all leisure travelers and 52.0 percent of all business travelers to
the area cited shopping as one of their primary activities while visiting. In
our opinion, the mall portfolio is well positioned to capture a strong market
share of this visitor spending potential upon completion.
- ----------------------
F. Real Estate Markets
- ----------------------
The real estate markets in Phoenix can be divided primarily into
commercial and residential segments. The commercial segment includes office,
industrial, and retail properties, while the residential market consists of
multi-family and single-family dwellings. The following is a brief overview of
each segment.
Office Market
The Phoenix office market is rebounding from several years of oversupply
which is being absorbed due to continued population and employment growth.
Recent declines in vacancy are attributable to a steady pattern of net
absorption and lack of new construction.
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As a result, effective rents have begun to increase. The decline in the use of
concessions, especially free rent, has increased effective rent levels and,
coupled with increased office space demand, should continue to warrant rental
rate improvement in all submarkets.
According to F.W. Dodge, the total inventory of office space in
metropolitan Phoenix was 103.5 million square feet at year end 1996. This was up
2.3 percent from 1995. Net absorption of 5.4 million square feet resulting in a
reduction in the vacancy rate to 11.1 percent from 14.4 percent. Koll Real
Estate reports that most of the net absorption was in the Class B sector.
Overall, vacancy in the Class A sector was slightly below 6 percent and 11.3
percent among Class B. In the more marginal Class C product, nearly one quarter
remained empty.
Approximately 1.2 million square feet of new suburban office space was
under construction in early 1997, and an additional 3.8 million square feet were
in the planning pipeline. According to Koll, most of the projects are located in
the active Camelback Corridor, Scottsdale, or Tempe submarkets. Scottsdale, with
an inventory of 5.6 million square feet, had an overall vacancy rate of 5.6
percent at year end. In the Class A sector, vacancy was particularly low at 3.4
percent.
The overall tightness in the market has caused prices to rise. According
to Koll, the value of Class A Central Business District space rose 7.0 percent
to $113.40 per square foot while suburban space rose 24 percent to $116.63 per
square foot. With such value increases, it would be expected that the pace of
new construction would accelerate.
F.W. Dodge forecasts that between 1998 and 1999, 7.5 million square feet
of new supply will be available in the market, forcing vacancies above 12
percent. The F.W. Dodge pipeline is currently tracking well over 2.0 million
square feet of new product which is expected to break ground before the close of
the fourth quarter. In subsequent years, developers will heed the warning
signals. They anticipate contract activity to average 2.1 million square feet
per year during the final five years of the forecast, compared with the average
of 1.7 million square feet for the 58 MSAs they surveyed. Fortunately, stable
office employment growth will keep the metro-wide office vacancy rate in the 11
to 12 percent range.
Industrial Market
Arguably the most active market segment, the industrial sector shows
little sign of slowing down. According to Koll, metropolitan Phoenix has an
industrial inventory of approximately 87.6 million square feet, about 9.4
percent of which were vacant in early 1997. Though vacancy was only slightly
below what it was a year earlier, that stability gains new significance when
considering that approximately eight million square feet (half of it
speculative) came on-line here during 1996. According to Koll, another 1.9
million square feet were under construction entering 1997, and 2.9 million more
square feet were in the planning stages. Areas seeing the most growth include
Chandler/Gilbert, Mesa, South Phoenix, and Tempe.
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Regional Analysis
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A breakdown by product type is shown below.
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Type Inventory (mil SF) Vacancy
- --------------------------------------------------------------------------------
Distribution Warehouse 33.0 11.0%
- --------------------------------------------------------------------------------
Manufacturing 27.5 6.7%
- --------------------------------------------------------------------------------
Industrial Office 12.7 9.4%
- --------------------------------------------------------------------------------
High Tech 5.2 6.2%
================================================================================
F.W. Dodge reports that the Phoenix industrial market is firmly entrenched
in the development phase of the real estate cycle. During the first six months
of 1997, the MSA has completed more new industrial facilities than any other
metropolitan area surveyed. Although the increase in capital availability has
been an impetus to higher contract activity, demand has been buoyant. The MSA's
gains in manufacturing and the growth in its retail markets together produced
strong demand for inventory storage and distribution centers. Total net
absorption reached a cyclical peak in 1996, but remains healthy in the current
year They do note, however, that gains to inventory will force vacancies to
rise, ending the fourth quarter at 9 percent.
In the final five years of the forecast, supply-demand fundamentals will
remain firm and the market will experience above average returns on investment.
Net absorption in 1998 and 1999 will average 2.9 million square feet per year,
compared with 1.3 million square feet for the 58 MSAs Dodge surveys. However,
industrial properties are extremely sensitive to swings in the GDP. As growth in
the national economy decelerates in the latter portion of the forecast,
absorption will drop to a 2.2 million square feet annual average. Developers
will respond accordingly; after advancing at a 4 percent annual pace, inventory
gains will settle into a more manageable 2.4 percent annual rate for the first
three years of the forecast. Therefore, vacancies will end the period below the
survey average, at 8.2 percent.
Construction will be strongest in the near term, peaking in 1997. On
average, 3.1 million square feet of new warehouse space will be started each
year through 2002. The project pipeline contains over 5.0 million square feet.
The average price for Class A warehouse stood at $34.25 per square foot at
the end of 1996, up 16 percent over 1995.
Retail Market
By all accounts, the retail market remains robust. According to Koll, the
year end vacancy rate declined to 7.7 percent from 9.0 percent among the 80+/-
million square feet they survey. F.W. Dodge reports that since the first quarter
of 1996, the Phoenix market absorbed 5.9 million square feet, more than any
other western MSA. Dodge reports that during the past 6 quarters, 12 million
square feet of new space was completed, with only Atlanta and Philadelphia
experiencing higher inventory gains.
One of the reasons retail is so strong in Phoenix is due to tourism.
Tourists boost the spending totals there. According to Sales & Marketing
Management's 1997 Survey of Buying Power, retail sales in greater Phoenix
averaged $26,482 per household during 1996, while the national metropolitan
average was $24,992 per household and for the state sales were $25,391. Retail
sales were highest in Scottsdale ($45,152 per household).
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By contrast, greater Phoenix's median household EBI for 1996 ($31,346 per
household) was well below the national median ($33,482 per household).
Nonetheless, with a lower cost of living, residents in Phoenix enjoy a higher
percentage of disposable income.
Most of the new construction was in the neighborhood centers segment which
accounts for 25.6 million square feet (32 percent of inventory) and had a
vacancy rate of approximately 7 percent. Power centers, with 6.7 million square
feet of total inventory report the lowest vacancy rate of slightly less than 1
percent. Net absorption was 400,000 square feet in the first quarter of 1997.
Community centers, with 12.2 million square feet had a vacancy rate of
just over 7.0 percent and regional malls had the highest vacancy rate of
approximately 10.0 percent among its 14.2 million square feet. Finally, Koll
reports that nearly all of the 4.8 million square feet of freestanding space was
occupied. Among all of the submarkets, Scottsdale had the lowest vacancy rate of
only 4.0 percent for its 15.2 million square feet of retail inventory.
F.W. Dodge expects that demand for retail space in Phoenix will remain
strong, averaging 3.2 million square feet annually through 2002. The key
determinants of demand are households and incomes, both of which will continue
to grow through the next six years. National chains and investors will respond
to the increasing demographic base by expanding their presence in the market.
Competition from various retail formats will place increasing pressure on profit
margins. However, Phoenix will weather the storm better than most markets.
Strong net absorption will force vacancies to trend downward, driving them to a
low 7.3 percent by 2002.
Phoenix will remain one of the most attractive retail markets in the
country for both institutional investors and new development. F.W. Dodge expects
retail inventory to expand at an average 2.1 percent annual rate over the next
six years. This level of construction will be maintained by the more than 8.0
million square feet in the planning pipeline.
The largest project in the market is the 1.2 million square foot Arizona
Mills scheduled to open in November 1997. The next largest is a 570,000 square
foot power center on Ray Road and 48th Street. Plans are being finalized for a
proposed regional mall in Chandler which could be on line in late 1999.
Hospitality/Lodging Market
F.W. Dodge reports that the building boom currently underway in the
Valley's hospitality industry is negatively affecting the bottom line for many
local area hotel operators. Since January, 639,000 SF of new hotel space has
been added to inventory and another 764,000 SF is slated to be completed in the
final six months of the year, adding more than 3,000 rooms to a marketplace that
is quickly becoming overbuilt. In an attempt to bolster occupancies, hoteliers
across all segments have cut room-rates, relative to last summer. Despite
attractive price incentives, occupancies through June are a percentage point
below year-ago levels at 71.6 percent. Demand has fueled rate increases in the
average daily rate (ADR). In 1996 it stood at 95.34 percent, up 8.9 percent from
$87.56 in 1995 and 20 percent from the $79.18 reported for 1994.
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In the near term, the Phoenix hotel market should experience favorable
demand conditions. Twenty-seven percent of Arizona's domestic out-of-state
visitors come from California; 17 percent of its international visitors are from
Mexico. Given the stabilization of Mexico's peso and California's rebounding
economy, leisure travel to the MSA should be robust. As a result, lodging demand
between 1998 and 2002 will be sturdy, totaling 4.3 msf; but average annual
increases of 4.5 percent in stock will hold occupancies in the 68 percent to 70
percent range.
With 7.5 msf in the planning pipeline it is quite evident that developers
will continue to enter the market at a rapid pace. F.W. Dodge is currently
tracking 17 projects which are scheduled to begin construction before year-end
1997, including: the 200-room Marriott Hotel, a 172 -room Quality Suites Hotel,
a 120-room Holiday Inn Suites, and 160-room, Radisson facility. In 1997, contact
activity will exceed 2.0 msf for the first time in over a decade. However,
rising competition and downward pressure on daily room rates will limit new
construction to a more reasonable 910,000 SF per year between 1998 and 2002.
This rate of construction is still more than double the average of the 58 MSA's
Dodge surveys.
Residential Market
Phoenix continues to be one of the most active housing markets in the
nation. Huge population growth and a sharply revived economy have driven vibrant
new home construction. In 1994, 28,784 single-family units were approved for
construction, the nation's highest total that year. In 1995, the sum in Phoenix
rose again, to 29,104 units. Still more, 29,892 units were authorized in 1996.
For the first half of 1997, 15,960 were permitted, according to preliminary data
from the bureau. Construction is active in a number of areas; the city of
Phoenix, Chandler and Scottsdale hold the lead, but Gilbert, Mesa, Glendale and
Peoria are also active. F.W. Dodge expects that single family construction is
expected to peak in 1997 at 29,800 units, before falling to an average of 24,200
over the next five years.
Prices remain low by national norms, but the gap seems to be quickly
narrowing. According to the National Association of Realtors, the second quarter
1997 median resale price in the metro market was $113,200, 8.5 percent below the
national median of $123,700, and 22.4 percent below the $145,900 median for the
Western U.S. A year earlier, these differences were respectively 14.7 percent
and 34.0 percent.
According to the 1997 Study of Housing Costs, conducted by E&Y Kenneth
Leventhal, Phoenix ranks as the 33rd least expensive housing market of the 75
major metropolitan markets surveyed. After factoring in tax deductions, owning a
home required approximately 22 percent of the median family income. According to
the study, housing costs were approximately the same for renters.
Apartment development in Phoenix has picked up markedly, particularly at
the high end, and particularly (but not only) in the North Phoenix-Scottsdale
area; Mesa, Chandler and Tempe have also been active. Indeed, building permit
numbers here are a good example of the steep cycles characteristic of Phoenix
area real estate markets. After averaging fewer than 1,900 units per year from
1989 through 1993, multi-family building
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permitting leapt to 5,991 units in 1994. It leapt again in 1995, to 8,220 units.
And yet another substantial gain was reported for 1996 with the authorization of
9,754 units.
As large as those numbers may seem, they pale beside the 34,580
multi-family units approved in 1984, and the 25,693 in 1985 (and the 17,821 of
1986). Through the first half of 1997, the pace appears to be cooling:
preliminary date from the U.S. Department of Commerce, Bureau of the Census,
report 3,832 units authorized, a 32 percent decline from the total for the
comparable period of 1996. In 1996, some 7,000 new units came on line, with a
higher total expected for the 1997 year-end tally. F.W. Dodge reports that since
1994, net absorption of 24,000 units was achieved, pushing vacancy rates to a
low of 6.1 percent.
Average vacancy, thus, has increased. Indeed, its been increasing since
1995--although as of first quarter 1997 the vacancy rate was still relatively
low at 5 percent (a far cry from the double-digit levels that persisted from
1985 to 1992). F.W. Dodge reports that since 1994 effective rents have risen at
an annual rate of 5.3 percent compared with 3.2 percent for the nation.
Despite the relatively large increases in inventory, the multi-family
sector continues to function efficiently. During the remainder of the decade the
supply-demand relationship for apartments should gradually improve. In the near
term, demand for market-rate and luxury condominiums will keep net absorption
above a 7,000-unit average per year through 2002. However, long-term demographic
trends indicate that elderly housing and assisted living facilities will be in
greater demand as the decade unfolds. Overall, F.W. Dodge expects Phoenix to
construct more multi-family facilities than any other western region city,
averaging 6,300 units per year between 1997 and 2002.
Summary
Most submarkets in Phoenix will continue to experience new development in
1997-98. Those areas not encountering new development will see increases in
rental rates as current space is absorbed and new construction takes place in
surrounding submarkets. The stimulated market has produced a tightening which
has improved overall vacancy rates and begun to push rental rates upward.
- ------------------------
G. Critical Observations
- ------------------------
The following bullet points summarize some of our general observations
relating to the subject's region:
o Economy - The Phoenix-Mesa economy is relatively diverse and has
seen strong growth over the past decade. The largest sectors of
employment include Services (32.0%), Wholesale/Retail Trade (23.7%),
Government (12.5%), Manufacturing (10.1%), and F.I.R.E. (9.8%).
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o Employment - Employment growth is projected to be 2.6 percent per
year, led by F.I.R.E., Services, and Transportation, Communications,
and Public Utilities. The Manufacturing base will continue to lag
the other sectors and expand at an annual rate of 1.3 percent per
year through 2010.
o Population - Population growth in the MSA is forecasted to be 2.1
percent per year, while household formation will occur at an annual
rate of 2.1 percent per annum.
o Average Household Income - Income levels are projected to increase
at an annual rate of about 1.4 percent per year through 2010 above
inflation.
o Retail Sales - Sales are forecasted to grow by about 2.7 percent per
year for the MSA as a whole, in real (1992) dollars.
o Consumer Markets - The attractiveness of Phoenix's consumer markets
is mixed. Positive factors include the area's fundamentally strong
growth, both in terms of resident population and income. Conversely,
relatively low per capita disposable income and Phoenix's
historically high level of cyclically tend to detract slightly from
the appeal of its retail markets.
o Strengths - Strengths of the region include low living and operating
costs and proximity to Southern California and Pacific Rim markets.
The MSA also benefits from an efficient transportation network and a
good quality of life. Rapid growth in the working-age population
continues to boost the outlook for expansion in the retail sector.
With wages, energy rates, and construction costs relatively low, the
area continues to keep and attract firms, a trend that continues to
invigorate growth in business-to-business markets.
o Weaknesses - Weaknesses within the MSA include a strained physical
and educational infrastructure which has resulted from the area's
rapid growth, compromising the quality of life within the region.
These are typical growing pains, however, which continue to be a
focus of local government.
Conclusion
The short- and long-term outlook for the Phoenix-Mesa region and its
surrounding area is for good growth in employment and population. The economy is
well diversified, with a relatively low cost of living and good transportation
system. On balance, we are relatively optimistic about the short-term outlook of
the subject region. Long-term, the region should see stability and good growth,
with increasing real estate values.
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<PAGE>
NEIGHBORHOOD MAP
[MAP OMITTED]
<PAGE>
NEIGHBORHOOD ANALYSIS
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The City of Peoria
According to the Peoria Chamber of Commerce, Peoria is one of the fastest
growing municipalities in the United States, located in the northwest portion of
the Phoenix-Mesa MSA. Peoria is bordered on the west by Sun City, on the east by
Phoenix and Glendale, on the south by Glendale and on the north by Lake
Pleasant. The estimated population for the City of Peoria, Maricopa County and
the State of Arizona is shown below.
- --------------------------------------------------------------------------------
Population
- --------------------------------------------------------------------------------
1980 1990 1996
- --------------------------------------------------------------------------------
Peoria 12,171 50,168 78,310
- --------------------------------------------------------------------------------
Maricopa County 1,509,175 2,122,101 2,634,625
- --------------------------------------------------------------------------------
Arizona 2,716,546 3,665,228 4,462,300
- --------------------------------------------------------------------------------
Source: Arizona Department of Economic Security and U.S. Census Bureau.
- --------------------------------------------------------------------------------
The Peoria Economic Development Group facilitates new business and
industry moving to the city. Formerly an agricultural town, Peoria is today a
business and medical hub for the Northwest Valley area. Peoria's major employers
include: Plaza del Rio, a senior citizen/medical complex, employing roughly
1,100 employees and Peoria Bell Road Auto Mall, employing approximately 500
employees. Many of Peoria's residents commute to nearby companies in northwest
Phoenix, such as, Honeywell Flight Systems with 5,000 employees, American
Express with 3,000 employees and Bull Information Systems with 1,000 employees.
Transportation has improved with a fairly new freeway, Arizona 101 (part
of the metropolitan Phoenix Outer Loop), connected to I-17 and I-10, and U.S.
Highway 60 (connecting Phoenix and Las Vegas). The Santa Fe Railway also serves
the area. Sky Harbor International Airport is located 20 miles southeast of
Peoria, which is served by 16 major airlines and offers non-stop flights to
every major U.S. city. Locally, Glendale Municipal Airport is located two miles
southwest of Peoria.
Neighborhood Description
The subject property's neighborhood is generally bounded by Cactus Road to
the north, Northern Avenue to the south, 83rd Avenue to the east and 99th Avenue
to the west. This area is primarily developed with single-family homes, retail
uses and mobile home park communities.
The subject property is situated along the east side of North 91st Avenue,
just south of U.S. Highway 60 (Grand Avenue), in the City of Peoria, Arizona.
Within the subject's neighborhood, North 91st Avenue is developed with three
mobile home park, including the subject. The Peoria Polynesian Village is
located directly south of the subject property, and
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Neighborhood Analysis
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the El San Juan is located just southwest of the subject property along North
91st Avenue. Other developments along North 91st Avenue include gas stations,
convenience stores, fast food restaurants and neighborhood retail centers.
Residential developments are noted to the east and west of the subject property.
Transportation in the subject's immediate area is excellent. The subject
enjoys access and visibility along North 91st Avenue, a north/south, four-lane
paved roadway, with a middle turning lane, that provides direct access to U.S.
Highway 60 (Grand Avenue) just to the north of the subject property. U.S.
Highway 60 enjoys an interchange with State Highway 101 approximately one-half
mile west of the intersection of North 91st Avenue and U.S. Highway 60. The
subject property has approximately 1,569 feet of frontage along the east side of
North 91st Avenue.
The subject's immediate neighborhood is conveniently accessed and located
approximately 15 miles from downtown Phoenix. U.S. Highway 60, just north of the
subject site, provides direct access to downtown Phoenix.
In summary, the subject property is located in an area well suited for
manufactured housing development, which benefits from the accessibility from the
nearby major highways.
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MARKET ANALYSIS
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National Overview
Reportedly, the largest property owners of manufactured housing
communities in the United States are: ROC Communities, headquartered in
Colorado; MHC, Inc., headquartered in Illinois; Ellenburg Capital, headquartered
in Oregon; Lautrec Ltd., headquartered in Michigan; Clayton Homes, headquartered
in Tennessee; Clayton Williams and Sherwood, headquartered in California;
Chateau Properties, Sun Communities and UNIPROP, headquartered in Michigan.
The following represents the top ten manufactured housing community firms,
as reported by GFA Management, as of 1997.
<TABLE>
<CAPTION>
=========================================================================================
1997 Firm Name State No. of Sites No. of Communities
Rank Owned/Managed Owned/Managed
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Sun Communities Michigan 30,295/0 84/0
- -----------------------------------------------------------------------------------------
2 ROC Communities Colorado 22,441/7,167 77/36
- -----------------------------------------------------------------------------------------
3 Manufactured Home Communities Illinois 27,349/838 69/3
- -----------------------------------------------------------------------------------------
4 Ellenburg Capital Florida 25,173/0 63/0
- -----------------------------------------------------------------------------------------
5 Lautrec Ltd. Michigan 22,652/0 58/0
- -----------------------------------------------------------------------------------------
6 Chateau Properties Michigan 20,003/0 47/0
- -----------------------------------------------------------------------------------------
7 Clayton Homes Tennessee 18,000/0 66/0
- -----------------------------------------------------------------------------------------
8 Clayton, Williams and Sherwood California 16,946/0 44/0
- -----------------------------------------------------------------------------------------
9 UNIPROP Michigan 14,931/0 40/0
- -----------------------------------------------------------------------------------------
10 The Bloch Organization Michigan 14,379/0 37/0
=========================================================================================
</TABLE>
According to the U.S. Census Bureau, more than 8,521,000 people were
living in manufactured housing communities as of 1990 compared to 3,838,678 in
1980. This represents an increase in manufactured housing community living of
approximately 122.0 percent over the last ten years. Over the last ten years,
there has been a steady increase in manufactured housing community development
across the country. Among the demographic factors which account for the increase
in manufactured housing community living are: decreasing household size, a
growing demand for smaller housing, as well as an alternative to the increasing
cost of housing. Nationally, the largest percentage of manufactured housing
communities are located in California, Michigan, Colorado, Florida, New York,
Minnesota, Indiana, Arizona, Ohio, and Wisconsin.
The manufactured home industry has dramatically changed over the last 20
years. Manufactured homes are now designed and constructed to accommodate
spacious and attractive living requirements. Today, approximately one out of
sixteen families live in manufactured housing units. The manufactured housing
market share has been growing
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Market Analysis
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steadily over the last 10 years. In 1990, 6.7 percent of Americans lived in
manufactured housing units, up from 2.9 percent compared to 1970, according to
the U.S. Census Bureau, which represents 12.0 to 14.0 percent of all new housing
built since the mid-1980's, according to the Manufactured Housing Institute in
Arlington, Virginia.
In 1990, the average cost of a manufactured housing unit was $27,800
compared to $149,000 for a new house (including land), according to the
Manufactured Housing Institute. This reflects a 28.0 percent increase in the
cost of manufactured housing since 1980 versus a 49.0 percent increase in
conventional housing. Industry experts estimate that a single-family home
selling for $150,000 would require an annual income of $52,671. To purchase a
$27,800 manufactured housing unit, only a $19,984 income level would be
required.
At Fleetwood Enterprises, the nation's largest manufacturer of
manufactured housing units, units may be purchased for up to $100,000, which
would include a three-bedroom, two-bath unit of 2,100 square feet, with vaulted
ceilings.
In 1990, approximately 10.0 percent of manufactured home owners lived in
units worth approximately $40,000, up from 4.0 percent compared to 1981,
according to a study conducted by Foremost Insurance Company in Grand Rapids,
Michigan. Also, according to the study, approximately 21.0 percent of the
manufactured housing households are occupied by people' 65 years of age or
older, slightly lower than the age group for conventional homes, as reported by
Foremost Insurance.
The demand for good quality institutional grade manufactured housing
communities has substantially increased over the last ten years. Manufactured
housing communities provide an affordable alternative to the increasing cost of
housing. Also, manufactured housing communities provide an alternative form of
living for the elderly and retirees, especially for those living on fixed
incomes.
Acquisitions of manufactured housing communities during 1993 and 1994 were
clearly dominated by Real Estate Investment Trusts. During 1994 and 1995
Manufactured Home Communities (MHC) and ROC communities lead the acquisition of
manufactured housing communities nationally. During 1996, Sun Communities
captured the lead and, together with ROC and MHC dominate the Real Estate
Investment Trust market.
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Market Analysis
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The following chart represents the largest Real Estate Investment Trusts,
from 1991 to 1996, as reported by GFA Management
================================================================================
HOME SITE GROWTH, DEVELOPMENT AMONG THE LARGEST
REAL ESTATE INVESTMENT TRUST (REITS)
- --------------------------------------------------------------------------------
Year ROC MHC Chateau Sun United Total Annual
Growth
- --------------------------------------------------------------------------------
1996 29,608 28,187 20,003 30,295 5,234 113,327 17.0%
- --------------------------------------------------------------------------------
1995 27,910 26,237 19,594 18,000 4,850 96,591 9.0%
- --------------------------------------------------------------------------------
1994 26,231 28,407 15,689 13,500 4,623 88,450 37.8%
- --------------------------------------------------------------------------------
1993 20,142 14,700 15,261 9,036 5,050 64,189 17.8%
- --------------------------------------------------------------------------------
1992 18,745 12,873 10,032 7,600 5,200 54,450 N/A
- --------------------------------------------------------------------------------
1991 9,030 13,079 9,759 N/R N/R N/A N/A
- --------------------------------------------------------------------------------
N/R = No report N/A = Not applicable
- --------------------------------------------------------------------------------
NOTE: The 113,327 sites counted for the top five REITs in 1996 make up 20
percent of the total sites surveyed in the 1997 Allen Report. These rental sites
are located in 339 communities, accounting for about 1 percent of some 50,000
existing manufactured housing communities nationwide. The community counts for
the five major REITs are: ROC (113), MHC (72), Chateau (47), Sun (84) and United
(23). The proportion of communities owned by each of the REITs compared to the
others is: ROC (33%), MHC (21%), Chateau (14%), Sun (25%) and United (7%).
================================================================================
Manufactured Home Communities (MHC) is expected to continue an aggressive
acquisition campaign through 1997 and beyond. As of September 1997, the MHC REIT
had a market cap of $632.0 million, and continues to pursue the acquisition of
manufactured home communities. Aside from the ELL-CAP $300.0 million
transaction, in September 1997 Manufactured Home Communities, Inc. completed a
$107.0 million purchase of 18 manufactured housing communities and two related
commercial properties from partnerships affiliated with Mobileparks West. The
communities, with 3,505 sites, were purchased with about $3.0 million
manufactured home operating units, $16.0 million in cash and $20.0 million of
installment notes and assumed debt. The communities have an average monthly
rental of $349.00. The communities are located in California, Utah, Oregon,
Washington and Nevada. MHC may be the first manufactured home community REIT to
reach $1.0 billion.
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Market Analysis
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The MHC REIT continues to perform and expand, and as of September 1997 was
trading at $25.625, with a current yield of 5.2 percent. The top traded REITs,
are presented as follows.
<TABLE>
<CAPTION>
==========================================================================================
REIT MARKET UPDATE
- ------------------------------------------------------------------------------------------
Company Symbol Price Current Yield 52 Week High 52 Week Low Annual 12 Mth Tot
(9/19/97) Dividend Rtn
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CPJ $29.688 5.8% $31.125 $22.250 1.72 26.6%
- ------------------------------------------------------------------------------------------
MHC $25.625 5.2% $26.428 $18.875 1.32 30.7%
- ------------------------------------------------------------------------------------------
SUI $37.428 5.0% $ 38.00 $27.750 1.88 31.8%
- ------------------------------------------------------------------------------------------
UMH $11.625 6.0% $13.625 $10.875 0.70 -1.7%
- ------------------------------------------------------------------------------------------
Total return figures obtained through Standard & Poors and are for the period
through Sept 1997.
==========================================================================================
</TABLE>
The Southwest and Northwest Regions of the nation are the preferred
locations regarding recent and future manufactured housing community
acquisitions. However, investors seeking moderate, but consistent growth
expectations, are still looking at the midwest region. Also, southern portions
of Florida are still considered a prime area for investors seeking good quality
manufactured housing communities, with good up-side potential. What was once a
stagnant market, the northeast region is now being considered for future
acquisitions.
According to a recent study prepared by Merrill Lynch & Company, ownership
in the manufactured housing community industry is highly fragmented. The top 150
owner-operators account for less than 5.0 percent of the total industry, whereas
a host of "mom-and-pop" private companies account for the other 95.0 percent.
This unglamorous niche industry is ripe for consolidation, and an infusion of
professional management expertise is likely to yield significant economies of
scale. The four REIT's specializing in manufactured housing communities are
already among the top ten owner-operators, and are well positioned to facilitate
and hasten the industry's consolidation to the likely benefit of their
stockholders.
Manufactured homes are the fastest growing component of the nation's
housing inventory, due to their affordability, good quality design and safety
standards. According to the Merrill Lynch & Company Manufactured Housing
Community Industry Report, factory-built homes appeal especially to senior
citizens and to households with limited economic needs, two segments of the
population that are likely to grow rapidly in coming years.
Consistent returns in manufactured housing community investments have been
the mainstay of the industry. For this reason, as well as the amount of
acquisitions seen by Real Estate Investment Trusts (REITs) from 1991 to 1996,
the availability of good quality
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Market Analysis
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manufactured housing communities has been substantially reduced compared to the
1980's. Good quality manufactured housing communities still command premium
prices, thus driving down overall capitalization rates.
Cushman & Wakefield's Valuation Advisory Services has tracked sale
transactions of manufactured housing communities since 1985. Overall
capitalization rates have consistently been within the 8.75 to 10.00 percent
range for communities located in moderate to increasing growth markets, and as
low as near 8.0 percent for those communities located in growing markets that
poses significant upside potential. Overall capitalization rates are clearly
affected and are differentiated among the properties relative to rent levels,
age, quality, condition, location, amenities, demographic characteristics,
resident profile, as well as the quality of management.
Manufactured housing communities fall within, and are categorized by their
overall appearance, age, and amenities, but more importantly the strength of the
local market. The various categories of manufactured housing communities,
according to the Woodall Directory, can be ranked as 1 to 5 Star Parks. These
rankings are defined as follows:
One Star Park
The most important consideration for a one star park is overall
appearance. If it is not a decent place to live, it will not be listed in
Woodall's Directory. The following are general requirements:
o Fair overall appearance;
o Patios on most lots. May be concrete, asphalt, wood, or some
suitable material;
o Grass, rock or shell to cover ground;
o Streets fair to good. May be dirt, asphalt or gravel in reasonable
condition;
o Restrooms clean, if any;
o Adequate laundry or laundromat nearby;
o If fences allowed, must be neat;
o Mail service;
o Homes may be old models, but show evidence of care; and,
o Manager available some hours of each day.
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Market Analysis
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Two Star Park
In addition to the requirements for a one star park, a two star park will
have the following:
o Landscaping - some lawns and shrubs;
o Streets in good condition. Must be dust free of crushed rock, gravel
or shell minimum;
o Neat storage;
o Well equipped laundry or laundromat nearby;
o 200 volt connections available;
o If children accepted, park should have play area;
o Park free of clutter, such as old cars and other abandoned
equipment; and,
o Well maintained and managed.
Three Star Park
What a three star park does it does well, but not as uniformly as higher
rated parks. Many three star parks were once higher rated, but original
construction does not allow for today's 10-foot, 12-foot, and double-wides
or the 55-foot and 60-foot lengths. If children are allowed, there should
be adequate play area. However, the disarray caused by children may at
times be the determining factor that keeps a three star park at that level
when it otherwise could be rated higher. In addition to the requirements
for one and two star parks, a three star park must have the following:
o Attractive entrance;
o All homes must be in good condition;
o Awnings and cabana rooms on some homes in southern areas;
o Some spaces for large mobile homes;
o Paved or hard surfaced streets;
o Off-street parking or streets wide enough for safe on-street
parking;
o Good lawns or substitute throughout, shade trees, some shrubs where
climate permits;
o Concrete patios or the equivalent on all lots;
o All lots neat and attractive;
o All park buildings in good repair; and,
o Good management.
Four Star Park
Four star parks are luxury parks. In addition to the requirements for one,
two and three star parks, a four star park must have the following:
o Good landscaping;
o Most homes skirted with metal skirts, concrete block, ornamental
wood or stone;
o Paved streets, edged or curbed.
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Market Analysis
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o Uncrowded lots;
o Underground utilities if permitted by local conditions and
authorities;
o Most tanks, if present, concealed;
o Any hedges or fences must be attractive and uniform;
o Awnings, cabanas, or porches on most homes in southern areas.
(Excepting double-wide units.);
o Most lots to accommodate large mobile homes;
o Where row parking of homes exists, all must be lined up uniformly;
o Community hall and/or swimming pool and/or recreation programs. If a
park is four star in all but this requirement, the fourth star will
be printed as an open star indicating a four star park without
park-centered recreation; and,
o Excellent management.
Five Star Park
Five star parks are the finest. They should be nearly impossible to
improve. In addition to the requirements for one, two, three, and four
star parks, a five star park must have the following:
o Well planned and laid out spacious appearance;
o Good location in regard to accessibility and desirable neighborhood.
In some locations, park should be enclosed by high hedges or
ornamental fence;
o Wide paved streets in perfect condition. Curbs or lawns edged to
streets, sidewalks, street lights, street signs;
o Homes set back from street;
o Exceptionally attractive entrance and park sign;
o Patios at least 8 x 30 feet. (Excepting double-wide units.);
o Paved off-street parking such as carports or planned parking;
o All homes skirted;
o All hitches concealed. Any existing tanks concealed;
o Recreation, some or all of the following: swimming pool (excepting
areas with long, cold winters), shuffleboards, horseshoe pitching,
golf course, hobby shop, hobby classes, games, potlucks, dances or
natural recreational facilities;
o Beautifully equipped recreation hall with kitchen. Room for
community gatherings, tiled restrooms, etc.;
o Uniform storage sheds or central storage facilities;
o All late model homes in excellent condition;
o At least 60 percent occupancy in order to judge quality of residents
which indicates park's ability to maintain a five star rating
between inspections;
o All empty lots grassed, graveled or otherwise well maintained;
o If pets or children allowed, there must be a place for them to run
and play without cluttering the streets and yards. Most five star
parks are for adults only; and,
o Superior management interested in comfort of residents and
maintenance of park.
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Market Analysis
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The demand for good quality institutional grade manufactured housing
communities is anticipated to increase throughout the 1990's, since manufactured
housing communities provide an alternative form of living for the elderly and
retirees, especially for those living on fixed income. Manufactured home
shipments continue to be strong. Shipments rose 20.0 percent in 1992 and 1994,
and 12.0 percent in 1995. The market for good quality manufactured housing
communities is expected to be strong, with yield and capitalization rates and
prices expected to continue to be competitive, with the REITs leading the way.
Competition
We have surveyed six manufactured housing communities located within the
subject's primary market, including the subject property, containing a total of
1373 sites. The combined occupancy rate of these six manufactured housing
communities, including the subject property, is approximately 98.0 percent.
Excluding the subject property in our survey, the combined occupancy rate is
also approximately 90 percent, based on 695 sites.
The name and location of the subject property's primary competition, as
well as the number of sites, occupancy levels, amenities offered, monthly rental
rates and services provided in the monthly rental rate, are presented on the
following facing page, along with a map which identifies the location of each
competing park.
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<TABLE>
<CAPTION>
====================================================================================================================================
SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- ------------------------------------------------------------------------------------------------------------------------------------
Number Age
Of Sites --------- 3-Year
-------- Condition Services Date Of Average
Comp. Name Occupancy --------- Monthly Provided Last Rental Annual Rental
No. Location Level Amenities Park Rating(1) Rent in Rent Increase Increase
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R-1 Apollo Village 238 Clubhouse 1970 $317.70/Mo. Water January, 1997 $16.00/Mo.
10701 N. 99th --- Pool/Spa ---- To Sewer
Avenue 93% Library Good $327.85/Mo. Refuse
Peoria, Arizona Activity ----
Center 5*
Laundry
Storage
- ------------------------------------------------------------------------------------------------------------------------------------
R-2 The Peoria 287 Clubhouse 1982 $219.00/Mo. Sewer October, 1997 $5.00/Mo.
Polynesian --- Pool/Spa ---- To Refuse
10951 N. 91st 99% Playground Good $244.00/Mo.
Avenue Billiard Room ----
Peoria, Arizona Exercise Room 4*-5*
Laundry
Storage
- ------------------------------------------------------------------------------------------------------------------------------------
R-3 Casa del Sol III 237 Clubhouse 1983 $342.00/Mo. Water January, 1997 $10.00/Mo.
6960 W. Peoria --- Pool/Spa ---- To Sewer
Avenue 97% Library Good $459.00/Mo. Refuse
Peoria, Arizona Billiard Room ----
Laundry 5*
Storage
- ------------------------------------------------------------------------------------------------------------------------------------
R-4 Casa del Sol II 239 Clubhouse 1977 $360.00/Mo. Water August, 1997 $16.00/Mo.
10960 N. 67th --- Pool/Spa ---- To Sewer
Avenue 99% Saunas Good $475.00/Mo. Refuse
Peoria, Arizona Library ----
Billiard Room 5*
Exercise Room
Shuffleboards
Laundry
Storage
- ------------------------------------------------------------------------------------------------------------------------------------
R-5 Peoria Mobile 126 Clubhouse 1976 $228.00/Mo. Water March, 1997 $8.00/Mo.
Estates ---- Pool/Spa ---- To Sewer
6942 W. Olive 100% Tennis Courts Good $245.00/Mo. Refuse
Avenue Shuffleboard ----
Peoria, Arizona Laundry 4*
Storage
====================================================================================================================================
</TABLE>
<PAGE>
Market Analysis
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<TABLE>
<CAPTION>
====================================================================================================================================
SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- ------------------------------------------------------------------------------------------------------------------------------------
Number Age
Of Sites --------- 3-Year
-------- Condition Services Date Of Average
Comp. Name Occupancy --------- Monthly Provided Last Rental Annual Rental
No. Location Level Amenities Park Rating(1) Rent in Rent Increase Increase
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Subject Casa del Sol I 246 Clubhouse 1972 $345.10/Mo. Water July, 1997 $15.00/Mo.
11411 N. 91st --- Pool/Spa ---- To Sewer
Avenue 99% Saunas Good $457.77/Mo. Refuse
Peoria, Arizona Library ----
Activity 5*
Center
Billiard Room
Exercise Room
Shuffleboards
Golf Course
Laundry
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Ratings from One Star to Five Star Parks are defined in the National Overview section of this report.
====================================================================================================================================
</TABLE>
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<PAGE>
COMPETING MANUFACTURED HOUSING MAP
[MAP OMITTED]
<PAGE>
Market Analysis
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Rental rates of manufactured housing communities located within the
subject's primary market range from $219.00 to $475.00 per site, on a monthly
basis. The subject property is currently quoting monthly rental rates within the
market range, or $345.10 to $457.77 per site. The last rental rate increase at
the subject property was July, 1997 of $16.00 per month, which represents a 3.5
to 4.6 percent increase.
The enclosed comparable rentals are considered the most competitive to the
subject property regarding amenities offered, condition, location and overall
ranking.
Comparable R-1, Apollo Village, is located at 10701 N. 99th Avenue, in
Peoria, Arizona. This comparable property is a 55-year-old and greater
residential community, which contains 238 sites and is 93.0 percent
occupied. Apollo Village was developed in 1970, and is in overall good
condition. Over the last three years, the annual rental rate increased
approximately $16.00 per month. Monthly rental rates range from $317.70 to
$327.85 per month, with water, sewer and refuse service included in
monthly rental payment. Amenities include a clubhouse, pool, spa, library,
activity center, laundry facility and recreational vehicle storage.
Comparable R-2, The Peoria Polynesian Village, is located at 10951 N. 91st
Street, in Peoria, Arizona. This comparable property is a family
residential community, which contains 287 sites, and is 99.0 percent
occupied. The Peoria Polynesian Village was developed in 1982, and in
overall good condition. Over the last three years, the annual rental rate
increased approximately $5.00 per month. . Monthly rental rates range from
$219.00 to $244.00, with sewer and refuse service included in monthly
rental payment. Amenities include a clubhouse, pool, spa, playground,
billiard room, exercise room, laundry facility and recreational vehicle
storage.
Comparable R-3, Casa del Sol III, is located at 6960 W. Peoria Avenue, in
Peoria, Arizona. This comparable property is a 55-year-old and greater
residential community, which contains 237 sites, and is 97.0 percent
occupied. Casa del Sol III was developed in 1983, and is in overall good
condition. Over the last three years, the annual rental rate increased
approximately $10.00 per month. Monthly rental rates range from $342.00 to
$459.00, with water, sewer and refuse service included in monthly rental
payment. Amenities include a clubhouse, pool, spa, library, billiard room,
laundry facility and recreational vehicle storage.
Comparable R-4, Casa del Sol II, is located at 10960 N. 67th Avenue, in
Peoria, Arizona. This comparable property is a 55-year-old and greater
residential community, which contains 239 sites, and is 99.0 percent
occupied. Casa del Sol II was developed in 1977, and is in overall good
condition. Over the last three years, the annual rental rate increased
approximately $16.00. Monthly rental rates range from $360.00 to $475.00
per month, with water sewer and refuse service included in monthly rental
payment. Amenities include a clubhouse, pool/spa, saunas, library,
billiard room, exercise room, shuffleboards, golf course, laundry facility
and recreational vehicle storage.
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Market Analysis
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Comparable R-5, Peoria Mobile Estates, is located at 6942 W. Olive Avenue,
in Peoria, Arizona. This comparable property is a 55-year-old and greater
residential community, which contains 126 sites, and is 100.0 percent
occupied. Peoria Mobile Estates was developed in 1976, and is in overall
good condition. Over the last three years, the annual rental rate
increased approximately $8.00 per month. Monthly rental rates range from
$228.00 to $245.00 per month, with water, sewer and refuse service
included in monthly rental payment. Amenities include a clubhouse, pool,
spa, tennis courts, shuffleboard, laundry facility and recreational
vehicle storage.
In our opinion, and based on conversations with the on-site manager,
property R-3 competes most favorably with the subject property, with monthly
rental rates ranging from $317.70 to $327.85 per site. The subject property is
currently quoting monthly rental rates ranging from $345.10 to $457.77 per site,
which is slightly above the range of rental rates of our more comparable
competing property, which is also owned by Manufactured Home Community. The
subject property competes most effectively with its primary competitors
regarding amenities, condition and current rent structure.
Comparable Manufactured Housing Community Sales
A search of the subject's market revealed six recent sales of manufactured
housing communities located in the Phoenix-Mesa MSA. The following is a brief
discussion of each of the manufactured housing sales located within the
subject's market. These sales are summarized on the following facing page.
Comparable Sale I-1, Mesa Village, is located at 2701 E. Allred Avenue, in
Mesa, Arizona. This property contains 201 sites, situated on 18.36 acres
of land area. The property was in good condition at the time of sale and
was developed in 1964. Amenities include a pool, laundry facility and
shuffleboard. The property was approximately 99.0 percent occupied at the
time of sale. The property was purchased for $5,000,000, which equates to
$24,876 per site.
Comparable Sale I-2, Chaparral Mobile Village, is located at 400 W.
Baseline Road, in Tempe, Arizona. This property contains 359 sites,
situated on 41.10 acres of land area. The property was in average
condition at the time of sale and was developed in 1971. Amenities
includes a pool. The property was 100.0 percent occupied at the time of
sale. The property was purchased for $7,800,000, which equates to $21,727
per site.
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Market Analysis
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Comparable Sale I-3, Casa del Sol I Resort, is the sale of the subject, is
located at 11411 N. 91st Avenue, in Peoria, Arizona. This property
contains 246 sites, situated on 30.886 acres of land area. The property
was in good condition at the time of sale and was developed in 1972.
Amenities include a clubhouse, pool, spa, saunas, library, activity
center, billiard room, exercise room, shuffleboards, golf course and
laundry facility. The property was approximately 99.0 percent occupied at
the time of sale. The property was purchased for $8,610,000, which equates
to $35,000 per site.
Comparable Sale I-4, Casa del Sol II Resort, is located at 10960 N. 67th
Avenue, in Peoria, Arizona. This property contains 239 sites, situated on
28.872 acres of land area. The property was in good condition at the time
of sale and was developed in 1977. Amenities include a clubhouse, pool,
spa, saunas, library, billiard room, exercise room, golf course, laundry
facility and recreational vehicle storage. The property was approximately
99.0 percent occupied at the time of sale. The property was purchased for
$8,370,000, which equates to $35,021 per site.
Comparable Sale I-5, Brentwood Southern, is located at 8103 E. Southern
Avenue, in Mesa, Arizona. This property contains 345 sites, situated on
60.06 acres of land area. The property was in good condition at the time
of sale and was developed in 1983. Amenities include a clubhouse, two
pools, two spas, horseshoes and shuffleboard. The property was 100.0
percent occupied at the time of sale. The property was purchased for
$10,540,000, which equates to $30,551 per site.
Comparable Sale I-6, Sunrise Heights, is located at 17801 N. 16th Street,
in Phoenix, Arizona. This property contains 200 sites, situated on 28.0
acres of land area. The property was in good condition at the time of sale
and was developed in 1981. Amenities include a clubhouse, pool, spa and
tennis court. The property was approximately 95.0 percent occupied at the
time of sale. The property was purchased for $4,000,000, which equates to
$20,000 per site.
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<TABLE>
<CAPTION>
====================================================================================================================================
SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- ------------------------------------------------------------------------------------------------------------------------------------
$EGI/Site
Sales Price ---------
Per Site $Expense/Site
Sales Date Land Area Density -------- EGIM -------------
Comp. Name ---------- --------- -------- Occupancy ---- Expense Ratio
No. Location Sales Price No. Sites Condition At Sale $NOI/Site OAR % Of EGI
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
I-1 Mesa Village 1/97 18.36 10.95 $24,876 N/A N/A N/A
2701 E. Allred ---- ----- ----- -------
Avenue $5,000,000 201 Good 99%
Mesa, Arizona
- ------------------------------------------------------------------------------------------------------------------------------------
I-2 Chaparral Mobile 12/96 41.10 8.73 $21,727 N/A N/A N/A
Village ----- ----- ---- -------
400 W. Baseline $7,800,000 359 Average 100%
Road
Tempe, Arizona
- ------------------------------------------------------------------------------------------------------------------------------------
I-3 Casa del Sol I 10/96 30.886 7.96 $35,000 $2,642 9.16x $3,821
Resort ----- ------ ---- ------- ----- ------
11411 N. 91st $8,610,000 246 Good 99% 7.55% $1,179
Avenue ------
Peoria, Arizona 30.86%
- ------------------------------------------------------------------------------------------------------------------------------------
I-4 Casa del Sol II 10/96 28.872 8.28 $35,021 $3,096 8.13x $4,310
Resort ----- ------ ---- ------- ----- ------
10960 N. 67th $8,370,000 239 Good 99% 8.84% $1,213
Avenue ------
Peoria, Arizona 28.14%
- ------------------------------------------------------------------------------------------------------------------------------------
I-5 Brentwood 4/96 60.06 5.75 $30,551 $2,520 8.49x $3,600
Southern ---- ----- ---- ------- ----- ------
8103 E. Southern $10,540,000 345 Good 100% 8.25% $1,080
Ave. ------
Mesa, Arizona 30.0%
- ------------------------------------------------------------------------------------------------------------------------------------
I-6 Sunrise Heights 2/94 28.0 7.14 $20,000 $1,680 7.38x $2,710
17801 North 16th ---- ---- ---- ------- ----- ------
Street $4,000,000 200 Good 95% 8.40% $1,030
Phoenix, Arizona ------
38.01%
- ------------------------------------------------------------------------------------------------------------------------------------
Subject Casa del Sol I - - - 30.886 7.96 - - - $3,100 N/A $4,105
1144 Sherman ------ ---- ------
Blvd. 246 Good 99% $1,004
Peoria, Arizona ------
24.46%
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<CAPTION>
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SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- -------------------------------------------------------------------------------------
Comp. Name Comparability to
No. Location to the Subject Comments
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
I-1 Mesa Village Inferior Developed in 1964;
2701 E. Allred Good condition;
Avenue Amenities include:
Mesa, Arizona pool, laundry facility
and shuffleboard.
- -------------------------------------------------------------------------------------
I-2 Chaparral Mobile Inferior Developed in 1971;
Village Average condition;
400 W. Baseline Amenities includes a
Road pool.
Tempe, Arizona
- -------------------------------------------------------------------------------------
I-3 Casa del Sol I Similar Developed in 1972;
Resort Good condition;
11411 N. 91st Amenities include a
Avenue clubhouse, pool, spa,
Peoria, Arizona saunas, library,
activity center,
billiard room,
exercise room,
shuffleboards, golf
course and laundry
facility.
- -------------------------------------------------------------------------------------
I-4 Casa del Sol II Similar Developed in 1977;
Resort Good condition;
10960 N. 67th Amenities include:
Avenue clubhouse, pool, spa,
Peoria, Arizona saunas, library,
billiard room,
exercise room, golf
course, laundry
facility and RV
storage.
- -------------------------------------------------------------------------------------
I-5 Brentwood Similar Developed in 1983;
Southern Good condition;
8103 E. Southern Amenities include:
Ave. clubhouse, two pools,
Mesa, Arizona two spas, horseshoes
and shuffleboard.
- -------------------------------------------------------------------------------------
I-6 Sunrise Heights Inferior Developed in 1981;
17801 North 16th Good condition;
Street Amenities include:
Phoenix, Arizona clubhouse, pool, spa
and tennis court.
- -------------------------------------------------------------------------------------
Subject Casa del Sol I Subject Developed in 1972;
1144 Sherman Property Good condition;
Blvd. Amenities include a
Peoria, Arizona clubhouse, pool, spa,
saunas, library,
activity center,
billiard room,
exercise room,
shuffleboards, golf
course and laundry
facility.
=====================================================================================
</TABLE>
<PAGE>
Market Analysis
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It should be noted that comparability does not imply an identical or exact
duplicate, but rather the possession of a similar utility and affected by
similar supply and demand forces. Also, relative to the subject property,
differences include: time or date of the transactions; location, which
encompasses differences in accessibility; site characteristics, including
differences in size, topography, access, exposure and development capacities;
and improvement characteristics, which include differences in age, quality,
condition, size and amenities.
Demographic Trends
Based on information provided by National Decision Systems (NDS), the
populations within the subject's primary 5-mile and secondary 10-mile market
areas, as of 1997, are 210,459 and 769,283, respectively. The populations of the
subject's primary and secondary market areas are projected to increase to
242,500 and 863,120, respectively, by the year 2002.
According to NDS, the total number of households within the subject's
primary and secondary market areas, are 86,334 and 302,932, respectively, for
1997. The number of households within the subject's primary 5-mile and secondary
10-mile market areas are projected to increase to 102,179 and 351,966,
respectively, by the year 2002.
The average household income levels within the subject's primary and
secondary market areas, for 1997, are $50,655 and $51,399, respectively. The
median household income levels within the subject's primary and secondary market
areas, for 1997, are $38,493 and $38,704, respectively. Per capita income within
the subject's primary and secondary market areas, for 1997, are $21,572 and
$24,424, respectively.
Based on the above levels, the demographics of the subject's primary
market area appear to indicate a positive growth trend, based on information
provided by the NDS Report, a copy of which is provided in the Addenda of this
report.
Expense Analysis
Expenses exhibited by manufactured housing communities nationally are
typically 35.0 to 45.0 percent of effective gross income. However, expense
ratios of manufactured housing communities located in the southeast and
southwest regions of the nation are typically lower by comparison, due to lower
real estate taxes and common area maintenance charges.
As presented in the Summary of Manufactured Housing Communities Sales,
operating expense ratios of competing parks range from 28.14 to 38.01 percent of
effective gross
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Market Analysis
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income levels, and $1,030 to $1,213 on a per site basis. The subject property is
currently reporting expenses, for the 12-month trailing period of 1997, at 24.47
percent of effective gross income and $1,004 on a per site basis. Operating
expenses appear to be slightly below the range of comparable properties on a
percentage of effective gross income and per site basis.
Market Supply and Demand
There are a total of five competing manufactured housing communities
located within the subject's market, which total 1,127 sites, with a
corresponding average occupancy rate of 98.0 percent. No specific absorption
statistics were available. The subject property, based on conversations with
management, has historically been similar to occupancy rates consistent with
competing parks, and is currently 99.0 percent occupied. We believe the current
occupancy rate of the subject property is stabilized, and is similar to
occupancy rates of competing parks presently presented. Based on the subject's
current occupancy rate and occupancy rates at competing parks, demand appears to
be strong, with steady rental rate increases expected.
Conclusion
Historically, the subject's primary market has sustained occupancy levels
of 95.0 to 100 percent. Rental rates of similar manufactured housing communities
located within the subject's primary market generally range from $219.00 to
$475.00 per site, on a monthly basis. The subject property is currently quoting,
and is currently achieving (based on the most recent rent roll provided), a
monthly rental rate within the range of competing parks, or at $345.10 to
$457.77 per site.
Based on our research, steady increases in rental rates are anticipated,
based on actual historical performance of competing parks and historical
increases seen at the subject property. Sales transactions of manufactured
housing communities located within the subject's region range from $20,000 to
$35,021 per site, with corresponding overall rates ranging from 7.55 to 8.84
percent. In our opinion, the subject property competes favorably with its
competition regarding amenities, condition, rent structure and overall market
rating.
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SITE PLAN
[GRAPHIC OMITTED]
<PAGE>
PROPERTY DESCRIPTION
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Site Description
The subject site is located along the east side of North 91st Avenue, just
south of U.S. Highway 60, in Peoria, Maricopa County, Arizona. The subject site
is rectangular in shape and contains 30.886 acres, or 1,345,401.6 square feet of
land area. Topographically, the site is basically level and at street grade.
Sewer and water are provided by the city, while natural gas is supplied by
Southwest Gas Corporation, electricity by Arizona Public Service and telephone
by U.S. West Communications. Primary access to the subject site is available
from North 91st Avenue. According to flood insurance rate map No. 04013C1610G,
dated December 3, 1993, the subject property is located in zone X, a minimal
flood hazard zone. However, we recommend a qualified engineer to determine the
existence of any flood hazard areas.
Each developed site is equipped with a dirt site and off-street parking.
The streets within the park have two-lanes, with concrete curbs. Overall, the
subject site is typical of the area and is functionally well suited for its
current use.
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.
Improvements Description
The subject property was originally developed in 1972. The subject
improvements consist of a 246-site manufactured housing community, with a
community center, swimming pool, spa, saunas, library, activity center, billiard
room, exercise room, shuffleboards, golf course and laundry facility.
The community center consists of a manager's office, restroom facilities,
open-space available for resident use, library, billiard room, exercise room,
sewing and craft room, laundry room and a fully-equipped kitchen area. The
exterior of the one-story community center is concrete block, and appeared to be
in overall good condition at the time of inspection.
The swimming pool, spa, golf course, shuffleboards are located adjacent to
the community center. Concrete fencing surrounds the pool. Off-street parking is
available for each resident. Site improvements within the park include: paved
streets, dirt sites, street lighting and signage. Overall, the site improvements
appeared to be in good condition at the time of inspection.
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Property Description
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Casa del Sol I is a functional manufactured housing community with good
ingress and egress along North 91st Avenue. Overall, the subject community
appears to be well maintained and is in good condition. Casa del Sol I is a
functional manufactured housing community and competes favorably with other
existing manufactured housing communities in the area in terms of appearance and
amenities. The subject property would fit the profile of a Five Star Park, as
defined in the National Overview section of this report.
Real Property Taxes and Assessments
Assessed value of commercial property in Maricopa County is assessed at
25.0 percent of the Assessor's opinion of market value. The subject property is
identified by tax parcel number 142-45-004D 7.
The total amount of real estate taxes for 1996 payable in 1997 for the
subject property amounts to $33,797.42. The total amount of real estate taxes
for 1996 payable in 1997 equates to approximately $137.39 per site.
Zoning
According to the City of Peoria zoning officials, the subject property is
currently zoned RMH-2, Residential Mobile Home. Based on conversations with the
City of Peoria zoning officials, the subject property is of legal and conforming
use for this zoned district.
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CONCLUSION
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Conclusion
o The subject property, Casa del Sol I, is a functional manufactured
housing community, which competes favorably in relation to its
competition;
o Comparable manufactured housing communities located within the
subject's market range in monthly rental rates per site from $219.00
to $475.00;
o The subject property is currently quoting, and is currently
achieving (based on the most recent rent roll provided) a monthly
rental rate ranging from $345.10 to $457.77 per site, which is
within the range of competing parks;
o Sale transactions of manufactured housings located within the
subject's region range in unit sales prices per site from $20,000 to
$35,021, with corresponding overall rates ranging from 7.55 to 8.84
percent;
o Operating expenses are within industry standards for a park located
in the southwestern region of the country;
o The subject park appears to be operating at economic levels based on
our review of historical and budgeted 1998 income and expenses;
o The demographic characteristics of the area appear to be positive;
o The population profile of the subject property is 100 percent adult;
o The current occupancy rate at the subject property of 99.0 percent
is evident by a strong local market and demand;
o No significant manufactured housing communities are expected to be
developed in the near future;
o In our opinion, based on Woodall's criteria, the subject property is
a Five Star Park, and the reader's attention is directed to the
corresponding definition and criteria of a Five Star Park, presented
in the National Overview section of this report; and,
o Based on the subject's location, demographic, economic, market and
physical characteristics, we believe Casa del Sol I will continue to
be a viable manufactured housing community in the foreseeable
future, and is well positioned in the marketplace.
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ASSUMPTIONS AND LIMITING CONDITIONS
================================================================================
"Report" means the consulting report to which these Assumptions and Limiting
Conditions are annexed.
"Property" means the subject of the Report.
"C&W" means Cushman & Wakefield, Inc. or its subsidiary which issued the Report.
"Appraiser(s)" means the employee(s) of C&W who prepared and signed the Report.
This report is made subject to the following assumptions and limiting
conditions:
1. No responsibility is assumed for the legal description or for any matters
which are legal in nature. 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 Report or upon which the Report 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 Appraisers nor C&W shall be responsible for the
accuracy or completeness of such information, including the correctness of
estimates, opinions, dimensions, sketches, exhibits, and other factual
matters.
3. The information is effective as of the date stated in the Report. Changes
since that date in external and market factors or in the property itself
can significantly affect our analysis.
4. The report is to be used in whole and not in part. No part of the Report
shall be used in conjunction with any other report. Possession of the
Report, or a copy thereof, does not carry with it the right of
publication. Publication of the Report or any portion thereof without the
prior written consent of C&W is prohibited. Except as may be otherwise
expressly stated in the letter of engagement to prepare the Report, C&W
does not permit use of the Report by any person other than the party to
whom it is addressed or for purposes other than those for which it was
prepared. If written permission is given by C&W to use the Report, the
Report must be used in its entirety and only with proper written
qualification as approved by C&W. No part of the Report or the identity of
the Appraiser shall be conveyed to the public through advertising, public
relations, news, sales, or other media or used in any material without
C&W's prior written consent. Reference to the Appraisal Institute or to
the MAI designation is prohibited.
5. The Appraiser shall not be required to give testimony in any court or
administrative proceedings relating to the Property or the Report.
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Assumptions And Limiting Conditions
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6. The Report 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 Report; 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 Report is based.
7. The physical condition of the improvements considered by the Report is
based on visual inspection by the Appraiser or other person identified in
the Report. C&W assumes no responsibility for the soundness of structural
members nor for the condition of mechanical equipment, plumbing, or
electrical components.
8. Unless otherwise stated in the Report, the existence of potentially
hazardous or toxic materials which may have been used in the construction
or maintenance or operation of the improvements or may be located at or
about the Property was not considered in the Report. These materials (such
as formaldehyde foam insulation, asbestos insulation, various soil
contaminants, and other potentially hazardous materials) may affect the
value of the Property. The Appraisers are not qualified to detect such
substances, and C&W urges that an expert in this field be employed to
determine the economic impact of these matters, if any, on the property in
the Report.
9. Unless otherwise stated in the Report, compliance with the requirements of
the Americans With Disabilities Act of 1990 (ADA) has not been considered
in the Report. Failure to comply with the requirements of the ADA may
negatively affect the value of the property. C&W recommends that an expert
in this field be employed.
10. If the Report is submitted to a lender or investor with the prior approval
of C&W, such party should consider the Report as one factor, together with
its independent investment considerations and underwriting criteria, in
its overall investment decision.
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CERTIFICATION
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We certify that, to the best of our knowledge and belief:
1. Jody L. Garbisch inspected the property, and Michael J. Schaeffer and
Stanley R. Dennis, Jr., MAI, have reviewed and approved the report, but
did not inspect 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 on an action or event (such as the
approval of a loan) resulting from the analyses, opinions, or conclusions
in, or the use of, this report.
6. 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 Ethics and Standards of Professional Practice of the Appraisal
Institute.
7. No one provided significant professional assistance to the persons signing
this 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. As of the date of this report, Stanley R. Dennis, Jr., MAI, has completed
the requirements of the continuing education program of the Appraisal
Institute.
/s/ Michael J. Schaeffer /s/ Jody L. Garbisch /s/ Stanley R. Dennis, Jr.
Michael J. Schaeffer Jody L. Garbisch Stanley R. Dennis, Jr., MAI
Director Associate Appraiser Director, Manager
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<PAGE>
ADDENDA
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POP-FACT SHEETS
LEGAL DESCRIPTION
QUALIFICATIONS OF APPRAISERS
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55
<PAGE>
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POP-FACT SHEETS
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<PAGE>
Mon Nov 24, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP FACTS: SUMMARY REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6511
PREPARED FOR
Cushman & Wakefield
N. 67th Avenue & Peoria Avenue
Glendale, Arizona COORD: 33:34.90 112:12.12
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- --------------------------------------------------------------------------------
POPULATION
2002 PROJECTION 373,686 1,094,576
1997 ESTIMATE 336,611 983,439
1990 CENSUS 281,335 834,182
1980 CENSUS 203,535 625,697
GROWTH 1980 - 1990 38.22% 33.32%
HOUSEHOLDS
2002 PROJECTION 152,308 451,467
1997 ESTIMATE 130,999 393,229
1990 CENSUS 105,479 323,579
1980 CENSUS 71,196 229,160
GROWTH 1980 - 1990 48.15% 41.20%
1997 ESTIMATED POPULATION BY RACE 336,611 983,439
WHITE 86.01% 83.55%
BLACK 2.78% 3.55%
ASIAN & PACIFIC ISLANDER 2.35% 2.28%
OTHER RACES 8.86% 10.62%
1997 ESTIMATED POPULATION 336,611 983,439
HISPANIC ORIGIN 16.01% 18.38%
OCCUPIED UNITS 105,479 323,579
OWNER OCCUPIED 68.83% 64.20%
RENTER OCCUPIED 31.17% 35.80%
1990 AVERAGE PERSON PER HH 2.64 2.56
1997 ESTIMATED HH BY INCOME 130,999 393,229
$150,000 + 2.65% 3.58%
$100,000 TO $149,999 4.46% 4.72%
$ 75,000 TO $ 99,999 7.41% 7.09%
$ 50,000 TO $ 74,999 22.45% 20.01%
$ 35,000 TO $ 49,999 19.64% 18.62%
$ 25,000 TO $ 34,999 13.74% 14.54%
$ 15,000 TO $ 24,999 14.30% 15.34%
$ 5,000 TO $ 14,999 11.78% 12.36%
UNDER $ 5,000 3.57% 3.74%
1997 EST. AVERAGE HH INCOME $51,312 $52,926
1997 EST. MEDIAN HH INCOME $40,053 $38,240
1997 EST. PER CAPITA INCOME $20,008 $21,185
<PAGE>
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LEGAL DESCRIPTION
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<PAGE>
LEGAL DESCRIPTION
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PARCEL NO. 1:
THAT PART OF LOT 3, A SUBDIVISION OF THE EAST HALF OF SECTION 24, TOWNSHIP 3
NORTH, RANGE 1 EAST OF THE GILA AND SALT RIVER BASE AND MERIDIAN, PER MAP DATED
OCTOBER 9, 1923, RECORDED IN BOOK 11 OF MAPS, PAGE 30, RECORDS (OF MARICOPA
COUNTY, ARIZONA, DESCRIBED AS FOLLOWS:
BEGINNING AT A POINT ON THE EAST LINE OF SAID SECTION 24 WHICH BEARS NORTH 01
DEGREES 38 MINUTES 30 SECONDS EAST, 1060.00 FEET FROM THE SOUTHEAST CORNER OF
SAID SECTION 24;
THENCE SOUTH 89 DEGREES 57 MINUTES 50 SECONDS WEST. 355.15 FEET;
THENCE SOUTH 01 DEGREES 38 MINUTES 30 SECONDS WEST. 456.00 FEET;
THENCE SOUTH 45 DEGREES 00 MINUTES 00 SECONDS WEST. 351.56 FEET;
THENCE WEST 523.92 FEET;
THENCE NORTH 01 DEGREES 38 MINUTES 30 SECONDS EAST, 1407.21 FEET TO A POINT ON
THE NORTH LINE OF SAID LOT 3;
THENCE ALONG SAID NORTH LINE AND ITS EASTERLY PROLONGATION, NORTH 89 DEGREES 57
MINUTES 50 SECONDS EAST, 1120.55 FEET TO A POINT ON THE EAST LINE OF SAID
SECTION 24;
THENCE ALONG SAID EAST LINE, SOUTH 01 DEGREES 38 MINUTES 30 SECONDS WEST TO THE
POINT OF BEGINNING;
EXCEPT THE EAST 55.00 FEET THEREOF.
BEING THE SAME LAND CONVEYED TO CASA DEL SOL MOBILE HOME COMMUNITY, A CALIFORNIA
LIMITED PARTNERSHIP, BY DEED FROM CASA DEL SOL MOBILE HOME COMMUNITIES, INC., AN
ARIZONA CORPORATION, DATED JULY 22, 1977, RECORDED JULY 26, 1977 IN DOCKET
12335, PAGE 1210
PARCEL NO. 2:
PERPETUAL EASEMENTS FOR THE INSTALLATION AND MAINTENANCE OF PRIVATE UTILITY
LINES AND DRAINAGE, AS CREATED IN INSTRUMENT DATED JULY 15, 1977, RECORDED JULY
26, 1977 IN DOCKET 12335, PAGE 1213 AND BEING 12.00 FEET IN WIDTH, BEING 6.00
FEET ON EACH SIDE OF THE EASEMENT LINES DESCRIBED AS FOLLOWS:
BEGINNING AT THE SOUTHEAST CORNER OF SECTION 24, TOWNSHIP 3 NORTH, RANGE 1 EAST
OF THE GILA AND SALT RIVER BASE AND MERIDIAN, MARICOPA COUNTY, ARIZONA;
RUN THENCE WEST 1326.54 FEET ALONG THE SOUTH LINE OF SAID SECTION 24;
RUN THENCE NORTH 01 DEGREES 38 MINUTES 30 SECONDS EAST 55.00 FEET TO THE TRUE
POINT OF BEGINNING;
RUN THENCE NORTH 01 DEGREES 38 MINUTES 30 SECONDS EAST 306.11 FEET;
RUN THENCE EAST 206.00 FEET TO THE POINT OF TERMINATION; AND
BEGINNING AT A POINT WHICH BEARS NORTH 01 DEGREES 38 MINUTES 30 SECONDS EAST
1757.00 FEET AND SOUTH 89 DEGREES 57 MINUTES 50 SECONDS WEST 1120.55 FEET FROM
THE SOUTHEAST CORNER OF SAID SECTION 24;
RUN THENCE SOUTH 89 DEGREES 57 MINUTES 50 SECONDS WEST 1498.24 FEET TO A POINT
ON THE EAST LINE
OF THE WEST 40.00 FEET OF THE SOUTHEAST QUARTER OF SAID SECTION 24 AND THE POINT
OF TERMINATION.
PARCEL, NO. 3:
PERPETUAL EASEMENT FOR IRRIGATION PURPOSES, AND FOR THE USE, CONSTRUCTION AND
MAINTENANCE OF IRRIGATION LATERALS, AS CREATED IN INSTRUMENT DATED JULY 15,
1977, RECORDED JULY 26, 1977 IN DOCKET 12335, PAGE 1215 AND BEING 5.00 FEET IN
WIDTH, BEING 2 1/2 FEET ON EACH SIDE OF THE EASEMENT LINE DESCRIBED AS FOLLOWS:
BEGINNING AT A POINT WHICH BEARS NORTH 01 DEGREES 38 MINUTES 30 SECONDS EAST
1760.50 FEET AND SOUTH 89 DEGREES 57 MINUTES 50 SECONDS WEST 55.00 FEET FROM THE
SOUTHEAST CORNER OF SECTION 24, TOWNSHIP 3 NORTH, RANGE 1 EAST OF THE GILA AND
SALT RIVER BASE AND MERIDIAN, MARICOPA COUNTY, ARIZONA;
RUN THENCE SOUTH 89 DEGREES 57 MINUTES 50 SECONDS WEST 1833.37 FEET TO THE POINT
OF TERMINATION;
EXCEPT ANY PORTION LYING WITHIN PARCEL NO. 1 HEREINABOVE.
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<PAGE>
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QUALIFICATIONS OF APPRAISERS
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<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
JODY L. GARBISCH
Education
Bachelor of Science Degree in Finance, concentration in Real Estate, from the
College of Commerce and Business Administration at the University of Illinois,
Urbana-Champaign, Illinois, 1997.
Real Estate Education
The following courses have been completed through the Real Estate Program at the
University of Illinois at Urbana-Champaign:
Urban Real Estate Valuation
Urban Economics
Real Estate Financial Markets
Real Estate Investments
Real Estate Law
Real Estate Fundamentals
Current Position
Associate Appraiser, Cushman & Wakefield of Illinois, Inc., Valuation Advisory
Services.
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
MICHAEL J. SCHAEFFER
Real Estate Experience
Mr. Schaeffer has been active in the appraisal of real estate since 1983.
Appraisal experience includes the valuation of income-producing real estate in
the Chicago area as well as many major cities and small towns throughout the
Midwest. The types of properties appraised include office buildings, regional
malls, shopping centers, country clubs, apartment complexes, subsidized housing
units, industrial buildings, nursing homes, retirement communities, automotive
dealerships, department stores, vacant land, proposed income-producing
properties, and various special purpose properties. Mr. Schaeffer also has had
over 10 years of experience in new construction and renovation of commercial,
industrial, residential and specialized real estate properties.
Education
Bachelor of Arts, University of Cincinnati, Cincinnati, Ohio MBA Graduate Course
Work in Economics and Management, Xavier University, Cincinnati, Ohio
Real Estate Education
The following courses sponsored by the Appraisal Institute have been
successfully completed:
Real Estate Appraisal Principles 1A-1
Basic Valuation Procedures 1A-2
Standards of Professional Practice
Capitalization Theory and Techniques 1BA
Capitalization Theory and Techniques IBB
Advanced Applications 550
Report Writing & Valuation Analysis 540
Mr. Schaeffer has also attended numerous lectures and seminars sponsored by the
Appraisal Institute.
Mr. Schaeffer is currently a candidate for the MAI designation of the Appraisal
Institute, and has completed the educational and experience requirements for the
MAI designation.
Current Position
Director, Appraisal Services, Cushman & Wakefield, Inc., Chicago, Illinois
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
STANLEY R. DENNIS, JR., MAI
Real Estate Experience
Director, Manager, Cushman & Wakefield Valuation Advisory Services, Chicago,
Illinois. Division is responsible for the appraisal and consultation function of
Cushman & Wakefield, Inc., a national full service real estate organization,
1989.
Vice President, Manager, Cushman & Wakefield Appraisal Services, Portland,
Oregon, 1983.
Principal, Stanley R. Dennis & Associates, Portland, Oregon, 1982.
Education
Portland State University, Portland, Oregon
Bachelor of Science Degree, 1977, Finance and Real Estate
Appraisal Institute
Course I-A Fundamentals and Principles of Real Estate Appraisal
Course I-B Capitalization Theory and Techniques
Course II-I Case Studies in Real Estate Valuation
Course II-2 Valuation Analysis and Report Writing
Course II-3 Standards of Professional Practice
Course IV Litigation/Condemnation Valuation
Course VI Investment Analysis
Course VIII Residential Case Studies
Course X Market Analysis
Seminar Feasibility Analysis and Highest and Best Use
Seminar Discounted Cash Flow Analysis
Seminar Cash Equivalency
Seminar Subdivision Analysis
Seminar Rates, Ratios and Reasonableness
Professional Affiliations
American Institute of Real Estate Appraisers, Member (Designation #6754)
Building Owners and Managers Association (BOMA)
National Association of Corporate Real Estate Executives (NACORE)
<PAGE>
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MARKET STUDY OF REAL PROPERTY
East Bay Oaks
601 Starkey Road
Largo, Pinellas County, Florida
================================================================================
As of December 2, 1997
Prepared For:
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Prepared By:
Cushman & Wakefield of Illinois, Inc.
Valuation Advisory Services
455 North Cityfront Plaza Drive, Suite 2800
Chicago, Illinois 60611-5555
CUSHMAN &
WAKEFIELD(R)
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<PAGE>
[Letterhead of Cushman & Wakefield of Illinois, Inc.]
December 8, 1997
Mr. Edward J. Welch
Director
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Re: Market Study of Real Property
East Bay Oaks
601 Starkey Road
Largo, Pinellas County, Florida 49201
Dear Mr. Welch:
In fulfillment of our agreement as outlined in the Letter of Engagement,
Cushman & Wakefield of Illinois, Inc., is pleased to transmit our market study
and consulting report evaluating the above referenced real property.
As specified in the Letter of Engagement, our market study and consulting
report is qualified by certain assumptions, limiting conditions, certifications,
and definitions, which are set forth in the report.
This consulting report was prepared for the Client, and it is intended
only for the specified use of the Client. It may not be distributed to or relied
upon by other persons or entities without written permission of Cushman &
Wakefield, Inc.
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the above
referenced real property, as of the date of our property inspection. The
function of the report is to assist the client, in evaluating the property for
underwriting and rating purposes.
<PAGE>
Mr. Edward J. Welch -2- December 8, 1997
This market study and consulting report was prepared in conformity with
the requirements of the Code of Ethics and Standards of Professional Appraisal
Practice of the Appraisal Institute and the Uniform Standards of Professional
Practice (USPAP) adopted by the Appraisal Standards Board of the Appraisal
Foundation.
This letter is invalid if detached from the report, which contains the
text, exhibits, and the Addenda.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF ILLINOIS, INC.
/s/ Jennifer L. Estrella
Jennifer L. Estrella
Associate Appraiser
/s/ Michael J. Schaeffer
Michael J. Schaeffer
Director
/s/ Stanley R. Dennis, Jr.
Stanley R. Dennis, Jr., MAI
Director, Manager
CUSHMAN &
WAKEFIELD(R)
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<PAGE>
SUMMARY OF SALIENT FACTS
================================================================================
Property Name: East Bay Oaks
Location: 601 Starkey Road
Largo, Pinellas County, Florida
Assessor's Parcel Number: Based on information provided by the
client, the subject property is
identified by Assessor's Parcel Number
36-29-15-70236-300-0800.
Date of Inspection: The property was inspected December 2,
1997.
Ownership: The subject property is legally
entitled to Orangeland Vistas, an
Illinois Corporation, and MHC
Financing Limited Partnership, as
beneficiary.
Land Area: Based on information provided by the
property's legal plat of survey, the
subject property contains
approximately 39.31 acres of land
area, or 1,712,344 square feet.
Zoning: Based on information provided by the
City of Largo, the subject property is
zoned R-U, Residential Urban. The
subject property is a legal, and
non-conforming use.
Improvements
Type: A manufactured housing community.
Year Built: The subject property was originally
developed in approximately 1971.
Size: The subject property consists of a
328-site manufactured housing
community.
Condition: At the time of inspection, the subject
property was in good condition.
Property Rating: Five Star manufactured home community.
Special Assumptions: 1.Information regarding the subject
property, including its physical
characteristics, was provided to us by
the client and the on-site manager,
and is assumed to be accurate.
CUSHMAN &
WAKEFIELD(R)
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SUMMARY OF SALIENT FACTS
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2. The existence of potentially hazardous or
toxic materials, which may be located on or
about the property, was not considered in
our evaluation. The appraisers are not
qualified to detect such substances, and
Cushman & Wakefield urges that an expert in
this field be employed to determine the
existence, if any, of hazardous materials
located on or about the site.
3. Our market and consulting report
regarding the subject assumes the subject
property, as presently improved, represents
its highest and best use.
4. It is unknown to the appraiser if the
subject property complies with the Americans
with Disabilities Act (ADA). We recommend a
qualified specialist in the final
determination regarding any ADA compliance
deficiencies that may be present at the
subject property.
5. Please refer to the complete list of
assumptions and limiting conditions included
at the end of this report.
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
TABLE OF CONTENTS
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Page
PHOTOGRAPHS OF SUBJECT PROPERTY................................................1
INTRODUCTION...................................................................5
Identification of Property...................................................5
Property Ownership and Recent History........................................5
Purpose and Function of the Market Study and Consulting Assignment...........5
Scope of the Market Study and Consulting Assignment..........................5
Date of Property Inspection..................................................5
Definitions and Other Pertinent Terms........................................5
REGIONAL ANALYSIS..............................................................8
NEIGHBORHOOD ANALYSIS.........................................................16
MARKET ANALYSIS...............................................................18
National Overview...........................................................18
Competition.................................................................25
Comparable Manufactured Housing Community Sales.............................29
Demographic Trends..........................................................31
Expense Analysis............................................................32
Market Supply and Demand....................................................32
Conclusion..................................................................33
PROPERTY DESCRIPTION..........................................................35
Site Description............................................................35
Improvements Description....................................................35
REAL PROPERTY TAXES AND ASSESSMENTS...........................................36
ZONING........................................................................36
CONCLUSION....................................................................37
ASSUMPTIONS AND LIMITING CONDITIONS...........................................38
CERTIFICATION.................................................................40
ADDENDA.......................................................................41
Pop-Fact Sheets
Legal Description
Qualifications of Appraisers
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PHOTOGRAPHS OF SUBJECT PROPERTY
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[PHOTO OMITTED]
Front Entrance of the Subject Property
[PHOTO OMITTED]
Front Entrance of the Subject Property
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Photographs of Subject Property
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[PHOTO OMITTED]
Exterior of Clubhouse
[PHOTO OMITTED]
Interior View of the Clubhouse
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Photographs of Subject Property
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[PHOTO OMITTED]
Typical Interior View of the Subject Park
[PHOTO OMITTED]
Typical Interior View of the Subject Park
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Photographs of Subject Property
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[PHOTO OMITTED]
Street Scene Facing North Along Starkey Road
[PHOTO OMITTED]
Street Scene Facing South Along Starkey Road
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INTRODUCTION
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Identification of Property
The subject property consists of a 328-site manufactured housing
community, situated on approximately 39.31 acres of land area, located on the
east side of Starkey Road (known as Keene Road, north of East Bay Drive),
between East Bay Drive and Taylor Avenue, in the city of Largo, Pinellas County,
Florida. The property's street address is 601 Starkey Road. The property was
constructed in 1971, and was 99.7 percent occupied at the time of inspection.
Property Ownership and Recent History
The subject property is currently entitled to Orangeland Vistas, an
Illinois corporation, and MHC Financing Limited Partnership, as beneficiary. The
subject property was originally developed in 1971, with 328 manufactured housing
sites.
Purpose and Function of the Market Study and Consulting Assignment
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the subject
property, as of the date of property inspection. The function of the consulting
report is to assist the client in evaluating the property for underwriting and
rating purposes.
Scope of the Market Study and Consulting Assignment
In the process of preparing this report, we inspected the property,
interviewed the on-site manager, conducted market research into asking rental
rates for comparable properties, conducted market investigations, and
ascertained sales prices of comparable properties. Additionally, we conducted
market research and evaluated demographic and economic trends; and, the market
position and rating of the subject property.
Date of Property Inspection
The property was inspected December 2, 1997.
Definitions and Other Pertinent Terms
Definitions of pertinent terms taken from the Dictionary of Real Estate
Appraisal, Third Edition (1993), published by the Appraisal Institute, is as
follows:
Market Rent
The rental income that a property would most probably command on the open
market; indicated by current rents paid and asked for comparable space as
of the date of the appraisal.
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Introduction
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Evaluation
Evaluation is a study of the nature, quality, or utility of a parcel of
real estate or interest in, or aspects of, real property, in which a value
estimate is not necessarily required.
Market Study
A macroeconomic analysis that examines the general market conditions of
supply, demand, and pricing or the demographics of demand for a specific
area or property type.
Legal Description
The subject property is located along the east side of Starkey Road,
between East Bay Drive and Taylor Avenue , in the city of Largo, Pinellas
County, Florida. The street address of the subject property is 601 Starkey Road,
Largo, Florida. The property is identified by tax parcel number
36-29-15-70236-300-0800, according to information provided by the client. Due to
the lengthy metes and bounds legal description, the subject property's legal
description is presented in the Addenda of this report, and reference is made
thereto.
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LOCATION MAP
[MAP OMITTED]
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REGIONAL ANALYSIS
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The subject property is located in the West Central Region of Florida.
West Central Florida, as the name suggests, is centrally located along Florida's
west coast. It is comprised primarily of a nine-county area anchored by the
Tampa-St. Petersburg-Clearwater Metropolitan Statistical Area (MSA). According
to Sales and Marketing Management's 1997 Survey of Buying Power, the 1996
estimated population of the nine county West Central Florida region is
3,397,000. The Tampa-St. Petersburg-Clearwater MSA has a 1996 estimated
population of 2,240,200.
Overview
The Tampa-St. Petersburg-Clearwater MSA (hereinafter referred to as the
Tampa MSA) includes Hillsborough, Pinellas, Pasco, and Hernando Counties.
Florida's economy has expanded rapidly during the past decade due to a
favorable business climate rated as one of the best in the country. Tourism and
agriculture have traditionally been the largest industries in Florida, but the
expansion of the nation's space program during the 1960's led to growth in the
high technology fields. Like many areas of the nation, the service sector
experienced dramatic growth in the 1980's. The Tampa MSA is representative of
Florida as a whole, with a diversified economy including tourism, agriculture,
high technology industries, and a large service sector.
Population and housing growth have been influenced by Florida's relatively
low cost of living, and business expansion has continued to provide job
opportunities for skilled workers from economically stagnating economies in the
north. According to the Bureau of Economic and Business Research at the
University of Florida, the statewide unemployment rate as of September, 1997 was
5.2 percent.
A legacy of the state's unprecedented 1980s economic growth has been the
inability of infrastructure in many areas, including Tampa Bay, to keep pace
with development. Because Florida does not have a state income tax, and the
overall tax base is lower than in most other states, problems such as inadequate
highways, municipal services, land use planning, and environmental quality have
received considerable attention. To overcome this, the state is cooperating with
local governments to institute growth management and planning. Impact fees on
new developments, for example, continue to increase while gasoline taxes and
new-resident automobile taxes are earmarked for highway improvement. This places
more of the burden for funding capital improvement projects on developers and
consumers, while avoiding the need to impose state income taxes.
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Regional Analysis
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Population
West Central Florida consists of a nine county area centered around Tampa
Bay. The 1996 estimated population of the West Central Florida region is
3,397,000. The following chart illustrates the historic and estimated future
population growth by county.
================================================================================
PROJECTED
COUNTY 1980 1990 1995 2000
================================================================================
Hillsborough 646,960 859,329 883,202 930,002
- --------------------------------------------------------------------------------
Pinellas 728,531 839,912 870,296 888,059
- --------------------------------------------------------------------------------
Pasco 193,643 281,619 303,692 325,174
- --------------------------------------------------------------------------------
Polk 321,652 413,544 435,619 464,408
- --------------------------------------------------------------------------------
Manatee 148,442 195,328 229,029 245,525
- --------------------------------------------------------------------------------
Sarasota 202,251 271,714 296,283 313,914
- --------------------------------------------------------------------------------
Hernando 44,469 106,770 120,246 138,465
- --------------------------------------------------------------------------------
Citrus 54,703 99,980 106,569 119,006
- --------------------------------------------------------------------------------
Sumter 24,272 32,895 33,837 35,991
- --------------------------------------------------------------------------------
TOTAL 2,364,923 3,101,091 3,278,773 3,460,544
================================================================================
Source: Source Book of County Demographics
As indicated on the preceding chart, the population of west central
Florida increased during the 1980's by 736,168 residents, indicating an annual
compound growth rate of nearly 2.75 percent. This rate of growth has slowed
since 1990 due to a downturn in the national and local economy. The projections
for population growth for the year 2000 indicate continuing increases in
population for all 9 counties.
Governmental and Political Characteristics
On October 27, 1994, Hillsborough County adopted a comprehensive land use
plan known as the "2015 Land Use Plan". The planning effort was mandated by the
Comprehensive Planning Act passed by the Florida Legislature in 1975. The plan
was intended to provide for infrastructure planning and to guide growth and
development in an orderly manner, and has been modified to accommodate new
development patterns.
Recently, Hillsborough County and the city of Tampa revised their zoning
ordinances in the context of objectives set forth in the land use plan, which
also recently underwent major
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Regional Analysis
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revisions. These changes were part of an attempt by the Hillsborough County
City-County Planning Commission, the Hillsborough County Department of
Development Coordination, and other local planning and zoning agencies to more
effectively plan for new growth and development and avoid many of the problems
experienced in recent years.
The state of Florida and its municipalities do not levy personal income
taxes. Property taxes in the Tampa Bay area are typical of most urban areas in
Florida. Continued commercial and industrial development has kept millage rates
levied by Hillsborough County relatively low, although assessed valuations of
commercial properties have recently increased. This has resulted in a moderate
property tax burden for residential property owners, with further relief
provided by homestead exemptions of the first $25,000 of assessed valuations on
primary residences. However, property taxes are anticipated to increase in
future years to help fund infrastructure costs.
Geographic and Physical Characteristics
The Tampa area has long been a desirable place in which to vacation and
retire. Its warm, semitropical climate and location on Tampa Bay near the Gulf
of Mexico, coupled with new industry and new development, continue to attract
new residents.
Because of its strategic geographical location and transportation network,
Tampa is the manufacturing and distribution hub of Florida. The port of Tampa is
the largest in the state of Florida, the nation's 7th largest in size, and 3rd
largest in tonnage. It represents the largest deep-water port to the Panama
Canal and serves as a major distribution and trade center of Florida and the
southern United States. Its 50 terminals handle phosphate, fertilizer, chemical
and dry bulk products, grain, cement, coal, steel, citrus products, bananas,
petroleum products, and liquid sulfur.
In addition to the manufacturing base in Tampa, west central Florida has
some of the most pristine beaches in the state. The coastal counties in the
region, primarily Sarasota, Manatee and Pinellas, rely heavily on their beaches
to attract tourists from the United States, Canada, and Europe. Pinellas County
in particular has been very successful attracting British, Dutch and German
tourists who previously vacationed in southeast Florida.
The eastern counties in the region are mostly flat, with rich soils
suitable for citrus groves and cattle grazing. Polk County is one of the top
five counties in the state for citrus crops. Other areas of Polk County are
heavily mined for phosphate. Sumter, Citrus, Hernando and Pasco Counties were
all heavily planted with citrus from 1940 through the 1970's but increasingly
cold weather destroyed most of the citrus in those counties. Most large scale
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Regional Analysis
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citrus grove operators recognize State Road 60 as the northernmost boundary for
citrus production. This arbitrary boundary indicates southern Polk County,
Manatee County, and Sarasota County are more suitable for citrus due to the
likelihood of cold weather to the north.
Transportation
Major interstate highways through the region allow unrestricted traffic
flow to other areas of the state. The two interstate highways in the region are
Interstate 75 and Interstate 4.
Interstate 75 extends from Miami westward to Naples. From Naples, it
extends northward along the west coast of Florida, continuing through the lower
peninsula of Michigan. Interstate 75 was completed through west central Florida
in 1986 and its completion was a tremendous catalyst for growth along its path,
particularly in Hillsborough County, Manatee County, and Sarasota County. The
growth consisted of a variety of developments including residential
subdivisions, industrial parks, and office parks.
Interstate 4 extends eastward from Tampa to Daytona Beach on Florida's
east coast. It is very heavily traveled, especially during the winter and spring
tourist seasons because it connects the Tampa Bay area and Orlando, two primary
tourist destinations in the state. The intersection of Interstate 4 and
Interstate 75 is approximately six miles east of downtown Tampa and the Port of
Tampa. The area around this intersection is heavily developed with office and
industrial parks where tenants need proximity to the interstate highway system.
The Veterans Expressway was completed in October 1995 and the proposed
construction of the Suncoast Parkway should alleviate a great deal of the
congestion in and around north Tampa. The Suncoast Parkway is proposed to
connect north Tampa (via an interchange on the Veterans Expressway) with an
undetermined point in Citrus, Sumter or Levy County. The intent is to provide a
highway to the western (and most populous) areas of west central Florida.
Tampa International Airport (TIA) is one of the world's most modern
airports. It is centrally located in northwest Hillsborough County to serve
Hillsborough, Pinellas, Pasco, Hernando, Citrus, Sumter, and western Polk
Counties. Situated on 3,000 acres, the airport is centrally located near
interstate 275 and is easily accessible from State Road 60. To serve 15 domestic
and international airlines carrying nearly 10,000,000 passengers a year, it has
five levels of short-term parking, an air cargo terminal, aircraft maintenance
buildings, a general aviation terminal, two-way shuttle systems to air-side
terminals, an Airport Marriot Hotel, and other facilities.
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Regional Analysis
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Social and Cultural Characteristics
The nine county west central Florida region is fairly disparate in terms
of population age distribution. Hillsborough County has the most industrial
orientation and the median age (33.7) is the lowest in the region. Like the
nation as a whole, the population of Hillsborough County is increasing.
Conversely, Pasco County has traditionally been a retirement area, and it has
the highest median age in the region (51.2). Due to its proximity to employment
centers in Hillsborough and Pinellas County, many families are moving into the
county.
The relative prosperity of the 1980's increased demand for upscale housing
in the region. In Pinellas and Hillsborough Counties the result was the
development of more golf course communities like Cheval, Tampa Palms, and
Feather Sound. In Pasco and Hernando Counties, more modest, retiree-oriented
communities like Beacon Woods and Glen Lakes were developed. Some of these large
scale communities over-invested in "up front" infrastructure and they had
difficulty servicing their debt as the housing market softened over the past few
years. However, these large scale golf course communities have been the first
residential developments to rebound as single family home sales improved
significantly in the last two years.
Tampa is not as tourist oriented as Orlando or several of the beach
communities in Pinellas County, though it is conveniently located between the
Gulf Beaches and Walt Disney World. However, Busch Gardens which is located on
Busch Boulevard in northeast Tampa is the second largest tourist attraction in
Florida. Several major golf and tennis resorts such as Avila, Cheval, and
Saddlebrook are also located in the vicinity, and several major-league baseball
franchises relocate to the area for spring training.
Houlihan Stadium, formerly known as Tampa Stadium, is located at the
southeast corner of North Dale Mabry Highway and Dr. Martin Luther King
Boulevard. It is home of the Tampa Bay Buccaneers, who began their 22nd season
in the fall of 1997. The home of the bay area's National Hockey League
franchise, "The Lightnings," is the Ice Palace. The Ice Palace, completed in
1996, is a $110,000,000, 21,000-seat hockey arena, located in the central
business district of Tampa.
In March 1995, Tampa Bay received one of two major-league baseball
franchises. The baseball team is known as the Tampa Bay Devil Rays and plays in
St. Petersburg Tropicana Field in 1998. In addition, the Tampa Bay Mutiny, a
major-league soccer team, began playing at Houlihan Stadium in 1996.
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Regional Analysis
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The downtown waterfront will see further major developments in years to
come. Around the Tampa Port Authority's recently developed 21-acre cruise ship
terminal, investors have confirmed plans for additional mixed-use commercial
developments. The waterfront area between Harbour Island and Ybor City is
projected to become the nucleus of the revitalization of Tampa's downtown area
over the next five years.
Recreation
Hillsborough County contains numerous parks, fishing camps, marinas,
campgrounds, and recreational facilities to appeal to the outdoor sportsman. In
addition, both public and private golf courses and tennis courts abound
throughout the county. Boating of all types takes place in Tampa Bay, with easy
access to the Gulf of Mexico.
Economic Characteristics
The most recent economic data indicate that Florida and West Central
Florida are benefiting from the economic growth in the national economy.
Florida's unemployment rate was 5.2 percent in September 1997. The largest
populated counties in West Central Florida, Hillsborough and Pinellas counties,
each had a September, 1997 unemployment rate of 3.6 percent. The major employers
in Hillsborough County are presented in the chart below.
================================================================================
Major Employers in Hillsborough County
================================================================================
Firm Business Employees
- --------------------------------------------------------------------------------
Hillsborough County School System Public education 22,000
- --------------------------------------------------------------------------------
GTE Telecommunications 10,155
- --------------------------------------------------------------------------------
MacDill Air Force Base Military 8,700
- --------------------------------------------------------------------------------
Hillsborough County Government Public services 7,500
- --------------------------------------------------------------------------------
U.S. Postal Service Mail delivery 6,573
- --------------------------------------------------------------------------------
Tampa International Airport Airport 4,899
- --------------------------------------------------------------------------------
City of Tampa City government 4,347
- --------------------------------------------------------------------------------
University of South Florida Higher education 4,202
- --------------------------------------------------------------------------------
Tampa General Hospital Hospital 4,200
- --------------------------------------------------------------------------------
St. Joseph Hospital Hospital 3,800
- --------------------------------------------------------------------------------
Humana Tampa Bay Hospitals, managed care 3,500
- --------------------------------------------------------------------------------
Tampa Electric Company Utility 3,200
- --------------------------------------------------------------------------------
NationsBank Financial institution 3,005
- --------------------------------------------------------------------------------
James A. Haley Veterans Hospital Hospital 2,480
- --------------------------------------------------------------------------------
Busch Entertainment Corporation Theme park 2,200
================================================================================
================================================================================
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VALUATION ADVISORY SERVICES
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<PAGE>
Regional Analysis
================================================================================
Employment in the southeast is expected to grow faster than the national
average through the year 2000, and Florida is expected to have the greatest
increase in employment of all of the eight southeastern states. America
Demographics, a leading local economic forecaster, projects a 27.6 percent
employment growth rate in the next decade for the Tampa Bay area, while in 1985
their 10-year projection was more optimistic, 41.7 percent.
The chart below illustrates the dispersion of median household income in
the nine county region. Not surprisingly, the more urban counties, Hillsborough,
Pinellas and Sarasota, have a higher percentage of households with income in
excess of $50,000 annually. Sarasota County, a traditionally high end retiree
area, is the highest with 18.8 percent of the households earning over $50,000.
The more rural counties have smaller populations with a higher percentage of
households with annual income less than $25,000.
================================================================================
DISTRIBUTION OF 1995 HOUSEHOLDS BY INCOME (%)
================================================================================
Less $15,000 $25,000 $50,000 $100,000 $150,000
1995 # than to to to to or
COUNTY Household $15,000 $24,999 $49,999 $99,999 $149,999 More
================================================================================
Hillsborough 343,118 18.1 16.5 35.3 24.4 4.1 1.7
- --------------------------------------------------------------------------------
Pinellas 387,842 18.7 18.9 35.4 20.7 4.1 2.1
- --------------------------------------------------------------------------------
Pasco 130,302 26.2 24.2 35.4 12.7 1.1 0.4
- --------------------------------------------------------------------------------
Polk 155,969 21.0 19.4 37.2 18.7 2.6 1.1
- --------------------------------------------------------------------------------
Manatee 98,182 17.5 19.9 37.5 20.4 3.3 1.4
- --------------------------------------------------------------------------------
Sarasota 133,384 15.4 17.8 37.0 22.5 4.6 2.8
- --------------------------------------------------------------------------------
Hernando 50,284 22.2 25.4 36.9 13.6 1.3 0.5
- --------------------------------------------------------------------------------
Citrus 46,198 29.2 25.3 31.1 12.7 1.2 0.5
- --------------------------------------------------------------------------------
Sumter 13,142 31.0 21.9 33.5 12.0 1.0 0.6
================================================================================
Summary and Conclusions
In conclusion, the long term outlook for the region is positive. Previous
declines in population growth and employment growth rates are giving way to job
growth and the consequent encouragement of immigration of all type of labor.
This puts into perspective the recessionary conditions of the last two to three
years. In summary, the Tampa Bay economy is considered well balanced and should
be able to sustain healthy levels of growth and expansion into the foreseeable
future.
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CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
NEIGHBORHOOD MAP
[MAP OMITTED]
<PAGE>
NEIGHBORHOOD ANALYSIS
================================================================================
The subject property is situated along the east side of Starkey Road,
between East Bay Drive and Taylor Avenue, in the city of Largo, Florida. The
subject's immediate neighborhood is bordered by Alternate State Highway 19 to
the west, Belleair Road to the north, State Highway 19 to the east and Ulmerton
Road to the south. Development in the immediate neighborhood of the subject
property consists of manufactured housing communities, single-family housing,
multi-family housing, and commercial development along the major thoroughfares.
Regional access to the subject property is excellent via East Bay Drive,
which provides access to State Highway 19. State Highway 19 runs north and south
in the St. Petersburg-Tampa Bay area and is located two miles east of the
subject property. Major thoroughfares in the immediate neighborhood of the
subject property provide excellent neighborhood access to the subject property.
Major thoroughfares in the subject's immediate neighborhood include: Starkey
Road, Ulmterton Road, Belcher Road, and Taylor Avenue. The subject property
enjoys excellent visibility along Starkey Road, which runs north and south in
the St. Petersburg-Tampa area.
Development in the immediate neighborhood of the subject property consists
of manufactured housing communities, single-family housing, multi-family
housing, and commercial development along the major thoroughfares. Multi-family
housing in the neighborhood of the subject property includes: Forest Brook
Apartments, East Bay Green Apartments, Willowcreek Townhomes, and the Homestead
Retirement Community. Businesses in the immediate neighborhood of the subject
property include: Walgreen's, McDonald's, Texaco, AutoZone, Po Folks Restaurant,
and Largo Veterinary Hospital. There are also small strip-commercial shopping
centers in the immediate neighborhood of the subject property. Manufactured
housing communities in the immediate neighborhood of the subject property
include Island in the Sun, and Eldorado Village.
According to the City of Largo, Department of Community Development, the
December 1995 population of the City of Largo was 67,465. The median age of the
Largo population was 47 years. The largest age group in Largo, approximately
34.1 percent of the total population, included those individuals between 18 to
44 years of age. The next largest age group were those individuals 65 years of
age or older, approximately 32.3 percent of the total population.
According to housing statistics in December 1996, the largest number of
housing units consisted of multi-family housing, approximately 34.9 percent of
total housing. Single-family
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<PAGE>
Neighborhood Analysis
================================================================================
housing, the next largest housing unit group, comprised approximately 31.2
percent of total housing. Manufactured housing accounted for 29.7 percent of
total housing in Largo. In 1995, the median housing price for existing and new
housing in Largo was $83,491, and $88,679, respectively. Average apartment rents
for efficiency and one to three bedroom units ranged from $405 to $723 per
month.
The 1996 median household income (adjusted to family size) was $39,400.
According to the 1990 Census, approximately 77.1 percent of the Largo population
completed high school education, and 13.8 percent completed four years of
college or higher.
Total land area in the City of Largo is approximately 14.9 square miles.
The majority of developed land uses are residential, followed by commercial land
uses. Approximately 1,400 acres in Largo are designated as public lands.
The largest employers in Largo are presented in the table below.
================================================================================
1997 LARGEST EMPLOYERS IN THE CITY OF LARG0, PINELLAS COUNTY, FLORIDA
================================================================================
COMPANY TYPE NO. OF EMPLOYEES
- --------------------------------------------------------------------------------
1 Pinellas County School Board Public Education 15,497
- --------------------------------------------------------------------------------
2 AT & T Paradyne Data Communications 1,000
- --------------------------------------------------------------------------------
3 Val-Pak Coupon Manufacturing 847
- --------------------------------------------------------------------------------
4 Lockheed Martin Research and Development of
Electric Products 620
- --------------------------------------------------------------------------------
5 Linvatec Orthopedic Arthroscopy Equipment 580
- --------------------------------------------------------------------------------
Source: Greater Largo Chamber of Commerce
================================================================================
The subject property is situated in an area well suited for manufactured
housing development. Real estate values are anticipated to increase at a steady
pace. The economy in the area is anticipated to be good, with unemployment
steadily decreasing. The growth in population is anticipated to remain constant.
================================================================================
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WAKEFIELD(R)
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<PAGE>
MARKET ANALYSIS
================================================================================
National Overview
Reportedly, the largest property owners of manufactured housing
communities in the United States are: ROC Communities, headquartered in
Colorado; MHC, Inc., headquartered in Illinois; Ellenburg Capital, headquartered
in Oregon; Lautrec Ltd., headquartered in Michigan; Clayton Homes, headquartered
in Tennessee; Clayton Williams and Sherwood, headquartered in California;
Chateau Properties, Sun Communities and UNIPROP, headquartered in Michigan.
The following represents the top ten manufactured housing community firms,
as reported by GFA Management, as of 1997.
<TABLE>
<CAPTION>
=====================================================================================
No. of
1997 Firm Name State No. of Sites Communities
Rank Owned/Managed Owned/Managed
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Sun Communities Michigan 30,295/0 84/0
- --------------------------------------------------------------------------------------
2 ROC Communities Colorado 22,441/7,167 77/36
- --------------------------------------------------------------------------------------
3 Manufactured Home Communities Illinois 27,349/838 69/3
- --------------------------------------------------------------------------------------
4 Ellenburg Capital Florida 25,173/0 63/0
- --------------------------------------------------------------------------------------
5 Lautrec Ltd. Michigan 22,652/0 58/0
- --------------------------------------------------------------------------------------
6 Chateau Properties Michigan 20,003/0 47/0
- --------------------------------------------------------------------------------------
7 Clayton Homes Tennessee 18,000/0 66/0
- --------------------------------------------------------------------------------------
8 Clayton, Williams and Sherwood California 16,946/0 44/0
- --------------------------------------------------------------------------------------
9 UNIPROP Michigan 14,931/0 40/0
- --------------------------------------------------------------------------------------
10 The Bloch Organization Michigan 14,379/0 37/0
======================================================================================
</TABLE>
According to the U.S. Census Bureau, more than 8,521,000 people were
living in manufactured housing communities as of 1990 compared to 3,838,678 in
1980. This represents an increase in manufactured housing community living of
approximately 122.0 percent over the last ten years. Over the last ten years,
there has been a steady increase in manufactured housing community development
across the country. Among the demographic factors which account for the increase
in manufactured housing community living are: decreasing household size, a
growing demand for smaller housing, as well as an alternative to the increasing
cost of housing. Nationally, the largest percentage of manufactured housing
communities are located in California, Michigan, Colorado, Florida, New York,
Minnesota, Indiana, Arizona, Ohio, and Wisconsin.
The manufactured home industry has dramatically changed over the last 20
years. Manufactured homes are now designed and constructed to accommodate
spacious and
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<PAGE>
Market Analysis
================================================================================
attractive living requirements. Today, approximately one out of sixteen families
live in manufactured housing units. The manufactured housing market share has
been growing steadily over the last 10 years. In 1990, 6.7 percent of Americans
lived in manufactured housing units, up from 2.9 percent compared to 1970,
according to the U.S. Census Bureau, which represents 12.0 to 14.0 percent of
all new housing built since the mid-1980's, according to the Manufactured
Housing Institute in Arlington, Virginia.
In 1990, the average cost of a manufactured housing unit was $27,800
compared to $149,000 for a new house (including land), according to the
Manufactured Housing Institute. This reflects a 28.0 percent increase in the
cost of manufactured housing since 1980 versus a 49.0 percent increase in
conventional housing. Industry experts estimate that a single-family home
selling for $150,000 would require an annual income of $52,671. To purchase a
$27,800 manufactured housing unit, only a $19,984 income level would be
required.
At Fleetwood Enterprises, the nation's largest manufacturer of
manufactured housing units, units may be purchased for up to $100,000, which
would include a three-bedroom, two-bath unit of 2,100 square feet, with vaulted
ceilings.
In 1990, approximately 10.0 percent of manufactured home owners lived in
units worth approximately $40,000, up from 4.0 percent compared to 1981,
according to a study conducted by Foremost Insurance Company in Grand Rapids,
Michigan. Also, according to the study, approximately 21.0 percent of the
manufactured housing households are occupied by people' 65 years of age or
older, slightly lower than the age group for conventional homes, as reported by
Foremost Insurance.
The demand for good quality institutional grade manufactured housing
communities has substantially increased over the last ten years. Manufactured
housing communities provide an affordable alternative to the increasing cost of
housing. Also, manufactured housing communities provide an alternative form of
living for the elderly and retirees, especially for those living on fixed
incomes.
Acquisitions of manufactured housing communities during 1993 and 1994 were
clearly dominated by Real Estate Investment Trusts. During 1994 and 1995
Manufactured Home Communities (MHC) and ROC communities lead the acquisition of
manufactured housing communities nationally. During 1996, Sun Communities
captured the lead and, together with ROC and MHC dominate the Real Estate
Investment Trust market.
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<PAGE>
Market Analysis
================================================================================
The following chart represents the largest Real Estate Investment Trusts,
from 1991 to 1996, as reported by GFA Management
================================================================================
HOME SITE GROWTH, DEVELOPMENT AMONG THE LARGEST
REAL ESTATE INVESTMENT TRUST (REITS)
- --------------------------------------------------------------------------------
Annual
Year ROC MHC Chateau Sun United Total Growth
- --------------------------------------------------------------------------------
1996 29,608 28,187 20,003 30,295 5,234 113,327 17.0%
- --------------------------------------------------------------------------------
1995 27,910 26,237 19,594 18,000 4,850 96,591 9.0%
- --------------------------------------------------------------------------------
1994 26,231 28,407 15,689 13,500 4,623 88,450 37.8%
- --------------------------------------------------------------------------------
1993 20,142 14,700 15,261 9,036 5,050 64,189 17.8%
- --------------------------------------------------------------------------------
1992 18,745 12,873 10,032 7,600 5,200 54,450 N/A
- --------------------------------------------------------------------------------
1991 9,030 13,079 9,759 N/R N/R N/A N/A
- --------------------------------------------------------------------------------
N/R = No report N/A = Not applicable
================================================================================
NOTE: The 113,327 sites counted for the top five REITs in 1996 make up 20
percent of the total sites surveyed in the 1997 Allen Report. These rental sites
are located in 339 communities, accounting for about 1 percent of some 50,000
existing manufactured housing communities nationwide. The community counts for
the five major REITs are: ROC (113), MHC (72), Chateau (47), Sun (84) and United
(23). The proportion of communities owned by each of the REITs compared to the
others is: ROC (33%), MHC (21%), Chateau (14%), Sun (25%) and United (7%).
================================================================================
Manufactured Home Communities (MHC) is expected to continue an aggressive
acquisition campaign through 1997 and beyond. As of September 1997, the MHC REIT
had a market cap of $632.0 million, and continues to pursue the acquisition of
manufactured home communities. Aside from the ELL-CAP $300.0 million
transaction, in September 1997 Manufactured Home Communities, Inc. completed a
$107.0 million purchase of 18 manufactured housing communities and two related
commercial properties from partnerships affiliated with Mobileparks West. The
communities, with 3,505 sites, were purchased with about $3.0 million
manufactured home operating units, $16.0 million in cash and $20.0 million of
installment notes and assumed debt. The communities have an average monthly
rental of $349.00. The communities are located in California, Utah, Oregon,
Washington and Nevada. MHC may be the first manufactured home community REIT to
reach $1.0 billion.
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<PAGE>
Market Analysis
================================================================================
The MHC REIT continues to perform and expand, and as of September 1997 was
trading at $25.625, with a current yield of 5.2 percent. The top traded REITs,
are presented as follows.
<TABLE>
<CAPTION>
==========================================================================================
REIT MARKET UPDATE
- ------------------------------------------------------------------------------------------
Company Symbol Price Current Yield 52 Week High 52 Week Low Annual 12 Mth Tot
(9/19/97) Dividend Rtn
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CPJ $29.688 5.8% $31.125 $22.250 1.72 26.6%
- ------------------------------------------------------------------------------------------
MHC $25.625 5.2% $26.428 $18.875 1.32 30.7%
- ------------------------------------------------------------------------------------------
SUI $37.428 5.0% $ 38.00 $27.750 1.88 31.8%
- ------------------------------------------------------------------------------------------
UMH $11.625 6.0% $13.625 $10.875 0.70 -1.7%
- ------------------------------------------------------------------------------------------
Total return figures obtained through Standard & Poors and are for the period
through Sept 1997.
==========================================================================================
</TABLE>
The Southwest and Northwest Regions of the nation are the preferred
locations regarding recent and future manufactured housing community
acquisitions. However, investors seeking moderate, but consistent growth
expectations, are still looking at the midwest region. Also, southern portions
of Florida are still considered a prime area for investors seeking good quality
manufactured housing communities, with good up-side potential. What was once a
stagnant market, the northeast region is now being considered for future
acquisitions.
According to a recent study prepared by Merrill Lynch & Company, ownership
in the manufactured housing community industry is highly fragmented. The top 150
owner-operators account for less than 5.0 percent of the total industry, whereas
a host of "mom-and-pop" private companies account for the other 95.0 percent.
This unglamorous niche industry is ripe for consolidation, and an infusion of
professional management expertise is likely to yield significant economies of
scale. The four REIT's specializing in manufactured housing communities are
already among the top ten owner-operators, and are well positioned to facilitate
and hasten the industry's consolidation to the likely benefit of their
stockholders.
Manufactured homes are the fastest growing component of the nation's
housing inventory, due to their affordability, good quality design and safety
standards. According to the Merrill Lynch & Company Manufactured Housing
Community Industry Report, factory-built homes appeal especially to senior
citizens and to households with limited economic needs, two segments of the
population that are likely to grow rapidly in coming years.
Consistent returns in manufactured housing community investments have been
the mainstay of the industry. For this reason, as well as the amount of
acquisitions seen by Real Estate Investment Trusts (REITs) from 1991 to 1996,
the availability of good quality
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<PAGE>
Market Analysis
================================================================================
manufactured housing communities has been substantially reduced compared to the
1980's. Good quality manufactured housing communities still command premium
prices, thus driving down overall capitalization rates.
Cushman & Wakefield's Valuation Advisory Services has tracked sale
transactions of manufactured housing communities since 1985. Overall
capitalization rates have consistently been within the 8.75 to 10.00 percent
range for communities located in moderate to increasing growth markets, and as
low as near 8.0 percent for those communities located in growing markets that
poses significant upside potential. Overall capitalization rates are clearly
affected and are differentiated among the properties relative to rent levels,
age, quality, condition, location, amenities, demographic characteristics,
resident profile, as well as the quality of management.
Manufactured housing communities fall within, and are categorized by their
overall appearance, age, and amenities, but more importantly the strength of the
local market. The various categories of manufactured housing communities,
according to the Woodall Directory, can be ranked as 1 to 5 Star Parks These
rankings are defined as follows:
One Star Park
The most important consideration for a one star park is overall
appearance. If it is not a decent place to live, it will not be listed in
Woodall's Directory. The following are general requirements:
The most important consideration for a one star park is overall
appearance. If it is not a decent place to live, it will not be listed in
Woodall's Directory. The following are general requirements:
o Fair overall appearance;
o Patios on most lots. May be concrete, asphalt, wood, or some
suitable material;
o Grass, rock or shell to cover ground;
o Streets fair to good. May be dirt, asphalt or gravel in reasonable
condition;
o Restrooms clean, if any;
o Adequate laundry or laundromat nearby;
o If fences allowed, must be neat;
o Mail service;
o Homes may be old models, but show evidence of care; and,
o Manager available some hours of each day.
Two Star Park
In addition to the requirements for a one star park, a two star park will
have the following:
o Landscaping - some lawns and shrubs;
o Streets in good condition. Must be dust free of crushed rock, gravel
or shell minimum;
o Neat storage;
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VALUATION ADVISORY SERVICES
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<PAGE>
Market Analysis
================================================================================
o Well equipped laundry or laundromat nearby;
o 200 volt connections available;
o If children accepted, park should have play area;
o Park free of clutter, such as old cars and other abandoned
equipment; and,
o Well maintained and managed.
Three Star Park
What a three star park does it does well, but not as uniformly as higher
rated parks. Many three star parks were once higher rated, but original
construction does not allow for today's 10-foot, 12-foot, and double-wides
or the 55-foot and 60-foot lengths. If children are allowed, there should
be adequate play area. However, the disarray caused by children may at
times be the determining factor that keeps a three star park at that level
when it otherwise could be rated higher. In addition to the requirements
for one and two star parks, a three star park must have the following:
o Attractive entrance;
o All homes must be in good condition;
o Awnings and cabana rooms on some homes in southern areas;
o Some spaces for large mobile homes;
o Paved or hard surfaced streets;
o Off-street parking or streets wide enough for safe on-street
parking;
o Good lawns or substitute throughout, shade trees, some shrubs where
climate permits;
o Concrete patios or the equivalent on all lots;
o All lots neat and attractive;
o All park buildings in good repair; and,
o Good management.
Four Star Park
Four star parks are luxury parks. In addition to the requirements for one,
two and three star parks, a four star park must have the following:
o Good landscaping;
o Most homes skirted with metal skirts, concrete block, ornamental
wood or stone;
o Paved streets, edged or curbed.
o Uncrowded lots;
o Underground utilities if permitted by local conditions and
authorities;
o Most tanks, if present, concealed;
o Any hedges or fences must be attractive and uniform;
o Awnings, cabanas, or porches on most homes in southern areas.
(Excepting double-wide units.);
o Most lots to accommodate large mobile homes;
o Where row parking of homes exists, all must be lined up uniformly;
o Community hall and/or swimming pool and/or recreation programs. If a
park is four star in all but this requirement, the fourth star will
be printed as an open star indicating a four star park without
park-centered recreation; and,
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VALUATION ADVISORY SERVICES
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<PAGE>
Market Analysis
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o Excellent management.
Five Star Park
Five star parks are the finest. They should be nearly impossible to
improve. In addition to the requirements for one, two, three, and four
star parks, a five star park must have the following:
o Well planned and laid out spacious appearance;
o Good location in regard to accessibility and desirable neighborhood.
In some locations, park should be enclosed by high hedges or
ornamental fence;
o Wide paved streets in perfect condition. Curbs or lawns edged to
streets, sidewalks, street lights, street signs;
o Homes set back from street;
o Exceptionally attractive entrance and park sign;
o Patios at least 8 x 30 feet. (Excepting double-wide units.);
o Paved off-street parking such as carports or planned parking;
o All homes skirted;
o All hitches concealed. Any existing tanks concealed;
o Recreation, some or all of the following: swimming pool (excepting
areas with long, cold winters), shuffleboards, horseshoe pitching,
golf course, hobby shop, hobby classes, games, potlucks, dances or
natural recreational facilities;
o Beautifully equipped recreation hall with kitchen. Room for
community gatherings, tiled restrooms, etc.;
o Uniform storage sheds or central storage facilities;
o All late model homes in excellent condition;
o At least 60 percent occupancy in order to judge quality of residents
which indicates park's ability to maintain a five star rating
between inspections;
o All empty lots grassed, graveled or otherwise well maintained;
o If pets or children allowed, there must be a place for them to run
and play without cluttering the streets and yards. Most five star
parks are for adults only; and,
o Superior management interested in comfort of residents and
maintenance of park.
The demand for good quality institutional grade manufactured housing
communities is anticipated to increase throughout the 1990's, since manufactured
housing communities provide an alternative form of living for the elderly and
retirees, especially for those living on fixed income. Manufactured home
shipments continue to be strong. Shipments rose 20.0 percent in 1992 and 1994,
and 12.0 percent in 1995. The market for good quality manufactured housing
communities is expected to be strong, with yield and capitalization rates and
prices expected to continue to be competitive, with the REITs leading the way.
================================================================================
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<PAGE>
Market Analysis
================================================================================
Competition
We have surveyed six manufactured housing communities located within the
subject's primary market, including the subject property, containing a total of
3,412 sites. The combined occupancy rate of these six manufactured housing
communities, including the subject property, is approximately 98.6 percent.
Excluding the subject property in our survey, the combined occupancy rate is
approximately 98.5 percent, based on 3,084 sites.
The name and location of the subject property's primary competition, as
well as the number of sites, occupancy levels, amenities offered, monthly rental
rates and services provided in the monthly rental rate, are presented on the
following facing page, along with a map which identifies the location of each
competing park.
================================================================================
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<PAGE>
<TABLE>
<CAPTION>
===========================================================================================================================
SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- ---------------------------------------------------------------------------------------------------------------------------
Number Age
Of Sites ---------
-------- Condition Services Date Of
Comp. Name Occupancy --------- Monthly Provided Last Rental
No. Location Level Amenities Park Rating(1) Rent in Rent Increase
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
R-1 Ranchero Village 946 Clubhouse 1970 $325.00/Mo. Water January, 1997
7100 Ulmerton Road ---- Pool ---- To Sewer
Largo, Florida 100% Tennis Courts Good $401.00/Mo. Refuse
Laundry ---- Lawn Service
5*
- -------------------------------------------------------------------------------------------------------------------------
R-2 Sugar Creek 250 Clubhouse 1979 $322.50/Mo. Water January, 1997
10265 Ulmerton Road --- Pool ---- To Sewer
Largo, Florida 99% Laundry Good $344.50/Mo. Refuse
---- Lawn Service
5*
- -------------------------------------------------------------------------------------------------------------------------
R-3 Island in the Sun 831 Clubhouse 1985 $200.00/Mo. Water January, 1996
1001 Starkey Road --- Pool ---- Sewer
Largo, Florida 95% Laundry Good Refuse
Shuffleboard ---- Lawn Service
Spa 5*
- -------------------------------------------------------------------------------------------------------------------------
R-4 Oak Crest 654 Clubhouse 1974/1980 $331.00/Mo. Refuse July, 1997
9225 Ulmerton Road --- Pool --------- Lawn
Largo, Florida 99% Spa Good
Shuffleboard ----
Horseshoes 5*
Basketball
Laundry
- -------------------------------------------------------------------------------------------------------------------------
R-5 Bay Ranch 403 Clubhouse 1969 $301.00/Mo. Water January, 1997
7349 Ulmerton Road --- Pool ---- To Sewer
Largo, Florida 99% Shuffleboard Average $309.00/Mo. Refuse
Laundry ------- Lawn
Storage 4*
- -------------------------------------------------------------------------------------------------------------------------
Subject East Bay Oaks 328 Clubhouse 1971 $316.00/Mo. Water January, 1997
601 Starkey Road --- Pool ---- To Sewer
Largo, Florida 99% Hot Tub Good $321.00/Mo. Refuse
Shuffleboard ---- Lawn Service
5*
- -------------------------------------------------------------------------------------------------------------------------
(1) Ratings from One Star to Five Star Parks are defined in the National Overview section of this report.
=========================================================================================================================
<CAPTION>
========================================================
SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- --------------------------------------------------------
3-Year
Average
Comp. Name Annual Rental
No. Location Increase
- --------------------------------------------------------
<S> <C> <C>
R-1 Ranchero Village $9.50/Mo.
7100 Ulmerton Road
Largo, Florida
- --------------------------------------------------------
R-2 Sugar Creek $12.00/Mo.
10265 Ulmerton Road
Largo, Florida
- --------------------------------------------------------
R-3 Island in the Sun Leases are 15
1001 Starkey Road years in length,
Largo, Florida with increases
implemented
every five
years. The last
increase was
$25,000
- --------------------------------------------------------
R-4 Oak Crest $12.00/Mo.
9225 Ulmerton Road
Largo, Florida
- --------------------------------------------------------
R-5 Bay Ranch $18.00/Mo.
7349 Ulmerton Road (Last Increase)
Largo, Florida
- --------------------------------------------------------
Subject East Bay Oaks $12.67/Mo.
601 Starkey Road
Largo, Florida
- --------------------------------------------------------
========================================================
</TABLE>
<PAGE>
COMPETITIVE MANUFACTURED HOUSING MAP
[MAP OMITTED]
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Market Analysis
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Rental rates of manufactured housing communities located within the
subject's primary market range from $200.00 to $401.00 per site, on a monthly
basis. The subject property is currently quoting monthly rental rates within the
market range, or $316.00 to $321.00 per site. The last rental rate increase at
the subject property was as of January 1, 1997. One manufactured home at the
subject property is leased with the option to buy, the lease rate on the home is
$184.00.
The enclosed comparable rentals are considered the most competitive to the
subject property regarding amenities offered, condition, location and overall
ranking.
Comparable R-1, Ranchero Village, is located at 7100 Ulmerton Road, in
Largo, Florida. This comparable property contains 946 sites, and is 100.0
percent occupied. Ranchero Village was developed in 1970, and is in
overall good condition. Amenities include a clubhouse, pool, tennis courts
and laundry facilities. Over the last three years, the average annual
rental rate increase was approximately $9.50 per month. Monthly rental
rates range from $325.00 to $401.00, with water, sewer, refuse, and lawn
service included in monthly rental payment. Residents of Ranchero Village
must be 55 years of age or older.
Comparable R-2, Sugar Creek, is located at 10265 Ulmerton Road, in Largo,
Florida. Sugar Creek contains 250 sites, and is 99.0 percent occupied.
Sugar Creek was developed in 1979, and is in overall good condition.
Amenities include a clubhouse, pool, and laundry facility. Over the last
three years, the average annual rental rate increase was approximately
$12.00 per month. Monthly rental rates range from $322.50 to $344.50, with
water, sewer, refuse, and lawn service included in the monthly rental
payment. Residents of Sugar Creek must be 55 years of age or older.
Comparable R-3, Island in the Sun, is located at 1001 Starkey Road, in
Largo, Florida. Island in the Sun contains 831 sites, and is 95.0 percent
occupied. Island in the Sun was developed in 1985, and is in overall good
condition. Amenities include a clubhouse, pool, a laundry facility,
shuffleboard courts, and a spa. Leases are 15 years in length, with
increases occurring every five years. In 1995, the increase was $25.00 per
month. The current monthly rental rate is $200.00, with water, sewer
refuse, and lawn service included in monthly rental payment. Residents of
Island in the Sun must be 55 years of age or older.
Comparable R-4, Oak Crest, is located at 9225 Ulmerton Road, in Largo
Florida. Oak Crest contains 654 sites, and is 99.0 percent occupied. Oak
Crest was developed in 1974 with expansion in 1980, and is in overall good
condition. Amenities include a clubhouse, pool, spa, shuffleboard,
horseshoe pit, basketball court, and laundry facilities. Over the last
three years, the average annual rental rate increase was approximately
$12.00 per month. The monthly rental rate is $331.00, with refuse and lawn
service included in monthly rental payment. Residents of Oak Crest must be
55 years of age or older.
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Market Analysis
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Comparable R-5, Bay Ranch, is located at 7349 Ulmerton Road, in Largo,
Florida. Bay Ranch contains 403 sites, and is 99.0 percent occupied. Bay
Ranch was developed in 1969, and is in overall good condition. Amenities
include a clubhouse, pool, shuffleboard courts, laundry facilities, and a
storage area. Over the last year, the annual rental rate increase was
$18.00 per month. The monthly rental rates range from $301.00 to $309.00,
with water, sewer refuse and lawn service included in the monthly rental
payment. Residents of Bay Ranch must be 55 years of age or older.
In our opinion, and based on conversations with the on-site manager,
properties R-1, R-3 and R-4 compete most favorably with the subject property,
with the monthly rental rates ranging from $200.00 to $401.00 per month per
site. The subject property is currently quoting monthly rental rates ranging
from $316.00 to $321.00 per site, which is within the range of rental rates of
our more comparable competing properties. The subject property competes most
effectively with its primary competitors regarding amenities, condition and
current rent structure.
Comparable Manufactured Housing Community Sales
A search of the subject's market revealed six recent sales of manufactured
housing communities located in the Tampa-St. Petersburg, Florida area. The
following is a brief discussion of each of the manufactured housing sales
located within the subject's market. These sales are summarized on the following
facing page.
Comparable Sale I-1, Sun Valley, is located at 39248 U.S. Highway 19, in
Tarpon Springs, Florida. This property contains 261 sites. The property
was in good condition at the time of sale and was developed in 1970.
Amenities include a clubhouse, pool, shuffleboard courts, and laundry
facilities. The property was approximately 99.0 percent occupied at the
time of sale. The property was purchased for $5,027,100, which equates to
$19,261 per site.
Comparable Sale I-2, Park Royal, is located at 10611 66th Street, in
Pinellas Park, Florida. This property contains 309 sites. The property was
in excellent condition at the time of sale and was developed in 1991.
Amenities include a clubhouse, pool, shuffleboard courts, and laundry. The
property was approximately 90.0 percent occupied at the time of sale. The
property was purchased for $5,695,260, which equates to $18,431 per site.
Comparable Sale I-3, Southern Comfort, is located at 24479 U.S. Highway 19
North, in Clearwater, Florida. This property contains 180 sites, situated
on 21.56 acres of land area. The property was in good condition at the
time of sale and was developed in 1955. Amenities include a laundry
facility. Information
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<TABLE>
<CAPTION>
=================================================================================================================================
SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
=================================================================================================================================
$EGI/Site
Sales Price ---------
Per Site $Expense/Site
Sales Date Land Area Density -------- EGIM -------------
Comp. Name ---------- --------- ------- Occupancy ---- Expense Ratio
No. Location Sales Price No. Sites Condition At Sale $NOI/Site OAR % Of EGI
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
I-1 Sun Valley 5/97 N/A N/A $19,261 $2,137 4.99% $3,861
39248 U.S. Highway 19 ---- ---- ---- ------- ---- ------
Tarpon Springs, Florida $5,027,100 261 Good 99% 11.09% $1,724
------
44.66%
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I-2 Park Royal 5/97 N/A N/A $18,431 $1,913 5.30 $3,478
10611 66th Street ---- --- --- ------- ---- ------
Pinellas Park, Florida $5,695,260 309 Good 90% 10.38% $1,565
------
45.00%
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I-3 Southern Comfort 4/96 21.56 8.35 $19,307 N/A N/A N/A
24479 U.S. Highway 19 North ----- ----- ---- -------
Clearwater, Florida $3,475,200 180 Average N/A
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I-4 Southgate Mobile Home Park 4/96 24.00 6.96 $25,749 $2,306 6.92x $3,720
20000 U.S. Highway 19 North ---- ----- ---- ------- ----- ------
Clearwater, Florida $4,300,000 167 Good 90% 8.96% $1,414
------
38.00%
- ----------------------------------------------------------------------------------------------------------------------------------
I-5 Serendipity 5/95 56.00 7.59 $31,118 $2,698 7.83x $3,975
29081 U.S. 19 North ---- ----- ---- ------- ----- ------
Clearwater, Florida $13,225,000 425 Good 98% 8.67% $1,277
------
32.13%
- ---------------------------------------------------------------------------------------------------------------------------------
I-6 Doral Mobile Home Park 5/95 70.00 7.53 $30,361 $2,995 6.72x $4,516
29250 U.S. 19 North ---- ----- ---- ------- ----- ------
Clearwater, Florida $16,000,000 527 Good 98% 9.87% $1,521
------
33.67%
- --------------------------------------------------------------------------------------------------------------------------------
Subject East Bay Oaks - - - 39.31 8.34 - - - $2,429(1) N/A $3,779
601 Starkey Road ----- ---- ------
Largo, Florida 328 Good 99% $1,350
------
35.73%
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(1) 1997 Trailing 12 months
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<CAPTION>
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SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
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Comp. Name Comparability
No. Location to the Subject Comments
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<S> <C> <C> <C>
I-1 Sun Valley Similar Developed in 1970; Good
39248 U.S. Highway 19 condition; Amenities
Tarpon Springs, Florida include a clubhouse, pool,
shuffleboard courts, and
laundry facilities.
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I-2 Park Royal Superior Developed in 1991;
10611 66th Street Excellent condition;
Pinellas Park, Florida Amenities include:
clubhouse, pool,
shuffleboard courts,
laundry.
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I-3 Southern Comfort Inferior Developed in 1955;
24479 U.S. Highway 19 North Average condition; Minimal
Clearwater, Florida amenities.
- ------------------------------------------------------------------------------------
I-4 Southgate Mobile Home Park Similar Developed in 1971;
20000 U.S. Highway 19 North Good condition; Amenities
Clearwater, Florida include: clubhouse, pool,
shuffleboard courts, and
laundry facilities.
- ------------------------------------------------------------------------------------
I-5 Serendipity Superior Developed in 1975; Good
29081 U.S. 19 North condition; Amenities
Clearwater, Florida include: clubhouse, pool,
shuffleboard courts, and
laundry facilities.
- ------------------------------------------------------------------------------------
I-6 Doral Mobile Home Park Similar Developed in 1972; Good
29250 U.S. 19 North condition; Amenities
Clearwater, Florida include: clubhouse, pool,
shuffleboard courts, and
laundry facilities.
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Subject East Bay Oaks Subject Developed in 1969;
601 Starkey Road Property Good condition;
Largo, Florida Amenities include:
Clubhouse, pool, hot tub,
shuffleboard court, and a
horseshoe pit.
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</TABLE>
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Market Analysis
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regarding the occupancy of the property at the time of sale was
unavailable. The property was purchased for $3,475,200, which equates to
$19,307 per site.
Comparable Sale I-4, Southgate Mobile Home Park, is located at 20000 U.S.
Highway 19 North, in Clearwater, Florida. This property contains 167
sites, situated on 24.0 acres of land area. The park was in good condition
at the time of sale and was developed in approximately 1971. Amenities
include a clubhouse, swimming pool, shuffleboard courts, and laundry
facilities. The property was 90.0 percent occupied at the time of sale.
The property was purchased for $4,300,000, which equates to $25,749 per
site.
Comparable Sale I-5, Serendipity, is located at 29081 U.S. 19 North, in
Clearwater, Florida. This property contains 425 sites, situated on 56.0
acres of land area. The park was in good condition at the time of sale and
was developed in 1975. Amenities include a clubhouse, pool, shuffleboard
courts, and laundry facilities. The property was 98.0 percent occupied at
the time of sale. The property was purchased for $13,225,000, which
equates to $31,118 per site.
Comparable Sale I-6, Doral Mobile Home Park, is located at 29250 U.S. 19
North, in Clearwater, Florida. This property contains 527 sites, situated
on 70.0 acres of land area. The park was in good condition at the time of
sale and was developed in 1972. Amenities include a clubhouse, pool,
shuffleboard courts, and laundry facilities. The property was 98.0 percent
occupied at the time of sale. The property was purchased for $16,000,000,
which equates to $30,361 per site.
It should be noted that comparability does not imply an identical or exact
duplicate, but rather the possession of a similar utility and affected by
similar supply and demand forces. Also, relative to the subject property,
differences include: time or date of the transactions; location, which
encompasses differences in accessibility; site characteristics, including
differences in size, topography, access, exposure and development capacities;
and improvement characteristics, which include differences in age, quality,
condition, size and amenities.
Demographic Trends
Based on information provided by National Decision Systems (NDS), the
populations within the subject's primary 5-mile and secondary 10-mile market
areas, as of 1997, are 235,103 and 594,545, respectively. The populations of the
subject's primary and secondary market areas are projected to increase to
242,468 and 618,630, respectively, by the year 2002.
According to NDS, the total number of households within the subject's
primary and secondary market areas, are 109,472 and 279,236, respectively, for
1997. The number of
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Market Analysis
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households within the subject's primary 5-mile and secondary 10-mile market
areas are projected to increase to 114,677 and 293,654, respectively, by the
year 2002.
The average household income levels within the subject's primary and
secondary market areas, for 1997, are $47,475 and $48,605, respectively, and are
expected to increase to $60,624 and $62,599, respectively, by the year 2002. The
median household income levels within the subject's primary and secondary market
areas, for 1997, are $31,931 and $32,598, respectively, and are expected to
increase to $38,034 and $39,080, respectively, by the year 2002. Per capita
income within the subject's primary and secondary market areas, for 1997, are
$22,654 and $23,252, respectively, and are expected to increase to $29,407 and
$30,275, respectively, by the year 2002.
Based on the above levels, the demographics of the subject's primary
market area appear to indicate a positive growth trend, based on information
provided by the NDS report, a copy of which is provided in the Addenda of this
report.
Expense Analysis
Expenses exhibited by manufactured housing communities nationally are
typically 35.0 to 45.0 percent of effective gross income. However, expense
ratios of manufactured housing communities located in the southeast and
southwest regions of the nation are typically lower by comparison, due to lower
real estate taxes and common area maintenance charges.
As presented in the Summary of Manufactured Housing Communities Sales,
operating expense ratios of competing parks range from 32.1 to 45.0 percent of
effective gross income levels, and $1,277 to $1,724 on a per site basis. The
subject property is currently reporting expenses, for the 12-month trailing
period of 1997, at 35.73 percent of effective gross income and $1,350 on a per
site basis. Operating expenses appear to be within the range of comparable
properties on a per site basis as well as on a percentage of effective gross
income.
Market Supply and Demand
There are a total of five competing manufactured housing communities
located within the subject's market, which total 3,084 sites, with a
corresponding average occupancy rate of 98.4 percent. No specific absorption
statistics were available, since the subject's competing parks have historically
reported occupancy rates at, or above 95.0 percent. The occupancy rate of the
subject property, based on conversations with management, has historically been
slightly higher than occupancy rates of competing parks, and is currently 99.0
percent occupied. We believe the current occupancy rate of the subject property
is stabilized, and is
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Market Analysis
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slightly higher than the occupancy rates of competing parks presently presented.
Based on the subject's current occupancy rate and occupancy rates at competing
parks, demand appears to be strong, with steady rental rate increases expected.
Conclusion
Historically, the subject's primary market has sustained high occupancy
levels of 95.0 to 100 percent. Rental rates of similar manufactured housing
communities located within the subject's primary market generally range from
$200.00 to $401.00 per site, on a monthly basis. The subject property is
currently quoting, and is currently achieving (based on the most recent rent
roll provided), a monthly rental rate within the range of competing parks, or at
$316.00 to $321.00 per site, which we believe is market-orientated.
Based on our research, steady increases in rental rates are anticipated,
based on actual historical performance of competing parks and historical
increases seen at the subject property. Sales transactions of manufactured
housing communities located within the subject's region range from $18,431 to
$31,118 per site, with corresponding overall rates ranging from 8.67 to 11.09
percent. In our opinion, the subject property competes favorably with its
competition regarding amenities, condition, rent structure and overall market
rating.
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SITE PLAN
[GRAPHIC OMITTED]
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PROPERTY DESCRIPTION
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Site Description
The subject site is located on the east side of Starkey Road, between East
Bay Drive and Taylor Avenue. East Bay Drive is also known as Roosevelt
Boulevard, or U.S. Highway 686. The subject site is effectively rectangular in
shape and contains 39.31 acres, or 1,712,344 square feet of land area.
Topographically, the site is basically level and at street grade.
Sewer and water service are provided by Pinellas County Utilities.
Electric Service is provided by Florida Power Company. The City of Clearwater
provides gas service, and GTE Company provides telephone service. The subject
property is accessible via East Bay Drive and Starkey Road. Based on
conversations with the Engineering Department of the City of Largo, the subject
property is not located in a flood hazard area. However, we recommend a
qualified engineer to determine the existence of any flood hazard areas.
Each developed site has a concrete driveway. The streets within the park
have two-lanes, with concrete curbs. Overall, the subject site is typical of the
area and is functionally well suited for its current use.
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.
Improvements Description
The subject property was originally developed in 1971. The subject
improvements consist of a 328-site manufactured housing community, with a
clubhouse, pool, hot tub, shuffleboard courts, and horseshoe pits. The 328-total
sites can fit both double-wide and single-wide homes.
The clubhouse consists of open-space available for resident use, a kitchen
and a library. The exterior of the one-story clubhouse is brick, and appeared to
be in overall good condition at the time of inspection.
The shuffleboard courts, pool, hot tub, and horseshoe pits are adjacent to
the clubhouse. Off-street parking is available for each resident. Site
improvements within the
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Property Description
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park include: paved streets, concrete driveways, street lighting and signage.
Overall, the site improvements appeared to be in good condition at the time of
inspection.
East Bay Oaks is a functional manufactured housing community with good
ingress and egress from Starkey Road. Overall, the subject community appears to
be well maintained and is in good condition. East Bay Oaks is a functional
manufactured housing community and competes favorably with other existing
manufactured housing communities in the area in terms of appearance and
amenities. The subject property would fit the profile of a Five Star Park, as
defined in the National Overview section of this report.
Real Property Taxes and Assessments
Assessed value of commercial property in Pinellas County is assessed at
100.0 percent of the Assessor's opinion of market value. The subject property is
identified by tax parcel number 36-29-15-70236-300-0800.
Real estate taxes in Pinellas County are assessed in arrears. Real estate
taxes for 1997 were billed in November of 1997. The total amount of real estate
taxes for 1997 for the subject property amounts to $133,952.24. Taxes are
discounted if paid in full before March 31, 1997. The total amount of real
estate taxes for 1997 equates to approximately $408.39 per site.
Zoning
According to zoning officials of the City of Largo, the subject property
is currently zoned R-U, Residential Urban. Based on conversations with zoning
officials of the City of Largo, the subject property is a legal, but
non-conforming use in the R-U, Residential Urban, district.
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CONCLUSION
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Conclusion
o The subject property, East Bay Oaks, is a functional manufactured
housing community, which competes favorably in relation to its
competition;
o Comparable manufactured housing communities located within the
subject's market range in monthly rental rates per site from $200.00
to $401.00;
o The subject property is currently quoting, and is currently
achieving (based on the most recent rent roll provided) a monthly
rental rate ranging from $316.00 to $321.00 per site, which is
within the range of competing parks, and appears to be
market-oriented;
o Sale transactions of manufactured housings located within the
subject's region range in unit sales prices per site from $18,431 to
$31,118, with corresponding overall rates ranging from 8.67 to 11.09
percent;
o Operating expenses are within industry standards for a park located
in the southeastern region of the country;
o The subject park appears to be operating at economic levels based on
our review of historical and budgeted 1998 income and expenses;
o The demographic characteristics of the area appear to be positive;
o The population profile of the subject property is 80 percent retired
adults, and 20 percent working adults, 55 years of age or older. The
subject property is a retirement park, with residents required to be
55 years of age or older.
o The current occupancy rate at the subject property of 99 percent is
evident by a strong local market and demand;
o No significant manufactured housing communities are expected to be
developed in the near future;
o In our opinion, based on Woodall's criteria, the subject property is
a Five Star Park, and the reader's attention is directed to the
corresponding definition and criteria of a Five Star Park, presented
in the National Overview section of this report.
o Based on the subject's location, demographic, economic, market and
physical characteristics, we believe East Bay Oaks will continue to
be a viable manufactured housing community in the foreseeable
future, and is well positioned in the marketplace.
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ASSUMPTIONS AND LIMITING CONDITIONS
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"Report" means the consulting report to which these Assumptions and Limiting
Conditions are annexed.
"Property" means the subject of the Report.
"C&W" means Cushman & Wakefield, Inc. or its subsidiary which issued the Report.
"Appraiser(s)" means the employee(s) of C&W who prepared and signed the Report.
This report is made subject to the following assumptions and limiting
conditions:
1. No responsibility is assumed for the legal description or for any matters
which are legal in nature. 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 Report or upon which the Report 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 Appraisers nor C&W shall be responsible for the
accuracy or completeness of such information, including the correctness of
estimates, opinions, dimensions, sketches, exhibits, and other factual
matters.
3. The information is effective as of the date stated in the Report. Changes
since that date in external and market factors or in the property itself
can significantly affect our analysis.
4. The report is to be used in whole and not in part. No part of the Report
shall be used in conjunction with any other report. Possession of the
Report, or a copy thereof, does not carry with it the right of
publication. Publication of the Report or any portion thereof without the
prior written consent of C&W is prohibited. Except as may be otherwise
expressly stated in the letter of engagement to prepare the Report, C&W
does not permit use of the Report by any person other than the party to
whom it is addressed or for purposes other than those for which it was
prepared. If written permission is given by C&W to use the Report, the
Report must be used in its entirety and only with proper written
qualification as approved by C&W. No part of the Report or the identity of
the Appraiser shall be conveyed to the public through advertising, public
relations, news, sales, or other media or used in any material without
C&W's prior written consent. Reference to the Appraisal Institute or to
the MAI designation is prohibited.
5. The Appraiser shall not be required to give testimony in any court or
administrative proceedings relating to the Property or the Report.
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Assumptions and Limiting Conditions
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6. The Report 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 Report; 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 Report is based.
7. The physical condition of the improvements considered by the Report is
based on visual inspection by the Appraiser or other person identified in
the Report. C&W assumes no responsibility for the soundness of structural
members nor for the condition of mechanical equipment, plumbing, or
electrical components.
8. Unless otherwise stated in the Report, the existence of potentially
hazardous or toxic materials which may have been used in the construction
or maintenance or operation of the improvements or may be located at or
about the Property was not considered in the Report. These materials (such
as formaldehyde foam insulation, asbestos insulation, various soil
contaminants, and other potentially hazardous materials) may affect the
value of the Property. The Appraisers are not qualified to detect such
substances, and C&W urges that an expert in this field be employed to
determine the economic impact of these matters, if any, on the property in
the Report.
9. Unless otherwise stated in the Report, compliance with the requirements of
the Americans With Disabilities Act of 1990 (ADA) has not been considered
in the Report. Failure to comply with the requirements of the ADA may
negatively affect the value of the property. C&W recommends that an expert
in this field be employed.
10. If the Report is submitted to a lender or investor with the prior approval
of C&W, such party should consider the Report as one factor, together with
its independent investment considerations and underwriting criteria, in
its overall investment decision.
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CERTIFICATION
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We certify that, to the best of our knowledge and belief:
1. Jennifer L. Estrella inspected the property, and Michael J. Schaeffer and
Stanley R. Dennis, Jr., MAI, have reviewed and approved the report, but
did not inspect 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 on an action or event (such as the
approval of a loan) resulting from the analyses, opinions, or conclusions
in, or the use of, this report.
6. 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 Ethics and Standards of Professional Practice of the Appraisal
Institute.
7. No one provided significant professional assistance to the persons signing
this 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. As of the date of this report, Stanley R. Dennis, Jr., MAI, has completed
the requirements of the continuing education program of the Appraisal
Institute.
/s/ Michael J. Schaeffer /s/ Jennifer L. Estrella /s/ Stanley R. Dennis, Jr.
Michael J. Schaeffer Jennifer L. Estrella Stanley R. Dennis, Jr., MAI
Director Associate Appraiser Director, Manager
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<PAGE>
ADDENDA
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s POP-FACT SHEETS
LEGAL DESCRIPTION
QUALIFICATIONS OF APPRAISERS
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POP-FACT SHEETS
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<PAGE>
Tue Nov 25, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP FACTS: SUMMARY REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6510
PREPARED FOR
CUSHMAN & WAKEFIELD, INC
EAST BAY DR & STARKEY RD
LARGO, FL COORD: 27:54.98 82:45.76
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5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
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POPULATION
2002 PROJECTION 242,468 618,630
1997 ESTIMATE 235,103 594,545
1990 CENSUS 232,646 582,604
1980 CENSUS 206,941 504,483
GROWTH 1980-1990 12.42% 15.49%
HOUSEHOLDS
2002 PROJECTION 114,677 293,654
1997 ESTIMATE 109,472 279,236
1990 CENSUS 103,294 262,074
1980 CENSUS 89,496 220,564
GROWTH 1980-1990 15.42% 18.82%
1997 ESTIMATED POPULATION BY RACE 235,103 594,545
WHITE 90.78% 93.56%
BLACK 6.60% 3.69%
ASIAN & PACIFIC ISLANDER 1.67% 1.79%
OTHER RACES 0.95% 0.96%
1997 ESTIMATED POPULATION 235,103 594,545
HISPANIC ORIGIN 3.71% 3.87%
OCCUPIED UNITS 103,294 262,074
OWNER OCCUPIED 68.36% 70.96%
RENTER OCCUPIED 31.64% 29.04%
1990 AVERAGE PERSON PER HH 2.18 2.17
1997 ESTIMATED HH BY INCOME 109,472 279,236
$150,000 + 3.23% 3.40%
$100,000 TO $149,999 4.11% 4.22%
$ 75,000 TO $ 99,999 5.30% 5.70%
$ 50,000 TO $ 74,999 15.65% 15.85%
$ 35,000 TO $ 49,999 16.86% 16.98%
$ 25,000 TO $ 34,999 15.81% 16.00%
$ 15,000 TO $ 24,999 18.66% 18.15%
$ 5,000 TO $ 14,999 17.05% 16.41%
UNDER $ 5,000 3.34% 3.27%
1997 EST. AVERAGE HH INCOME $47,475 $48,605
1997 EST. MEDIAN HH INCOME $31,931 $32,598
1997 EST. PER CAPITA INCOME $22,654 $23,252
<PAGE>
Tue Nov 25, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP 80-02, HH 80-02, INC 80-02)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6510
PREPARED FOR
CUSHMAN & WAKEFIELD, INC
EAST BAY DR & STARKEY RD
LARGO, FL COORD: 27:54.98 82:45.76
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- --------------------------------------------------------------------------------
POP_80: TOTAL 206,941 504,483
POP_90: TOTAL 232,646 582,604
POP_97: TOTAL (EST.) 235,103 594,545
POP_02: TOTAL (PROJ.) 242,468 618,630
HH_80: TOTAL 89,496 220,564
HH_90: TOTAL 103,294 262,074
HH_97: TOTAL (EST.) 109,472 279,236
HH_02: TOTAL (PROJ.) 114,677 293,654
INC_80: PER CAPITA (EST.) $7,821 $7,868
INC_90: PER CAPITA $15,168 $15,686
INC_97: PER CAPITA (EST.) $22,654 $23,252
INC_02: PER CAPITA (PROJ.) $29,407 $30,275
HH_90_BY INCOME_89: MEDIAN $26,188 $26,882
HH_97_BY INCOME: MEDIAN $31,931 $32,598
HH_02_BY INCOME: MEDIAN $38,034 $39,080
HH_80_BY INCOME_79: AVERAGE $18,084 $17,996
HH_90_BY INCOME_89: AVERAGE $33,510 $34,288
HH_97_BY INCOME: AVERAGE $47,475 $48,605
HH_02_BY INCOME: AVERAGE $60,624 $62,599
<PAGE>
================================================================================
LEGAL DESCRIPTION
================================================================================
<PAGE>
LEGAL DESCRIPTION
================================================================================
EXHIBIT "A" TO SCHEDULE "A"
PARCEL NO. N24-21590-10 (East Bay Oaks):
Lots 8, 9, 10 and 11, PINELLAS GROVES INC., in the Southeast 1/4 of Section 36,
Township 29 South, Range 15 East, according to plat thereof recorded in Plat
Book 1, page 55, public records of Pinellas County, F1orida, LESS that part of
Lots 8 and 9 lying within 50 feet of the West line of said Section 36, for
public road.
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<PAGE>
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QUALIFICATIONS OF APPRAISERS
================================================================================
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
JENNIFER L. ESTRELLA
Education
Master of Urban Planning, Economic Development Concentration
University of Illinois at Urbana-Champaign, 1996
Bachelor of Business Administration, Finance Major
Loyola University Chicago, 1991
Real Estate Education
The following courses have been completed through the Real Estate Program at
the University of Illinois at Urbana-Champaign:
Real Estate Financial Markets
Urban Real Estate Valuation
Real Estate and Urban Land Economics
Current Position
Associate Appraiser, Cushman & Wakefield of Illinois, Inc., Valuation Advisory
Services
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
MICHAEL J. SCHAEFFER
Real Estate Experience
Mr. Schaeffer has been active in the appraisal of real estate since 1983.
Appraisal experience includes the valuation of income-producing real estate in
the Chicago area as well as many major cities and small towns throughout the
Midwest. The types of properties appraised include office buildings, regional
malls, shopping centers, country clubs, apartment complexes, subsidized housing
units, industrial buildings, nursing homes, retirement communities, automotive
dealerships, department stores, vacant land, proposed income-producing
properties, and various special purpose properties. Mr. Schaeffer also has had
over 10 years of experience in new construction and renovation of commercial,
industrial, residential and specialized real estate properties.
Education
Bachelor of Arts, University of Cincinnati, Cincinnati, Ohio MBA Graduate Course
Work in Economics and Management, Xavier University, Cincinnati, Ohio
Real Estate Education
The following courses sponsored by the Appraisal Institute have been
successfully completed:
Real Estate Appraisal Principles 1A-1
Basic Valuation Procedures 1A-2
Standards of Professional Practice
Capitalization Theory and Techniques 1BA
Capitalization Theory and Techniques IBB
Advanced Applications 550
Report Writing & Valuation Analysis 540
Mr. Schaeffer has also attended numerous lectures and seminars sponsored by the
Appraisal Institute.
Mr. Schaeffer is currently a candidate for the MAI designation of the Appraisal
Institute, and has completed the educational and experience requirements for the
MAI designation.
Current Position
Director, Appraisal Services, Cushman & Wakefield, Inc., Chicago, Illinois
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
STANLEY R. DENNIS, JR., MAI
Real Estate Experience
Director, Manager, Cushman & Wakefield Valuation Advisory Services, Chicago,
Illinois. Division is responsible for the appraisal and consultation function of
Cushman & Wakefield, Inc., a national full service real estate organization,
1989.
Vice President, Manager, Cushman & Wakefield Appraisal Services, Portland,
Oregon, 1983.
Principal, Stanley R. Dennis & Associates, Portland, Oregon, 1982.
Education
Portland State University, Portland, Oregon
Bachelor of Science Degree, 1977, Finance and Real Estate
Appraisal Institute
Course I-A Fundamentals and Principles of Real Estate Appraisal
Course I-B Capitalization Theory and Techniques
Course II-I Case Studies in Real Estate Valuation
Course II-2 Valuation Analysis and Report Writing
Course II-3 Standards of Professional Practice
Course IV Litigation/Condemnation Valuation
Course VI Investment Analysis
Course VIII Residential Case Studies
Course X Market Analysis
Seminar Feasibility Analysis and Highest and Best Use
Seminar Discounted Cash Flow Analysis
Seminar Cash Equivalency
Seminar Subdivision Analysis
Seminar Rates, Ratios and Reasonableness
Professional Affiliations
American Institute of Real Estate Appraisers, Member (Designation #6754)
Building Owners and Managers Association (BOMA)
National Association of Corporate Real Estate Executives (NACORE)
<PAGE>
================================================================================
MARKET STUDY OF REAL PROPERTY
Holiday Village
3405 Sinton Road
Colorado Springs, El Paso County, Colorado
================================================================================
As of December 5, 1997
Prepared For:
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Prepared By:
Cushman & Wakefield of Illinois, Inc.
Valuation Advisory Services
455 North Cityfront Plaza Drive, Suite 2800
Chicago, Illinois 60611-5555
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
[Letterhead of Cushman & Wakefield of Illinois, Inc.]
December 18, 1997
Mr. Edward J. Welch
Director
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Re: Market Study of Real Property
Holiday Village
3405 Sinton Road
Colorado Springs, El Paso County, Colorado 80907
Dear Mr. Welch:
In fulfillment of our agreement as outlined in the Letter of Engagement,
Cushman & Wakefield of Illinois, Inc., is pleased to transmit our market study
and consulting report evaluating the above referenced real property.
As specified in the Letter of Engagement, our market study and consulting
report is qualified by certain assumptions, limiting conditions, certifications,
and definitions, which are set forth in the report.
This consulting report was prepared for the Client, and it is intended
only for the specified use of the Client. It may not be distributed to or relied
upon by other persons or entities without written permission of Cushman &
Wakefield, Inc.
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the above
referenced real property, as of the date of our property inspection. The
function of the report is to assist the client, in evaluating the property for
underwriting and rating purposes.
<PAGE>
Mr. Edward J. Welch - 2 - December 18, 1997
This market study and consulting report was prepared in conformity with
the requirements of the Code of Ethics and Standards of Professional Appraisal
Practice of the Appraisal Institute and the Uniform Standards of Professional
Practice (USPAP) adopted by the Appraisal Standards Board of the Appraisal
Foundation.
This letter is invalid if detached from the report, which contains the
text, exhibits, and the Addenda.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF ILLINOIS, INC.
/s/ Jody L. Garbisch
Jody L. Garbisch
Associate Appraiser
/s/ Michael J. Schaeffer
Michael J. Schaeffer
Director
/s/ Stanley R. Dennis, Jr.
Stanley R. Dennis, Jr., MAI
Director, Manager
JLG/MJS:mmw
Revised 97
File No. 97362-13
CUSHMAN &
WAKEFIELD(R)
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<PAGE>
SUMMARY OF SALIENT FACTS
================================================================================
Property Name: Holiday Village
Location: 3405 Sinton Road
Colorado Springs, El Paso County, Colorado
Assessor's Parcel Number: Based on information provided by El Paso
County Treasurer's Office, the subject
property is identified by Schedule
(Account) Numbers 93000-03-850 and
73361-08-001.
Date of Inspection: The property was inspected December 5,
1997.
Ownership: The subject property is legally entitled
to Snowland Vistas, Inc., an Illinois
corporation.
Land Area: Based on the property's legal plat of
survey, the subject property contains
38.082 acres of land area, or 1,658,852
square feet.
Zoning: Based on information provided by the City
of Colorado Springs Zoning Department, the
subject property is zoned PUD, Planned
Unit Development, and is a legal and
conforming use.
Improvements
Type: A manufactured housing community.
Year Built: The subject property was originally
developed in approximately 1972.
Size: The subject property consists of a
240-site manufactured housing community,
of which approximately 145 sites are
single-wide and 95 sties are double-wide.
Condition: At the time of inspection, the subject
property was in good condition.
Property Rating: Five Star manufactured home community.
Special Assumptions: 1. Information regarding the subject
property, including its physical
characteristics, was provided to us by the
client and the on-site manager, and is
assumed to be accurate.
CUSHMAN &
WAKEFIELD(R)
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Summary of Salient Facts
================================================================================
2. The existence of potentially hazardous
or toxic materials, which may be located
on or about the property, was not
considered in our evaluation. The
appraisers are not qualified to detect
such substances, and Cushman & Wakefield
urges that an expert in this field be
employed to determine the existence, if
any, of hazardous materials located on or
about the site.
3. Our market and consulting report
regarding the subject assumes the subject
property, as presently improved,
represents its highest and best use.
4. It is unknown to the appraiser if the
subject property complies with the
Americans with Disabilities Act (ADA). We
recommend a qualified specialist in the
final determination regarding any ADA
compliance deficiencies that may be
present at the subject property.
5. Please refer to the complete list of
assumptions and limiting conditions
included at the end of this report.
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
TABLE OF CONTENTS
================================================================================
Page
PHOTOGRAPHS OF SUBJECT PROPERTY................................................1
INTRODUCTION...................................................................5
Identification of Property.................................................5
Property Ownership and Recent History......................................5
Purpose and Function of the Market Study and Consulting Assignment.........5
Scope of the Market Study and Consulting Assignment........................5
Date of Property Inspection................................................5
Definitions and Other Pertinent Terms......................................5
REGIONAL ANALYSIS..............................................................8
NEIGHBORHOOD ANALYSIS.........................................................10
MARKET ANALYSIS...............................................................13
National Overview.........................................................13
Competition...............................................................20
Comparable Manufactured Housing Community Sales...........................24
Demographic Trends........................................................27
Expense Analysis..........................................................27
Market Supply and Demand..................................................28
Conclusion................................................................28
PROPERTY DESCRIPTION..........................................................30
Site Description..........................................................30
Improvements Description..................................................30
REAL PROPERTY TAXES AND ASSESSMENTS...........................................31
ZONING........................................................................31
CONCLUSION....................................................................32
ASSUMPTIONS AND LIMITING CONDITIONS...........................................33
CERTIFICATION.................................................................35
ADDENDA.......................................................................36
Pop-Fact Sheets
Legal Description
Qualifications of Appraisers
CUSHMAN &
WAKEFIELD(R)
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<PAGE>
PHOTOGRAPHS OF SUBJECT PROPERTY
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[PHOTO OMITTED]
Front Entrance of Subject Property
[PHOTO OMITTED]
Exterior of Community Center
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<PAGE>
Photographs of Subject Property
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[PHOTO OMITTED]
Interior of Clubhouse
[PHOTO OMITTED]
Typical Interior View of the Subject Park
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<PAGE>
Photographs of Subject Property
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[PHOTO OMITTED]
Typical Interior View of the Subject Park
[PHOTO OMITTED]
Typical Interior View of the Subject Park
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<PAGE>
Photographs of Subject Property
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[PHOTO OMITTED]
Street Scene Facing North Along Sinton Road
[PHOTO OMITTED]
Street Scene Facing South Along Sinton Road
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<PAGE>
INTRODUCTION
================================================================================
Identification of Property
The subject property consists of a 240-site manufactured housing
community, situated on approximately 38.082 acres of land area. Holiday Village
is located just north of Fillmore Street, along the east side of Sinton Road, in
the City of Colorado Springs, El Paso County, Colorado. The property's street
address is 3405 Sinton Road. The property was constructed in 1972, and was 98.0
percent occupied at the time of inspection.
Property Ownership and Recent History
The subject property is currently entitled to Snowland Vistas, Inc., an
Illinois corporation, and was originally developed in 1972.
Purpose and Function of the Market Study and Consulting Assignment
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the subject
property, as of the date of property inspection. The function of the consulting
report is to assist the client in evaluating the property for underwriting and
rating purposes.
Scope of the Market Study and Consulting Assignment
In the process of preparing this report, we inspected the property,
interviewed the on-site manager, conducted market research into asking rental
rates for comparable properties, conducted market investigations, and
ascertained sales prices of comparable properties. Additionally, we conducted
market research and evaluated demographic and economic trends; and, the market
position and rating of the subject property.
Date of Property Inspection
The property was inspected December 5, 1997.
Definitions and Other Pertinent Terms
Definitions of pertinent terms taken from the Dictionary of Real Estate
Appraisal, Third Edition (1993), published by the Appraisal Institute, is as
follows:
Market Rent
The rental income that a property would most probably command on the open
market; indicated by current rents paid and asked for comparable space as
of the date of the appraisal.
Evaluation
Evaluation is a study of the nature, quality, or utility of a parcel of
real estate or interest in, or aspects of, real property, in which a value
estimate is not necessarily required.
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5
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<PAGE>
Introduction
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Market Study
A macroeconomic analysis that examines the general market conditions of
supply, demand, and pricing or the demographics of demand for a specific
area or property type.
Legal Description
The subject property is located along the east side of Sinton Road, a
frontage road to the east of Interstate 25, in the City of Colorado Springs, El
Paso County, Colorado. The street address of the subject property is 3405 Sinton
Road, Colorado Springs, Colorado. The property is identified by schedule numbers
93000-03-850 and 73361-08-001, according to El Paso Treasurer's Office. The
subject property's legal description is presented within the title insurance,
which is presented in the Addenda of this report, and reference is made thereto.
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<PAGE>
LOCATION MAP
[MAP OMITTED]
<PAGE>
REGIONAL ANALYSIS
================================================================================
Introduction
The subject is located along Sinton Road, a frontage road to Interstate
25, in the north side of the City of Colorado Springs. The primary market area
is considered to be the Colorado Springs Metropolitan Statistical Areas (MSA),
which encompasses all of El Paso County.
Colorado Springs Metropolitan Area
The City of Colorado Springs is the predominant municipality of the
Colorado Springs Metropolitan Statistical Area (CSMSA). The CSMSA is located
along the eastern edge (front range) of the Colorado Rocky Mountains and
encompasses all of El Paso County. Colorado Springs is located approximately 70
miles south of the Denver Metropolitan Area via Interstate 25. Though exhibiting
different socio-economic characteristics, Colorado Springs and Denver are linked
in terms of economic activity.
Population
Municipalities within the CSMSA and their prorata contribution to total
population include: Colorado Springs (70.8 percent), Fountain (2.5 percent),
Manitou Springs (1.1 percent), Palmer Lake (0.4 percent), Monument (0.3
percent), Green Mountain (0.2 percent), Calhan (0.1 percent), and Ramah (0.02
percent); unincorporated areas account for approximately 24.6 percent of El Paso
County population. According to the census Bureau, the population trends for the
City of Colorado Springs and the CSMSA is as follows:
--------------------------------------------------------
POPULATION
--------------------------------------------------------
Year Colorado Springs CSMSA
--------------------------------------------------------
1970 135,501 235,972
--------------------------------------------------------
1980 215,150 309,424
--------------------------------------------------------
1990 281,140 397,014
--------------------------------------------------------
1996 323,185 472,924
--------------------------------------------------------
From 1990 to 1996, the population for the city of Colorado Springs has
increased from approximately 281,140 to 323,185, which equates to 13.0 percent
growth, or 2.35 percent growth compounded annually. The CSMSA population, for
the same six year period, has increased from approximately 397,014 to 472,924,
which equates to 16.1 percent growth, or 2.96 percent growth compounded
annually. Population is projected to increased to 344,076 and 491,750,
respectively, in the year 2000 for Colorado Springs and the CSMSA.
According to the 1990 census, nearly 71 percent of the population resided
within the municipal boundaries of the City of Colorado Springs. The CSMSA
population is relatively transient, a result of the large military presence. As
with employment, population changes are generally the result of events versus
trends. This has resulted in a home ownership ratio (55 percent) that is below
the state average (62 percent).
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<PAGE>
Regional Analysis
================================================================================
Households/Income
Household formation in the MSA has displayed an increase of 10.47 percent
over the past for years from 161,400 households to its current status of
approximately 178,300 households. Based upon the foregoing, it appears that the
CSMSA qualifies as a mature market where modest, sustained increases in
population and household formation are anticipated over the foreseeable future.
The income characteristics for the Colorado Springs MSA are just slightly
below those witnessed by the state of Colorado as a whole. The current median
household income level for the MSA is $30,020, versus $32,947 for the state of
Colorado.
Summary
Based upon the foregoing, it appears that the Colorado Springs MSA should
witness modest gains in population over the coming years, and income levels are
expected to keep pace. Overall, the subject's MSA is expected to continue its
trend of economic stability, supported by primarily by its continued expansion
in population and increases in local income levels. The continuation of the
Colorado Springs economic stability should ensure a favorable environment for
real estate development and investment over the long term.
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<PAGE>
NEIGHBORHOOD MAP
[MAP OMITTED]
<PAGE>
NEIGHBORHOOD ANALYSIS
================================================================================
Location
The subject is located just north of Fillmore Street along the east side
of Sinton Road, a frontage road to the east of Interstate 25, in the north
section of Colorado Springs. The subject's neighborhood is bounded by Rockrimmon
Boulevard to the north, Nevada Avenue to the east, Fillmore Street to the south
and Centennial Boulevard to the west.
Access
Access to the subject site is from Sinton Road, a frontage road to
Interstate 25. The primary access routes in the neighborhood consist of Fillmore
Street and Interstate 25. Fillmore Street is an east-west commercial arterial,
located just south of the subject site, and connects with Interstate 25.
Interstate 25 is a north-south freeway, bisecting the state of Colorado. At the
north end of the subject neighborhood is Garden of the Gods Road, which also
enjoys an interchange with Interstate 25.
Neighborhood Characteristics
The subject neighborhood includes office, industrial, retail and
residential developments. Office and industrial developments are located north
of the subject site along Sinton Road, and include Sinton's Dairy Products, Ford
Truck Repair, public storage and smaller industrial sites, along with office
complexes. Hotels and multi-family residential buildings are developed to the
west of the subject site, including Motel 7, Motel 6 and Ramada Inn. Fillmore
Street, to the south of the subject property, is developed with retail uses
ranging from small fast food restaurants to neighborhood shopping centers.
Additional manufactured housing communities are located to the east of the
subject property and include Emerald Acres.
Planned Improvements
A manufactured housing community, called Monument Creek, is currently
under construction adjacent to the west of the subject property. Wilmax
Properties is currently in the process of leasing sites. The family community
will have approximately 270 sites and monthly rental rates will be $270.00 per
month. Amenities will include a clubhouse, shuffleboard, and volleyball. Other
amenities may be developed upon demand. The property also has access to Monument
Park, which has a baseball diamond and tennis courts, and the park will have a
fitness trail for residents.
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<PAGE>
Regional Analysis
================================================================================
Conclusion
In summary, the subject property is situated in an area well suited for
manufactured housing development, which benefits from the accessibility to and
from Interstate 25. Real estate values are anticipated to increase at a steady
pace. The economy in the area is anticipated to be good, with unemployment
steadily decreasing and population anticipated to increase.
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MARKET ANALYSIS
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National Overview
Reportedly, the largest property owners of manufactured housing
communities in the United States are: ROC Communities, headquartered in
Colorado; MHC, Inc., headquartered in Illinois; Ellenburg Capital, headquartered
in Oregon; Lautrec Ltd., headquartered in Michigan; Clayton Homes, headquartered
in Tennessee; Clayton Williams and Sherwood, headquartered in California;
Chateau Properties, Sun Communities and UNIPROP, headquartered in Michigan.
The following represents the top ten manufactured housing community firms,
as reported by GFA Management, as of 1997.
<TABLE>
<CAPTION>
=========================================================================================
1997 Firm Name State No. of Sites No. of Communities
Rank Owned/Managed Owned/Managed
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Sun Communities Michigan 30,295/0 84/0
- -----------------------------------------------------------------------------------------
2 ROC Communities Colorado 22,441/7,167 77/36
- -----------------------------------------------------------------------------------------
3 Manufactured Home Communities Illinois 27,349/838 69/3
- -----------------------------------------------------------------------------------------
4 Ellenburg Capital Florida 25,173/0 63/0
- -----------------------------------------------------------------------------------------
5 Lautrec Ltd. Michigan 22,652/0 58/0
- -----------------------------------------------------------------------------------------
6 Chateau Properties Michigan 20,003/0 47/0
- -----------------------------------------------------------------------------------------
7 Clayton Homes Tennessee 18,000/0 66/0
- -----------------------------------------------------------------------------------------
8 Clayton, Williams and Sherwood California 16,946/0 44/0
- -----------------------------------------------------------------------------------------
9 UNIPROP Michigan 14,931/0 40/0
- -----------------------------------------------------------------------------------------
10 The Bloch Organization Michigan 14,379/0 37/0
=========================================================================================
</TABLE>
According to the U.S. Census Bureau, more than 8,521,000 people were
living in manufactured housing communities as of 1990 compared to 3,838,678 in
1980. This represents an increase in manufactured housing community living of
approximately 122.0 percent over the last ten years. Over the last ten years,
there has been a steady increase in manufactured housing community development
across the country. Among the demographic factors which account for the increase
in manufactured housing community living are: decreasing household size, a
growing demand for smaller housing, as well as an alternative to the increasing
cost of housing. Nationally, the largest percentage of manufactured housing
communities are located in California, Michigan, Colorado, Florida, New York,
Minnesota, Indiana, Arizona, Ohio, and Wisconsin.
The manufactured home industry has dramatically changed over the last 20
years. Manufactured homes are now designed and constructed to accommodate
spacious and
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Market Analysis
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attractive living requirements. Today, approximately one out of sixteen families
live in manufactured housing units. The manufactured housing market share has
been growing steadily over the last 10 years. In 1990, 6.7 percent of Americans
lived in manufactured housing units, up from 2.9 percent compared to 1970,
according to the U.S. Census Bureau, which represents 12.0 to 14.0 percent of
all new housing built since the mid-1980's, according to the Manufactured
Housing Institute in Arlington, Virginia.
In 1990, the average cost of a manufactured housing unit was $27,800
compared to $149,000 for a new house (including land), according to the
Manufactured Housing Institute. This reflects a 28.0 percent increase in the
cost of manufactured housing since 1980 versus a 49.0 percent increase in
conventional housing. Industry experts estimate that a single-family home
selling for $150,000 would require an annual income of $52,671. To purchase a
$27,800 manufactured housing unit, only a $19,984 income level would be
required.
At Fleetwood Enterprises, the nation's largest manufacturer of
manufactured housing units, units may be purchased for up to $100,000, which
would include a three-bedroom, two-bath unit of 2,100 square feet, with vaulted
ceilings.
In 1990, approximately 10.0 percent of manufactured home owners lived in
units worth approximately $40,000, up from 4.0 percent compared to 1981,
according to a study conducted by Foremost Insurance Company in Grand Rapids,
Michigan. Also, according to the study, approximately 21.0 percent of the
manufactured housing households are occupied by people' 65 years of age or
older, slightly lower than the age group for conventional homes, as reported by
Foremost Insurance.
The demand for good quality institutional grade manufactured housing
communities has substantially increased over the last ten years. Manufactured
housing communities provide an affordable alternative to the increasing cost of
housing. Also, manufactured housing communities provide an alternative form of
living for the elderly and retirees, especially for those living on fixed
incomes.
Acquisitions of manufactured housing communities during 1993 and 1994 were
clearly dominated by Real Estate Investment Trusts. During 1994 and 1995
Manufactured Home Communities (MHC) and ROC communities lead the acquisition of
manufactured housing communities nationally. During 1996, Sun Communities
captured the lead and, together with ROC and MHC dominate the Real Estate
Investment Trust market.
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Market Analysis
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The following chart represents the largest Real Estate Investment Trusts,
from 1991 to 1996, as reported by GFA Management
================================================================================
HOME SITE GROWTH, DEVELOPMENT AMONG THE LARGEST
REAL ESTATE INVESTMENT TRUST (REITS)
- --------------------------------------------------------------------------------
Year ROC MHC Chateau Sun United Total Annual
Growth
- --------------------------------------------------------------------------------
1996 29,608 28,187 20,003 30,295 5,234 113,327 17.0%
- --------------------------------------------------------------------------------
1995 27,910 26,237 19,594 18,000 4,850 96,591 9.0%
- --------------------------------------------------------------------------------
1994 26,231 28,407 15,689 13,500 4,623 88,450 37.8%
- --------------------------------------------------------------------------------
1993 20,142 14,700 15,261 9,036 5,050 64,189 17.8%
- --------------------------------------------------------------------------------
1992 18,745 12,873 10,032 7,600 5,200 54,450 N/A
- --------------------------------------------------------------------------------
1991 9,030 13,079 9,759 N/R N/R N/A N/A
- --------------------------------------------------------------------------------
N/R = No report N/A = Not applicable
- --------------------------------------------------------------------------------
NOTE: The 113,327 sites counted for the top five REITs in 1996 make up 20
percent of the total sites surveyed in the 1997 Allen Report. These rental sites
are located in 339 communities, accounting for about 1 percent of some 50,000
existing manufactured housing communities nationwide. The community counts for
the five major REITs are: ROC (113), MHC (72), Chateau (47), Sun (84) and United
(23). The proportion of communities owned by each of the REITs compared to the
others is: ROC (33%), MHC (21%), Chateau (14%), Sun (25%) and United (7%).
================================================================================
Manufactured Home Communities (MHC) is expected to continue an aggressive
acquisition campaign through 1997 and beyond. As of September 1997, the MHC REIT
had a market cap of $632.0 million, and continues to pursue the acquisition of
manufactured home communities. Aside from the ELL-CAP $300.0 million
transaction, in September 1997 Manufactured Home Communities, Inc. completed a
$107.0 million purchase of 18 manufactured housing communities and two related
commercial properties from partnerships affiliated with Mobileparks West. The
communities, with 3,505 sites, were purchased with about $3.0 million
manufactured home operating units, $16.0 million in cash and $20.0 million of
installment notes and assumed debt. The communities have an average monthly
rental of $349.00. The communities are located in California, Utah, Oregon,
Washington and Nevada. MHC may be the first manufactured home community REIT to
reach $1.0 billion.
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Market Analysis
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The MHC REIT continues to perform and expand, and as of September 1997 was
trading at $25.625, with a current yield of 5.2 percent. The top traded REITs,
are presented as follows.
================================================================================
REIT MARKET UPDATE
- --------------------------------------------------------------------------------
Company Price Current 52 Week 52 Week Annual 12 Mth
Symbol (9/19/97) Yield High Low Dividend Tot Rtn
- --------------------------------------------------------------------------------
CPJ $29.688 5.8% $31.125 $22.250 1.72 26.6%
- --------------------------------------------------------------------------------
MHC $25.625 5.2% $26.428 $18.875 1.32 30.7%
- --------------------------------------------------------------------------------
SUI $37.428 5.0% $ 38.00 $27.750 1.88 31.8%
- --------------------------------------------------------------------------------
UMH $11.625 6.0% $13.625 $10.875 0.70 -1.7%
- --------------------------------------------------------------------------------
Total return figures obtained through Standard & Poors and are for the period
through Sept 1997.
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The Southwest and Northwest Regions of the nation are the preferred
locations regarding recent and future manufactured housing community
acquisitions. However, investors seeking moderate, but consistent growth
expectations, are still looking at the midwest region. Also, southern portions
of Florida are still considered a prime area for investors seeking good quality
manufactured housing communities, with good up-side potential. What was once a
stagnant market, the northeast region is now being considered for future
acquisitions.
According to a recent study prepared by Merrill Lynch & Company, ownership
in the manufactured housing community industry is highly fragmented. The top 150
owner-operators account for less than 5.0 percent of the total industry, whereas
a host of "mom-and-pop" private companies account for the other 95.0 percent.
This unglamorous niche industry is ripe for consolidation, and an infusion of
professional management expertise is likely to yield significant economies of
scale. The four REIT's specializing in manufactured housing communities are
already among the top ten owner-operators, and are well positioned to facilitate
and hasten the industry's consolidation to the likely benefit of their
stockholders.
Manufactured homes are the fastest growing component of the nation's
housing inventory, due to their affordability, good quality design and safety
standards. According to the Merrill Lynch & Company Manufactured Housing
Community Industry Report, factory-built homes appeal especially to senior
citizens and to households with limited economic needs, two segments of the
population that are likely to grow rapidly in coming years.
Consistent returns in manufactured housing community investments have been
the mainstay of the industry. For this reason, as well as the amount of
acquisitions seen by Real
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Market Analysis
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Estate Investment Trusts (REITs) from 1991 to 1996, the availability of good
quality manufactured housing communities has been substantially reduced compared
to the 1980's. Good quality manufactured housing communities still command
premium prices, thus driving down overall capitalization rates.
Cushman & Wakefield's Valuation Advisory Services has tracked sale
transactions of manufactured housing communities since 1985. Overall
capitalization rates have consistently been within the 8.75 to 10.00 percent
range for communities located in moderate to increasing growth markets, and as
low as near 8.0 percent for those communities located in growing markets that
poses significant upside potential. Overall capitalization rates are clearly
affected and are differentiated among the properties relative to rent levels,
age, quality, condition, location, amenities, demographic characteristics,
resident profile, as well as the quality of management.
Manufactured housing communities fall within, and are categorized by their
overall appearance, age, and amenities, but more importantly the strength of the
local market. The various categories of manufactured housing communities,
according to the Woodall Directory, can be ranked as 1 to 5 Star Parks. These
rankings are defined as follows:
One Star Park
The most important consideration for a one star park is overall
appearance. If it is not a decent place to live, it will not be listed in
Woodall's Directory. The following are general requirements:
o Fair overall appearance;
o Patios on most lots. May be concrete, asphalt, wood, or some
suitable material;
o Grass, rock or shell to cover ground;
o Streets fair to good. May be dirt, asphalt or gravel in reasonable
condition;
o Restrooms clean, if any;
o Adequate laundry or laundromat nearby;
o If fences allowed, must be neat;
o Mail service;
o Homes may be old models, but show evidence of care; and,
o Manager available some hours of each day.
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Market Analysis
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Two Star Park
In addition to the requirements for a one star park, a two star park will
have the following:
o Landscaping - some lawns and shrubs;
o Streets in good condition. Must be dust free of crushed rock, gravel
or shell minimum;
o Neat storage;
o Well equipped laundry or laundromat nearby;
o 200 volt connections available;
o If children accepted, park should have play area;
o Park free of clutter, such as old cars and other abandoned
equipment; and,
o Well maintained and managed.
Three Star Park
What a three star park does it does well, but not as uniformly as higher
rated parks. Many three star parks were once higher rated, but original
construction does not allow for today's 10-foot, 12-foot, and double-wides
or the 55-foot and 60-foot lengths. If children are allowed, there should
be adequate play area. However, the disarray caused by children may at
times be the determining factor that keeps a three star park at that level
when it otherwise could be rated higher. In addition to the requirements
for one and two star parks, a three star park must have the following:
o Attractive entrance;
o All homes must be in good condition;
o Awnings and cabana rooms on some homes in southern areas; Some
spaces for large mobile homes;
o Paved or hard surfaced streets;
o Off-street parking or streets wide enough for safe on-street
parking;
o Good lawns or substitute throughout, shade trees, some shrubs where
climate permits;
o Concrete patios or the equivalent on all lots;
o All lots neat and attractive;
o All park buildings in good repair; and,
o Good management.
Four Star Park
Four star parks are luxury parks. In addition to the requirements for one,
two and three star parks, a four star park must have the following:
o Good landscaping;
o Most homes skirted with metal skirts, concrete block, ornamental
wood or stone;
o Paved streets, edged or curbed.
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Market Analysis
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o Uncrowded lots;
o Underground utilities if permitted by local conditions and
authorities;
o Most tanks, if present, concealed;
o Any hedges or fences must be attractive and uniform;
o Awnings, cabanas, or porches on most homes in southern areas.
(Excepting double-wide units.);
o Most lots to accommodate large mobile homes;
o Where row parking of homes exists, all must be lined up uniformly;
o Community hall and/or swimming pool and/or recreation programs. If a
park is four star in all but this requirement, the fourth star will
be printed as an open star indicating a four star park without
park-centered recreation; and,
o Excellent management.
Five Star Park
Five star parks are the finest. They should be nearly impossible to
improve. In addition to the requirements for one, two, three, and four
star parks, a five star park must have the following:
o Well planned and laid out spacious appearance;
o Good location in regard to accessibility and desirable neighborhood.
In some locations, park should be enclosed by high hedges or
ornamental fence;
o Wide paved streets in perfect condition. Curbs or lawns edged to
streets, sidewalks, street lights, street signs;
o Homes set back from street;
o Exceptionally attractive entrance and park sign;
o Patios at least 8 x 30 feet. (Excepting double-wide units.);
o Paved off-street parking such as carports or planned parking;
o All homes skirted;
o All hitches concealed. Any existing tanks concealed;
o Recreation, some or all of the following: swimming pool (excepting
areas with long, cold winters), shuffleboards, horseshoe pitching,
golf course, hobby shop, hobby classes, games, potlucks, dances or
natural recreational facilities;
o Beautifully equipped recreation hall with kitchen. Room for
community gatherings, tiled restrooms, etc.;
o Uniform storage sheds or central storage facilities;
o All late model homes in excellent condition;
o At least 60 percent occupancy in order to judge quality of residents
which indicates park's ability to maintain a five star rating
between inspections;
o All empty lots grassed, graveled or otherwise well maintained;
o If pets or children allowed, there must be a place for them to run
and play without cluttering the streets and yards. Most five star
parks are for adults only; and,
o Superior management interested in comfort of residents and
maintenance of park.
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Market Analysis
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The demand for good quality institutional grade manufactured housing
communities is anticipated to increase throughout the 1990's, since manufactured
housing communities provide an alternative form of living for the elderly and
retirees, especially for those living on fixed income. Manufactured home
shipments continue to be strong. Shipments rose 20.0 percent in 1992 and 1994,
and 12.0 percent in 1995. The market for good quality manufactured housing
communities is expected to be strong, with yield and capitalization rates and
prices expected to continue to be competitive, with the REITs leading the way.
Competition
We have surveyed seven manufactured housing communities located within the
subject's primary market, including the subject property, containing a total of
2,024 sites. The combined occupancy rate of the applicable six manufactured
housing communities, including the subject property, is approximately 99.0
percent. Excluding the subject property in our survey, the combined occupancy
rate is also approximately 99.0 percent, based on 1,784 sites.
The name and location of the subject property's primary competition, as
well as the number of sites, occupancy levels, amenities offered, monthly rental
rates and services provided in the monthly rental rate, are presented on the
following facing page, along with a map which identifies the location of each
competing park.
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<TABLE>
<CAPTION>
===========================================================================================================================
SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- ---------------------------------------------------------------------------------------------------------------------------
Number Age
Of Sites ---
-------- Condition Services Date Of
Comp. Name Occupancy --------- Monthly Provided Last Rental
No. Location Level Amenities Park Rating(1) Rent in Rent Increase
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
R-1 Emerald Acres 113 Clubhouse 1970 $300.00/Mo. Water November, 1996
3750 N. Cascade Avenue ---- Laundry ---- To Sewer
Colorado Springs, COue 100% Storage Average $310.00/Mo. Refuse
-------
4*
- ---------------------------------------------------------------------------------------------------------------------------
R-2 La Cresta 300 Clubhouse 1967 $350.00/Mo. Water January, 1997
205 Murray Boulevard ---- Pool/Spa ---- To Sewer
Colorado Springs, CO 100% Library Good $368.00/Mo. Refuse
Billiard Room ----
Laundry 5*
Storage
- ---------------------------------------------------------------------------------------------------------------------------
R-3 The Meadows 401 Clubhouse 1972 $255.00/Mo. Water April, 1997
4825 Astrozon Boulevard --- Pool/Spa ---- Sewer
Colorado Springs, CO 99% Basketball Good Refuse
Tennis Court ----
4*
- ---------------------------------------------------------------------------------------------------------------------------
R-4 Canterbury 497 Clubhouse 1986 $270.00/Mo. Water January, 1997
3020 S. Powers Boulevard ---- Pool ---- Sewer
Colorado Springs, CO 100% Basketball Average Refuse
Playground -------
Storage 4*
- ---------------------------------------------------------------------------------------------------------------------------
R-5 Crestline 203 Playground 1974 $255.00/Mo. Refuse January, 1997
4945 Mark Dabling Blvd. ---- ---- To
Colorado Springs, CO 100% Average $275.00/Mo.
-------
4*
- ---------------------------------------------------------------------------------------------------------------------------
R-6 Monument Creek 270 Clubhouse 1997 $270.00/Mo. Refuse N/A
85 Sunflower --- Shuffleboard ----
Colorado Springs, CO N/A Volleyball Excellent
---------
5*
- ---------------------------------------------------------------------------------------------------------------------------
Subject Holiday Village 240 Clubhouse 1972 $350.00/Mo. Water January, 1997
3405 Sinton Road --- Pool/Spa ---- Sewer
Colorado Springs, CO 98% Library Good Refuse
Billiard Room ----
Exercise Room 5*
Storage
- ---------------------------------------------------------------------------------------------------------------------------
(1) Ratings from One Star to Five Star Parks are defined in the National Overview section of this report.
===========================================================================================================================
<CAPTION>
========================================================
SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- --------------------------------------------------------
3-Year
Average
Comp. Name Annual Rental
No. Location Increase
- --------------------------------------------------------
<S> <C> <C>
R-1 Emerald Acres $15.00/Mo.
3750 N. Cascade Avenue
Colorado Springs, COue
- --------------------------------------------------------
R-2 La Cresta $25.00/Mo.
205 Murray Boulevard
Colorado Springs, CO
- --------------------------------------------------------
R-3 The Meadows $20.00/Mo.
4825 Astrozon Boulevard
Colorado Springs, CO
- --------------------------------------------------------
R-4 Canterbury $20.00/Mo.
3020 S. Powers Boulevard
Colorado Springs, CO
- --------------------------------------------------------
R-5 Crestline $15.00/Mo.
4945 Mark Dabling Blvd.
Colorado Springs, CO
- --------------------------------------------------------
R-6 Monument Creek N/A
85 Sunflower
Colorado Springs, CO
- --------------------------------------------------------
Subject Holiday Village $23.00/Mo.
3405 Sinton Road
Colorado Springs, CO
- --------------------------------------------------------
========================================================
</TABLE>
<PAGE>
COMPETING MANUFACTURED HOUSING MAP
[MAP OMITTED]
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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Market Analysis
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Rental rates of manufactured housing communities located within the
subject's primary market range from $255.00 to $368.00 per site, on a monthly
basis. The subject property is currently quoting a monthly rental rate within
the market range, or at $350.00 per site. The last rental rate increase at the
subject property was as of January, 1997, of $23.00 per month.
The enclosed comparable rentals are considered the most competitive to the
subject property regarding amenities offered, condition, location and overall
ranking.
Comparable R-1, Emerald Acres, is located at 3750 N. Cascade Avenue, in
Colorado Springs, Colorado. This comparable property is a 55-year-old and
older residential community, containing 113 sites, and is 100.0 percent
occupied. Emerald Acres was developed in 1970, and is in overall average
condition. Over the last three years, the annual rental rate increased
approximately $15.00 per month. Monthly rental rates range from $300.00 to
$310.00, with water, sewer and refuse service included in monthly rental
payment. Amenities include a clubhouse, laundry facility and recreational
vehicle storage.
Comparable R-2, La Cresta, is located at 205 Murray Boulevard, in Colorado
Springs, Colorado. This comparable property is a 55-year-old and older
residential community, containing 300 sites, and is 100.0 percent
occupied. La Cresta was developed in 1967, and is in overall good
condition. Over the last three years, the annual rental rate increased
approximately $25.00 per month. Monthly rental rates range from $350.00 to
$368.00, with water, sewer and refuse service included in monthly rental
payment. Amenities include a clubhouse, pool, spa, library, billiard room,
laundry facility and recreational vehicle storage.
Comparable R-3, The Meadows, is located at 4825 Astrozon Boulevard, in
Colorado Springs, Colorado. This comparable property is a family
residential community, containing 401 sites, and is 99.0 percent occupied.
The Meadows was developed in 1972, and is in overall average condition.
Over the last three years, the annual rental rate increased approximately
$20.00 per month. Monthly rental rates are at $255.00, with water, sewer
and refuse service included in monthly rental payment. Amenities include a
clubhouse, pool, spa, basketball court and tennis court.
Comparable R-4, Canterbury, is located at 3020 S. Powers Boulevard, in
Colorado Springs, Colorado. This comparable property is a family
residential community, containing 497 sites, and is 100.0 percent
occupied. Canterbury was developed in 1986, and is in overall good
condition. Over the last three years, the annual rental rate increased
approximately $20.00 per month. Monthly rental rates are at $270.00, with
water, sewer and refuse service included in monthly rental payment.
Amenities include a clubhouse, pool, basketball court, playground and
recreational vehicle storage.
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Market Analysis
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Comparable R-5, Crestline, is located at 4945 Mark Dabling Boulevard, in
Colorado Springs, Colorado. This comparable property is a family
residential community, containing 203 sites, and is 100.0 percent
occupied. Crestline was developed in 1974, and is in overall average
condition. Over the last three years, the annual rental rate increased
approximately $15.00 per month. Monthly rental rates range from $255.00 to
$275.00, with refuse service included in monthly rental payment. Amenities
include a playground.
Comparable R-7, Monument Creek, is located at 85 Sunflower, in Colorado
Springs, Colorado. This comparable property will be opening in early 1998,
and will be a family residential community containing 270 sites. Monthly
rental rates are at $270.00, with refuse service included in monthly
rental payment. Amenities will include a clubhouse, shuffleboard, and
volleyball. Other amenities may be developed upon demand. The property
also has access to monument park with a baseball diamond and tennis
courts, and have a fitness trail for residents.
In our opinion, and based on conversations with the on-site manager,
property R-2 competes most favorably with the subject property, with monthly
rental rates ranging from $350.00 to $368.00 per site. The subject property is
currently quoting monthly rental rates at $350.00 per site, which is within the
lower range of the rental rates of our more comparable competing property. The
subject property competes most effectively with its primary competitors
regarding amenities, condition and current rent structure.
Comparable Manufactured Housing Community Sales
A search of the subject's market revealed six recent sales of manufactured
housing communities located in the Denver Metropolitan Area. The following is a
brief discussion of each of the manufactured housing sales located within the
subject's market. These sales are summarized on the following facing page.
Comparable Sale I-1, Pine Lakes, is located at 10201 Riverdale Road, in
Thornton, Colorado. This property contains 760 sites, situated on 183.67
acres of land area. The property was developed in 1972, and was in overall
good condition at the time of sale. Amenities include two clubhouses, two
pools, recreation room, tennis court, basketball court, and a playground.
The property was approximately 90.0 percent occupied at the time of sale.
The property was purchased for $12,500,000 as a combined transaction with
sale I-2, which equates to $16,447 per site,
Comparable Sale I-2, Redwood Estate II, is located at 9595 Pecos Street,
in Thornton, Colorado. This property contains 752 sites, situated on
128.22 acres of land area. Amenities include a clubhouse, pool, recreation
room, playground and recreational vehicle storage. The property was
approximately 93.0 percent
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<TABLE>
<CAPTION>
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SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- --------------------------------------------------------------------------------------------------------------------
Sales Price
Per Site
Sales Date Land Area Density -------- EGIM
Comp. Name ---------- --------- -------- Occupancy ----
No. Location Sales Price No. Sites Condition At Sale $NOI/Site OAR
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
I-1 Pine Lakes 7/96 183.67 4.14 $16,447 $1,563 N/A
10201 Riverdale Road ----------- ------ ---- ------- ---
Thornton, Colorado $12,500,000(1) 760 Good 90% 9.50%
- --------------------------------------------------------------------------------------------------------------------
I-2 Redwood Estate II 7/96 128.22 5.86 $16,622 $1,579 N/A
9595 Pecos Street ----------- ------ ---- ------- ---
Thornton, Colorado $12,500,000(1) 752 Good 93% 9.50%
- --------------------------------------------------------------------------------------------------------------------
I-3 Canyon Ridge 7/96 31.36 7.97 $16,800 $1,512 N/A
5150 Airport Road ---------- ----- ---- ------- ---
Colorado Springs, CO $4,200,000 250 Good 99% 9.00%
- --------------------------------------------------------------------------------------------------------------------
I-4 Cottonwood Village 9/95 19.36 12.45 $19,917 $1,591 6.45x
11990 S. Boulder Road ---------- ----- ---- ------- -----
Lafayette, Colorado $4,800,000 241 Good 100% 7.99%
- --------------------------------------------------------------------------------------------------------------------
I-5 Canterbury Park 7/95 61.73 8.03 $18,750 $2,037 6.91x
3020 S. Powers Blvd. ---------- ----- ---- ------- -----
Colorado Springs, CO $9,300,000 496 Good 100% 10.87%
- --------------------------------------------------------------------------------------------------------------------
I-6 Woodland Hills 3/94 57.0 7.63 $18,391 $1,885 5.56x
1500 West Thornton ---------- ---- ---- ------- -----
Thornton, Colorado $8,000,000 435 Good 97% 10.25%
- --------------------------------------------------------------------------------------------------------------------
Subject Holiday Village - - - 38.082 6.30 - - - $2,943 N/A
3405 Sinton Road ------ ---- 98%
Colorado Springs, CO 240 Good
- --------------------------------------------------------------------------------------------------------------------
(1) Sale I-1 and I-2 were purchased as a combined transaction.
====================================================================================================================
<CAPTION>
=============================================================================================================
SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- -------------------------------------------------------------------------------------------------------------
$EGI/Site
---------
$Expense/Site
-------------
Comp. Name Expense Ratio Comparability to
No. Location % Of EGI to the Subject Comments
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
I-1 Pine Lakes N/A Similar Good condition; Amenities include
10201 Riverdale Road two clubhouses, two pools,
Thornton, Colorado recreation room, tennis,
basketball and playground.
- -------------------------------------------------------------------------------------------------------------
I-2 Redwood Estate II N/A Similar Good condition; Amenities include
9595 Pecos Street a clubhouse, pool, recreation
Thornton, Colorado room, playground and RV storage.
- -------------------------------------------------------------------------------------------------------------
I-3 Canyon Ridge N/A Inferior Developed in 1972;
5150 Airport Road Good condition; Amenities include
Colorado Springs, CO a clubhouse, pool, recreation
room and laundry facility.
- -------------------------------------------------------------------------------------------------------------
I-4 Cottonwood Village $3,089 Inferior Developed in 1972; Good
11990 S. Boulder Road ------ condition; Amenities include a
Lafayette, Colorado $1,498 clubhouse, pool, recreation room,
------ playground and laundry facility.
48.50%
- -------------------------------------------------------------------------------------------------------------
I-5 Canterbury Park $2,714 Similar Developed in 1985; Good
3020 S. Powers Blvd. ------ condition; Amenities include a
Colorado Springs, CO $677 clubhouse, pool and RV storage.
----
24.95%
- -------------------------------------------------------------------------------------------------------------
I-6 Woodland Hills $3,310 Similar Developed in 1970; Good
1500 West Thornton ------ condition; Amenities include a
Thornton, Colorado $1,425 clubhouse, pool, playground and
------ barbecue pavilion.
43.05%
- -------------------------------------------------------------------------------------------------------------
Subject Holiday Village $4,076 Subject Property Developed in 1972; Good
3405 Sinton Road ------ condition; Amenities include a
Colorado Springs, CO $1,134 clubhouse, pool, spa, library,
------ billiard room, exercise room and
27.82% RV storage.
- -------------------------------------------------------------------------------------------------------------
=============================================================================================================
</TABLE>
<PAGE>
Market Analysis
================================================================================
occupied at the time of sale. The property was purchased for $12,500,000
as a combined transaction with sale I-1, which equates to $16,622 per
site.
Comparable Sale I-3, Canyon Ridge, is located at 5150 Airport Road, in
Colorado Springs, Colorado. This property contains 250 sites, situated on
31.36 acres of land area. Canyon Ridge was developed in 1972, and was in
good condition at the time of sale. Amenities include a clubhouse, pool,
recreation room and laundry facility. The property was approximately 99.0
percent occupied at the time of sale. The property was purchased for
$4,200,000, which equates to $16,800 per site.
Comparable Sale I-4, Cottonwood Village, is located at 11990 S. Boulder
Road, in Layfayette, Colorado. This property contains 241 sites, situated
on 19.36 acres of land area. Cottonwood Village was developed in 1972, and
was in overall good condition at the time of sale. Amenities include a
clubhouse, pool, recreation room, playground and laundry facility. The
property was 100.0 percent occupied at the time of sale. The property was
purchased for $4,800,000, which equates to $19,917 per site.
Comparable Sale I-5, Canterbury Park, is located at 3020 S. Powers
Boulevard, in Colorado Springs, Colorado. This property contains 496
sites, situated on 61.73 acres of land area. Canterbury Park was developed
in 1985, and was in overall good condition at the time of sale. Amenities
include a clubhouse, pool and recreational vehicle storage. The property
was 100.0 percent occupied at the time of sale. The property was purchased
for $9,300,000, which equates to $18,750 per site.
Comparable Sale I-6, Woodland Hills, is located at 1500 West Thornton, in
Thornton, Colorado. This property contains 435 sites, situated on 57.0
acres of land area. Woodland Hills was developed in 1970, and was in
overall good condition at the time of sale. Amenities include a clubhouse,
pool, playground and barbecue pavilion. The property was 97.0 percent
occupied at the time of sale. The property was purchased for $8,000,000,
which equates to $18,391 per site.
It should be noted that comparability does not imply an identical or exact
duplicate, but rather the possession of a similar utility and affected by
similar supply and demand forces. Also, relative to the subject property,
differences include: time or date of the transactions; location, which
encompasses differences in accessibility; site characteristics, including
differences in size, topography, access, exposure and development capacities;
and improvement characteristics, which include differences in age, quality,
condition, size and amenities.
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Market Analysis
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Demographic Trends
Based on information provided by National Decision Systems (NDS), the
populations within the subject's primary 5-mile and secondary 10-mile market
areas, as of 1997, are 196,712 and 410,339, respectively. The populations of the
subject's primary and secondary market areas are projected to increase to
213,787 and 466,312, respectively, by the year 2002.
According to NDS, the total number of households within the subject's
primary and secondary market areas, are 82,159 and 159,043, respectively, for
1997. The number of households within the subject's primary 5-mile and secondary
10-mile market areas are projected to increase to 90,801 and 181,784,
respectively, by the year 2002.
The average household income levels within the subject's primary and
secondary market areas, for 1997, are $48,448 and $48,124, respectively, and are
expected to increase to $61,705 and $59,873, respectively, by the year 2002. The
median household income levels within the subject's primary and secondary market
areas, for 1997, are $35,702 and $35,981, respectively, and are expected to
increase to $42,796 and $41,978, respectively, by the year 2002. Per capita
income within the subject's primary and secondary market areas, for 1997, are
$20,500 and $19,187, respectively, and are expected to increase to $26,774 and
$24,205, respectively, by the year 2002.
Based on the above levels, the demographics of the subject's primary
market area appear to indicate a positive growth trend, based on information
provided by NDS. For additional demographic information, please refer to the NDS
summary report in the Addenda of this report.
Expense Analysis
Expenses exhibited by manufactured housing communities nationally are
typically 35.0 to 45.0 percent of effective gross income. However, expense
ratios of manufactured housing communities located in the southeast and
southwest regions of the nation are typically lower by comparison, due to lower
real estate taxes and common area maintenance charges.
As presented in the Summary of Manufactured Housing Communities Sales,
operating expense ratios of competing parks range from 24.95 to 48.50 percent of
effective gross income levels, and $677 to $1,498 on a per site basis. The
subject property is currently reporting expenses, for the 12-month trailing
period of 1997, at 27.82 percent of effective gross income and $1,134 on a per
site basis. The operating expenses of the subject property
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Market Analysis
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are within the range of comparable properties on both a percentage of effective
gross income, and on a per site basis.
Market Supply and Demand
There are a total of six competing manufactured housing communities
located within the subject's market, which total 1,784 sites, with a
corresponding average occupancy rate of 99.0 percent. No specific absorption
statistics were available. The subject property, based on conversations with
management, has historically had occupancy rates consistent with competing
parks, and is currently 98.0 percent occupied. We believe the current occupancy
rate of the subject property is stabilized, and has similar occupancy rates of
competing parks presently presented. Based on the subject's current occupancy
rate and occupancy rates at competing parks, demand appears to be strong, with
steady rental rate increases expected.
Conclusion
Historically, the subject's primary market has sustained occupancy levels
of 95.0 to 100 percent. Rental rates of similar manufactured housing communities
located within the subject's primary market generally range from $255.00 to
$368.00 per site, on a monthly basis. The subject property is currently quoting,
and is currently achieving (based on the most recent rent roll provided), a
monthly rental rate within the range of competing parks, or at $350.00 per site.
Based on our research, steady increases in rental rates are anticipated,
based on actual historical performance of competing parks and historical
increases seen at the subject property. Sales transactions of manufactured
housing communities located within the subject's region range from $16,447 to
$19,917 per site, with corresponding overall rates ranging from 7.99 to 10.87
percent. In our opinion, the subject property competes favorably with its
competition regarding amenities, condition, rent structure and overall market
rating.
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SITE PLAN
[GRAPHIC OMITTED]
<PAGE>
PROPERTY DESCRIPTION
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Site Description
The subject site is located along the east side Sinton Road, a frontage
road to the east of Interstate 25, in Colorado Springs, El Paso County,
Colorado. The subject site is rectangular in shape and contains approximately
38.082 acres, or 1,658,852 square feet of land area. Topographically, the site
is sloping and below street grade.
Primary access to the subject site is available from Sinton Road.
According to Flood Insurance Rate Map, El Paso County, Colorado, Community Panel
Number 08041C-0514 F, dated March 17, 1997, Holiday Village does not lie in the
500-year flood plain.
The streets within the park have two-lanes, with concrete curbs. Overall,
the subject site is typical of the area and is functionally well suited for its
current use.
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.
Improvements Description
The subject property was originally developed in 1972. The subject
improvements consist of a 240-site manufactured housing community, with a
community center, swimming pool, spa, library, billiard room, exercise room and
recreational vehicle storage. Of the 240 sites, approximately 145 sites are
single-wide and 95 sites are double-wide.
The community center consists of a manager's office, restroom facilities,
open-space available for resident use, library, billiard room, indoor spa and a
fully equipped kitchen. The swimming pool is located adjacent to the community
center.
Off-street parking is available for each resident. Site improvements
within the park include: paved streets, street lighting and signage. Overall,
the site improvements appeared to be in good condition at the time of
inspection.
Holiday Village is a functional manufactured housing community with
primary ingress and egress along Sinton Road. Overall, the subject community
appears to be well maintained and is in good condition. Holiday Village is a
functional manufactured housing community and competes favorably with other
existing manufactured housing communities in the area in terms of appearance and
amenities. The subject property would fit the profile of a Five Star
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Property Description
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Park, as defined in the National Overview section of this report.
Real Property Taxes and Assessments
Assessed value of commercial property in El Paso County is assessed at
29.0 percent of the Assessor's opinion of market value. The subject property is
identified by schedule numbers 93000-03-850 and 73361-08-001.
The total amount of real estate taxes for 1996 payable in 1997 for the
subject property amounts to $8,027.90. The total amount of real estate taxes for
1996 payable in 1997 equates to approximately $33.45 per site.
Zoning
According to the City of Colorado Springs zoning officials, the subject
property is currently zoned PUD, Planned Unit Development, which is a legal and
conforming use.
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CONCLUSION
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Conclusion
o The subject property, Holiday Village, is a functional manufactured
housing community, which competes favorably in relation to its
competition;
o Comparable manufactured housing communities located within the
subject's market range in monthly rental rates per site from $255.00
to $368.00;
o The subject property is currently quoting, and is currently
achieving (based on the most recent rent roll provided) a monthly
rental rate at $350.00 site, which is within the range of competing
parks;
o Sale transactions of manufactured housings located within the
subject's region range in unit sales prices per site from $16,447 to
$19,917, with corresponding overall rates ranging from 7.99 to 10.87
percent;
o Operating expenses are within industry standards for a park located
in the mountain region of the country;
o The subject park appears to be operating at economic levels based on
our review of historical and budgeted 1998 income and expenses;
o The demographic characteristics of the area appear to be positive;
o The population profile of the subject property is 100.0 percent
adult;
o The current occupancy rate at the subject property of 98.0 percent
is evident by a strong local market and demand;
o Monument Creek manufactured housing communities is located directly
east of the subject property, and is expected to open early 1998;
o In our opinion, based on Woodall's criteria, the subject property is
a Five Star Park, and the reader's attention is directed to the
corresponding definition and criteria of a Five Star Park, presented
in the National Overview section of this report; and,
o Based on the subject's location, demographic, economic, market and
physical characteristics, we believe Holiday Village will continue
to be a viable manufactured housing community in the foreseeable
future, and is well positioned in the marketplace.
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ASSUMPTIONS AND LIMITING CONDITIONS
================================================================================
"Report" means the consulting report to which these Assumptions and Limiting
Conditions are annexed.
"Property" means the subject of the Report.
"C&W" means Cushman & Wakefield, Inc. or its subsidiary which issued the Report.
"Appraiser(s)" means the employee(s) of C&W who prepared and signed the Report.
This report is made subject to the following assumptions and limiting
conditions:
1. No responsibility is assumed for the legal description or for any matters
which are legal in nature. 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 Report or upon which the Report 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 Appraisers nor C&W shall be responsible for the
accuracy or completeness of such information, including the correctness of
estimates, opinions, dimensions, sketches, exhibits, and other factual
matters.
3. The information is effective as of the date stated in the Report. Changes
since that date in external and market factors or in the property itself
can significantly affect our analysis.
4. The report is to be used in whole and not in part. No part of the Report
shall be used in conjunction with any other report. Possession of the
Report, or a copy thereof, does not carry with it the right of
publication. Publication of the Report or any portion thereof without the
prior written consent of C&W is prohibited. Except as may be otherwise
expressly stated in the letter of engagement to prepare the Report, C&W
does not permit use of the Report by any person other than the party to
whom it is addressed or for purposes other than those for which it was
prepared. If written permission is given by C&W to use the Report, the
Report must be used in its entirety and only with proper written
qualification as approved by C&W. No part of the Report or the identity of
the Appraiser shall be conveyed to the public through advertising, public
relations, news, sales, or other media or used in any material without
C&W's prior written consent. Reference to the Appraisal Institute or to
the MAI designation is prohibited.
5. The Appraiser shall not be required to give testimony in any court or
administrative proceedings relating to the Property or the Report.
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Assumptions and Limiting Conditions
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6. The Report 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 Report; 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 Report is based.
7. The physical condition of the improvements considered by the Report is
based on visual inspection by the Appraiser or other person identified in
the Report. C&W assumes no responsibility for the soundness of structural
members nor for the condition of mechanical equipment, plumbing, or
electrical components.
8. Unless otherwise stated in the Report, the existence of potentially
hazardous or toxic materials which may have been used in the construction
or maintenance or operation of the improvements or may be located at or
about the Property was not considered in the Report. These materials (such
as formaldehyde foam insulation, asbestos insulation, various soil
contaminants, and other potentially hazardous materials) may affect the
value of the Property. The Appraisers are not qualified to detect such
substances, and C&W urges that an expert in this field be employed to
determine the economic impact of these matters, if any, on the property in
the Report.
9. Unless otherwise stated in the Report, compliance with the requirements of
the Americans With Disabilities Act of 1990 (ADA) has not been considered
in the Report. Failure to comply with the requirements of the ADA may
negatively affect the value of the property. C&W recommends that an expert
in this field be employed.
10. If the Report is submitted to a lender or investor with the prior approval
of C&W, such party should consider the Report as one factor, together with
its independent investment considerations and underwriting criteria, in
its overall investment decision.
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CERTIFICATION
================================================================================
We certify that, to the best of our knowledge and belief:
1. Jody L. Garbisch inspected the property, and Michael J. Schaeffer and
Stanley R. Dennis, Jr., MAI, have reviewed and approved the report, but
did not inspect 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 on an action or event (such as the
approval of a loan) resulting from the analyses, opinions, or conclusions
in, or the use of, this report.
6. 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 Ethics and Standards of Professional Practice of the Appraisal
Institute.
7. No one provided significant professional assistance to the persons signing
this 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. As of the date of this report, Stanley R. Dennis, Jr., MAI, has completed
the requirements of the continuing education program of the Appraisal
Institute.
/s/ Michael J. Schaeffer /s/ Jody L. Garbisch /s/ Stanley R. Dennis, Jr.
Michael J. Schaeffer Jody L. Garbisch Stanley R. Dennis, Jr., MAI
Director Associate Appraiser Director, Manager
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<PAGE>
ADDENDA
================================================================================
POP-FACT SHEETS
LEGAL DESCRIPTION
QUALIFICATIONS OF APPRAISERS
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36
<PAGE>
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POP-FACT SHEETS
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<PAGE>
Tue Nov 25, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP FACTS: SUMMARY REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6510
PREPARED FOR
CUSHMAN & WAKEFIELD, INC
HOLIDAY VILLAGE COLORADO
COLORADO SPRINGS, CO COORD: 38:52.80 104:50.07
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- --------------------------------------------------------------------------------
POPULATION
2002 PROJECTION 213,787 466,312
1997 ESTIMATE 196,712 410,339
1990 CENSUS 167,376 331,585
1980 CENSUS 149,278 262,223
GROWTH 1980 - 1990 12.12% 26.45%
HOUSEHOLDS
2002 PROJECTION 90,801 181,784
1997 ESTIMATE 82,159 159,043
1990 CENSUS 69,384 126,167
1980 CENSUS 58,509 94,495
GROWTH 1980 - 1990 18.59% 33.52%
1997 ESTIMATED POPULATION BY RACE 196,712 410,339
WHITE 89.13% 85.13%
BLACK 3.67% 6.39%
ASIAN & PACIFIC ISLANDER 2.16% 3.19%
OTHER RACES 5.04% 5.30%
1997 ESTIMATED POPULATION 196,712 410,339
HISPANIC ORIGIN 8.90% 9.22%
OCCUPIED UNITS 69,384 126,167
OWNER OCCUPIED 55.63% 54.69%
RENTER OCCUPIED 44.37% 45.31%
1990 AVERAGE PERSON PER HH 2.36 2.53
1997 ESTIMATED HH BY INCOME 82,159 159,043
$150,000 + 2.58% 2.47%
$100,000 TO $149,999 4.05% 3.75%
$ 75,000 TO $ 99,999 6.82% 6.26%
$ 50,000 TO $ 74,999 18.96% 19.35%
$ 35,000 TO $ 49,999 18.47% 19.44%
$ 25,000 TO $ 34,999 15.27% 16.07%
$ 15,000 TO $ 24,999 16.60% 17.27%
$ 5,000 TO $ 14,999 13.70% 12.17%
UNDER $ 5,000 3.57% 3.22%
1997 EST. AVERAGE HH INCOME $48,448 $48,124
1997 EST. MEDIAN HH INCOME $35,702 $35,981
1997 EST. PER CAPITA INCOME $20,500 $19,187
<PAGE>
Tue Nov 25, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP 80-02, HH 80-02, INC 80-02)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6510
PREPARED FOR
CUSHMAN & WAKEFIELD, INC
HOLIDAY VILLAGE COLORADO
COLORADO SPRINGS, CO COORD: 38:52.80 104:50.07
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- --------------------------------------------------------------------------------
POP_80: TOTAL 149,278 262,223
POP_90: TOTAL 167,376 331,585
POP_97: TOTAL (EST.) 196,712 410,339
POP_02: TOTAL (PROJ.) 213,787 466,312
HH_80: TOTAL 58,509 94,495
HH_90: TOTAL 69,384 126,167
HH_97: TOTAL (EST.) 82,159 159,043
HH_02: TOTAL (PROJ.) 90,801 181,784
INC_80: PER CAPITA (EST.) $7,692 $7,121
INC_90: PER CAPITA $14,595 $13,746
INC_97: PER CAPITA (EST. $20,500 $19,187
INC_02: PER CAPITA (PROJ $26,774 $24,205
HH_90_BY INCOME_89: MEDIAN $27,831 $28,804
HH_97_BY INCOME: MEDIAN $35,702 $35,981
HH_02_BY INCOME: MEDIAN $42,796 $41,978
HH_80_BY INCOME_79: AVERAGE $19,625 $19,761
HH_90_BY INCOME_89: AVERAGE $34,733 $35,273
HH_97_BY INCOME: AVERAGE $48,448 $48,124
HH_02_BY INCOME: AVERAGE $61,705 $59,873
<PAGE>
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LEGAL DESCRIPTION
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<PAGE>
LEGAL DESCRIPTION
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TICOR TITLE INSURANCE CORPORATION
OWNERS POLICY
SCHEDULE A
OFFICE FILE NUMBER POLICY NUMBER DATE OF POLICY AMOUNT OF INSURANCE
941246 6 59 60 000005 March 9, 1993
at 7:30 A.M.
1. Name of Insured:
SNOWLAND VISTAS, INC., AN ILLINOIS CORPORATION
2. The estate or interest in the land described herein and which is covered
by this policy is: FEE SIMPLE
3. The estate or interest referred to herein is at Date of Policy vested in:
SNOWLAND VISTAS, INC., AN ILLINOIS CORPORATION
4. The land herein described is encumbered by the mortgage or trust deed, and
assignments:
MORTGAGE FROM SNOWLAND VISTAS, INC., AN ILLINOIS CORPORATION, TO MHC
FINANCING CORPORATION, A DELAWARE CORPORATION IN THE AMOUNT OF
$100,000,000.00, AND ANY OTHER AMOUNTS AND/OR OBLIGATIONS SECURED THEREBY
DATED MARCH 3, 1993 AND RECORDED MARCH 8, 1993 IN BOOK 6132 AT PAGE 126.
and the mortgages or trust deeds, if any, shown in Schedule B hereof.
5. The land referred to in this policy is described as follows:
BLOCK 1,
HOLIDAY PARK ACCORDING TO THE PLAT
THEREOF RECORDED IN PLAT BOOK N-2, PAGE 63,
COUNTY OF EL PASO,
STATE OF COLORADO
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QUALIFICATIONS OF APPRAISERS
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<PAGE>
STATEMENT OF QUALIFICATIONS
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JODY L. GARBISCH
Education
Bachelor of Science Degree in Finance, concentration in Real Estate, from the
College of Commerce and Business Administration at the University of Illinois,
Urbana-Champaign, Illinois, 1997.
Real Estate Education
The following courses have been completed through the Real Estate Program at the
University of Illinois at Urbana-Champaign:
Urban Real Estate Valuation
Urban Economics
Real Estate Financial Markets
Real Estate Investments
Real Estate Law
Real Estate Fundamentals
Current Position
Associate Appraiser, Cushman & Wakefield of Illinois, Inc., Valuation Advisory
Services.
<PAGE>
STATEMENT OF QUALIFICATIONS
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MICHAEL J. SCHAEFFER
Real Estate Experience
Mr. Schaeffer has been active in the appraisal of real estate since 1983.
Appraisal experience includes the valuation of income-producing real estate in
the Chicago area as well as many major cities and small towns throughout the
Midwest. The types of properties appraised include office buildings, regional
malls, shopping centers, country clubs, apartment complexes, subsidized housing
units, industrial buildings, nursing homes, retirement communities, automotive
dealerships, department stores, vacant land, proposed income-producing
properties, and various special purpose properties. Mr. Schaeffer also has had
over 10 years of experience in new construction and renovation of commercial,
industrial, residential and specialized real estate properties.
Education
Bachelor of Arts, University of Cincinnati, Cincinnati, Ohio MBA Graduate Course
Work in Economics and Management, Xavier University, Cincinnati, Ohio
Real Estate Education
The following courses sponsored by the Appraisal Institute have been
successfully completed:
Real Estate Appraisal Principles 1A-1
Basic Valuation Procedures 1A-2
Standards of Professional Practice
Capitalization Theory and Techniques 1BA
Capitalization Theory and Techniques IBB
Advanced Applications 550
Report Writing & Valuation Analysis 540
Mr. Schaeffer has also attended numerous lectures and seminars sponsored by the
Appraisal Institute.
Mr. Schaeffer is currently a candidate for the MAI designation of the Appraisal
Institute, and has completed the educational and experience requirements for the
MAI designation.
Current Position
Director, Appraisal Services, Cushman & Wakefield, Inc., Chicago, Illinois
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
STANLEY R. DENNIS, JR., MAI
Real Estate Experience
Director, Manager, Cushman & Wakefield Valuation Advisory Services, Chicago,
Illinois. Division is responsible for the appraisal and consultation function of
Cushman & Wakefield, Inc., a national full service real estate organization,
1989.
Vice President, Manager, Cushman & Wakefield Appraisal Services, Portland,
Oregon, 1983.
Principal, Stanley R. Dennis & Associates, Portland, Oregon, 1982.
Education
Portland State University, Portland, Oregon
Bachelor of Science Degree, 1977, Finance and Real Estate
Appraisal Institute
Course I-A Fundamentals and Principles of Real Estate Appraisal
Course I-B Capitalization Theory and Techniques
Course II-I Case Studies in Real Estate Valuation
Course II-2 Valuation Analysis and Report Writing
Course II-3 Standards of Professional Practice
Course IV Litigation/Condemnation Valuation
Course VI Investment Analysis
Course VIII Residential Case Studies
Course X Market Analysis
Seminar Feasibility Analysis and Highest and Best Use
Seminar Discounted Cash Flow Analysis
Seminar Cash Equivalency
Seminar Subdivision Analysis
Seminar Rates, Ratios and Reasonableness
Professional Affiliations
American Institute of Real Estate Appraisers, Member (Designation #6754)
Building Owners and Managers Association (BOMA)
National Association of Corporate Real Estate Executives (NACORE)
<PAGE>
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MARKET STUDY OF REAL PROPERTY
Oak Tree Village
254 Sandalwood Avenue
Portage, Porter County, Indiana
================================================================================
As of December 1, 1997
Prepared For:
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Prepared By:
Cushman & Wakefield of Illinois, Inc.
Valuation Advisory Services
455 North Cityfront Plaza Drive, Suite 2800
Chicago, Illinois 60611-5555
CUSHMAN &
WAKEFIELD(R)
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<PAGE>
[Letterhead of Cushman & Wakefield of Illinois, Inc.]
December 15, 1997
Mr. Edward J. Welch
Director
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Re: Market Study of Real Property
Oak Tree Village
254 Sandalwood Avenue
Portage, Porter County, Indiana 46368
Dear Mr. Welch:
In fulfillment of our agreement as outlined in the Letter of Engagement,
Cushman & Wakefield of Illinois, Inc., is pleased to transmit our market study
and consulting report evaluating the above referenced real property.
As specified in the Letter of Engagement, our market study and consulting
report is qualified by certain assumptions, limiting conditions, certifications,
and definitions, which are set forth in the report.
This consulting report was prepared for the Client, and it is intended
only for the specified use of the Client. It may not be distributed to or relied
upon by other persons or entities without written permission of Cushman &
Wakefield, Inc.
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the above
referenced real property, as of the date of our property inspection. The
function of the report is to assist the client, in evaluating the property for
underwriting and rating purposes.
<PAGE>
Mr. Edward J. Welch - 2 - December 15, 1997
This market study and consulting report was prepared in conformity with
the requirements of the Code of Ethics and Standards of Professional Appraisal
Practice of the Appraisal Institute and the Uniform Standards of Professional
Practice (USPAP) adopted by the Appraisal Standards Board of the Appraisal
Foundation.
This letter is invalid if detached from the report, which contains the
text, exhibits, and the Addenda.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF ILLINOIS, INC.
/s/ Jennifer L. Estrella
Jennifer L. Estrella
Associate Appraiser
/s/ Michael J. Schaeffer
Michael J. Schaeffer
Director
/s/ Stanley R. Dennis, Jr.
Stanley R. Dennis, Jr., MAI
Director, Manager
CUSHMAN &
WAKEFIELD(R)
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<PAGE>
SUMMARY OF SALIENT FACTS
================================================================================
Property Name: Oak Tree Village
Location: 254 Sandalwood Avenue
Portage, Porter County, Indiana
Assessor's Parcel Number: Based on information provided by the
client, the subject property is
identified by Assessor's Parcel
Numbers 24-000000101 and
24-000000102.
Date of Inspection: The property was inspected on
December 1, 1997.
Ownership: The subject property is legally
entitled to Oakland Vistas, Inc., an
Illinois Corporation, and MHC
Financing Limited Partnership, as
beneficiary.
Land Area: Based on information provided by the
property's legal plat of survey, the
subject property contains
approximately 78.33 acres of land
area, or 3,411,875 square feet.
Zoning: Based on information provided by the
City of Portage Zoning Department,
the subject property is zoned MH,
Mobile Home. The subject property is
a legal and conforming use in the
MH, Mobile Home district.
Improvements
Type: A manufactured housing community.
Year Built: According to the property manager,
the subject property was developed
in phases between 1969 and 1989.
Size: The subject property consists of a
380-site manufactured housing
community.
Condition: At the time of inspection, the
subject property was in good
condition.
Property Rating: Four Star manufactured home
community.
Special Assumptions: 1. Information regarding the subject
property, including its physical
characteristics, was provided to us
by the client and the on-site
manager, and is assumed to be
accurate.
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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Summary of Salient Facts
================================================================================
2. The existence of potentially
hazardous or toxic materials, which
may be located on or about the
property, was not considered in our
evaluation. The appraisers are not
qualified to detect such substances,
and Cushman & Wakefield urges that
an expert in this field be employed
to determine the existence, if any,
of hazardous materials located on or
about the site.
3. Our market and consulting report
regarding the subject assumes the
subject property, as presently
improved, represents its highest and
best use.
4. It is unknown to the appraiser if
the subject property complies with
the Americans with Disabilities Act
(ADA). We recommend a qualified
specialist in the final
determination regarding any ADA
compliance deficiencies that may be
present at the subject property.
5. Please refer to the complete list
of assumptions and limiting
conditions included at the end of
this report.
CUSHMAN &
WAKEFIELD(R)
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TABLE OF CONTENTS
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Page
PHOTOGRAPHS OF SUBJECT PROPERTY................................................1
INTRODUCTION...................................................................5
Identification of Property..................................................5
Property Ownership and Recent History.......................................5
Purpose and Function of the Market Study and Consulting Assignment..........5
Scope of the Market Study and Consulting Assignment.........................5
Date of Property Inspection.................................................5
Definitions and Other Pertinent Terms.......................................5
REGIONAL ANALYSIS..............................................................8
NEIGHBORHOOD ANALYSIS.........................................................17
MARKET ANALYSIS...............................................................19
National Overview..........................................................19
Competition................................................................26
Comparable Manufactured Housing Community Sales............................30
Demographic Trends.........................................................32
Expense Analysis...........................................................33
Market Supply and Demand...................................................33
Conclusion.................................................................33
PROPERTY DESCRIPTION..........................................................36
Site Description...........................................................36
Improvements Description...................................................36
REAL PROPERTY TAXES AND ASSESSMENTS...........................................37
ZONING........................................................................37
CONCLUSION....................................................................38
ASSUMPTIONS AND LIMITING CONDITIONS...........................................39
CERTIFICATION.................................................................41
ADDENDA.......................................................................42
Pop-Fact Sheets
Legal Description
Qualifications of Appraisers
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PHOTOGRAPHS OF SUBJECT PROPERTY
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Front Entrance of the Subject Property
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Exterior View of the Clubhouse
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Photographs of Subject Property
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Interior View of the Clubhouse
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View of the Pool at the Subject Property
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Photographs of Subject Property
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Typical Interior View of the Subject Park
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Typical Interior View of the Subject Park
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Photographs of Subject Property
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Street Scene Facing East Along Old Porter Road
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Street Scene Facing West Along Old Porter Road
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INTRODUCTION
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Identification of Property
The subject property consists of a 380-site manufactured housing
community, situated on approximately 78.33 acres of land area, located along Old
Porter Road, east of State Road 149 (SR 149) in Portage, Porter County, Indiana.
The property's street address is 254 Sandalwood Avenue. The property was
developed in phases between 1969 and 1989, and was 99.21 percent occupied at the
time of inspection.
Property Ownership and Recent History
The subject property is currently entitled to Oakland Vistas, Inc., an
Illinois corporation, and MHC Financing Limited Partnership, as beneficiary. The
subject property was developed in phases between 1969 and 1989, with 380
manufactured housing sites.
Purpose and Function of the Market Study and Consulting Assignment
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the subject
property, as of the date of property inspection. The function of the consulting
report is to assist the client in evaluating the property for underwriting and
rating purposes.
Scope of the Market Study and Consulting Assignment
In the process of preparing this report, we inspected the property,
interviewed the on-site manager, conducted market research into asking rental
rates for comparable properties, conducted market investigations, and
ascertained sales prices of comparable properties. Additionally, we conducted
market research and evaluated demographic and economic trends; and, the market
position and rating of the subject property.
Date of Property Inspection
The property was inspected on December 1, 1997.
Definitions and Other Pertinent Terms
Definitions of pertinent terms taken from the Dictionary of Real Estate
Appraisal, Third Edition (1993), published by the Appraisal Institute, is as
follows:
Market Rent
The rental income that a property would most probably command on the open
market; indicated by current rents paid and asked for comparable space as
of the date of the appraisal.
Evaluation
Evaluation is a study of the nature, quality, or utility of a parcel of
real estate or interest in, or aspects of, real property, in which a value
estimate is not necessarily required.
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Introduction
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Market Study
A macroeconomic analysis that examines the general market conditions of
supply, demand, and pricing or the demographics of demand for a specific
area or property type.
Legal Description
The subject property is located along Older Porter Road, east of SR 149,
in Portage, Porter County, Indiana. The street address of the subject property
is 254 Sandalwood Avenue. The property is identified by tax parcel numbers
24-000000101 and 24-000000102, according to information provided by the client.
Due to the lengthy metes and bounds legal description, the subject property's
legal description is presented in the Addenda of this report, and reference is
made thereto.
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LOCATION MAP
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REGIONAL ANALYSIS
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The subject property is located in the City of Portage, Porter County,
Indiana. The City of Portage is located approximately 40 miles east of the City
of Chicago. As a result of the close proximity of the Chicago metropolitan area
to the City of Portage, the Chicago metropolitan area has a strong influence on
the economy, social and cultural characteristics of the Portage area. The
following is an overview of the the Chicago metropolitan area.
Chicago Metropolitan Area
The Chicago metropolitan area, located at the southwestern tip of Lake
Michigan, is the midwest's financial, commercial, transportation, and industrial
center. As defined by the United States Census Bureau, the Chicago CMSA includes
a total of eleven counties: eight in Illinois, two in Indiana, and one in
Wisconsin. As a whole, the Chicago CMSA covers a territory of 5,660 square
miles.
Population
The population of the Chicago Metropolitan Area is the third largest in
the nation, behind New York and greater Los Angeles. The historical and
projected population growth trends for the six primary counties in the Chicago
Metropolitan area are summarized in Table A as follows:
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TABLE A
CHICAGO METROPOLITAN AREA
POPULATION STATISTICS - 1980 THRU 2006
- --------------------------------------------------------------------------------
Annual Annual
% Change % Change
County 1980 1996 1980-1996 2006 1996-2006
- --------------------------------------------------------------------------------
Cook 5,254,000 5,136,800 -0.14% 5,086,800 -0.08%
Chicago 3,005,000 2,762,000 -0.53% N/A N/A
Suburban 2,249,000 2,374,800 0.34% N/A N/A
DuPage 659,000 857,800 1.66% 925,800 0.90%
Kane 278,000 353,300 1.51% 374,800 0.37%
Lake 440,000 570,600 1.64% 624,000 0.88%
McHenry 148,000 225,700 2.67% 273,600 1.27%
Will 324,000 415,800 1.57% 499,600 1.21%
Total 7,103,000 7,560,000 0.39% 7,784,600 0.25%
- --------------------------------------------------------------------------------
Source: Woods & Poole Economics, Inc.
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Regional Analysis
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As summarized in Table A, the City of Chicago had an estimated population
of 2.762 million in 1996, a decrease of 243,000 residents since 1980, when the
population was estimated at approximately 3.005 million people. However, the
decline in urban population since 1980 was more than offset by a significant
growth in the suburban population.
The population shift from the city to the suburbs becomes evident when one
looks at the county population as a percentage of the total population. These
figures, as well as projections for the year 2006, are presented below in Table
B as follows:
==========================================================
TABLE B
POPULATION AS A PERCENTAGE OF THE TOTAL
----------------------------------------------------------
County 1980 1996 2006(1)
----------------------------------------------------------
Cook: 74.0% 68.0% 65.8%
Chicago 42.3% 36.5% --
Suburbs 31.6% 31.4% --
DuPage 9.3% 11.4% 12.1%
Kane 3.9% 4.7% 4.7%
Lake 6.2% 7.6% 8.0%
McHenry 2.1% 3.0% 3.3%
Will 4.6% 5.5% 6.1%
----------------------------------------------------------
(1) Projected
==========================================================
The preceding table shows a steady migration from the city toward the
suburbs. The collar counties of DuPage, Kane, Lake, McHenry, and Will increased
their share of the regional population from 26.1 percent in 1980 to 32.2 percent
in 1996. Their share of the population is expected to further increase to 34.2
percent by the year 2006. The population shift from the city to suburban areas,
is common among most major cities located throughout the Great Lakes and
Northeastern regions, and is expected to continue for the foreseeable future.
Transportation
Air Transportation
Chicago is one of the primary transportation hubs in the United States.
O'Hare International Airport is the busiest in the world, handling approximately
67.25 million passengers in 1995. The substantial increase in air traffic is
attributed to several factors, which include the deregulation of the airline
industry, the establishment of regional "hubs" by major airlines, and the
economic expansion into global markets. United Airlines rebuilt their terminal
in 1987 at a cost of $500 million; American Airlines also expanded and upgraded
their facility in 1990, the $329 million project was intended to provide more
space for airline operations and to provide greater convenience and comfort for
their passengers. Finally,
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Regional Analysis
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the 1.1 million square foot International Terminal at O'Hare was completed in
1992. The new terminal increased international passenger travel from 6.76
million in 1993 to 9.89 million in 1995, or 15.0 percent.
Midway Airport, located in the southwest portion of the city, serves as a
secondary airport in the Chicago metropolitan area and has become an
increasingly popular alternative to O'Hare International Airport. Major
commercial airlines serving Midway Airport include: America West, American Trans
Air, Continental, Northwest and Southwest.
Ground Transportation
Several major expressways and interstate highways pass through the Chicago
area. Interstate 88 and 290 are the main routes to cities along the East-West
corridor. Interstate 55 provides access to the southwestern cities. Cities to
the north and northwest are accessed via Interstates 90 and 94; and finally,
north-south travel between the western suburbs is facilitated by Interstate 294
and 355. In total, the Chicago area has over 630 miles of expressways. Within
the metropolitan area, commuter transportation is facilitated by rail lines,
rapid transit systems, bus lines and expressway systems.
Employment
The Chicago economy, like most major metropolitan areas, began as a
manufacturing center. However, today the Chicago economic growth is no longer
primarily based on the manufacturing sector, but is distributed among wholesale
and retail trade, health care, education, and financial services. Table C, on
the following page, summarizes the diversity of employment for the eleven county
Consolidated Metropolitan Statistical Area.
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Regional Analysis
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<TABLE>
<CAPTION>
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TABLE C
CHICAGO METROPOLITAN AREA EMPLOYMENT STATISTICS: 1996 - 2006
=========================================================================================
1996 Percent 2006 Percent Compound Growth
Industry Group Employment of Total Employment Of Total 1996-2006
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mining/Agriculture 40,160 0.8% 47,710 0.9% 1.74%
Manufacturing 728,980 14.5% 701,260 13.1% -0.39%
Construction 236,610 4.7% 244,450 4.6% 0.33%
TCU (1) 285,860 5.7% 307,410 5.7% 0.73%
Trade 1,106,870 22.0% 1,162,370 21.7% 0.49%
FIRE 468,730 9.3% 532,870 10.0% 1.29%
Services 1,592,010 31.7% 1,803,700 33.7% 1.26%
Government 558,340 11.1% 545,920 10.1% -0.22%
- -----------------------------------------------------------------------------------------
Total 5,030,540 100.00% 5,357,150 100.0% 0.63%
- -----------------------------------------------------------------------------------------
Source: Woods & Poole Economics, Inc.
(1) Transportation, Communications & Utilities
=========================================================================================
</TABLE>
The local employment picture is expected to follow historical trends as
the Chicago MSA enters the next decade. The service sector will continue to lead
employment, the manufacturing sector will shrink and overall job growth will
remain steady. Employment increases in the communications sector are considered
a sure bet; however, expected utility deregulation will dampen long-term growth
prospects for this industry. According to Woods & Poole, the services and FIRE
industries should continue to lead employment growth during the next ten years.
These projections are supported by the steady increase in the number of area
small businesses, the contribution of local universities and MSA's ability to
capitalize on increased international trade.
In 1996, the number of jobs in Cook County accounted for 62.8 percent of
total employment for the eleven county area. Similar to the population trends
previously discussed, the collar counties are also projected to increase their
share of total employment. This distribution is summarized in Table D on the
following page:
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Regional Analysis
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TABLE D
CHICAGO METROPOLITAN AREA
EMPLOYMENT STATISTICS: 1996 - 2006
=======================================================================
1996 2006
Industry Group Employment Employment
-----------------------------------------------------------------------
Cook County 62.8% 59.8%
DuPage County 12.3% 13.5%
Kane County 3.7% 3.8%
Lake County 6.3% 7.3%
McHenry County 2.0% 2.2%
Will County 3.0% 3.2%
Other Counties 9.9% 10.1%
-----------------------------------------------------------------------
Total(1) 100% 100%
-----------------------------------------------------------------------
Source: Woods & Poole
(1) For the 11-county CSMA
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Chicago is a leading corporate headquarters location. A number of Fortune
500 firms are headquartered in the Chicago area. Many other firms also have
regional headquarters in the Chicago area. Among the largest firms headquartered
in Chicago are: Sears, Roebuck & Company, Amoco, Sara Lee, United Airlines, and
Motorola. The presence of a large number of corporate headquarters in the area
is indicative of the strength of the local support network and general business
climate.
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Regional Analysis
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EXHIBIT A
METROPOLITAN CHICAGO'S LARGEST PUBLIC COMPANIES
RANKED BY 1995 REVENUES
- --------------------------------------------------------------------------------
Net Number of
Revenues Employees
Name City 1995 (000's) 1995
- --------------------------------------------------------------------------------
Sears Roebuck & Co. Hoffman Estates $34,925.0 359,700
- --------------------------------------------------------------------------------
Amoco Corp. Chicago $27,066.0 42,689
- --------------------------------------------------------------------------------
Motorola Inc. Schaumburg $27,037.0 142,000
- --------------------------------------------------------------------------------
Allstate Corp. Northbrook $22,793.3 44,3000
- --------------------------------------------------------------------------------
Sara Lee Corp. Chicago $17,719.0 149,100
- --------------------------------------------------------------------------------
Caterpillar, Inc. Peoria $16,072.0 54,352
- --------------------------------------------------------------------------------
UAL Corp. Elk Grove Township $14,943.0 77,900
- --------------------------------------------------------------------------------
CNA Financial Corp. Chicago $14,699.7 15,600
- --------------------------------------------------------------------------------
Ameritech Corp. Chicago $13,427.8 65,345
- --------------------------------------------------------------------------------
Archer Daniels Midland Co. Decatur $12,671.8 14,833
- --------------------------------------------------------------------------------
Walgreen Co. Deerfield $10,395.0 68,800
- --------------------------------------------------------------------------------
Deere & Co. Moline $10,291.0 33,375
- --------------------------------------------------------------------------------
WMX Technologies, Inc. Oak Brook $10,247.6 74,400
- --------------------------------------------------------------------------------
Abbott Laboratories Abbott Park $10,012.1 50,241
- --------------------------------------------------------------------------------
McDonald's Corp. Oak Brook $9,794.5 183,000
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METROPOLITAN CHICAGO'S LARGEST PRIVATE COMPANIES
RANKED BY 1995 REVENUES
- --------------------------------------------------------------------------------
Name Net Revenues 1995 Number of
(000's) Employees 1995
- --------------------------------------------------------------------------------
Montgomery Ward Holding Co. $7,085.0 54,800
- --------------------------------------------------------------------------------
Marmon Group $6,000.0 28,000
- --------------------------------------------------------------------------------
Alliant Foodservice, Inc. $4,225.7 9,000
- --------------------------------------------------------------------------------
Topco Associates, Inc. $3,700.0 402
- --------------------------------------------------------------------------------
Kemper National Insurance Cos. $3,400.0 8,837
- --------------------------------------------------------------------------------
Hyatt Hotels Corp. $2,700.0 40,000
- --------------------------------------------------------------------------------
Ace Hardware Corp. $2,440.0 3,929
- --------------------------------------------------------------------------------
Cotter & Company $2,437.0 4,195
- --------------------------------------------------------------------------------
Budget Rent a Car Corp. $2,430.0 24,000
- --------------------------------------------------------------------------------
OSI Industries, Inc. $2,000.0 575
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Regional Analysis
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Chicago's top five public company employers in 1995 were the Sears,
Roebuck & Company, McDonald's Corporation, Sara Lee Corporation, Motorola, Inc.,
and UAL Corporation. A list of the largest public and private companies, by 1995
revenues, is presented in Exhibit A on the facing page.
Chicago is also a world leader in the trading of commodities, stock
options, currency and interest rate futures. The City has four major financial
exchanges including the Chicago Board of Trade, the Chicago Board Options
Exchange, the Chicago Mercantile Exchange and the Midwest Stock Exchange. Eighty
percent of the world's commodities are traded through three of Chicago's
exchanges.
Unemployment
The average annual unemployment rates for the six-county metropolitan area
are summarized below in Table E. From 1988 to 1993, Cook, Kane, and Will County
had unemployment rates higher than the national average, while DuPage and Lake
County were consistently lower. Only McHenry County had unemployment rates
similar to the national average during that time period. Since Year-End 1994,
unemployment rates in the six-county metropolitan area have generally been below
the average for the nation.
<TABLE>
<CAPTION>
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TABLE E
ANNUAL AVERAGE UNEMPLOYMENT RATE
SIX-COUNTY CHICAGO METROPOLITAN AREA
==============================================================================================
Cook DuPage Kane Lake McHenry Will U.S.
Year County County County County County County Illinois Avg.
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1988 6.7% 3.8% 5.4% 4.3% 4.8% 7.3% 6.8% 5.5%
1988 5.9% 3.3% 5.5% 3.9% 4.5% 6.3% 6.0% 5.3%
1990 6.3% 3.6% 5.9% 3.9% 5.3% 6.4% 6.2% 5.5%
1991 7.2% 4.8% 7.5% 4.6% 7.1% 7.4% 7.1% 6.7%
1992 7.8% 5.1% 8.0% 4.8% 6.6% 7.8% 7.5% 7.4%
1993 7.8% 5.1% 7.6% 4.9% 6.4% 7.4% 7.4% 6.4%
1994 4.2% 2.8% 4.6% 3.8% 3.9% 4.8% 4.2% 5.1%
1995 5.5% 3.4% 5.0% 4.0% 4.1% 5.3% 5.2% 5.6%
1996 5.5% 3.4% 4.9% 4.0% 4.0% 5.2% 5.3% 5.4%
1997(1) 4.6% 2.6% 3.4% 2.8% 2.7% 3.7% 4.2% 4.7%
==============================================================================================
Source: Illinois Department of Employment Security
(1) As of September, 1997
==============================================================================================
</TABLE>
After three years of relatively high unemployment rates throughout the
Chicago Metropolitan Area, the labor market improved significantly during 1994.
According to Crain's Chicago Business, economic recovery in the Chicago area is
expected to be stronger than other areas of the country, largely due to the
strong export of capital goods.
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Regional Analysis
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Tourism
Chicago has long been a destination for tourists. The potential for
additions to the number of visitors coming to the Chicago area on an annual
basis has been enhanced of late, as the possibility of riverboat gambling to the
City of Chicago area continues to be explored. Navy Pier and North Pier, located
in the southern portion of the North Michigan Avenue Corridor, offer a variety
of cultural and maritime events during the summer months. Additional tourist
attractions in the Chicago Metropolitan Area include the Six Flags Great America
Amusement Park, Sears Tower, the John Hancock Building, which is currently
renovating their skydeck, Shedd Aquarium, Museum of Science and Industry, the
Adler Planetarium, the Art Institute, Michigan Avenue and the lakefront.
State Street, the historic shopping street where no automobiles have been
allowed for years, was recently renovated. State Street is home to the flagship
Marshall Fields store, as well as many other large and small retailers. The
Chicago Transportation Department spent $30.0 million to renovate the street and
open it to auto traffic. In an effort to preserve sidewalk space and encourage
pedestrian traffic, the street width was maintained at 16 feet. Automobile
traffic will be limited, with turn lanes at various intersections to enable
drivers to turn onto cross streets.
Summary
In summary, Chicago's status as a world class city is due to a variety of
inherent strengths, including: its excellent transportation system, central
geographic location, well educated work force, commodities and futures
exchanges, and its numerous cultural, educational and recreational amenities. In
addition, the municipality of the City of Chicago is generally healthy
financially, and the administration under Mayor Richard M. Daley, Jr. is
considered helpful toward business and development. Because of these factors,
the area ranked 11th among all metropolitan areas in terms of business climate,
according to a recent survey of chief executives across the nation. This same
survey, conducted by Cushman & Wakefield, Inc., also found that the Chicago area
"is still tops on access to markets and raw materials, and has improved its rank
position on the cost and availability of industrial labor, quality of life for
employees, government climate, and the cost and availability of both office
space and industrial sites with existing uses."
Although the Chicago area will continue to be subject to national economic
trends and conditions, the diversity of the local economy will insulate the area
from volatile economic swings. Overall, the Chicago area is expected to continue
its trend of economic growth. The continuation of Chicago's healthy business
climate, as well as its economic stability, should ensure a favorable
environment for real estate development and investment over the long-term.
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NEIGHBORHOOD MAP
[MAP OMITTED]
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NEIGHBORHOOD ANALYSIS
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The subject property is located along Old Porter Road, west of SR 149, in
Portage, Porter County, Indiana. The subject property is directly accessible via
Salt Creek Road, which runs through the subject property. The City of Portage is
located in the northeastern portion of Indiana, approximately 40 miles east of
the City of Chicago. The subject's neighborhood is roughly defined as U.S.
Highway 12 to the north, Interstate 80/90 to the south, the Lake County border
to the east, and SR 149 to the west. Development in the immediate neighborhood
of the subject property consists of single-family residential housing, service
oriented commercial development, and industrial development.
Regional access to the subject property is excellent via SR 149, which
intersects with Old Porter Road. State Road 149 provides access to U.S. Highway
20 (Melton Highway), which provides access to Interstate 94. Major thoroughfares
in the immediate neighborhood of the subject property provide excellent
neighborhood access to the subject property. Major thoroughfares in the
subject's immediate neighborhood include: Old Porter Road, Portage Avenue,
Central Avenue, McCool Road, and U.S. Highway 20.
Development in the immediate neighborhood of the subject property consists
of single family residential, service oriented commercial development and
industrial development. Service oriented commercial development consists of gas
stations, convenience stores, and automobile repair shops. Industrial operation
of the following companies are located in the neighborhood of the subject
property: Steel Cities Steel, Custom Packing and Seals, Process Technology,
Inc., and Brown Warehousing, Inc.
The 1994 estimated population of Portage, the most recent statistic on
file with the Portage Chamber of Commerce, is 31,400. The 1994 estimated
population of Porter County is 134,972. The 1990 median household income in
Portage was $33,118.
The total estimated labor force in Portage is 74,050. The majority of the
labor force in Portage is employed in the manufacturing industry. The largest
area employers in the Portage area are presented in the table on the following
page.
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Neighborhood Analysis
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MAJOR EMPLOYERS IN PORTAGE AREA
- --------------------------------------------------------------------------------
COMPANY PRODUCT NUMBER OF EMPLOYEES
- --------------------------------------------------------------------------------
National Steel Company Cold/Hot-Rolled & Galvanized 1,650
Steel, Tin Mill
- --------------------------------------------------------------------------------
Levy Company Sand, Gravel & Slag 325
- --------------------------------------------------------------------------------
Jefferson Smurfit Corporation Packaging & Distribution 170
- --------------------------------------------------------------------------------
Beta Steel Corporation Steel Mill 170
- --------------------------------------------------------------------------------
Steel Technologies, Inc. Steel Processing 150
- --------------------------------------------------------------------------------
Source: Portage Chamber of Commerce
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The subject property is situated in an area well suited for manufactured
housing development. Real estate values are anticipated to increase at a steady
pace. The economy in the area is anticipated to be good. Steady growth in
population is anticipated.
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MARKET ANALYSIS
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National Overview
Reportedly, the largest property owners of manufactured housing
communities in the United States are: ROC Communities, headquartered in
Colorado; MHC, Inc., headquartered in Illinois; Ellenburg Capital, headquartered
in Oregon; Lautrec Ltd., headquartered in Michigan; Clayton Homes, headquartered
in Tennessee; Clayton Williams and Sherwood, headquartered in California;
Chateau Properties, Sun Communities and UNIPROP, headquartered in Michigan.
The following represents the top ten manufactured housing community firms,
as reported by GFA Management, as of 1997.
<TABLE>
<CAPTION>
=========================================================================================
1997 Firm Name State No. of Sites No. of Communities
Rank Owned/Managed Owned/Managed
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Sun Communities Michigan 30,295/0 84/0
- -----------------------------------------------------------------------------------------
2 ROC Communities Colorado 22,441/7,167 77/36
- -----------------------------------------------------------------------------------------
3 Manufactured Home Communities Illinois 27,349/838 69/3
- -----------------------------------------------------------------------------------------
4 Ellenburg Capital Florida 25,173/0 63/0
- -----------------------------------------------------------------------------------------
5 Lautrec Ltd. Michigan 22,652/0 58/0
- -----------------------------------------------------------------------------------------
6 Chateau Properties Michigan 20,003/0 47/0
- -----------------------------------------------------------------------------------------
7 Clayton Homes Tennessee 18,000/0 66/0
- -----------------------------------------------------------------------------------------
8 Clayton, Williams and Sherwood California 16,946/0 44/0
- -----------------------------------------------------------------------------------------
9 UNIPROP Michigan 14,931/0 40/0
- -----------------------------------------------------------------------------------------
10 The Bloch Organization Michigan 14,379/0 37/0
=========================================================================================
</TABLE>
According to the U.S. Census Bureau, more than 8,521,000 people were
living in manufactured housing communities as of 1990 compared to 3,838,678 in
1980. This represents an increase in manufactured housing community living of
approximately 122.0 percent over the last ten years. Over the last ten years,
there has been a steady increase in manufactured housing community development
across the country. Among the demographic factors which account for the increase
in manufactured housing community living are: decreasing household size, a
growing demand for smaller housing, as well as an alternative to the increasing
cost of housing. Nationally, the largest percentage of manufactured housing
communities are located in California, Michigan, Colorado, Florida, New York,
Minnesota, Indiana, Arizona, Ohio, and Wisconsin.
The manufactured home industry has dramatically changed over the last 20
years. Manufactured homes are now designed and constructed to accommodate
spacious and attractive living requirements. Today, approximately one out of
sixteen families live in manufactured housing units. The manufactured housing
market share has been growing
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Market Analysis
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steadily over the last 10 years. In 1990, 6.7 percent of Americans lived in
manufactured housing units, up from 2.9 percent compared to 1970, according to
the U.S. Census Bureau, which represents 12.0 to 14.0 percent of all new housing
built since the mid-1980's, according to the Manufactured Housing Institute in
Arlington, Virginia.
In 1990, the average cost of a manufactured housing unit was $27,800
compared to $149,000 for a new house (including land), according to the
Manufactured Housing Institute. This reflects a 28.0 percent increase in the
cost of manufactured housing since 1980 versus a 49.0 percent increase in
conventional housing. Industry experts estimate that a single-family home
selling for $150,000 would require an annual income of $52,671. To purchase a
$27,800 manufactured housing unit, only a $19,984 income level would be
required.
At Fleetwood Enterprises, the nation's largest manufacturer of
manufactured housing units, units may be purchased for up to $100,000,
which would include a three-bedroom, two-bath unit of 2,100 square feet,
with vaulted ceilings.
In 1990, approximately 10.0 percent of manufactured home owners lived in
units worth approximately $40,000, up from 4.0 percent compared to 1981,
according to a study conducted by Foremost Insurance Company in Grand Rapids,
Michigan. Also, according to the study, approximately 21.0 percent of the
manufactured housing households are occupied by people' 65 years of age or
older, slightly lower than the age group for conventional homes, as reported by
Foremost Insurance.
The demand for good quality institutional grade manufactured housing
communities has substantially increased over the last ten years. Manufactured
housing communities provide an affordable alternative to the increasing cost of
housing. Also, manufactured housing communities provide an alternative form of
living for the elderly and retirees, especially for those living on fixed
incomes.
Acquisitions of manufactured housing communities during 1993 and 1994 were
clearly dominated by Real Estate Investment Trusts. During 1994 and 1995
Manufactured Home Communities (MHC) and ROC communities lead the acquisition of
manufactured housing communities nationally. During 1996, Sun Communities
captured the lead and, together with ROC and MHC dominate the Real Estate
Investment Trust market.
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Market Analysis
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The following chart represents the largest Real Estate Investment Trusts,
from 1991 to 1996, as reported by GFA Management
================================================================================
HOME SITE GROWTH, DEVELOPMENT AMONG THE LARGEST
REAL ESTATE INVESTMENT TRUST (REITS)
- --------------------------------------------------------------------------------
Year ROC MHC Chateau Sun United Total Annual
Growth
- --------------------------------------------------------------------------------
1996 29,608 28,187 20,003 30,295 5,234 113,327 17.0%
- --------------------------------------------------------------------------------
1995 27,910 26,237 19,594 18,000 4,850 96,591 9.0%
- --------------------------------------------------------------------------------
1994 26,231 28,407 15,689 13,500 4,623 88,450 37.8%
- --------------------------------------------------------------------------------
1993 20,142 14,700 15,261 9,036 5,050 64,189 17.8%
- --------------------------------------------------------------------------------
1992 18,745 12,873 10,032 7,600 5,200 54,450 N/A
- --------------------------------------------------------------------------------
1991 9,030 13,079 9,759 N/R N/R N/A N/A
- --------------------------------------------------------------------------------
N/R = No report N/A = Not applicable
- --------------------------------------------------------------------------------
NOTE: The 113,327 sites counted for the top five REITs in 1996 make up 20
percent of the total sites surveyed in the 1997 Allen Report. These rental sites
are located in 339 communities, accounting for about 1 percent of some 50,000
existing manufactured housing communities nationwide. The community counts for
the five major REITs are: ROC (113), MHC (72), Chateau (47), Sun (84) and United
(23). The proportion of communities owned by each of the REITs compared to the
others is: ROC (33%), MHC (21%), Chateau (14%), Sun (25%) and United (7%).
================================================================================
Manufactured Home Communities (MHC) is expected to continue an aggressive
acquisition campaign through 1997 and beyond. As of September 1997, the MHC REIT
had a market cap of $632.0 million, and continues to pursue the acquisition of
manufactured home communities. Aside from the ELL-CAP $300.0 million
transaction, in September 1997 Manufactured Home Communities, Inc. completed a
$107.0 million purchase of 18 manufactured housing communities and two related
commercial properties from partnerships affiliated with Mobileparks West. The
communities, with 3,505 sites, were purchased with about $3.0 million
manufactured home operating units, $16.0 million in cash and $20.0 million of
installment notes and assumed debt. The communities have an average monthly
rental of $349.00. The communities are located in California, Utah, Oregon,
Washington and Nevada. MHC may be the first manufactured home community REIT to
reach $1.0 billion.
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Market Analysis
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The MHC REIT continues to perform and expand, and as of September 1997 was
trading at $25.625, with a current yield of 5.2 percent. The top traded REITs,
are presented as follows.
<TABLE>
<CAPTION>
==========================================================================================
REIT MARKET UPDATE
- ------------------------------------------------------------------------------------------
Company Symbol Price Current 52 Week 52 Week Annual 12 Mth Tot
(9/19/97) Yield High Low Dividend Rtn
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CPJ $29.688 5.8% $31.125 $22.250 1.72 26.6%
- ------------------------------------------------------------------------------------------
MHC $25.625 5.2% $26.428 $18.875 1.32 30.7%
- ------------------------------------------------------------------------------------------
SUI $37.428 5.0% $ 38.00 $27.750 1.88 31.8%
- ------------------------------------------------------------------------------------------
UMH $11.625 6.0% $13.625 $10.875 0.70 -1.7%
- ------------------------------------------------------------------------------------------
Total return figures obtained through Standard & Poors and are for the period through
Sept 1997.
==========================================================================================
</TABLE>
The Southwest and Northwest Regions of the nation are the preferred
locations regarding recent and future manufactured housing community
acquisitions. However, investors seeking moderate, but consistent growth
expectations, are still looking at the midwest region. Also, southern portions
of Florida are still considered a prime area for investors seeking good quality
manufactured housing communities, with good up-side potential. What was once a
stagnant market, the northeast region is now being considered for future
acquisitions.
According to a recent study prepared by Merrill Lynch & Company, ownership
in the manufactured housing community industry is highly fragmented. The top 150
owner-operators account for less than 5.0 percent of the total industry, whereas
a host of "mom-and-pop" private companies account for the other 95.0 percent.
This unglamorous niche industry is ripe for consolidation, and an infusion of
professional management expertise is likely to yield significant economies of
scale. The four REIT's specializing in manufactured housing communities are
already among the top ten owner-operators, and are well positioned to facilitate
and hasten the industry's consolidation to the likely benefit of their
stockholders.
Manufactured homes are the fastest growing component of the nation's
housing inventory, due to their affordability, good quality design and safety
standards. According to the Merrill Lynch & Company Manufactured Housing
Community Industry Report, factory-built homes appeal especially to senior
citizens and to households with limited economic needs, two segments of the
population that are likely to grow rapidly in coming years.
Consistent returns in manufactured housing community investments have been
the mainstay of the industry. For this reason, as well as the amount of
acquisitions seen by Real Estate Investment Trusts (REITs) from 1991 to 1996,
the availability of good quality manufactured housing communities has been
substantially reduced compared to the 1980's. Good quality manufactured housing
communities still command premium prices, thus driving
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Market Analysis
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down overall capitalization rates.
Cushman & Wakefield's Valuation Advisory Services has tracked sale
transactions of manufactured housing communities since 1985. Overall
capitalization rates have consistently been within the 8.75 to 10.00 percent
range for communities located in moderate to increasing growth markets, and as
low as near 8.0 percent for those communities located in growing markets that
poses significant upside potential. Overall capitalization rates are clearly
affected and are differentiated among the properties relative to rent levels,
age, quality, condition, location, amenities, demographic characteristics,
resident profile, as well as the quality of management.
Manufactured housing communities fall within, and are categorized by their
overall appearance, age, and amenities, but more importantly the strength of the
local market. The various categories of manufactured housing communities,
according to the Woodall Directory, can be ranked as 1 to 5 Star Parks These
rankings are defined as follows:
One Star Park
The most important consideration for a one star park is overall
appearance. If it is not a decent place to live, it will not be listed in
Woodall's Directory. The following are general requirements:
o Fair overall appearance;
o Patios on most lots. May be concrete, asphalt, wood, or some
suitable material;
o Grass, rock or shell to cover ground;
o Streets fair to good. May be dirt, asphalt or gravel in reasonable
condition;
o Restrooms clean, if any;
o Adequate laundry or laundromat nearby;
o If fences allowed, must be neat;
o Mail service;
o Homes may be old models, but show evidence of care; and,
o Manager available some hours of each day.
Two Star Park
In addition to the requirements for a one star park, a two star park will
have the following:
o Landscaping - some lawns and shrubs;
o Streets in good condition. Must be dust free of crushed rock, gravel
or shell minimum;
o Neat storage;
o Well equipped laundry or laundromat nearby;
o 200 volt connections available;
o If children accepted, park should have play area;
o Park free of clutter, such as old cars and other abandoned
equipment; and,
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Market Analysis
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o Well maintained and managed.
Three Star Park
What a three star park does it does well, but not as uniformly as higher
rated parks. Many three star parks were once higher rated, but original
construction does not allow for today's 10-foot, 12-foot, and double-wides
or the 55-foot and 60-foot lengths. If children are allowed, there should
be adequate play area. However, the disarray caused by children may at
times be the determining factor that keeps a three star park at that level
when it otherwise could be rated higher. In addition to the requirements
for one and two star parks, a three star park must have the following:
o Attractive entrance;
o All homes must be in good condition;
o Awnings and cabana rooms on some homes in southern areas;
o Some spaces for large mobile homes;
o Paved or hard surfaced streets;
o Off-street parking or streets wide enough for safe on-street
parking;
o Good lawns or substitute throughout, shade trees, some shrubs where
climate permits;
o Concrete patios or the equivalent on all lots;
o All lots neat and attractive;
o All park buildings in good repair; and,
o Good management.
Four Star Park
Four star parks are luxury parks. In addition to the requirements for one,
two and three star parks, a four star park must have the following:
o Good landscaping;
o Most homes skirted with metal skirts, concrete block, ornamental
wood or stone;
o Paved streets, edged or curbed.
o Uncrowded lots;
o Underground utilities if permitted by local conditions and
authorities;
o Most tanks, if present, concealed;
o Any hedges or fences must be attractive and uniform;
o Awnings, cabanas, or porches on most homes in southern areas.
(Excepting double-wide units.);
o Most lots to accommodate large mobile homes;
o Where row parking of homes exists, all must be lined up uniformly;
o Community hall and/or swimming pool and/or recreation programs. If a
park is four star in all but this requirement, the fourth star will
be printed as an open star indicating a four star park without
park-centered recreation; and,
o Excellent management.
Five Star Park
Five star parks are the finest. They should be nearly impossible to
improve. In
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Market Analysis
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addition to the requirements for one, two, three, and four star parks, a
five star park must have the following:
o Well planned and laid out spacious appearance;
o Good location in regard to accessibility and desirable neighborhood.
In some locations, park should be enclosed by high hedges or
ornamental fence;
o Wide paved streets in perfect condition. Curbs or lawns edged to
streets, sidewalks, street lights, street signs;
o Homes set back from street;
o Exceptionally attractive entrance and park sign;
o Patios at least 8 x 30 feet. (Excepting double-wide units.);
o Paved off-street parking such as carports or planned parking;
o All homes skirted;
o All hitches concealed. Any existing tanks concealed;
o Recreation, some or all of the following: swimming pool (excepting
areas with long, cold winters), shuffleboards, horseshoe pitching,
golf course, hobby shop, hobby classes, games, potlucks, dances or
natural recreational facilities;
o Beautifully equipped recreation hall with kitchen. Room for
community gatherings, tiled restrooms, etc.;
o Uniform storage sheds or central storage facilities;
o All late model homes in excellent condition;
o At least 60 percent occupancy in order to judge quality of residents
which indicates park's ability to maintain a five star rating
between inspections;
o All empty lots grassed, graveled or otherwise well maintained;
o If pets or children allowed, there must be a place for them to run
and play without cluttering the streets and yards. Most five star
parks are for adults only; and,
o Superior management interested in comfort of residents and
maintenance of park.
The demand for good quality institutional grade manufactured housing
communities is anticipated to increase throughout the 1990's, since manufactured
housing communities provide an alternative form of living for the elderly and
retirees, especially for those living on fixed income. Manufactured home
shipments continue to be strong. Shipments rose 20.0 percent in 1992 and 1994,
and 12.0 percent in 1995. The market for good quality manufactured housing
communities is expected to be strong, with yield and capitalization rates and
prices expected to continue to be competitive, with the REITs leading the way.
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Market Analysis
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Competition
We have surveyed six manufactured housing communities located within the
subject's primary market, including the subject property's 380 sites, containing
a total of 2,248 sites. The combined occupancy rate of these six manufactured
housing communities, including the subject property, is above 99.0 percent.
Excluding the subject property in our survey, the combined occupancy rate is
also above 99.0 percent, based on 1,868 sites.
The name and location of the subject property's primary competition, as
well as the number of sites, occupancy levels, amenities offered, monthly rental
rates and services provided in the monthly rental rate, are presented on the
following facing page, along with a map which identifies the location of each
competing park.
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<TABLE>
<CAPTION>
===========================================================================================================================
SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- ---------------------------------------------------------------------------------------------------------------------------
Number Age
Of Sites ---
-------- Condition Services Date Of
Comp. Name Occupancy --------- Monthly Provided Last Rental
No. Location Level Amenities Park Rating(1) Rent in Rent Increase
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
R-1 Ingram Manor 390 Clubhouse 1981 $203.45/Mo. Water March, 1997
3801 County Line Road ---- ---- Sewer
Portage, Indiana 100% Good Refuse
----
4*
- ---------------------------------------------------------------------------------------------------------------------------
R-2 Camelot Estates & Manor 705 Clubhouse 1960's $289.00/Mo. Refuse January, 1997
U.S. Hwy 6 and --- Pool ------
County Line Road 99% Playground Good
Portage, Indiana Storage ----
5*
- ---------------------------------------------------------------------------------------------------------------------------
R-3 Williamsburg Manor 228 Clubhouse 1973 $267.00/Mo. Refuse January, 1997
2257 Montdale Road --- Laundry ---- To Basic Cable
Valparaiso, Indiana 99% Basketball Good $280.00/Mo.
Storage ----
5*
- ---------------------------------------------------------------------------------------------------------------------------
R-4 Pleasant Valley 325 Pool 1971 $242.00/Mo. Water January, 1997
2999 McCool Road ---- Storage ---- Sewer
Portage, Indiana 100% Good Refuse
----
4*
- ---------------------------------------------------------------------------------------------------------------------------
R-5 Liberty Farm 220 Storage 1960's $253.00/Mo. Water October, 1997
76 East Hwy 6 --- Playground ------ To Sewer
Valparaiso, Indiana 99% Good $268.00/Mo. Refuse
----
4*
- ---------------------------------------------------------------------------------------------------------------------------
Subject Oak Tree Village 380 Clubhouse 1969 $251.00/Mo. Water May, 1997
254 Sandalwood Avenue --- Pool ---- To Sewer
Portage, Indiana 99% Basketball Good $266.00/Mo. Refuse
Playground ----
Storage 4*
- ---------------------------------------------------------------------------------------------------------------------------
(1) Ratings from One Star to Five Star Parks are defined in the National Overview section of this report.
===========================================================================================================================
<CAPTION>
========================================================
SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- --------------------------------------------------------
3-Year
Average
Comp. Name Annual Rental
No. Location Increase
- --------------------------------------------------------
<S> <C> <C>
R-1 Ingram Manor $10.00/Mo.
3801 County Line Road
Portage, Indiana
- --------------------------------------------------------
R-2 Camelot Estates & Manor $22.00/Mo.
U.S. Hwy 6 and
County Line Road
Portage, Indiana
- --------------------------------------------------------
R-3 Williamsburg Manor $10.00/Mo.
2257 Montdale Road
Valparaiso, Indiana
- --------------------------------------------------------
R-4 Pleasant Valley $10.00/Mo.
2999 McCool Road
Portage, Indiana
- --------------------------------------------------------
R-5 Liberty Farm $12.00/Mo.
76 East Hwy 6
Valparaiso, Indiana
- --------------------------------------------------------
Subject Oak Tree Village $10.00/Mo.
254 Sandalwood Avenue
Portage, Indiana
========================================================
</TABLE>
<PAGE>
COMPETING MANUFACTURED HOUSING MAP
[MAP OMITTED]
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Market Analysis
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Rental rates of manufactured housing communities located within the
subject's primary market range from $203.45 to $289.00 per site, on a monthly
basis. The subject property is currently quoting monthly rental rates within the
market range, or $251.00 to $266.00 per site. The last rental rate increase at
the subject property was as of May 1, 1997. The subject property includes 39
duplex homes and one manufactured home, which are available for rent at the
subject property, with rents ranging from $410.00 to $600.00 per month.
The enclosed comparable rentals are considered the most competitive to the
subject property regarding amenities offered, condition, location and overall
ranking.
Comparable R-1, Ingram Manor, is located at 3801 County Line Road, in
Portage, Indiana. This comparable property contains 390 sites, and is
100.0 percent occupied. Ingram Manor was developed in 1981, and is in
overall good condition. Ingram Manor includes a clubhouse as an amenity.
Over the last three years, the average annual rental rate increase was
approximately $10.00 per month. The monthly rental rate is $203.45, with
water, sewer, and refuse included in the monthly rental payment.
Comparable R-2, Camelot Manor and Camelot Estates, are located at U.S.
Highway 6 and County Line Road, in Portage, Indiana. Camelot Manor and
Estates are operated in conjunction, and contain 705 sites. The overall
occupancy rate for both parks is 99 percent. Camelot Manor and Camelot
Estates were developed in the 1960's, and are in overall good condition.
Amenities include a clubhouse, pool, playground and storage. Over the last
three years, the average annual rental rate increase was $22.00 per month.
The monthly rental rate is $289.00, with refuse service included in the
monthly rental payment.
Comparable R-3, Williamsburg Manor, is located at 2257 Montdale Road, in
Valparaiso, Indiana. Williamsburg Manor contains 228 sites, and is 99
percent occupied. Williamsburg Manor was developed in 1973, and is in
overall good condition. Amenities include a clubhouse, laundry facilities,
basketball courts and storage area. Over the last three years, the average
annual rental rate increase was approximately $10.00 per month. Monthly
rental rates range from $267.00 to $280.00 per month, with refuse and
basic cable service included in the monthly rental payment.
Comparable R-4, Pleasant Valley, is located at 2999 McCool Road, in
Portage, Indiana. Pleasant Valley contains 325 sites, and is 100.0 percent
occupied. Pleasant Valley was developed in 1971, and is in overall good
condition. Amenities include a pool and storage area. Over the last three
years, the average annual rental rate increase was $10.00 per month. The
monthly rental rate is $242.00, with water, sewer, and refuse service
included in the monthly rental payment.
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Market Analysis
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Comparable R-5, Liberty Farm, is located at 76 East Highway 6, in
Valparaiso, Indiana. Liberty Farm contains 220 sites, and is 99 percent
occupied. Liberty Farm was developed in the 1960's, and is in overall good
condition. Amenities include a playground and storage area. Over the last
three years, the average annual rental rate increase was $12.00 per month.
The monthly rental rates range from $253.00 to $268.00, with water, sewer,
and refuse included in monthly rental payment.
In our opinion, and based on conversations with the on-site manager,
properties R-3 R-4, and R-5 compete most favorably with the subject property,
with the monthly rental rates ranging from $242.00 to $280.00 per month per
site. The subject property is currently quoting monthly rental rates ranging
from $251.00 to $266.00 per site, which is within the range of rental rates of
our more comparable competing properties. The subject property competes most
effectively with its primary competitors regarding amenities, condition and
current rent structure.
Comparable Manufactured Housing Community Sales
A search of the subject's market revealed a limited number of recent sales
of manufactured housing communities in the immediate area. In addition, the
sales discovered were not very comparable to the subject property, as all parks
contained limited amenities. Nevertheless, we have presented sales of
manufactured housing communities in and beyond the region of the subject
property, but all located in the northern portion of Indiana. The following is a
brief discussion of each of the manufactured housing sales located within the
subject's market. These sales are summarized on the following facing page.
Comparable Sale I-1, Redwood Estates, is located at 10324 Old Leo Road, in
Fort Wayne, Indiana. This property contains 76 sites and is operated in
conjunction with Apple Valley (I-2). The property was in average condition
at the time of sale and was developed in the 1960's. There are minimal
amenities at Redwood Estates. The property was purchased for $800,000,
which equates to $10,256 per site.
Comparable Sale I-2, Apple Valley, is located at 10326 Old Leo Road. This
property contains 106 sites and is operated in conjunction with Redwood
Estates (I-1). The property was in average condition at the time of sale
and was developed in the late 1980's. There are minimal amenities at Apple
Valley. The property was purchased for $1,400,000, which equates to
$13,208 per site.
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<TABLE>
<CAPTION>
=========================================================================================================================
SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- -------------------------------------------------------------------------------------------------------------------------
Sales Price
Per Site
Sales Date Land Area Density -------- EGIM
Comp. Name ---------- --------- -------- Occupancy ----
No. Location Sales Price No. Sites Condition At Sale $NOI/Site OAR
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
I-1 Redwood Estates 7/95 N/A N/A $10,256 $1,079 6.30x(2)
10324 Old Leo Road ---- --- --- ------- -----
Fort Wayne, Indiana $800,000 78 Average N/A 10.52%
- -------------------------------------------------------------------------------------------------------------------------
I-2 Apple Valley 7/95 N/A N/A $13,208 $1,913 5.30x(2)
10326 Old Leo Road ---- --- --- ------- -----
Fort Wayne, Indiana $1,400,000 106 Average N/A% 10.27%
- -------------------------------------------------------------------------------------------------------------------------
I-3 Meadowview Mobile Home Park 12/95 N/A N/A $15,774 $1,774 4.24x
807 Greenfield lane ---- --- --- ------- -----
Portage Township, Indiana $2,650,000 168 Fair N/A 11.25%
- -------------------------------------------------------------------------------------------------------------------------
I-4 Burns Harbor Estates 1/93 42.00 5.43 $16,228 $1,760 5.43
932 North, 150 West ---- ----- ---- ------- ----
Chesterton, Indiana $3,700,000 228 Good 97% 10.85%
- -------------------------------------------------------------------------------------------------------------------------
Subject Oak Tree Village - - - 78.33 4.85 - - - $3,019(1) N/A
254 Sandalwood Avenue ----- ----
Portage, Indiana 380 Good 99%
- -------------------------------------------------------------------------------------------------------------------------
(1) 1997 Trailing 12 months.
(2) Figures based on Gross Income.
=========================================================================================================================
<CAPTION>
=====================================================================================================
SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- -----------------------------------------------------------------------------------------------------
$EGI/Site
---------
$Expense/Site
-------------
Comp. Name Expense Ratio Comparability to
No. Location % Of EGI to the Subject Comments
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
I-1 Redwood Estates $1,627(2) Inferior Developed in the 1960's;
10324 Old Leo Road -------- Good condition; Minimal
Fort Wayne, Indiana $599 amenities.
----
36.80%
- ------------------------------------------------------------------------------------------------------
I-2 Apple Valley $1,763(2) Inferior Developed in late 1980's;
10326 Old Leo Road -------- Good condition; Minimal
Fort Wayne, Indiana $446 amenities.
----
25.30%
- ------------------------------------------------------------------------------------------------------
I-3 Meadowview Mobile Home Park $3,720 Inferior Developed in the early
807 Greenfield lane ------ 1970's;
Portage Township, Indiana $1,946 Fair condition; Minimal
------ amenities.
52.32%
- ------------------------------------------------------------------------------------------------------
I-4 Burns Harbor Estates $2,514 Inferior Developed in the 1970's;
932 North, 150 West ------ Good condition; No
Chesterton, Indiana $754 amenities.
----
30.00%
- ------------------------------------------------------------------------------------------------------
Subject Oak Tree Village $3,073 Subject Developed in phases 1969
254 Sandalwood Avenue ------ Property to 1989; Good condition;
Portage, Indiana $1,250 Amenities include:
------ Clubhouse, pool,
40.69% basketball courts,
playground, and storage
area.
- ------------------------------------------------------------------------------------------------------
(1) 1997 Trailing 12 months.
(2) Figures based on Gross Income.
======================================================================================================
</TABLE>
<PAGE>
Market Analysis
================================================================================
Comparable Sale I-3, Meadowview Mobile Home Park, is located at 807
Greenfield Lane, in Portage Township, Indiana. This property contains 168
sites. The property was in fair condition at the time of sale and was
developed in the early 1970's. There are minimal amenities at Meadowview
Mobile Home Park. The property was purchased for $2,650,000, which equates
to $15,774 per site.
Comparable Sale I-4, Burns Harbor Estates, is located at 932 North, 150
West, in Chesteron, Indiana. This property contains 228 sites, situated on
42.0 acres of land area. The park was in good condition at the time of
sale and was developed in approximately the 1970's. Burns Harbor Estates
contains no amenities. The property was 97.0 percent occupied at the time
of sale. The property was purchased for $3,700,000, which equates to
$16,228 per site.
It should be noted that comparability does not imply an identical or
exact duplicate, but rather the possession of a similar utility and affected by
similar supply and demand forces. Also, relative to the subject property,
differences include: time or date of the transactions; location, which
encompasses differences in accessibility; site characteristics, including
differences in size, topography, access, exposure and development capacities;
and improvement characteristics, which include differences in age, quality,
condition, size and amenities.
Demographic Trends
Based on information provided by National Decision Systems (NDS), the
populations within the subject's primary 5-mile and secondary 10-mile market
areas, as of 1997, are 66,280 and 175,320, respectively. The populations of the
subject's primary and secondary market areas are projected to increase to 68,149
and 177,335, respectively, by the year 2002.
According to NDS, the total number of households within the subject's
primary and secondary market areas, are 24,689 and 64,750, respectively, for
1997. The number of households within the subject's primary 5-mile and secondary
10-mile market areas are projected to increase to 25,985 and 67,032,
respectively, by the year 2002.
The average household income levels within the subject's primary and
secondary market areas, for 1997, are $53,915 and $55,365, respectively, and are
expected to increase to $66,676 and $70,637, respectively, by the year 2002. The
median household income levels within the subject's primary and secondary market
areas, for 1997, are $43,171 and $41,379, respectively, and are expected to
increase to $50,295 and $48,846, respectively, by the year 2002. Per capita
income within the subject's primary and secondary market areas, for 1997, are
$20,035 and $20,473, respectively, and are expected to increase to $25,392 and
$26,672, respectively, by the year 2002.
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Market Analysis
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Based on the above levels, the demographics of the subject's primary
market area appear to indicate a positive growth trend, based on information
provided by NDS. For additional demographic information, please refer to the NDS
summary report in the Addenda of this report.
Expense Analysis
Expenses exhibited by manufactured housing communities nationally are
typically 35.0 to 45.0 percent of effective gross income. However, expense
ratios of manufactured housing communities located in the southeast and
southwest regions of the nation are typically lower by comparison, due to lower
real estate taxes and common area maintenance charges.
As presented in the Summary of Manufactured Housing Communities Sales,
operating expense ratios of competing parks range from 25.30 to 52.32 percent of
gross income/effective gross income levels, and $446 to $1,946 on a per site
basis. The subject property is currently reporting expenses, for the 12-month
trailing period of 1997, at 40.69 percent of effective gross income and $1,250
on a per site basis. Operating expenses appear to be within the range of
comparable properties on both a per site basis as well as on a percentage of
effective gross income.
Market Supply and Demand
There are a total of five competing manufactured housing communities
located within the subject's market, which total 1,868 sites, with a
corresponding average occupancy rate of above 99.0 percent. No specific
absorption statistics were available, since the subject's competing parks have
historically reported occupancy rates at, or above 95.0 percent. The occupancy
rate at the subject property, based on conversations with management, has
historically been consistent with competing parks, and is currently 99.21
percent. We believe the current occupancy rate of the subject property is
stabilized, and is within the range of the occupancy rates of competing parks
presently presented. Based on the subject's current occupancy rate and occupancy
rates at competing parks, demand appears to be strong, with steady rental rate
increases expected.
Conclusion
Historically, the subject's primary market has sustained high occupancy
levels of 95.0 to 100 percent. Rental rates of similar manufactured housing
communities located within the subject's primary market generally range from
$203.45 to $289.00 per site, on a monthly basis. The subject property is
currently quoting, and is currently achieving (based on the most recent rent
roll provided), a monthly rental rate within the range of competing parks, or at
$251.00 to $266.00 per site, which we believe is market-orientated.
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Market Analysis
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Based on our research, steady increases in rental rates are anticipated,
based on actual historical performance of competing parks and historical
increases seen at the subject property. Sales transactions of manufactured
housing communities located within the subject's region range from $10,256 to
$16,228 per site, with corresponding overall rates ranging from 10.27 to 11.25
percent. In our opinion, the subject property competes favorably with its
competition regarding amenities, condition, rent structure and overall market
rating.
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<PAGE>
SITE PLAN
[GRAPHIC OMITTED]
<PAGE>
PROPERTY DESCRIPTION
================================================================================
Site Description
The subject site is located along the south side of Old Porter Road, west
of SR 149. The subject site is irregular in shape and contains approximately
78.33 acres, or 3,411,875 square feet of land area. Topographically, the site is
basically level and at street grade.
Sewer service is provided by the City of Portage. Water service is
provided by Northfield Indiana Water Company. Electric and gas service is
provided by NIPSCO. GTE Company provides telephone service.
The subject property is accessible via Salt Creek Road, which intersects
with Old Porter Road. Based on conversations with the City of Portage
Engineering Department, the subject property according to FEMA, is partially
located in Zone B, the 100 year flood plain and Zone C, areas with minimal
flooding. The property manager has indicated that there have been no problems
with flooding at the subject property. However, we recommend a qualified
engineer to determine the existence of any flood hazard areas.
Each developed site has a concrete driveway. According to the property
manager, approximately 30 sites are developed with concrete pads with the
remaining sites have concrete pillars. Some sites at the subject property can
fit only single-wide manufactured homes. The property manager estimated that 50
to 60 percent of the sites can fit a double-wide home. The streets within the
community have two-lanes. Overall, the subject site is typical of the area and
is functionally well suited for its current use.
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.
Improvements Description
The subject property was developed in phases between 1969 and 1989. The
subject improvements consist of a 380-site manufactured housing community, with
a clubhouse, pool, basketball court, playground, laundry facilities, and storage
area.
The clubhouse consists of open-space available for resident use, and a
kitchen. The exterior of the one-story clubhouse is sandwich metal panels with a
brick facade, and appeared to be in overall good condition at the time of
inspection.
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Property Description
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Off-street parking is available for each resident. Site improvements
within the park include: paved streets, concrete driveways, street lighting and
signage. Overall, the site improvements appeared to be in good condition at the
time of inspection.
Oak Tree Village is a functional manufactured housing community with good
ingress and egress from Salt Creek Road, which intersects with Old Porter Road.
Overall, the subject community appears to be well maintained and is in good
condition. Oak Tree Village is a functional manufactured housing community and
competes favorably with other existing manufactured housing communities in the
area in terms of appearance and amenities. The subject property would fit the
profile of a Four Star Park, as defined in the National Overview section of this
report.
Real Property Taxes and Assessments
The subject property is identified by tax parcel numbers 24-000000101 and
24-000000102. The State of Indiana is not a market value state, therefore, there
is no relationship between the subject property's net taxable value and the
market value.
Real estate taxes in Porter County are assessed in arrears. Real estate
taxes for 1996 were billed in November of 1997. The total amount of real estate
taxes for 1996 for the subject property amounts to $42,497.36. The total amount
of real estate taxes for 1996 equates to approximately $111.84 per site.
Zoning
According to zoning officials of the City of Portage, the subject property
is currently zoned MH, Mobile Home District. Based on conversations with zoning
officials the City of Portage, the subject property is a legal and conforming
use in the MH, Mobile Home District.
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CONCLUSION
================================================================================
Conclusion
o The subject property, Oak Tree Village, is a functional manufactured
housing community, which competes favorably in relation to its
competition;
o Comparable manufactured housing communities located within the
subject's market range in monthly rental rates per site from $203.45
to $289.00;
o The subject property is currently quoting, and is currently
achieving (based on the most recent rent roll provided) a monthly
rental rate ranging from $251.00 to $266.00 per site, which is
within the range of competing parks, and appears to be
market-oriented;
o Sale transactions of manufactured housings located within the
subject's region range in unit sales prices per site from $10,256 to
$16,228, with corresponding overall rates ranging from 10.27 to
11.25 percent;
o Operating expenses are within industry standards for a park located
in the midwest region of the country;
o The subject park appears to be operating at economic levels based on
our review of historical and budgeted 1998 income and expenses;
o The demographic characteristics of the area appear to be positive;
o The population profile of the subject property is approximately 65
percent retired adults, and 35 percent working adults.
o The current occupancy rate at the subject property of about 99.0
percent is evident by a strong local market and demand;
o No significant manufactured housing communities are expected to be
developed in the near future;
o In our opinion, based on Woodall's criteria, the subject property is
a Four Star Park, and the reader's attention is directed to the
corresponding definition and criteria of a Four Star Park, presented
in the National Overview section of this report.
o Based on the subject's location, demographic, economic, market and
physical characteristics, we believe Oak Tree Village will continue
to be a viable manufactured housing community in the foreseeable
future, and is well positioned in the marketplace.
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<PAGE>
ASSUMPTIONS AND LIMITING CONDITIONS
================================================================================
"Report" means the consulting report to which these Assumptions and Limiting
Conditions are annexed.
"Property" means the subject of the Report.
"C&W" means Cushman & Wakefield, Inc. or its subsidiary which issued the Report.
"Appraiser(s)" means the employee(s) of C&W who prepared and signed the Report.
This report is made subject to the following assumptions and limiting
conditions:
1. No responsibility is assumed for the legal description or for any matters
which are legal in nature. 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 Report or upon which the Report 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 Appraisers nor C&W shall be responsible for the
accuracy or completeness of such information, including the correctness of
estimates, opinions, dimensions, sketches, exhibits, and other factual
matters.
3. The information is effective as of the date stated in the Report. Changes
since that date in external and market factors or in the property itself
can significantly affect our analysis.
4. The report is to be used in whole and not in part. No part of the Report
shall be used in conjunction with any other report. Possession of the
Report, or a copy thereof, does not carry with it the right of
publication. Publication of the Report or any portion thereof without the
prior written consent of C&W is prohibited. Except as may be otherwise
expressly stated in the letter of engagement to prepare the Report, C&W
does not permit use of the Report by any person other than the party to
whom it is addressed or for purposes other than those for which it was
prepared. If written permission is given by C&W to use the Report, the
Report must be used in its entirety and only with proper written
qualification as approved by C&W. No part of the Report or the identity of
the Appraiser shall be conveyed to the public through advertising, public
relations, news, sales, or other media or used in any material without
C&W's prior written consent. Reference to the Appraisal Institute or to
the MAI designation is prohibited.
5. The Appraiser shall not be required to give testimony in any court or
administrative proceedings relating to the Property or the Report.
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Assumptions and Limiting Conditions
================================================================================
6. The Report 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 Report; 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 Report is based.
7. The physical condition of the improvements considered by the Report is
based on visual inspection by the Appraiser or other person identified in
the Report. C&W assumes no responsibility for the soundness of structural
members nor for the condition of mechanical equipment, plumbing, or
electrical components.
8. Unless otherwise stated in the Report, the existence of potentially
hazardous or toxic materials which may have been used in the construction
or maintenance or operation of the improvements or may be located at or
about the Property was not considered in the Report. These materials (such
as formaldehyde foam insulation, asbestos insulation, various soil
contaminants, and other potentially hazardous materials) may affect the
value of the Property. The Appraisers are not qualified to detect such
substances, and C&W urges that an expert in this field be employed to
determine the economic impact of these matters, if any, on the property in
the Report.
9. Unless otherwise stated in the Report, compliance with the requirements of
the Americans With Disabilities Act of 1990 (ADA) has not been considered
in the Report. Failure to comply with the requirements of the ADA may
negatively affect the value of the property. C&W recommends that an expert
in this field be employed.
10. If the Report is submitted to a lender or investor with the prior approval
of C&W, such party should consider the Report as one factor, together with
its independent investment considerations and underwriting criteria, in
its overall investment decision.
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CERTIFICATION
================================================================================
We certify that, to the best of our knowledge and belief:
1. Jennifer L. Estrella inspected the property, and Michael J. Schaeffer and
Stanley R. Dennis, Jr., MAI, have reviewed and approved the report, but
did not inspect 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 on an action or event (such as the
approval of a loan) resulting from the analyses, opinions, or conclusions
in, or the use of, this report.
6. 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 Ethics and Standards of Professional Practice of the Appraisal
Institute.
7. No one provided significant professional assistance to the persons signing
this 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. As of the date of this report, Stanley R. Dennis, Jr., MAI, has completed
the requirements of the continuing education program of the Appraisal
Institute.
/s/ Michael J. Schaeffer /s/ Jennifer L. Estrella /s/ Stanley R. Dennis, Jr.
Michael J. Schaeffer Jennifer L. Estrella Stanley R. Dennis, Jr., MAI
Director Associate Appraiser Director, Manager
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<PAGE>
ADDENDA
================================================================================
POP-FACT SHEETS
LEGAL DESCRIPTION
QUALIFICATIONS OF APPRAISERS
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42
<PAGE>
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POP-FACT SHEETS
================================================================================
<PAGE>
Tue Nov 25, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP FACTS: SUMMARY REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6510
PREPARED FOR
CUSHMAN & WAKEFIELD, INC
SALT CREEK RD & OLD PORTER RD
PORTAGE, IN COORD: 41:35.85 87:08.34
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- --------------------------------------------------------------------------------
POPULATION
2002 PROJECTION 68,149 177,335
1997 ESTIMATE 66,280 175,320
1990 CENSUS 59,956 165,909
1980 CENSUS 55,851 171,343
GROWTH 1980 - 1990 7.35% -3.17%
HOUSEHOLDS
2002 PROJECTION 25,985 67,032
1997 ESTIMATE 24,689 64,750
1990 CENSUS 21,380 59,149
1980 CENSUS 18,506 56,841
GROWTH 1980 - 1990 15.53% 4.06%
1997 ESTIMATED POPULATION BY RACE 66,280 175,320
WHITE 94.50% 82.68%
BLACK 3.85% 15.23%
ASIAN & PACIFIC ISLANDER 0.32% 0.46%
OTHER RACES 1.34% 1.63%
1997 ESTIMATED POPULATION 66,280 175,320
HISPANIC ORIGIN 4.95% 4.96%
OCCUPIED UNITS 21,380 59,149
OWNER OCCUPIED 72.71% 71.49%
RENTER OCCUPIED 27.29% 28.51%
1990 AVERAGE PERSON PER HH 2.79 2.77
1997 ESTIMATED HH BY INCOME 24,689 64,750
$150,000 + 2.94% 4.19%
$100,000 TO $149,999 5.02% 4.22%
$ 75,000 TO $ 99,999 8.00% 7.74%
$ 50,000 TO $ 74,999 25.56% 24.07%
$ 35,000 TO $ 49,999 18.61% 16.99%
$ 25,000 TO $ 34,999 10.27% 10.76%
$ 15,000 TO $ 24,999 13.63% 13.41%
$ 5,000 TO $ 14,999 13.00% 13.84%
UNDER $ 5,000 2.96% 4.77%
1997 EST. AVERAGE HH INCOME $53,915 $55,365
1997 EST. MEDIAN HH INCOME $43,171 $41,379
1997 EST. PER CAPITA INCOME $20,035 $20,473
<PAGE>
Tue Nov 25, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP 80-02, HH 80-02, INC 80-02)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6510
PREPARED FOR
CUSHMAN & WAKEFIELD, INC
SALT CREEK RD & OLD PORTER RD
PORTAGE, IN COORD: 41:35.85 87:08.34
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- --------------------------------------------------------------------------------
POP_80: TOTAL 55,851 171,343
POP_90: TOTAL 59,956 165,909
POP_97: TOTAL (EST.) 66,280 175,320
POP_02: TOTAL (PROJ.) 68,149 177,335
HH_80: TOTAL 18,506 56,841
HH_90: TOTAL 21,380 59,149
HH_97: TOTAL (EST.) 24,689 64,750
HH_02: TOTAL (PROJ.) 25,985 67,032
INC_80: PER CAPITA (EST.) $ 8,489 $ 8,093
INC_90: PER CAPITA $13,543 $ 13,748
INC_97: PER CAPITA (EST $20,035 $ 20,473
INC_02: PER CAPITA (PROJ $25,392 $ 26,672
HH_90_BY INCOME_89: MEDIAN $34,612 $ 32,853
HH_97_BY INCOME: MEDIAN $43,171 $ 41,379
HH_02_BY INCOME: MEDIAN $50,295 $ 48,846
HH_80_BY INCOME_79: AVERAGE $25,620 $ 24,397
HH_90_BY INCOME_89: AVERAGE $38,069 $ 38,267
HH_97_BY INCOME: AVERAGE $53,915 $ 55,365
HH_02_BY INCOME: AVERAGE $66,676 $ 70,637
<PAGE>
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LEGAL DESCRIPTION
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<PAGE>
LEGAL DESCRIPTION
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PARCEL I:
That part of the Southwest 1/4 of Section 5, Township 36 North, Range 6 West of
the Second Principal Meridian in Porter County, Indiana, lying South of the
South right of way of the Michigan Central Railroad.
PARCEL II:
Easement for a right to access to Salt Creek Road, also known as County Road No.
375W, by way of easement granted in Document #92-28006, recorded November 17,
1992, in Deed Record 432, page 39, and described as follows:
A 60-foot wide right-of-way being 30 feet West and 30 feet East, as measured
normal to the following described centerline:
Commencing at a point on the North and South centerline of the Southwest Quarter
of Section 5, Township 36 North, Range 6 West of the Second Principal Meridian,
Porter County, Indiana, which is 1336.28 feet South of the North line of said
Southwest Quarter as measured along said centerline (said point being on the
Northerly right-of-way line of the Consolidated Rail Corporation); thence South
00 degrees 14 minutes 00 seconds West along said North and South centerline,
103.74 feet to the Southerly right-of-way line of said railroad and thence
terminating.
The intent being to provide a 60-foot full width right-of-way across the total
100-foot wide Consolidated Rail Corporation right-of-way.
END OF SCHEDULE A
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<PAGE>
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QUALIFICATIONS OF APPRAISERS
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<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
JENNIFER L. ESTRELLA
Education
Master of Urban Planning, Economic Development Concentration University of
Illinois at Urbana-Champaign, 1996
Bachelor of Business Administration, Finance Major
Loyola University Chicago, 1991
Real Estate Education
The following courses have been completed through the Real Estate Program at the
University of Illinois at Urbana-Champaign:
Real Estate Financial Markets
Urban Real Estate Valuation
Real Estate and Urban Land Economics
Current Position
Associate Appraiser, Cushman & Wakefield of Illinois, Inc., Valuation Advisory
Services
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
MICHAEL J. SCHAEFFER
Real Estate Experience
Mr. Schaeffer has been active in the appraisal of real estate since 1983.
Appraisal experience includes the valuation of income-producing real estate in
the Chicago area as well as many major cities and small towns throughout the
Midwest. The types of properties appraised include office buildings, regional
malls, shopping centers, country clubs, apartment complexes, subsidized housing
units, industrial buildings, nursing homes, retirement communities, automotive
dealerships, department stores, vacant land, proposed income-producing
properties, and various special purpose properties. Mr. Schaeffer also has had
over 10 years of experience in new construction and renovation of commercial,
industrial, residential and specialized real estate properties.
Education
Bachelor of Arts, University of Cincinnati, Cincinnati, Ohio MBA Graduate Course
Work in Economics and Management, Xavier University, Cincinnati, Ohio
Real Estate Education
The following courses sponsored by the Appraisal Institute have been
successfully completed:
Real Estate Appraisal Principles 1A-1
Basic Valuation Procedures 1A-2
Standards of Professional Practice
Capitalization Theory and Techniques 1BA
Capitalization Theory and Techniques IBB
Advanced Applications 550
Report Writing & Valuation Analysis 540
Mr. Schaeffer has also attended numerous lectures and seminars sponsored by the
Appraisal Institute.
Mr. Schaeffer is currently a candidate for the MAI designation of the Appraisal
Institute, and has completed the educational and experience requirements for the
MAI designation.
Current Position
Director, Appraisal Services, Cushman & Wakefield, Inc., Chicago, Illinois
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
STANLEY R. DENNIS, JR., MAI
Real Estate Experience
Director, Manager, Cushman & Wakefield Valuation Advisory Services, Chicago,
Illinois. Division is responsible for the appraisal and consultation function of
Cushman & Wakefield, Inc., a national full service real estate organization,
1989.
Vice President, Manager, Cushman & Wakefield Appraisal Services, Portland,
Oregon, 1983.
Principal, Stanley R. Dennis & Associates, Portland, Oregon, 1982.
Education
Portland State University, Portland, Oregon
Bachelor of Science Degree, 1977, Finance and Real Estate
Appraisal Institute
Course I-A Fundamentals and Principles of Real Estate Appraisal
Course I-B Capitalization Theory and Techniques
Course II-I Case Studies in Real Estate Valuation
Course II-2 Valuation Analysis and Report Writing
Course II-3 Standards of Professional Practice
Course IV Litigation/Condemnation Valuation
Course VI Investment Analysis
Course VIII Residential Case Studies
Course X Market Analysis
Seminar Feasibility Analysis and Highest and Best Use
Seminar Discounted Cash Flow Analysis
Seminar Cash Equivalency
Seminar Subdivision Analysis
Seminar Rates, Ratios and Reasonableness
Professional Affiliations
American Institute of Real Estate Appraisers, Member (Designation #6754)
Building Owners and Managers Association (BOMA)
National Association of Corporate Real Estate Executives (NACORE)
<PAGE>
================================================================================
MARKET STUDY OF REAL PROPERTY
Windmill Village South
3000 North Tuttle Avenue
Sarasota County, Florida
================================================================================
As of December 4, 1997
Prepared For:
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Prepared By:
Cushman & Wakefield of Illinois, Inc.
Valuation Advisory Services
455 North Cityfront Plaza Drive, Suite 2800
Chicago, Illinois 60611-5555
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
[Letterhead Of Cushman & Wakefield Of Illinois, Inc.]
December 15, 1997
Mr. Edward J. Welch
Director
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Re: Market Study of Real Property
Windmill Village South
3000 North Tuttle Avenue
Sarasota County, Florida 34234
Dear Mr. Welch:
In fulfillment of our agreement as outlined in the Letter of Engagement,
Cushman & Wakefield of Illinois, Inc., is pleased to transmit our market study
and consulting report evaluating the above referenced real property.
As specified in the Letter of Engagement, our market study and consulting
report is qualified by certain assumptions, limiting conditions, certifications,
and definitions, which are set forth in the report.
This consulting report was prepared for the Client, and it is intended
only for the specified use of the Client. It may not be distributed to or relied
upon by other persons or entities without written permission of Cushman &
Wakefield, Inc.
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the above
referenced real property, as of the date of our property inspection. The
function of the report is to assist the client, in evaluating the property for
underwriting and rating purposes.
<PAGE>
Mr. Edward J. Welch - 2 - December 15, 1997
This market study and consulting report was prepared in conformity with
the requirements of the Code of Ethics and Standards of Professional Appraisal
Practice of the Appraisal Institute and the Uniform Standards of Professional
Practice (USPAP) adopted by the Appraisal Standards Board of the Appraisal
Foundation.
This letter is invalid if detached from the report, which contains the
text, exhibits, and the Addenda.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF ILLINOIS, INC.
/s/ Jennifer L. Estrella
Jennifer L. Estrella
Associate Appraiser
/s/ Michael J. Schaeffer
Michael J. Schaeffer
Director
/s/ Stanley R. Dennis, Jr.
Stanley R. Dennis, Jr., MAI
Director, Manager
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
SUMMARY OF SALIENT FACTS
================================================================================
Property Name: Windmill Village South
Location: 3000 North Tuttle Avenue
Sarasota County, Florida
Assessor's Parcel Number: Based on information provided by the client,
the subject property is identified by
Assessor's Parcel Numbers 29060134 and
30040001.
Date of Inspection: The property was inspected December 4, 1997.
Ownership: The subject property is legally entitled to
Orangeland Vistas, an Illinois Corporation,
and MHC Financing Limited Partnership, as
beneficiary.
Land Area: Based on information provided by the
property's legal plat of survey, the subject
property contains approximately 61.29 acres
of land area, or 2,669,792 square feet.
Zoning: Based on information provided by the
Sarasota County Planning Department, the
subject property is zoned RMH, Residential
Mobile Home and RSF 3, Residential Single
Family 3. The subject property is a legal
and conforming use in the RMH, Residential
Mobile Home District, but a legal and
nonconforming use in the RSF 3, Residential
Single Family 3 district.
Improvements
Type: A manufactured housing community.
Year Built: The subject property was originally
developed in approximately 1980.
Size: The subject property consists of a 306-site
manufactured housing community.
Condition: At the time of inspection, the subject
property was in good condition.
Property Rating: Five Star manufactured home community.
Special Assumptions: 1. Information regarding the subject
property, including its physical
characteristics, was provided to us by the
client and the on-site manager, and is
assumed to be accurate.
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
Summary of Salient Facts
================================================================================
2. The existence of potentially hazardous or
toxic materials, which may be located on or
about the property, was not considered in
our evaluation. The appraisers are not
qualified to detect such substances, and
Cushman & Wakefield urges that an expert in
this field be employed to determine the
existence, if any, of hazardous materials
located on or about the site.
3. Our market and consulting report
regarding the subject assumes the subject
property, as presently improved, represents
its highest and best use.
4. It is unknown to the appraiser if the
subject property complies with the Americans
with Disabilities Act (ADA). We recommend a
qualified specialist in the final
determination regarding any ADA compliance
deficiencies that may be present at the
subject property.
5. Please refer to the complete list of
assumptions and limiting conditions included
at the end of this report.
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
TABLE OF CONTENTS
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Page
PHOTOGRAPHS OF SUBJECT PROPERTY................................................1
INTRODUCTION...................................................................5
Identification of Property..................................................5
Property Ownership and Recent History.......................................5
Purpose and Function of the Market Study and Consulting Assignment..........5
Scope of the Market Study and Consulting Assignment.........................5
Date of Property Inspection.................................................5
Definitions and Other Pertinent Terms.......................................5
REGIONAL ANALYSIS..............................................................8
NEIGHBORHOOD ANALYSIS.........................................................11
MARKET ANALYSIS...............................................................12
National Overview..........................................................12
Competition................................................................19
Comparable Manufactured Housing Community Sales............................23
Demographic Trends.........................................................26
Expense Analysis...........................................................26
Market Supply and Demand...................................................27
Conclusion.................................................................27
PROPERTY DESCRIPTION..........................................................29
Site Description...........................................................29
Improvements Description...................................................29
REAL PROPERTY TAXES AND ASSESSMENTS...........................................30
ZONING .......................................................................30
CONCLUSION....................................................................31
ASSUMPTIONS AND LIMITING CONDITIONS...........................................32
CERTIFICATION.................................................................34
ADDENDA ......................................................................35
Pop-Fact Sheets
Legal Description
Qualifications of Appraisers
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
PHOTOGRAPHS OF SUBJECT PROPERTY
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[PHOTO OMITTED]
Front Entrance of the Subject Property
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Exterior View of the Clubhouse
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Photographs of Subject Property
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Interior View of the Clubhouse
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View of the Pool at the Subject Property
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Photographs of Subject Property
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Typical Interior View of the Subject Park
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Typical Interior View of the Subject Park
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Photographs of Subject Property
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Street Scene Facing North Along Tuttle Avenue
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Street Scene Facing South Along Tuttle Avenue
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INTRODUCTION
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Identification of Property
The subject property consists of a 306-site manufactured housing
community, situated on approximately 61.29 acres of land area, located on the
east side of Tuttle Road, just north of 27th Street, in Sarasota County,
Florida. The property's street address is 3000 North Tuttle Avenue. The property
was constructed in 1980, and was 99.7 percent occupied at the time of
inspection.
Property Ownership and Recent History
The subject property is currently entitled to Orangeland Vistas, an
Illinois corporation, and MHC Financing Limited Partnership, as beneficiary. The
subject property was originally developed in 1980, with 306 manufactured housing
sites.
Purpose and Function of the Market Study and Consulting Assignment
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the subject
property, as of the date of property inspection. The function of the consulting
report is to assist the client in evaluating the property for underwriting and
rating purposes.
Scope of the Market Study and Consulting Assignment
In the process of preparing this report, we inspected the property,
interviewed the on-site manager, conducted market research into asking rental
rates for comparable properties, conducted market investigations, and
ascertained sales prices of comparable properties. Additionally, we conducted
market research and evaluated demographic and economic trends; and, the market
position and rating of the subject property.
Date of Property Inspection
The property was inspected December 4, 1997.
Definitions and Other Pertinent Terms
Definitions of pertinent terms taken from the Dictionary of Real Estate
Appraisal, Third Edition (1993), published by the Appraisal Institute, is as
follows:
Market Rent
The rental income that a property would most probably command on the open
market; indicated by current rents paid and asked for comparable space as
of the date of the appraisal.
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Introduction
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Evaluation
Evaluation is a study of the nature, quality, or utility of a parcel of
real estate or interest in, or aspects of, real property, in which a value
estimate is not necessarily required.
Market Study
A macroeconomic analysis that examines the general market conditions of
supply, demand, and pricing or the demographics of demand for a specific
area or property type.
Legal Description
The subject property is located along the east side of Tuttle Avenue, in
Sarasota County, Florida. The street address of the subject property is 3000
North Tuttle Avenue. The subject property is located approximately one mile
northeast from the Sarasota city limits. The property is identified by Tax
Parcel Numbers 29060134 and 30040001, according to information provided by the
client. Due to the lengthy metes and bounds legal description, the subject
property's legal description is presented in the Addenda of this report, and
reference is made thereto.
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LOCATION MAP
[MAP OMITTED]
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REGIONAL ANALYSIS
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The subject property is located in the Sarasota-Bradenton metropolitan
area. The Sarasota-Bradenton metropolitan area is located along the southwestern
coast of Florida. According to Sales and Marketing Management's 1997 Survey of
Buying Power, the estimated 1996 population of the Sarasota-Bradenton
metropolitan area is 547,000. The population of the cities of Bradenton and
Sarasota are 49,400 and 57,900, respectively. As the subject property is located
in Sarasota County the focus of this regional analysis is on the characteristics
of Sarasota County area.
Sarasota County
Sarasota County includes the cities of Sarasota, Venice, North Port,
Longboat Key, and the community of Englewood. Surrounding islands considered
part of Sarasota County include Longboat Key, St. Armand's Key, Lido Key, Siesta
Key, and Casey Key. Sarasota County encompasses an area of 573 square miles, and
includes 35 miles of beaches along the Gulf of Mexico. Temperatures in the
Sarasota area are generally tropical, with the average year-round temperature of
72 degrees.
There are tax advantages for individuals and businesses located in
Sarasota County. According to the Greater Sarasota Chamber of Commerce, the tax
structure is favorable with no personal income tax and a low corporate income
tax of 5.5 percent. The health care industry in Sarasota County is nationally
renown, and the various beaches in the county bring a large number of tourists
to the area.
Population
The estimated 1996 population of Sarasota County is 301,000. Since 1990,
the population increased 8.36 percent, when the population was 277,776. The
historical and projected population characteristics of Sarasota County are
presented in the table below.
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SARASOTA COUNTY POPULATION
- --------------------------------------------------------------------------------
YEAR POPULATION % CHANGE
- --------------------------------------------------------------------------------
1980 202,251 ---
- --------------------------------------------------------------------------------
1990 277,776 37.34%
- --------------------------------------------------------------------------------
1996 301,000 8.36%
- --------------------------------------------------------------------------------
2000 331,472 10.12%
- --------------------------------------------------------------------------------
2005 357,417 7.82%
- --------------------------------------------------------------------------------
Source: Greater Sarasota Chamber of Commerce
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As indicated above, the population of Sarasota County has consistently
increased since 1980. Population growth is expected to be positive through the
year 2005.
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Regional Analysis
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Income and Employment
As of 1994, the total Sarasota County civilian labor force was estimated
to be 129,481. The labor force including Sarasota surrounding counties was
154,625. According to the Florida Trend Economic Yearbook, analysts predict the
civilian labor force in Sarasota County will increase to 154,500 by the year
2005. The average 1996 unemployment rate was 3.1 percent. Per 1993 estimates,
the largest non-farm employing industries in the county were services and trade,
respectively. Estimated 1994 per capita personal income was $29,837. The major
employers in Sarasota County are presented in the following table.
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MAJOR EMPLOYERS IN SARASOTA COUNTY
- --------------------------------------------------------------------------------
COMPANY/ORGANIZATION NUMBER OF EMPLOYEES
- --------------------------------------------------------------------------------
School Board of Sarasota County 3,848
- --------------------------------------------------------------------------------
Publix Company 3,107
- --------------------------------------------------------------------------------
Sarasota County Government 3,000
- --------------------------------------------------------------------------------
Sarasota Memorial Hospital 2,900
- --------------------------------------------------------------------------------
Bon Secours Venice Hospital 1,500
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Columbia Doctors Hospital 1,200
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Vinyl-Tech/PGT 800
- --------------------------------------------------------------------------------
Winn-Dixie 750
- --------------------------------------------------------------------------------
Sarasota Herald-Tribune 575
- --------------------------------------------------------------------------------
Sun Hydraulics 450
- --------------------------------------------------------------------------------
Source: Greater Sarasota Chamber of Commerce
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As indicated above, the largest private company operating in Sarasota County is
Publix Company, a grocery store operator.
Transportation
There is only one interstate highway serving the Sarasota County area,
Interstate 75. Other major highways serving the area include U.S. Highways 41,
and 301. Major commercial airlines service the Sarasota Bradenton International
Airport, with an average number of daily flights of 90. Ten airlines service the
airport. Railroad serving the airport include Seminole Gulf, and CSX.
Summary and Conclusions
The Sarasota County area is a stable and well established area, which has
experienced steady growth in the past two decades. Population and employment in
Sarasota County is expected to grow steadily through the year 2005. In summary,
the outlook for the Sarasota region is positive.
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NEIGHBORHOOD MAP
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NEIGHBORHOOD ANALYSIS
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The subject property is situated along the east side of Tuttle Avenue,
between 27th Street and 47th Street in Sarasota County, Florida. The subject
property is located approximately one mile northeast of the City of Sarasota.
The subject's immediate neighborhood is roughly defined as Washington Boulevard
(also known as U.S. Highway 301) to the west, Lockwood Ridge Road to the east,
University Parkway to the north, and 27th Street (also known as County Highway
683) to the south. Development in the immediate neighborhood of the subject
property consists of manufactured housing communities, single-family housing,
and a golf course.
Regional access to the subject property is excellent via University
Parkway, which intersects with Tuttle Avenue and provides access to Interstate
75 South of the subject property is 27th Street which provides access to U.S.
Highway 41. U.S. Highway 41 runs north and south, along the central and southern
portion of western Florida. Major thoroughfares in the immediate neighborhood of
the subject property provide excellent access to the subject property. Major
thoroughfares in the subject's immediate neighborhood include: Lockwood Ridge
Road, Washington Boulevard, 27th Street, and University Parkway. The subject
property enjoys excellent visibility along Tuttle Avenue, which runs north and
south in the Sarasota area.
Development in the immediate neighborhood of the subject property consists
of manufactured housing communities, single-family housing, and a golf course.
Commercial development near the subject property is located primarily along
University Parkway, located north of the subject property. Windmill Village
North manufactured housing community is located directly north of the subject
property. The subject property is also conveniently located approximately two
miles southeast of the Sarasota-Bradenton International Airport.
The subject property is situated in an area well suited for manufactured
housing development. Real estate values are anticipated to increase at a steady
pace. The economy in the area is anticipated to be good. The growth in
population is anticipated to remain constant.
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MARKET ANALYSIS
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National Overview
Reportedly, the largest property owners of manufactured housing
communities in the United States are: ROC Communities, headquartered in
Colorado; MHC, Inc., headquartered in Illinois; Ellenburg Capital, headquartered
in Oregon; Lautrec Ltd., headquartered in Michigan; Clayton Homes, headquartered
in Tennessee; Clayton Williams and Sherwood, headquartered in California;
Chateau Properties, Sun Communities and UNIPROP, headquartered in Michigan.
The following represents the top ten manufactured housing community firms,
as reported by GFA Management, as of 1997.
<TABLE>
<CAPTION>
=========================================================================================
1997 Firm Name State No. of Sites No. of Communities
Rank Owned/Managed Owned/Managed
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Sun Communities Michigan 30,295/0 84/0
- -----------------------------------------------------------------------------------------
2 ROC Communities Colorado 22,441/7,167 77/36
- -----------------------------------------------------------------------------------------
3 Manufactured Home Communities Illinois 27,349/838 69/3
- -----------------------------------------------------------------------------------------
4 Ellenburg Capital Florida 25,173/0 63/0
- -----------------------------------------------------------------------------------------
5 Lautrec Ltd. Michigan 22,652/0 58/0
- -----------------------------------------------------------------------------------------
6 Chateau Properties Michigan 20,003/0 47/0
- -----------------------------------------------------------------------------------------
7 Clayton Homes Tennessee 18,000/0 66/0
- -----------------------------------------------------------------------------------------
8 Clayton, Williams and Sherwood California 16,946/0 44/0
- -----------------------------------------------------------------------------------------
9 UNIPROP Michigan 14,931/0 40/0
- -----------------------------------------------------------------------------------------
10 The Bloch Organization Michigan 14,379/0 37/0
=========================================================================================
</TABLE>
According to the U.S. Census Bureau, more than 8,521,000 people were
living in manufactured housing communities as of 1990 compared to 3,838,678 in
1980. This represents an increase in manufactured housing community living of
approximately 122.0 percent over the last ten years. Over the last ten years,
there has been a steady increase in manufactured housing community development
across the country. Among the demographic factors which account for the increase
in manufactured housing community living are: decreasing household size, a
growing demand for smaller housing, as well as an alternative to the increasing
cost of housing. Nationally, the largest percentage of manufactured housing
communities are located in California, Michigan, Colorado, Florida, New York,
Minnesota, Indiana, Arizona, Ohio, and Wisconsin.
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Market Analysis
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The manufactured home industry has dramatically changed over the last 20
years. Manufactured homes are now designed and constructed to accommodate
spacious and attractive living requirements. Today, approximately one out of
sixteen families live in manufactured housing units. The manufactured housing
market share has been growing steadily over the last 10 years. In 1990, 6.7
percent of Americans lived in manufactured housing units, up from 2.9 percent
compared to 1970, according to the U.S. Census Bureau, which represents 12.0 to
14.0 percent of all new housing built since the mid-1980's, according to the
Manufactured Housing Institute in Arlington, Virginia.
In 1990, the average cost of a manufactured housing unit was $27,800
compared to $149,000 for a new house (including land), according to the
Manufactured Housing Institute. This reflects a 28.0 percent increase in the
cost of manufactured housing since 1980 versus a 49.0 percent increase in
conventional housing. Industry experts estimate that a single-family home
selling for $150,000 would require an annual income of $52,671. To purchase a
$27,800 manufactured housing unit, only a $19,984 income level would be
required.
At Fleetwood Enterprises, the nation's largest manufacturer of
manufactured housing units, units may be purchased for up to $100,000, which
would include a three-bedroom, two-bath unit of 2,100 square feet, with vaulted
ceilings.
In 1990, approximately 10.0 percent of manufactured home owners lived in
units worth approximately $40,000, up from 4.0 percent compared to 1981,
according to a study conducted by Foremost Insurance Company in Grand Rapids,
Michigan. Also, according to the study, approximately 21.0 percent of the
manufactured housing households are occupied by people' 65 years of age or
older, slightly lower than the age group for conventional homes, as reported by
Foremost Insurance.
The demand for good quality institutional grade manufactured housing
communities has substantially increased over the last ten years. Manufactured
housing communities provide an affordable alternative to the increasing cost of
housing. Also, manufactured housing communities provide an alternative form of
living for the elderly and retirees, especially for those living on fixed
incomes.
Acquisitions of manufactured housing communities during 1993 and 1994 were
clearly dominated by Real Estate Investment Trusts. During 1994 and 1995
Manufactured Home Communities (MHC) and ROC communities lead the acquisition of
manufactured housing communities nationally. During 1996, Sun Communities
captured the lead and, together with ROC and MHC dominate the Real Estate
Investment Trust market.
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Market Analysis
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The following chart represents the largest Real Estate Investment Trusts,
from 1991 to 1996, as reported by GFA Management
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HOME SITE GROWTH, DEVELOPMENT AMONG THE LARGEST
REAL ESTATE INVESTMENT TRUST (REITS)
- --------------------------------------------------------------------------------
Year ROC MHC Chateau Sun United Total Annual
Growth
- --------------------------------------------------------------------------------
1996 29,608 28,187 20,003 30,295 5,234 113,327 17.0%
- --------------------------------------------------------------------------------
1995 27,910 26,237 19,594 18,000 4,850 96,591 9.0%
- --------------------------------------------------------------------------------
1994 26,231 28,407 15,689 13,500 4,623 88,450 37.8%
- --------------------------------------------------------------------------------
1993 20,142 14,700 15,261 9,036 5,050 64,189 17.8%
- --------------------------------------------------------------------------------
1992 18,745 12,873 10,032 7,600 5,200 54,450 N/A
- --------------------------------------------------------------------------------
1991 9,030 13,079 9,759 N/R N/R N/A N/A
- --------------------------------------------------------------------------------
N/R = No report N/A = Not applicable
- --------------------------------------------------------------------------------
NOTE: The 113,327 sites counted for the top five REITs in 1996 make up 20
percent of the total sites surveyed in the 1997 Allen Report. These rental sites
are located in 339 communities, accounting for about 1 percent of some 50,000
existing manufactured housing communities nationwide. The community counts for
the five major REITs are: ROC (113), MHC (72), Chateau (47), Sun (84) and United
(23). The proportion of communities owned by each of the REITs compared to the
others is: ROC (33%), MHC (21%), Chateau (14%), Sun (25%) and United (7%).
================================================================================
Manufactured Home Communities (MHC) is expected to continue an aggressive
acquisition campaign through 1997 and beyond. As of September 1997, the MHC REIT
had a market cap of $632.0 million, and continues to pursue the acquisition of
manufactured home communities. Aside from the ELL-CAP $300.0 million
transaction, in September 1997 Manufactured Home Communities, Inc. completed a
$107.0 million purchase of 18 manufactured housing communities and two related
commercial properties from partnerships affiliated with Mobileparks West. The
communities, with 3,505 sites, were purchased with about $3.0 million
manufactured home operating units, $16.0 million in cash and $20.0 million of
installment notes and assumed debt. The communities have an average monthly
rental of $349.00. The communities are located in California, Utah, Oregon,
Washington and Nevada. MHC may be the first manufactured home community REIT to
reach $1.0 billion.
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Market Analysis
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The MHC REIT continues to perform and expand, and as of September 1997
was trading at $25.625, with a current yield of 5.2 percent. The top traded
REITs, are presented as follows.
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REIT MARKET UPDATE
- --------------------------------------------------------------------------------
Company Symbol Price Current 52 Week 52 Week Annual 12 Mth Tot
(9/19/97) Yield High Low Dividend Rtn
- --------------------------------------------------------------------------------
CPJ $29.688 5.8% $31.125 $22.250 1.72 26.6%
- --------------------------------------------------------------------------------
MHC $25.625 5.2% $26.428 $18.875 1.32 30.7%
- --------------------------------------------------------------------------------
SUI $37.428 5.0% $ 38.00 $27.750 1.88 31.8%
- --------------------------------------------------------------------------------
UMH $11.625 6.0% $13.625 $10.875 0.70 -1.7%
- --------------------------------------------------------------------------------
Total return figures obtained through Standard & Poors and are for the period
through Sept 1997.
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The Southwest and Northwest Regions of the nation are the preferred
locations regarding recent and future manufactured housing community
acquisitions. However, investors seeking moderate, but consistent growth
expectations, are still looking at the midwest region. Also, southern portions
of Florida are still considered a prime area for investors seeking good quality
manufactured housing communities, with good up-side potential. What was once a
stagnant market, the northeast region is now being considered for future
acquisitions.
According to a recent study prepared by Merrill Lynch & Company, ownership
in the manufactured housing community industry is highly fragmented. The top 150
owner-operators account for less than 5.0 percent of the total industry, whereas
a host of "mom-and-pop" private companies account for the other 95.0 percent.
This unglamorous niche industry is ripe for consolidation, and an infusion of
professional management expertise is likely to yield significant economies of
scale. The four REIT's specializing in manufactured housing communities are
already among the top ten owner-operators, and are well positioned to facilitate
and hasten the industry's consolidation to the likely benefit of their
stockholders.
Manufactured homes are the fastest growing component of the nation's
housing inventory, due to their affordability, good quality design and safety
standards. According to the Merrill Lynch & Company Manufactured Housing
Community Industry Report, factory-built homes appeal especially to senior
citizens and to households with limited economic needs, two segments of the
population that are likely to grow rapidly in coming years.
Consistent returns in manufactured housing community investments have been
the mainstay of the industry. For this reason, as well as the amount of
acquisitions seen by Real
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Market Analysis
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Estate Investment Trusts (REITs) from 1991 to 1996, the availability of good
quality manufactured housing communities has been substantially reduced compared
to the 1980's. Good quality manufactured housing communities still command
premium prices, thus driving down overall capitalization rates.
Cushman & Wakefield's Valuation Advisory Services has tracked sale
transactions of manufactured housing communities since 1985. Overall
capitalization rates have consistently been within the 8.75 to 10.00 percent
range for communities located in moderate to increasing growth markets, and as
low as near 8.0 percent for those communities located in growing markets that
poses significant upside potential. Overall capitalization rates are clearly
affected and are differentiated among the properties relative to rent levels,
age, quality, condition, location, amenities, demographic characteristics,
resident profile, as well as the quality of management.
Manufactured housing communities fall within, and are categorized by their
overall appearance, age, and amenities, but more importantly the strength of the
local market. The various categories of manufactured housing communities,
according to the Woodall Directory, can be ranked as 1 to 5 Star Parks These
rankings are defined as follows:
One Star Park
The most important consideration for a one star park is overall
appearance. If it is not a decent place to live, it will not be listed in
Woodall's Directory. The following are general requirements:
o Fair overall appearance;
o Patios on most lots. May be concrete, asphalt, wood, or some
suitable material;
o Grass, rock or shell to cover ground; Streets fair to good. May be
dirt, asphalt or gravel in reasonable condition;
o Restrooms clean, if any;
o Adequate laundry or laundromat nearby;
o If fences allowed, must be neat;
o Mail service;
o Homes may be old models, but show evidence of care; and,
o Manager available some hours of each day.
Two Star Park
In addition to the requirements for a one star park, a two star park will
have the following:
o Landscaping - some lawns and shrubs;
o Streets in good condition. Must be dust free of crushed rock, gravel
or shell minimum;
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Market Analysis
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o Neat storage;
o Well equipped laundry or laundromat nearby;
o 200 volt connections available;
o If children accepted, park should have play area;
o Park free of clutter, such as old cars and other abandoned
equipment; and,
o Well maintained and managed.
Three Star Park
What a three star park does it does well, but not as uniformly as higher
rated parks. Many three star parks were once higher rated, but original
construction does not allow for today's 10-foot, 12-foot, and double-wides
or the 55-foot and 60-foot lengths. If children are allowed, there should
be adequate play area. However, the disarray caused by children may at
times be the determining factor that keeps a three star park at that level
when it otherwise could be rated higher. In addition to the requirements
for one and two star parks, a three star park must have the following:
o Attractive entrance;
o All homes must be in good condition;
o Awnings and cabana rooms on some homes in southern areas;
o Some spaces for large mobile homes;
o Paved or hard surfaced streets;
o Off-street parking or streets wide enough for safe on-street
parking;
o Good lawns or substitute throughout, shade trees, some shrubs where
climate permits;
o Concrete patios or the equivalent on all lots;
o All lots neat and attractive;
o All park buildings in good repair; and,
o Good management.
Four Star Park
Four star parks are luxury parks. In addition to the requirements for one,
two and three star parks, a four star park must have the following:
o Good landscaping;
o Most homes skirted with metal skirts, concrete block, ornamental
wood or stone;
o Paved streets, edged or curbed.
o Uncrowded lots;
o Underground utilities if permitted by local conditions and
authorities;
o Most tanks, if present, concealed;
o Any hedges or fences must be attractive and uniform;
o Awnings, cabanas, or porches on most homes in southern areas.
(Excepting double-wide units.);
o Most lots to accommodate large mobile homes;
o Where row parking of homes exists, all must be lined up uniformly;
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Market Analysis
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o Community hall and/or swimming pool and/or recreation programs. If a
park is four star in all but this requirement, the fourth star will
be printed as an open star indicating a four star park without
park-centered recreation; and
o Excellent management.
Five Star Park
Five star parks are the finest. They should be nearly impossible to
improve. In addition to the requirements for one, two, three, and four
star parks, a five star park must have the following:
o Well planned and laid out spacious appearance;
o Good location in regard to accessibility and desirable neighborhood.
In some locations, park should be enclosed by high hedges or
ornamental fence;
o Wide paved streets in perfect condition. Curbs or lawns edged to
streets, sidewalks, street lights, street signs;
o Homes set back from street;
o Exceptionally attractive entrance and park sign;
o Patios at least 8 x 30 feet. (Excepting double-wide units.);
o Paved off-street parking such as carports or planned parking;
o All homes skirted;
o All hitches concealed. Any existing tanks concealed;
o Recreation, some or all of the following: swimming pool (excepting
areas with long, cold winters), shuffleboards, horseshoe pitching,
golf course, hobby shop, hobby classes, games, potlucks, dances or
natural recreational facilities;
o Beautifully equipped recreation hall with kitchen. Room for
community gatherings, tiled restrooms, etc.;
o Uniform storage sheds or central storage facilities;
o All late model homes in excellent condition;
o At least 60 percent occupancy in order to judge quality of residents
which indicates park's ability to maintain a five star rating
between inspections;
o All empty lots grassed, graveled or otherwise well maintained;
o If pets or children allowed, there must be a place for them to run
and play without cluttering the streets and yards. Most five star
parks are for adults only; and
o Superior management interested in comfort of residents and
maintenance of park.
The demand for good quality institutional grade manufactured housing
communities is anticipated to increase throughout the 1990's, since manufactured
housing communities provide an alternative form of living for the elderly and
retirees, especially for those living on fixed income. Manufactured home
shipments continue to be strong. Shipments rose 20.0 percent in 1992 and 1994,
and 12.0 percent in 1995. The market for good quality manufactured housing
communities is expected to be strong, with yield and capitalization rates and
prices expected to continue to be competitive, with the REITs leading the way.
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Market Analysis
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Competition
We have surveyed seven manufactured housing communities located within the
subject's primary market, including the subject property, containing a total of
2,421 sites. The combined occupancy rate of these seven manufactured housing
communities, including the subject property, is approximately 99.8 percent.
Excluding the subject property in our survey, the combined occupancy rate is
also approximately 99.8 percent, based on 2,115 sites.
The name and location of the subject property's primary competition, as
well as the number of sites, occupancy levels, amenities offered, monthly rental
rates and services provided in the monthly rental rate, are presented on the
following facing page, along with a map which identifies the location of each
competing park.
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<TABLE>
<CAPTION>
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SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- -------------------------------------------------------------------------------
Number Age
Of Sites ---
--------- Condition
Comp. Name Occupancy ------------
No. Location Level Amenities Park Rating(1)
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
R-1 Palm Terrace 223 Clubhouse 1967
3223 North Lockwood Ridge ---- Pool ----
Sarasota County, Florida 100% Shuffleboard Good
----
4*
- -------------------------------------------------------------------------------
R-2 Bahia Vista 251 Clubhouse 1962
3901 Bahia Vista --- Pool ----
Sarasota County, Florida 99% Laundry Good
Storage ----
4*
- -------------------------------------------------------------------------------
R-3 Saralake Estates 202 Clubhouse 1968
3190 Bahia Vista ---- Pool ----
Sarasota County, Florida 100% Pool Good
Shuffleboard ----
Spa 4*
- -------------------------------------------------------------------------------
R-4 Camelot Lakes 534 Clubhouse 1981
5700 Camelot Lakes ---- Pool ----
Sarasota County, Florida 99% Spa Good
Shuffleboard ----
Tennis Courts 5*
Laundry
Shuffleboard
Horseshoes
Storage
- -------------------------------------------------------------------------------
R-5 Camelot East 434 Clubhouse 1985
6300 Queensbury Road ---- Pool ----
Sarasota County, Florida 100% Tennis Courts Good
Laundry ----
Storage 5*
- -------------------------------------------------------------------------------
R-6 Windmill Village North 471 Clubhouse 1968
4000 North Tuttle Avenue ---- Pool ----
Sarasota County, Florida 100% Spa Good
Shuffleboard ----
Horseshoes 5*
Laundry
- -------------------------------------------------------------------------------
Subject Windmill Village South 306 Clubhouse 1980
3000 North Tuttle Avenue ---- Pool ----
Sarasota County, Florida 99% Spa Good
Shuffleboard ----
Horseshoes 5*
Lake
Laundry
- -------------------------------------------------------------------------------
(1) Ratings from One Star to Five Star Parks are defined in the National
Overview section of this report.
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<CAPTION>
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SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- -----------------------------------------------------------------------------------------------
Amount of
Services Date Of Last
Comp. Name Monthly Provided Last Rental Rental
No. Location Rent in Rent Increase Increase
- -----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
R-1 Palm Terrace $309.00/Mo. Water January, 1997 $7.70/Mo.
3223 North Lockwood Ridge (Average) Sewer
Sarasota County, Florida
- -----------------------------------------------------------------------------------------------
R-2 Bahia Vista $265.00/Mo. Water January, 1997 $13.00/Mo.
3901 Bahia Vista To Sewer
Sarasota County, Florida $272.00/Mo. Refuse
Lawn Service
- -----------------------------------------------------------------------------------------------
R-3 Saralake Estates $228.00/Mo. Lawn Service January, 1997 $10.00/Mo.
3190 Bahia Vista (Average)
Sarasota County, Florida
- -----------------------------------------------------------------------------------------------
R-4 Camelot Lakes $370.55/Mo. Refuse January, 1997 $15.00/Mo.
5700 Camelot Lakes To Lawn Service (3-years
Sarasota County, Florida $486.13/Mo. average annual
rent increase)
- -----------------------------------------------------------------------------------------------
R-5 Camelot East $361.00/Mo. Refuse January, 1997 $15.00/Mo.
6300 Queensbury Road To Lawn Service
Sarasota County, Florida
$475.00/Mo.
- -----------------------------------------------------------------------------------------------
R-6 Windmill Village North $286.50/Mo. Refuse January, 1997 $11.60/Mo.
4000 North Tuttle Avenue To Lawn Service (approximately
Sarasota County, Florida $292.20/Mo. 4.0 percent)
- -----------------------------------------------------------------------------------------------
Subject Windmill Village South $285.50/Mo. Refuse January, 1997 $11.60/Mo.
3000 North Tuttle Avenue To Lawn Service (approximately
Sarasota County, Florida $300.00/Mo. 4.0 percent)
- -----------------------------------------------------------------------------------------------
(1) Ratings from One Star to Five Star Parks are defined in the National
Overview section of this report.
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</TABLE>
<PAGE>
COMPETING MANUFACTURED HOUSING MAP
[MAP OMITTED]
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Market Analysis
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Rental rates of manufactured housing communities located within the
subject's primary market range from $228.00 to $486.13 per site, on a monthly
basis. The subject property is currently quoting monthly rental rates within the
market range, or $285.50 to $300.00 per site. The last rental rate increase at
the subject property was as of January 1, 1997.
The enclosed comparable rentals are considered the most competitive to the
subject property regarding amenities offered, condition, location and overall
ranking.
Comparable R-1, Palm Terrace, is located at 3223 North Lockwood, Sarasota
County, Florida. This comparable property contains 223 sites, and is 100.0
percent occupied. Palm Terrace was developed in 1967, and is in overall
good condition. Amenities include a clubhouse, pool, and shuffleboard
courts. The last annual rental rate increase occurred in January, 1997,
for approximately $7.70 per month. The average monthly rental rates is
$309.00 per month, with water and sewer included in the monthly rental
payment. Residents of Palm Terrace must be 55 years of age or older.
Comparable R-2, Bahia Vista, is located at 3901 Bahia Vista, Sarasota
County, Florida. Bahia Vista contains 251 sites, and is 99.0 percent
occupied. Bahia Vista was developed in 1962, and is in overall good
condition. Amenities include a clubhouse, pool, laundry facility and
storage area. The last annual rental rate increase occurred in January,
1997, for approximately $13.00 per month. Monthly rental rates range from
$265.00 to $272.00, with water, sewer, refuse, and lawn service included
in the monthly rental payment. Residents of Bahia Vista must be 55 years
of age or older.
Comparable R-3, Saralake Estates, is located at 3190, Sarasota County
Florida. Saralake Estates contains 202 sites, and is 100.0 percent
occupied. Saralake Estates was developed in 1968, and is in overall good
condition. Amenities include a clubhouse, pool, shuffleboard courts, and a
spa. The last annual rental rate increase occurred in January, 1997, for
approximately $10.00 per month. The average monthly rental rate is
$228.00, with lawn service included in monthly rental payment. Residents
of Saralake Estates must be 55 years of age or older.
Comparable R-4, Camelot Lakes, is located at 5700 Camelot Lakes, Sarasota
County, Florida. Camelot Lakes contains 534 sites, and is 99.0 percent
occupied. Camelot Lakes was developed in 1981, and is in overall good
condition. Amenities include a clubhouse, pool, spa, shuffleboard, tennis
courts, laundry facilities, shuffleboard courts, horseshoe pits, and a
storage area. Over the last three years, the average annual rental rate
increase was approximately $15.00 per month. The monthly rental rates
range from $370.55 to $486.13, with refuse and lawn service included in
monthly rental payment. Residents of Camelot Lakes must be 55 years of age
or older.
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Market Analysis
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Comparable R-5, Camelot East, is located at 6300 Queensbury Road, in
Sarasota, Florida. Camelot East contains 434 sites, and is 100.0 percent
occupied. Camelot East was developed in 1985, and is in overall good
condition. Amenities include a clubhouse, pool, tennis courts, laundry
facilities, and a storage area. The last annual rental rate increase
occurred in January, 1997 and was $15.00 per month. The monthly rental
rates range from $361.00 to $475.00, with refuse and lawn service included
in the monthly rental payment. Residents of Camelot East must be 55 years
of age or older.
Comparable R-6, Windmill Village North, is located at 4000 North Tuttle
Avenue, in Sarasota County, Florida. Windmill Village North was developed
in 1968, and is in overall good condition. Amenities include a clubhouse,
pool, spa, shuffleboard courts, horseshoe pits and laundry facilities. The
last rental rate increase was approximately $11.60 per month. The monthly
rental rates range from $ 286.50 to $292.20, with refuse and lawn service
included in the monthly rental payment. Residents of Windmill Village
North must be 55 years of age or older.
In our opinion, and based on conversations with the on-site manager,
properties R-4, R-5, and R-6 compete most favorably with the subject property,
with the monthly rental rates ranging from $286.50 to $486.13 per month per
site. The subject property is currently quoting monthly rental rates ranging
from $285.50 to $300.00 per site, which is effectively within the range of
rental rates of our more comparable competing properties. The subject property
competes most effectively with its primary competitors regarding amenities,
condition and current rent structure.
Comparable Manufactured Housing Community Sales
A search of the subject's market revealed only one sale in the Sarasota
County area. The sale occurred in the City of Venice. Therefore we have also
presented sales of six manufactured housing communities in the Tampa-St.
Petersburg area, north of the subject property. The following is a brief
discussion of each of the manufactured housing sales located within the
subject's market. These sales are summarized on the following facing page.
Comparable Sale I-1, Sun Valley, is located at 39248 U.S. Highway 19, in
Tarpon Springs, Florida. This property contains 261 sites. The property
was in good condition at the time of sale and was developed in 1970.
Amenities include a clubhouse, pool, shuffleboard courts, and laundry
facilities. The property was approximately 99.0 percent occupied at the
time of sale. The property was purchased for $5,027,100, which equates to
$19,261 per site.
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<TABLE>
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SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- --------------------------------------------------------------------------------------------------------------------
Sales Price
Per
Site
Sales Date Land Area Density ----- EGIM
Comp. Name ---------- --------- --------- Occupancy ----
No. Location Sales Price No. Sites Condition At Sale $NOI/Site OAR
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C> <C>
I-1 Sun Valley 5/97 N/A N/A $19,261 $2,137 4.99x
39248 U.S. Highway 19 ----- --- --- ------- -----
Tarpon Springs, Florida $5,027,100 261 Good 99% 11.09%
- --------------------------------------------------------------------------------------------------------------------
I-2 Park Royal 5/97 N/A N/A $18,431 $1,913 5.30
10611 66th Street ----- --- --- ------- ----
Pinellas Park, Florida $5,695,260 309 Good 90% 10.38%
- --------------------------------------------------------------------------------------------------------------------
I-3 Southern Comfort 4/96 21.56 8.35 $19,307 N/A N/A
24479 U.S. Highway 19 North ----- ----- ---- -------
Clearwater, Florida $3,475,200 180 Average N/A
- --------------------------------------------------------------------------------------------------------------------
I-4 Southgate Mobile Home Park 4/96 24.00 6.96 $25,749 $2,306 6.92x
20000 U.S. Highway 19 North ----- ----- ---- ------- -----
Clearwater, Florida $4,300,000 167 Good 90% 8.96%
- --------------------------------------------------------------------------------------------------------------------
I-5 Serendipity 5/95 56.00 7.59 $31,118 $2,698 7.83x
29081 U.S. 19 North ---- ----- ---- ------- -----
Clearwater, Florida $13,225,000 425 Good 98% 8.67%
- --------------------------------------------------------------------------------------------------------------------
I-6 Doral Mobile Home Park 5/95 70.00 7.53 $30,361 $2,995 6.72x
29250 U.S. 19 North ----- ----- ---- ------- -----
Clearwater, Florida $16,000,000 527 Good 98% 9.87%
- --------------------------------------------------------------------------------------------------------------------
I-7 Bay Indies 1/94 250.00 5.24 $32,086 $2,374 9.13x
Ridgewood Avenue ---- ------ ---- ------- -----
Near U.S. 41 $42,000,000 1,309 Good 98% 7.40%
Venice, Florida
- --------------------------------------------------------------------------------------------------------------------
Subject Windmill Village South - - - 61.29 4.99 - - - $2,211(1) N/A
3000 North Tuttle Avenue ------ ----
Largo, Florida 306 Good 99%
- --------------------------------------------------------------------------------------------------------------------
(1) 1997 Trailing 12 months
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<CAPTION>
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SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- --------------------------------------------------------------------------------------------------
$EGI/Site
-------------
$Expense/Site
-------------
Comp. Name Expense Ratio Comparability
No. Location % Of EGI to the Subject Comments
- --------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
I-1 Sun Valley $3,861 Similar Developed in 1970; Good
39248 U.S. Highway 19 ------ condition; Amenities
Tarpon Springs, Florida $1,724 include a clubhouse, pool,
------ shuffleboard courts, and
44.66% laundry facilities.
- --------------------------------------------------------------------------------------------------
I-2 Park Royal $3,478 Superior Developed in 1991;
10611 66th Street ------ Excellent condition;
Pinellas Park, Florida $1,565 Amenities include:
------ clubhouse, pool,
45.00% shuffleboard courts,
laundry.
- --------------------------------------------------------------------------------------------------
I-3 Southern Comfort N/A Inferior Developed in 1955;
24479 U.S. Highway 19 North Average condition; Minimal
Clearwater, Florida amenities.
- --------------------------------------------------------------------------------------------------
I-4 Southgate Mobile Home Park $3,720 Similar Developed in 1971;
20000 U.S. Highway 19 North ------ Good condition; Amenities
Clearwater, Florida $1,414 include: clubhouse, pool,
------ shuffleboard courts, and
38.00% laundry facilities.
- --------------------------------------------------------------------------------------------------
I-5 Serendipity $3,975 Superior Developed in 1975; Good
29081 U.S. 19 North ------ condition; Amenities
Clearwater, Florida $1,277 include: clubhouse, pool,
------ shuffleboard courts, and
32.13% laundry facilities.
- --------------------------------------------------------------------------------------------------
I-6 Doral Mobile Home Park $4,516 Similar Developed in 1972; Good
29250 U.S. 19 North ------ condition; Amenities
Clearwater, Florida $1,521 include: clubhouse, pool,
------ shuffleboard courts, and
33.67% laundry facilities.
- --------------------------------------------------------------------------------------------------
I-7 Bay Indies $3,514 Similar Developed in 1972; Good
Ridgewood Avenue ------ condition; Amenities
Near U.S. 41 $1,140 include: clubhouse, pools,
Venice, Florida ------ tennis courts,
32.43% shuffleboard courts, and
mini-putt golf course.
- --------------------------------------------------------------------------------------------------
Subject Windmill Village South $3,612 Subject Developed in 1980;
3000 North Tuttle Avenue ------ Property Good condition;
Largo, Florida $1,402 Amenities include:
------ Clubhouse, pool, spa,
38.80% shuffleboard court,
laundry facilities, lake
and a
horseshoe pit.
- --------------------------------------------------------------------------------------------------
(1) 1997 Trailing 12 months
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</TABLE>
<PAGE>
Market Analysis
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Comparable Sale I-2, Park Royal, is located at 10611 66th Street, in
Pinellas Park, Florida. This property contains 309 sites. The property was
in excellent condition at the time of sale and was developed in 1991.
Amenities include a clubhouse, pool, shuffleboard courts, and laundry. The
property was approximately 90.0 percent occupied at the time of sale. The
property was purchased for $5,695,260, which equates to $18,431 per site.
Comparable Sale I-3, Southern Comfort, is located at 24479 U.S. Highway 19
North, in Clearwater, Florida. This property contains 180 sites, situated
on 21.56 acres of land area. The property was in good condition at the
time of sale and was developed in 1955. Amenities include a laundry
facility. Information regarding the occupancy of the property at the time
of sale was unavailable. The property was purchased for $3,475,200, which
equates to $19,307 per site.
Comparable Sale I-4, Southgate Mobile Home Park, is located at 20000 U.S.
Highway 19 North, in Clearwater, Florida. This property contains 167
sites, situated on 24.0 acres of land area. The park was in good condition
at the time of sale and was developed in approximately 1971. Amenities
include a clubhouse, swimming pool, shuffleboard courts, and laundry
facilities. The property was 90.0 percent occupied at the time of sale.
The property was purchased for $4,300,000, which equates to $25,749 per
site.
Comparable Sale I-5, Serendipity, is located at 29081 U.S. 19 North, in
Clearwater, Florida. This property contains 425 sites, situated on 56.0
acres of land area. The park was in good condition at the time of sale and
was developed in 1975. Amenities include a clubhouse, pool, shuffleboard
courts, and laundry facilities. The property was 98.0 percent occupied at
the time of sale. The property was purchased for $13,225,000, which
equates to $31,118 per site.
Comparable Sale I-6, Doral Mobile Home Park, is located at 29250 U.S. 19
North, in Clearwater, Florida. This property contains 527 sites, situated
on 70.0 acres of land area. The park was in good condition at the time of
sale and was developed in 1972. Amenities include a clubhouse, pool,
shuffleboard courts, and laundry facilities. The property was 98.0 percent
occupied at the time of sale. The property was purchased for $16,000,000,
which equates to $30,361 per site.
Comparable Sale I-7, Bay Indies, is located on Ridgewood Avenue near U.S.
41, in Venice, Florida. This property contains 1,309 sites, situated on
250.0 acres of land area. The park was in good condition at the time of
sale and was developed in 1972. Amenities include a clubhouse, pool,
tennis courts, shuffleboard courts, and a nine-hole mini putt golf course.
The property was 98.0 percent occupied at the time of sale. The property
was purchased for $42,000,000, which equates to $32,086 per site.
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Market Analysis
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It should be noted that comparability does not imply an identical or exact
duplicate, but rather the possession of a similar utility and affected by
similar supply and demand forces. Also, relative to the subject property,
differences include: time or date of the transactions; location, which
encompasses differences in accessibility; site characteristics, including
differences in size, topography, access, exposure and development capacities;
and improvement characteristics, which include differences in age, quality,
condition, size and amenities.
Demographic Trends
Based on information provided by National Decision Systems (NDS), the
populations within the subject's primary 5-mile and secondary 10-mile market
areas, as of 1997, are 130,810 and 329,226, respectively. The populations of the
subject's primary and secondary market areas are projected to increase to
134,824 and 342,237, respectively, by the year 2002.
According to NDS, the total number of households within the subject's
primary and secondary market areas are 59,710 and 150,887, respectively, for
1997. The number of households within the subject's primary 5-mile and secondary
10-mile market areas are projected to increase to 62,438 and 159,056,
respectively, by the year 2002.
The average household income levels within the subject's primary and
secondary market areas, for 1997, are $56,415 and $55,440, respectively, and are
expected to increase to $73,377 and $71,409, respectively, by the year 2002. The
median household income levels within the subject's primary and secondary market
areas, for 1997, are $37,584 and $35,045, respectively, and are expected to
increase to $45,598 and $42,579, respectively, by the year 2002. Per capita
income within the subject's primary and secondary market areas, for 1997, are
$26,174 and $25,773, respectively, and are expected to increase to $34,556 and
$33,687, respectively, by the year 2002.
Based on the above levels, the demographics of the subject's primary
market area appear to indicate a positive growth trend, based on information
provided by NDS. For addditional demographic iniformation, please refer to the
NDS summary report in the Addenda.
Expense Analysis
Expenses exhibited by manufactured housing communities nationally are
typically 35.0 to 45.0 percent of effective gross income. However, expense
ratios of manufactured housing
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communities located in the southeast and southwest regions of the nation are
typically lower by comparison, due to lower real estate taxes and common area
maintenance charges.
As presented in the Summary of Manufactured Housing Communities Sales,
operating expense ratios of competing parks range from 32.1 to 45.0 percent of
effective gross income levels, and $1,140 to $1,724 on a per site basis. The
subject property is currently reporting expenses, for the 12-month trailing
period of 1997, at 38.80 percent of effective gross income and $1,402 on a per
site basis. Operating expenses appear to be within the range of comparable
properties on both a per site basis as well as on a percentage of effective
gross income.
Market Supply and Demand
There are a total of six competing manufactured housing communities
located within the subject's market, which total 2,115 sites, with a
corresponding average occupancy rate of about 99.0 percent. No specific
absorption statistics were available, since the subject's competing parks have
historically reported occupancy rates at, or above 95.0 percent. The occupancy
rate at the subject property, based on conversations with management, has
historically been consistent with competing parks, and is currently 99.7
percent. We believe the current occupancy rate of the subject property is
stabilized, and is within the range of the occupancy rates of competing parks
presently presented. Based on the subject's current occupancy rate and occupancy
rates at competing parks, demand appears to be strong, with steady rental rate
increases expected.
Conclusion
Historically, the subject's primary market has sustained high occupancy
levels of 95.0 to 100 percent. Rental rates of similar manufactured housing
communities located within the subject's primary market generally range from
$228.00 to $486.13 per site, on a monthly basis. The subject property is
currently quoting, and is currently achieving (based on the most recent rent
roll provided), a monthly rental rate within the range of competing parks, or at
$285.50 to $300.00 per site, which we believe is market-orientated.
Based on our research, steady increases in rental rates are anticipated,
based on actual historical performance of competing parks and historical
increases seen at the subject property. Sales transactions of manufactured
housing communities located within the subject's region range from $18,431 to
$32,086 per site, with corresponding overall rates ranging from 7.40 to 11.09
percent. In our opinion, the subject property competes favorably with its
competition regarding amenities, condition, rent structure and overall market
rating.
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SITE PLAN
[GRAPHIC OMITTED]
<PAGE>
PROPERTY DESCRIPTION
================================================================================
Site Description
The subject site is located on the east side of Tuttle Avenue between 27th
Street and 47th Street. The subject site is irregular in shape and contains
61.29 acres, or 2,669,792 square feet of land area. Topographically, the site is
basically level and at street grade.
Sewer and water service are provided by Kensington Park Utilities.
Electric Service is provided by Florida Power Company. Gas service is
unavailable at the subject property, and GTE Company provides telephone service.
The subject property is accessible via Tuttle Avenue. Based on conversations
with the Engineering Department of the County of Sarasota, the subject property
is not located in a flood hazard area. However, we recommend a qualified
engineer to determine the existence of any flood hazard areas.
Each developed site has a concrete driveway. The streets within the park
are two-lanes. Overall, the subject site is typical of the area and is
functionally well suited for its current use.
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.
Improvements Description
The subject property was originally developed in 1980. The subject
improvements consist of a 306-site manufactured housing community, with a
clubhouse, pool, spa, shuffleboard courts, horseshoe pits, lake and laundry
facilities. The 306-total sites can fit both double-wide and single-wide homes.
The clubhouse consists of open-space available for resident use, and a
kitchen. The exterior of the one-story clubhouse is concrete, and appeared to be
in overall good condition at the time of inspection.
The shuffleboard courts, pool, spa, and horseshoe pits are adjacent to the
clubhouse. Off-street parking is available for each resident. Site improvements
within the park include: paved streets, concrete driveways, street lighting and
signage. Overall, the site improvements appeared to be in good condition at the
time of inspection.
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Property Description
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Windmill Village South is a functional manufactured housing community with
good ingress and egress from Tuttle Avenue. Overall, the subject community
appears to be well maintained and is in good condition. Windmill Village South
is a functional manufactured housing community and competes favorably with other
existing manufactured housing communities in the area in terms of appearance and
amenities. The subject property would fit the profile of a Five Star Park, as
defined in the National Overview section of this report.
Real Property Taxes and Assessments
Assessed value of commercial property in Sarasota County is assessed at
100.0 percent of the Assessor's opinion of market value. The subject property is
identified by Tax Parcel Numbers 29060134 and 30040001.
Real estate taxes in Sarasota County are assessed in arrears. Real estate
taxes for 1997 were billed in November of 1997. The total amount of real estate
taxes for 1997 for the subject property amounts to $145,615.50. Taxes are
discounted if paid in full before March 31, 1997. The total amount of real
estate taxes for 1997 equates to approximately $475.87 per site.
Zoning
According to zoning officials of Sarasota County, the subject property is
currently zoned RMH, Residential Mobile Home, and RSF 3, Residential
Single-Family 3. Based on conversations with zoning officials Sarasota County,
the subject property is a legal but non-conforming use in the RSF 3, Residential
Single-Family 3 District, but a legal and conforming use in the RMH, Residential
Mobile Home district.
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CONCLUSION
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Conclusion
o The subject property, Windmill Village South, is a functional
manufactured housing community, which competes favorably in relation
to its competition;
o Comparable manufactured housing communities located within the
subject's market range in monthly rental rates per site from $228.00
to $486.13;
o The subject property is currently quoting, and is currently
achieving (based on the most recent rent roll provided) a monthly
rental rate ranging from $285.50 to $300.00 per site, which is
within the range of competing parks, and appears to be
market-oriented;
o Sale transactions of manufactured housings located within the
subject's region range in unit sales prices per site from $18,431 to
$32,086, with corresponding overall rates ranging from 7.40 to 11.09
percent;
o Operating expenses are within industry standards for a park located
in the southeastern region of the country;
o The subject park appears to be operating at economic levels based on
our review of historical and budgeted 1998 income and expenses;
o The demographic characteristics of the area appear to be positive;
o The population profile of the subject property is approximately 99
percent retired adults, and 1 percent working adults; 55 years of
age or older. The subject property is a retirement park, with
residents required to be 55 years of age or older.
o The current occupancy rate at the subject property of 99.7 percent
is evident by a strong local market and demand;
o No significant manufactured housing communities are expected to be
developed in the near future;
o In our opinion, based on Woodall's criteria, the subject property is
a Five Star Park, and the reader's attention is directed to the
corresponding definition and criteria of a Five Star Park, presented
in the National Overview section of this report.
o Based on the subject's location, demographic, economic, market and
physical characteristics, we believe Windmill Village South will
continue to be a viable manufactured housing community in the
foreseeable future, and is well positioned in the marketplace.
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ASSUMPTIONS AND LIMITING CONDITIONS
================================================================================
"Report" means the consulting report to which these Assumptions and Limiting
Conditions are annexed.
"Property" means the subject of the Report.
"C&W" means Cushman & Wakefield, Inc. or its subsidiary which issued the Report.
"Appraiser(s)" means the employee(s) of C&W who prepared and signed the Report.
This report is made subject to the following assumptions and limiting
conditions:
1. No responsibility is assumed for the legal description or for any matters
which are legal in nature. 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 Report or upon which the Report 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 Appraisers nor C&W shall be responsible for the
accuracy or completeness of such information, including the correctness of
estimates, opinions, dimensions, sketches, exhibits, and other factual
matters.
3. The information is effective as of the date stated in the Report. Changes
since that date in external and market factors or in the property itself
can significantly affect our analysis.
4. The report is to be used in whole and not in part. No part of the Report
shall be used in conjunction with any other report. Possession of the
Report, or a copy thereof, does not carry with it the right of
publication. Publication of the Report or any portion thereof without the
prior written consent of C&W is prohibited. Except as may be otherwise
expressly stated in the letter of engagement to prepare the Report, C&W
does not permit use of the Report by any person other than the party to
whom it is addressed or for purposes other than those for which it was
prepared. If written permission is given by C&W to use the Report, the
Report must be used in its entirety and only with proper written
qualification as approved by C&W. No part of the Report or the identity of
the Appraiser shall be conveyed to the public through advertising, public
relations, news, sales, or other media or used in any material without
C&W's prior written consent. Reference to the Appraisal Institute or to
the MAI designation is prohibited.
5. The Appraiser shall not be required to give testimony in any court or
administrative proceedings relating to the Property or the Report.
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Assumptions And Limiting Conditions
================================================================================
6. The Report 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 Report; 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 Report is based.
7. The physical condition of the improvements considered by the Report is
based on visual inspection by the Appraiser or other person identified in
the Report. C&W assumes no responsibility for the soundness of structural
members nor for the condition of mechanical equipment, plumbing, or
electrical components.
8. Unless otherwise stated in the Report, the existence of potentially
hazardous or toxic materials which may have been used in the construction
or maintenance or operation of the improvements or may be located at or
about the Property was not considered in the Report. These materials (such
as formaldehyde foam insulation, asbestos insulation, various soil
contaminants, and other potentially hazardous materials) may affect the
value of the Property. The Appraisers are not qualified to detect such
substances, and C&W urges that an expert in this field be employed to
determine the economic impact of these matters, if any, on the property in
the Report.
9. Unless otherwise stated in the Report, compliance with the requirements of
the Americans With Disabilities Act of 1990 (ADA) has not been considered
in the Report. Failure to comply with the requirements of the ADA may
negatively affect the value of the property. C&W recommends that an expert
in this field be employed.
10. If the Report is submitted to a lender or investor with the prior approval
of C&W, such party should consider the Report as one factor, together with
its independent investment considerations and underwriting criteria, in
its overall investment decision.
================================================================================
33
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
CERTIFICATION
================================================================================
We certify that, to the best of our knowledge and belief:
1. Jennifer L. Estrella inspected the property, and Michael J. Schaeffer and
Stanley R. Dennis, Jr., MAI, have reviewed and approved the report, but
did not inspect 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 on an action or event (such as the
approval of a loan) resulting from the analyses, opinions, or conclusions
in, or the use of, this report.
6. 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 Ethics and Standards of Professional Practice of the Appraisal
Institute.
7. No one provided significant professional assistance to the persons signing
this 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. As of the date of this report, Stanley R. Dennis, Jr., MAI, has completed
the requirements of the continuing education program of the Appraisal
Institute.
/s/ Michael J. Schaeffer /s/ Jennifer L. Estrella /s/ Stanley R. Dennis, Jr.
Michael J. Schaeffer Jennifer L. Estrella Stanley R. Dennis, Jr., MAI
Director Associate Appraiser Director, Manager
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34
CUSHMAN &
WAKEFIELD(R)
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<PAGE>
ADDENDA
================================================================================
POP-FACT SHEETS
LEGAL DESCRIPTION
QUALIFICATIONS OF APPRAISERS
================================================================================
35
<PAGE>
================================================================================
POP-FACT SHEETS
================================================================================
<PAGE>
Tue Nov 25, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP FACTS: SUMMARY REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6510
PREPARED FOR
CUSHMAN & WAKEFIELD, INC
27TH ST & NORTH TUTTLE AVE
SARASOTA, FL COORD: 27:21.56 82:30.83
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- --------------------------------------------------------------------------------
POPULATION
2002 PROJECTION 134,824 342,237
1997 ESTIMATE 130,810 329,226
1990 CENSUS 123,694 304,013
1980 CENSUS 96,657 225,262
GROWTH 1980 - 1990 27.97% 34.96%
HOUSEHOLDS
2002 PROJECTION 62,438 159,056
1997 ESTIMATE 59,710 150,887
1990 CENSUS 53,438 133,275
1980 CENSUS 40,933 96,671
GROWTH 1980 - 1990 30.55% 37.86%
1997 ESTIMATED POPULATION BY RACE 130,810 329,226
WHITE 89.53% 90.60%
BLACK 8.78% 7.24%
ASIAN & PACIFIC ISLANDER 0.83% 0.83%
OTHER RACES 0.86% 1.33%
1997 ESTIMATED POPULATION 130,810 329,226
HISPANIC ORIGIN 4.48% 4.97%
OCCUPIED UNITS 53,438 133,275
OWNER OCCUPIED 69.24% 69.77%
RENTER OCCUPIED 30.76% 30.23%
1990 AVERAGE PERSON PER HH 2.27 2.24
1997 ESTIMATED HH BY INCOME 59,710 $150,887
$150,000 + 4.90% 5.18%
$100,000 TO $149,999 5.20% 4.85%
$ 75,000 TO $ 99,999 6.72% 5.97%
$ 50,000 TO $ 74,999 17.69% 16.21%
$ 35,000 TO $ 49,999 18.71% 17.85%
$ 25,000 TO $ 34,999 15.38% 15.98%
$ 15,000 TO $ 24,999 15.85% 16.67%
$ 5,000 TO $ 14,999 12.34% 13.96%
UNDER $ 5,000 3.21% 3.33%
1997 EST. AVERAGE HH INCOME $56,415 $55,440
1997 EST. MEDIAN HH INCOME $37,584 $35,045
1997 EST. PER CAPITA INCOME $26,174 $25,773
<PAGE>
Tue Nov 25, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP 80-02, HH 80-02, INC 80-02)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6510
PREPARED FOR
CUSHMAN & WAKEFIELD, INC
27TH ST & NORTH TUTTLE AVE
SARASOTA, FL COORD: 27:21.56 82:30.83
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- --------------------------------------------------------------------------------
POP_80: TOTAL 96,657 225,262
POP 90: TOTAL 123,694 304,013
POP_97: TOTAL (EST.) 130,810 329,226
POP_02: TOTAL (PROJ.) 134,824 342,237
HH_80: TOTAL 40,933 96,671
HH_90: TOTAL 53,438 133,275
HH_97: TOTAL (EST.) 59,710 150,887
HH_02: TOTAL (PROJ.) 62,438 159,056
INC_80: PER CAPITA (EST.) $8,033 $8,086
INC_90: PER CAPITA $16,491 $16,972
INC_97: PER CAPITA (EST. $26,174 $25,773
INC_02: PER CAPITA (PROJ $34,556 $33,687
HH_90_BY INCOME_89: MEDIAN $29,728 $28,581
HH_97_BY INCOME: MEDIAN $37,584 $35,045
HH_02_BY INCOME: MEDIAN $45,598 $42,579
HH 80 BY INCOME 79: AVERAGE $18,968 $18,842
HH_90_BY INCOME_89: AVERAGE $37,600 $38,050
HH_97_BY INCOME: AVERAGE $56,415 $55,440
HH_02_BY INCOME: AVERAGE $73,377 $71,409
<PAGE>
================================================================================
LEGAL DESCRIPTION
================================================================================
<PAGE>
LEGAL DESCRIPTION
- --------------------------------------------------------------------------------
EXHIBIT "A" TO SCHEDULE "A"
.PARCEL NO. N24--21586--10 (Windmill South, Sarasota):
Commence at a R/R spike found at the Southwest corner of Section 9, Township 36
South, Range 18 East; thence N. O(degrees)00'02" E., along the West line of said
section 9 a distance of 30.00 feet; thence S. 89(degrees)42'20", E., and
parallel with the South line of said Section 9 a distance of 50.00 feet for a
Point of Beginning; thence N. 0(degrees)00'02" E., along the Easterly
right-of-way line of Tuttle Avenue a distance of 1936.99 feet to the Northerly
line of Amendment Lease Area as recorded in Official Record Book 980, pages 573
through 576 of the public records of Sarasota County, Florida; thence N.
88(degrees) 36'02" E., along the Northerly line of Amendment Lease Area a
distance of 306.59 feet to a P.C. of a curve to the left having a central angle
of 39(degrees) 02'l7" and a radius of 850 feet; thence along the arc of said
curve (said Northerly line) a distance of 579.14 feet; thence N. 49(degrees)
33'45" E., along said Northerly line a distance of 369.58 feet to a P.C. of a
curve to the right having a central angle of 11(degrees) 20'08" and a radius of
750.00 feet; thence along the arc of said curve (said Northerly line) a distance
of 148.38 feet to its intersection with a line lying 52 feet Westerly of and
parallel with the East line of the West 1/2 of the Southwest 1/4 of said Section
9; thence S. 0(degrees) l0'00" W., along said parallel line a distance of 952.18
feet; thence S. 89(degrees)21'29" E., a distance of 52.00 feet to the
aforementioned East line of the West 1/2 of the Southwest 1/4; thence S.
0(degrees)10'00" W., along said East line a distance of 1525.33 feet to its
intersection with a line lying 30 feet Northerly of and parallel with the
Southerly line of said Section 9 (being the North right-of-way line of 27th
Street); thence N. 89(degrees)42'20" W., along said North right-of-way line a
distance of 1284.89 feet to the Point of Beginning. Sarasota County, Florida.
- --------------------------------------------------------------------------------
<PAGE>
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QUALIFICATIONS OF APPRAISERS
================================================================================
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
JENNIFER L. ESTRELLA
Education
Master of Urban Planning, Economic Development Concentration
University of Illinois at Urbana-Champaign, 1996
Bachelor of Business Administration, Finance Major
Loyola University Chicago, 1991
Real Estate Education
The following courses have been completed through the Real Estate Program at the
University of Illinois at Urbana-Champaign:
Real Estate Financial Markets
Urban Real Estate Valuation
Real Estate and Urban Land Economics
Current Position
Associate Appraiser, Cushman & Wakefield of Illinois, Inc., Valuation
Advisory Services
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
MICHAEL J. SCHAEFFER
Real Estate Experience
Mr. Schaeffer has been active in the appraisal of real estate since 1983.
Appraisal experience includes the valuation of income-producing real estate in
the Chicago area as well as many major cities and small towns throughout the
Midwest. The types of properties appraised include office buildings, regional
malls, shopping centers, country clubs, apartment complexes, subsidized housing
units, industrial buildings, nursing homes, retirement communities, automotive
dealerships, department stores, vacant land, proposed income-producing
properties, and various special purpose properties. Mr. Schaeffer also has had
over 10 years of experience in new construction and renovation of commercial,
industrial, residential and specialized real estate properties.
Education
Bachelor of Arts, University of Cincinnati, Cincinnati, Ohio MBA Graduate Course
Work in Economics and Management, Xavier University, Cincinnati, Ohio
Real Estate Education
The following courses sponsored by the Appraisal Institute have been
successfully completed:
Real Estate Appraisal Principles 1A-1
Basic Valuation Procedures 1A-2
Standards of Professional Practice
Capitalization Theory and Techniques 1BA
Capitalization Theory and Techniques IBB
Advanced Applications 550
Report Writing & Valuation Analysis 540
Mr. Schaeffer has also attended numerous lectures and seminars sponsored by the
Appraisal Institute.
Mr. Schaeffer is currently a candidate for the MAI designation of the Appraisal
Institute, and has completed the educational and experience requirements for the
MAI designation.
Current Position
Director, Appraisal Services, Cushman & Wakefield, Inc., Chicago, Illinois
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
STANLEY R. DENNIS, JR., MAI
Real Estate Experience
Director, Manager, Cushman & Wakefield Valuation Advisory Services, Chicago,
Illinois. Division is responsible for the appraisal and consultation function of
Cushman & Wakefield, Inc., a national full service real estate organization,
1989.
Vice President, Manager, Cushman & Wakefield Appraisal Services, Portland,
Oregon, 1983.
Principal, Stanley R. Dennis & Associates, Portland, Oregon, 1982.
Education
Portland State University, Portland, Oregon
Bachelor of Science Degree, 1977, Finance and Real Estate
Appraisal Institute
Course I-A Fundamentals and Principles of Real Estate Appraisal
Course I-B Capitalization Theory and Techniques
Course II-I Case Studies in Real Estate Valuation
Course II-2 Valuation Analysis and Report Writing
Course II-3 Standards of Professional Practice
Course IV Litigation/Condemnation Valuation
Course VI Investment Analysis
Course VIII Residential Case Studies
Course X Market Analysis
Seminar Feasibility Analysis and Highest and Best Use
Seminar Discounted Cash Flow Analysis
Seminar Cash Equivalency
Seminar Subdivision Analysis
Seminar Rates, Ratios and Reasonableness
Professional Affiliations
American Institute of Real Estate Appraisers, Member (Designation #6754)
Building Owners and Managers Association (BOMA)
National Association of Corporate Real Estate Executives (NACORE)
<PAGE>
================================================================================
MARKET STUDY OF REAL PROPERTY
Rancho Valley Village
12970 Highway 8 Business
El Cajon, San Diego County, California
================================================================================
As of December 4, 1997
Prepared For:
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Prepared By:
Cushman & Wakefield of Illinois, Inc.
Valuation Advisory Services
455 North Cityfront Plaza Drive, Suite 2800
Chicago, Illinois 60611-5555
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
[Letterhead of Cushman & Wakefield of Illinois, Inc.]
December 9, 1997
Mr. Edward J. Welch
Director
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Re: Market Study of Real Property
Rancho Valley Village
12970 Highway 8 Business
El Cajon, San Diego County, California 92021
Dear Mr. Welch:
In fulfillment of our agreement as outlined in the Letter of Engagement,
Cushman & Wakefield of Illinois, Inc., is pleased to transmit our market study
and consulting report evaluating the above referenced real property.
As specified in the Letter of Engagement, our market study and consulting
report is qualified by certain assumptions, limiting conditions, certifications,
and definitions, which are set forth in the report.
This consulting report was prepared for the Client, and it is intended only
for the specified use of the Client. It may not be distributed to or relied upon
by other persons or entities without written permission of Cushman & Wakefield,
Inc.
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the above
referenced real property, as of the date of our property inspection. The
function of the report is to assist the client, in evaluating the property for
underwriting and rating purposes.
<PAGE>
Mr. Edward J. Welch - 2 - December 9, 1997
This market study and consulting report was prepared in conformity with the
requirements of the Code of Ethics and Standards of Professional Appraisal
Practice of the Appraisal Institute and the Uniform Standards of Professional
Practice (USPAP) adopted by the Appraisal Standards Board of the Appraisal
Foundation.
This letter is invalid if detached from the report, which contains the
text, exhibits, and the Addenda.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF ILLINOIS, INC.
/s/ Nancy D. Piekos
Nancy D. Piekos
Associate Appraiser
/s/ Michael J. Schaeffer
Michael J. Schaeffer
Director
/s/ Stanley R. Dennis, Jr.
Stanley R. Dennis, Jr., MAI
Director, Manager
NDP/MJS:
Revised 12
File No. 97-362-08
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
SUMMARY OF SALIENT FACTS
================================================================================
Property Name: Rancho Valley Village
Location: 12970 Highway 8 Business
El Cajon, San Diego County, California
Assessor's Parcel Number: Based on information provided by San Diego
County records, the subject property is
identified by Assessor's Parcel Number
400-060-20-00.
Date of Inspection: The property was inspected December 4, 1997.
Ownership: The subject property is legally entitled to
Goldland Vistas, Inc., an Illinois
Corporation, and MHC Financing Limited
Partnership, as beneficiary.
Land Area: Based on information provided by the
property's legal plat of survey, the subject
property contains approximately 21.73 acres
of land area, or 946,559 square feet.
Zoning: Based on information provided by the County
of San Diego, the subject property is zoned
RMH-7, Residential Mobile Home-7 District.
The subject property is a legal and
conforming use.
Improvements
Type: A manufactured housing community.
Year Built: The subject property was originally
developed in approximately 1969.
Size: The subject property consists of a 140-site
manufactured housing community.
Condition: At the time of inspection, the subject
property was in good condition.
Property Rating: Four Star manufactured home community.
Special Assumptions: 1. Information regarding the subject
property, including its physical
characteristics, was provided to us by the
client and the on-site manager, and is
assumed to be accurate.
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
Summary of Salient Facts
================================================================================
2. The existence of potentially hazardous or
toxic materials, which may be located on or
about the property, was not considered in
our evaluation. The appraisers are not
qualified to detect such substances, and
Cushman & Wakefield urges that an expert in
this field be employed to determine the
existence, if any, of hazardous materials
located on or about the site.
3. Our market and consulting report
regarding the subject assumes the subject
property, as presently improved, represents
its highest and best use.
4. It is unknown to the appraiser if the
subject property complies with the Americans
with Disabilities Act (ADA). We recommend a
qualified specialist in the final
determination regarding any ADA compliance
deficiencies that may be present at the
subject property.
5. Please refer to the complete list of
assumptions and limiting conditions included
at the end of this report.
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
TABLE OF CONTENTS
================================================================================
Page
PHOTOGRAPHS OF SUBJECT PROPERTY................................................1
INTRODUCTION...................................................................5
Identification of Property...................................................5
Property Ownership and Recent History........................................5
Purpose and Function of the Market Study and Consulting Assignment...........5
Scope of the Market Study and Consulting Assignment..........................5
Date of Property Inspection..................................................5
Definitions and Other Pertinent Terms........................................5
REGIONAL ANALYSIS..............................................................8
NEIGHBORHOOD ANALYSIS.........................................................13
MARKET ANALYSIS...............................................................15
National Overview...........................................................15
Competition.................................................................22
Comparable Manufactured Housing Community Sales.............................26
Demographic Trends..........................................................28
Expense Analysis............................................................29
Market Supply and Demand....................................................29
Conclusion..................................................................29
PROPERTY DESCRIPTION..........................................................32
Site Description............................................................32
Improvements Description....................................................32
REAL PROPERTY TAXES AND ASSESSMENTS...........................................33
ZONING........................................................................33
CONCLUSION....................................................................34
ASSUMPTIONS AND LIMITING CONDITIONS...........................................35
CERTIFICATION.................................................................37
ADDENDA.......................................................................38
Pop-Fact Sheets
Legal Description
Qualifications of Appraisers
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
PHOTOGRAPHS OF SUBJECT PROPERTY
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[PHOTO OMITTED]
Front Entrance of the Subject Property
[PHOTO OMITTED]
Exterior of Community Center
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<PAGE>
Photographs of Subject Property
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[PHOTO OMITTED]
Interior of the Community Center
[PHOTO OMITTED]
Interior of the Community Center
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<PAGE>
Photographs of Subject Property
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[PHOTO OMITTED]
Typical Interior View of the Subject Park
[PHOTO OMITTED]
Typical Interior View of the Subject Park
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3
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<PAGE>
Photographs of Subject Property
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[PHOTO OMITTED]
Exterior View of the Community Center, Comprising the Pool Area
[PHOTO OMITTED]
Typical Street Scene within the Subject Park
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<PAGE>
INTRODUCTION
================================================================================
Identification of Property
The subject property consists of a 140-site manufactured housing community,
situated on approximately 21.73 acres of land area, located along the west side
of Highway 8 Business, within an unincorporated area of El Cajon, in San Diego
County, California. The property's street address is 12970 Highway 8 Business.
The property was constructed in 1969, and was 94.29 percent occupied at the time
of inspection, with eight sites vacant and currently available. However, of the
eight available sites, two of the sites are presently improved with manufactured
homes, which are vacant and presently for sale.
Property Ownership and Recent History
The subject property is currently entitled to Goldland Vistas, Inc., an
Illinois corporation, and MHC Financing Limited Partnership, as beneficiary. The
subject property was originally developed in 1969, with 140 manufactured housing
sites.
Purpose and Function of the Market Study and Consulting Assignment
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the subject
property, as of the date of property inspection. The function of the consulting
report is to assist the client in evaluating the property for underwriting and
rating purposes.
Scope of the Market Study and Consulting Assignment
In the process of preparing this report, we inspected the property,
interviewed the on-site manager, conducted market research into asking rental
rates for comparable properties, conducted market investigations, and
ascertained sales prices of comparable properties. Additionally, we conducted
market research and evaluated demographic and economic trends; and, the market
position and rating of the subject property.
Date of Property Inspection
The property was inspected December 4, 1997.
Definitions and Other Pertinent Terms
Definitions of pertinent terms taken from the Dictionary of Real Estate
Appraisal, Third Edition (1993), published by the Appraisal Institute, is as
follows:
Market Rent
The rental income that a property would most probably command on the open
market; indicated by current rents paid and asked for comparable space as
of the date of the appraisal.
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5
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WAKEFIELD(R)
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<PAGE>
Introduction
================================================================================
Evaluation
Evaluation is a study of the nature, quality, or utility of a parcel of
real estate or interest in, or aspects of, real property, in which a value
estimate is not necessarily required.
Market Study
A macroeconomic analysis that examines the general market conditions of
supply, demand, and pricing or the demographics of demand for a specific
area or property type.
Legal Description
The subject property is located along the west side of Highway 8 Business,
within an unincorporated area of El Cajon, San Diego County, California. The
street address of the subject property is 12970 Highway 8 Business, El Cajon,
California. The property is identified by tax parcel number 400-060-20-00,
according to San Diego County records. Due to the lengthy metes and bounds legal
description, the subject property's legal description is presented in the
Addenda of this report, and reference is made thereto.
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WAKEFIELD(R)
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REGIONAL MAP
[GRAPHIC OMITTED]
<PAGE>
REGIONAL ANALYSIS
================================================================================
Introduction
The market value of real property is influenced by the economic, political,
physical and social characteristics of the overall economic region of which it
is a part. The subject property is located in an unincorporated area of El
Cajon, San Diego County, California. The following is an overview of San Diego
County, focusing on some of its more important characteristics. Information
provided here was obtained from the Greater San Diego Chamber of Commerce.
San Diego County
San Diego County is located in the southwest portion of California. San
Diego County encompasses an area of approximately 4,280 square miles, and is
bordered to the north by Riverside County, Imperial County on east, Mexico to
the south and the Pacific Ocean to the west. The largest city in San Diego
County is San Diego, with a 1996 estimated population of 1,183,102, which
represents approximately 44.0 percent of the total county's population.
Population
The estimated population of San Diego County in 1996 was 2,690,255. U.S.
Census statistics indicate that the population of San Diego County has
consistently increased since 1930. Historical and projected population
characteristics since 1930, are provided in the table on the following page.
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WAKEFIELD(R)
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<PAGE>
Regional Analysis
================================================================================
================================================================================
HISTORICAL AND PROJECT POPULATION CHARACTERISTICS
SAN DIEGO COUNTY
================================================================================
Year Population % Change
- --------------------------------------------------------------------------------
1930 209,659 ---
- --------------------------------------------------------------------------------
1940 289,348 38.00%
- --------------------------------------------------------------------------------
1950 556,808 92.44%
- --------------------------------------------------------------------------------
1960 1,033,011 85.52%
- --------------------------------------------------------------------------------
1970 1,357,854 31.45%
- --------------------------------------------------------------------------------
1980 1,861,846 37.12%
- --------------------------------------------------------------------------------
1990 2,498,016 34.17%
- --------------------------------------------------------------------------------
1996 2,690,255 7.70%
- --------------------------------------------------------------------------------
Forecasts
- --------------------------------------------------------------------------------
2000 3,004,434 11.68%
- --------------------------------------------------------------------------------
2010 3,267,254 8.75%
- --------------------------------------------------------------------------------
2020 3,763,253 15.18%
- --------------------------------------------------------------------------------
Source: Greater San Diego Chamber of Commerce
================================================================================
As indicated above, the largest percentage change in population occurred
between 1940 and 1950, followed by 1950 to 1960. The percentage change in
population between 1940 and 1950 was 92.44 percent. The percentage change in
population between 1950 and 1960 was 85.52 percent. The population of San Diego
County is expected to reach 3,763,253, by the year 2020. The average age in San
Diego County is 30.8 years.
Income and Employment
The percentage of adults ages 25 years and older with a bachelor's degree
or higher is 29.3 percent. The greatest percentage of households, approximately
18.9 percent, are included in the income range between $35,000 to $49,999. The
median household income in San Diego County is $35,864. Overall, construction in
San Diego County has been increasing steadily in recent years. However,
residential permit requests have been sluggish compared to commercial permit
requests. Single-family homes in San Diego County cost an average of $204,500.
Employment in San Diego County has increased in the past few years. The
1996 average unemployment rate was 5.4 percent. Tourism and the
government/military are the biggest industry sectors in San Diego County.
Several military bases are located in the San Diego County limits, the largest
of which, is the Miramar Naval Air Station. The distribution of employment by
industry is provided in the table on the following page.
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Regional Analysis
================================================================================
================================================================================
EMPLOYMENT BY INDUSTRY
SAN DIEGO COUNTY
================================================================================
Type of Industry San Diego County Percent of Total
- --------------------------------------------------------------------------------
Agriculture, Forestry, Fisheries, Mining 8,629 .8%
- --------------------------------------------------------------------------------
Construction 42,000 3.7%
- --------------------------------------------------------------------------------
Manufacturing 117,830 10.5%
- --------------------------------------------------------------------------------
Transportation, Communication, Utilities 34,675 3.1%
- --------------------------------------------------------------------------------
Wholesale Trade 46,391 4.1%
- --------------------------------------------------------------------------------
Retail Trade 187,673 16.7%
- --------------------------------------------------------------------------------
Finance, Insurance, Real Estate 66,320 5.9%
- --------------------------------------------------------------------------------
Services 311,783 27.7%
- --------------------------------------------------------------------------------
Government, Military 311,360 27.6%
================================================================================
Total 1,126,661 100.0%
- --------------------------------------------------------------------------------
Source: Greater San Diego Chamber of Commerce
================================================================================
As indicated above, the services and government/military industries each
employ over 27.0 percent of the population. The following is a list of the
largest area employers, with 10,000 or more employees.
================================================================================
MAJOR EMPLOYERS IN SAN DIEGO COUNTY
10,000+ EMPLOYEES
- --------------------------------------------------------------------------------
Employer City
- --------------------------------------------------------------------------------
San Diego Unified School District San Diego
- --------------------------------------------------------------------------------
Scripps Health La Jolla
- --------------------------------------------------------------------------------
Sharp Healthcare Corporation San Diego
- --------------------------------------------------------------------------------
University of California, San Diego La Jolla
- --------------------------------------------------------------------------------
County of San Diego San Diego
- --------------------------------------------------------------------------------
City of San Diego San Diego
- --------------------------------------------------------------------------------
U.S. Postal Service San Diego
- --------------------------------------------------------------------------------
Source: Greater San Diego Chamber of Commerce
================================================================================
Transportation
San Diego County is served by Interstate Highways 5, 805, 15, and 8. In
addition several State Highways serve the area. Commercial air-service is
available via the San Diego International Airport, which is served by major air
carriers, such as United Airlines, American Airlines, Southwest Airlines,
America West, and Northwest Airlines. Public transit is available through the
San Diego Transit Corporation and the San Diego Tijuana Trolley.
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Regional Analysis
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Quality of Life
Located within San Diego County are thirty licensed general hospitals,
twelve accredited senior colleges and universities, and nine accredited
community and junior colleges. Due to the areas generally warm climate,
residents can partake in various outdoor recreational activities year round.
Balboa Park, located in San Diego County, offers 1,400 acres of recreational
space. San Diego County is also home to the world famous San Diego Zoo. San
Diego Zoo is the habitat of 4,000 rare birds, mammals, reptiles, and amphibians;
and contains 100 acres of award-winning gardens.
Conclusion
San Diego County is a well established area that offers a good quality of
life. The population of San Diego County has increased consistently since 1930,
and steady growth is expected through the year 2020. Employment in the county
has also improved in the past few years. The majority of the workforce are
employed in the government/military and tourism industries. Exports and taxable
sales have increased in recent years. San Diego County is expected to have a
strong growing economy in the near future.
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Regional Analysis
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NEIGHBORHOOD MAP
[MAP OMITTED]
<PAGE>
NEIGHBORHOOD ANALYSIS
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The subject property is situated along the west side of Highway 8 Business,
approximately one mile north of its intersection with Greenfield Drive, within
an unincorporated area of El Cajon, San Diego County, California. The subject's
immediate neighborhood is bordered by the Lakeview area to the north, the El
Cajon city limits to the south, Interstate 8 to the east, and State Route 54
(Winter Gardens Boulevard) to the west. The subject's immediate area along
Highway 8 Business is predominantly developed with manufactured housing
communities, and neighborhood service commercial establishments.
The subject property is immediately bounded by Highway 8 Business to the
east. Highway 8 Business, which is also known as Main Street within the El Cajon
city limits, is a primary two-lane, north-south thoroughfare, within the
vicinity of the subject property. The subject's primary point of ingress and
egress is provided by Highway 8 Business. Highway 8 Business intersects with
Greenfield Drive approximately one mile south of the subject property, which in
turn provides direct access to Interstate 8. Interstate 8 is the primary freeway
providing east-west access through the San Diego metropolitan area.
The subject property enjoys visibility along Highway 8 Business, and
primary access to the subject's main entrance to the park is accessed directly
off of Highway 8 Business. Other developments along Highway 8 Business consist
of at least nine other manufactured home communities, in addition to the subject
property, including: Las Coches Mobile Estates; Lamplighter Los Coches; Monterey
Mobile Lodge; Pana-Rama Mobile Estates; Rancho La Vista; Ridge Crest; Golden
Terrace Park; Rancho Laguna; and Heart O' the Hills.
As previously mentioned, the subject property is located within an
unincorporated area of El Cajon. The El Cajon city limits are situated
immediately south of the subject property. The majority of the development
situated along Highway 8 Business, just south of the subject property, is
developed with commercial uses such as gas stations, shopping centers, and
restaurants. Furthermore, Highway 8 Business provides direct access to
Interstate 8, via Greenfield Drive, just one mile south of the subject property.
According to Equifax National Decision Systems (ENDS), the 1997 estimated
population of the city of El Cajon is 91,458. The local population is projected
to increase to 92,285, or 0.90 percent by the year 2002. Similarly, the 1997
estimated total number of households is 34,913, which is projected to increase
1.41 percent to 35,406 households by the year 2002.
The subject property is situated in an area well suited for manufactured
housing development. Real estate values are anticipated to increase at a steady
pace. The economy
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Neighborhood Analysis
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in the area is anticipated to be good, with unemployment steadily decreasing.
The growth in population is anticipated to increase.
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MARKET ANALYSIS
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National Overview
Reportedly, the largest property owners of manufactured housing communities
in the United States are: ROC Communities, headquartered in Colorado; MHC, Inc.,
headquartered in Illinois; Ellenburg Capital, headquartered in Oregon; Lautrec
Ltd., headquartered in California; Clayton Homes, headquartered in Tennessee;
Clayton Williams and Sherwood, headquartered in California; Chateau Properties,
Sun Communities and UNIPROP, headquartered in California.
The following represents the top ten manufactured housing community firms,
as reported by GFA Management, as of 1997.
<TABLE>
<CAPTION>
=========================================================================================
1997 Firm Name State No. of Sites No. of Communities
Rank Owned/Managed Owned/Managed
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Sun Communities California 30,295/0 84/0
- -----------------------------------------------------------------------------------------
2 ROC Communities Colorado 22,441/7,167 77/36
- -----------------------------------------------------------------------------------------
3 Manufactured Home Communities Illinois 27,349/838 69/3
- -----------------------------------------------------------------------------------------
4 Ellenburg Capital Florida 25,173/0 63/0
- -----------------------------------------------------------------------------------------
5 Lautrec Ltd. California 22,652/0 58/0
- -----------------------------------------------------------------------------------------
6 Chateau Properties California 20,003/0 47/0
- -----------------------------------------------------------------------------------------
7 Clayton Homes Tennessee 18,000/0 66/0
- -----------------------------------------------------------------------------------------
8 Clayton, Williams and Sherwood California 16,946/0 44/0
- -----------------------------------------------------------------------------------------
9 UNIPROP California 14,931/0 40/0
- -----------------------------------------------------------------------------------------
10 The Bloch Organization California 14,379/0 37/0
=========================================================================================
</TABLE>
According to the U.S. Census Bureau, more than 8,521,000 people were living
in manufactured housing communities as of 1990 compared to 3,838,678 in 1980.
This represents an increase in manufactured housing community living of
approximately 122.0 percent over the last ten years. Over the last ten years,
there has been a steady increase in manufactured housing community development
across the country. Among the demographic factors which account for the increase
in manufactured housing community living are: decreasing household size, a
growing demand for smaller housing, as well as an alternative to the increasing
cost of housing. Nationally, the largest percentage of manufactured housing
communities are located in California, California, Colorado, Florida, New York,
Minnesota, Indiana, Arizona, Ohio, and Wisconsin.
The manufactured home industry has dramatically changed over the last 20
years. Manufactured homes are now designed and constructed to accommodate
spacious and attractive living requirements. Today, approximately one out of
sixteen families live in
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Market Analysis
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manufactured housing units. The manufactured housing market share has been
growing steadily over the last 10 years. In 1990, 6.7 percent of Americans lived
in manufactured housing units, up from 2.9 percent compared to 1970, according
to the U.S. Census Bureau, which represents 12.0 to 14.0 percent of all new
housing built since the mid-1980's, according to the Manufactured Housing
Institute in Arlington, Virginia.
In 1990, the average cost of a manufactured housing unit was $27,800
compared to $149,000 for a new house (including land), according to the
Manufactured Housing Institute. This reflects a 28.0 percent increase in the
cost of manufactured housing since 1980 versus a 49.0 percent increase in
conventional housing. Industry experts estimate that a single-family home
selling for $150,000 would require an annual income of $52,671. To purchase a
$27,800 manufactured housing unit, only a $19,984 income level would be
required.
At Fleetwood Enterprises, the nation's largest manufacturer of manufactured
housing units, units may be purchased for up to $100,000, which would include a
three-bedroom, two-bath unit of 2,100 square feet, with vaulted ceilings.
In 1990, approximately 10.0 percent of manufactured home owners lived in
units worth approximately $40,000, up from 4.0 percent compared to 1981,
according to a study conducted by Foremost Insurance Company in Grand Rapids,
California. Also, according to the study, approximately 21.0 percent of the
manufactured housing households are occupied by people' 65 years of age or
older, slightly lower than the age group for conventional homes, as reported by
Foremost Insurance.
The demand for good quality institutional grade manufactured housing
communities has substantially increased over the last ten years. Manufactured
housing communities provide an affordable alternative to the increasing cost of
housing. Also, manufactured housing communities provide an alternative form of
living for the elderly and retirees, especially for those living on fixed
incomes.
Acquisitions of manufactured housing communities during 1993 and 1994 were
clearly dominated by Real Estate Investment Trusts. During 1994 and 1995
Manufactured Home Communities (MHC) and ROC communities lead the acquisition of
manufactured housing communities nationally. During 1996, Sun Communities
captured the lead and, together with ROC and MHC dominate the Real Estate
Investment Trust market.
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Market Analysis
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The following chart represents the largest Real Estate Investment Trusts,
from 1991 to 1996, as reported by GFA Management
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HOME SITE GROWTH, DEVELOPMENT AMONG THE LARGEST
REAL ESTATE INVESTMENT TRUST (REITS)
- --------------------------------------------------------------------------------
Year ROC MHC Chateau Sun United Total Annual
Growth
- --------------------------------------------------------------------------------
1996 29,608 28,187 20,003 30,295 5,234 113,327 17.0%
- --------------------------------------------------------------------------------
1995 27,910 26,237 19,594 18,000 4,850 96,591 9.0%
- --------------------------------------------------------------------------------
1994 26,231 28,407 15,689 13,500 4,623 88,450 37.8%
- --------------------------------------------------------------------------------
1993 20,142 14,700 15,261 9,036 5,050 64,189 17.8%
- --------------------------------------------------------------------------------
1992 18,745 12,873 10,032 7,600 5,200 54,450 N/A
- --------------------------------------------------------------------------------
1991 9,030 13,079 9,759 N/R N/R N/A N/A
- --------------------------------------------------------------------------------
N/R = No report N/A = Not applicable
- --------------------------------------------------------------------------------
NOTE: The 113,327 sites counted for the top five REITs in 1996 make up 20
percent of the total sites surveyed in the 1997 Allen Report. These rental sites
are located in 339 communities, accounting for about 1 percent of some 50,000
existing manufactured housing communities nationwide. The community counts for
the five major REITs are: ROC (113), MHC (72), Chateau (47), Sun (84) and United
(23). The proportion of communities owned by each of the REITs compared to the
others is: ROC (33%), MHC (21%), Chateau (14%), Sun (25%) and United (7%).
================================================================================
Manufactured Home Communities (MHC) is expected to continue an aggressive
acquisition campaign through 1997 and beyond. As of September 1997, the MHC REIT
had a market cap of $632.0 million, and continues to pursue the acquisition of
manufactured home communities. Aside from the ELL-CAP $300.0 million
transaction, in September 1997 Manufactured Home Communities, Inc. completed a
$107.0 million purchase of 18 manufactured housing communities and two related
commercial properties from partnerships affiliated with Mobileparks West. The
communities, with 3,505 sites, were purchased with about $3.0 million
manufactured home operating units, $16.0 million in cash and $20.0 million of
installment notes and assumed debt. The communities have an average monthly
rental of $349.00. The communities are located in California, Utah, Oregon,
Washington and Nevada. MHC may be the first manufactured home community REIT to
reach $1.0 billion.
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Market Analysis
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The MHC REIT continues to perform and expand, and as of September 1997 was
trading at $25.625, with a current yield of 5.2 percent. The top traded REITs,
are presented as follows.
<TABLE>
<CAPTION>
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REIT MARKET UPDATE
- -------------------------------------------------------------------------------------------
Company Symbol Price Current Yield 52 Week High 52 Week Low Annual 12 Mth Tot
(9/19/97) Dividend Rtn
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CPJ $29.688 5.8% $31.125 $22.250 1.72 26.6%
- -------------------------------------------------------------------------------------------
MHC $25.625 5.2% $26.428 $18.875 1.32 30.7%
- -------------------------------------------------------------------------------------------
SUI $37.428 5.0% $ 38.00 $27.750 1.88 31.8%
- -------------------------------------------------------------------------------------------
UMH $11.625 6.0% $13.625 $10.875 0.70 -1.7%
- -------------------------------------------------------------------------------------------
Total return figures obtained through Standard & Poors and are for the period
through Sept 1997.
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</TABLE>
The Southwest and Northwest Regions of the nation are the preferred
locations regarding recent and future manufactured housing community
acquisitions. However, investors seeking moderate, but consistent growth
expectations, are still looking at the midwest region. Also, southern portions
of Florida are still considered a prime area for investors seeking good quality
manufactured housing communities, with good up-side potential. What was once a
stagnant market, the northeast region is now being considered for future
acquisitions.
According to a recent study prepared by Merrill Lynch & Company, ownership
in the manufactured housing community industry is highly fragmented. The top 150
owner-operators account for less than 5.0 percent of the total industry, whereas
a host of "mom-and-pop" private companies account for the other 95.0 percent.
This unglamorous niche industry is ripe for consolidation, and an infusion of
professional management expertise is likely to yield significant economies of
scale. The four REIT's specializing in manufactured housing communities are
already among the top ten owner-operators, and are well positioned to facilitate
and hasten the industry's consolidation to the likely benefit of their
stockholders.
Manufactured homes are the fastest growing component of the nation's
housing inventory, due to their affordability, good quality design and safety
standards. According to the Merrill Lynch & Company Manufactured Housing
Community Industry Report, factory-built homes appeal especially to senior
citizens and to households with limited economic needs, two segments of the
population that are likely to grow rapidly in coming years.
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Market Analysis
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Consistent returns in manufactured housing community investments have been
the mainstay of the industry. For this reason, as well as the amount of
acquisitions seen by Real Estate Investment Trusts (REITs) from 1991 to 1996,
the availability of good quality manufactured housing communities has been
substantially reduced compared to the 1980's. Good quality manufactured housing
communities still command premium prices, thus driving down overall
capitalization rates.
Cushman & Wakefield's Valuation Advisory Services has tracked sale
transactions of manufactured housing communities since 1985. Overall
capitalization rates have consistently been within the 8.75 to 10.00 percent
range for communities located in moderate to increasing growth markets, and as
low as near 8.0 percent for those communities located in growing markets that
poses significant upside potential. Overall capitalization rates are clearly
affected and are differentiated among the properties relative to rent levels,
age, quality, condition, location, amenities, demographic characteristics,
resident profile, as well as the quality of management.
Manufactured housing communities fall within, and are categorized by their
overall appearance, age, and amenities, but more importantly the strength of the
local market. The various categories of manufactured housing communities,
according to the Woodall Directory, can be ranked as 1 to 5 Star Parks These
rankings are defined as follows:
One Star Park
The most important consideration for a one star park is overall appearance.
If it is not a decent place to live, it will not be listed in Woodall's
Directory. The following are general requirements:
o Fair overall appearance;
o Patios on most lots. May be concrete, asphalt, wood, or some
suitable material;
o Grass, rock or shell to cover ground;
o Streets fair to good. May be dirt, asphalt or gravel in reasonable
condition;
o Restrooms clean, if any;
o Adequate laundry or laundromat nearby;
o If fences allowed, must be neat;
o Mail service;
o Homes may be old models, but show evidence of care; and,
o Manager available some hours of each day.
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Market Analysis
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Two Star Park
In addition to the requirements for a one star park, a two star park will
have the following:
o Landscaping - some lawns and shrubs;
o Streets in good condition. Must be dust free of crushed rock, gravel
or shell minimum;
o Neat storage;
o Well equipped laundry or laundromat nearby;
o 200 volt connections available;
o If children accepted, park should have play area;
o Park free of clutter, such as old cars and other abandoned
equipment; and,
o Well maintained and managed.
Three Star Park
What a three star park does it does well, but not as uniformly as higher
rated parks. Many three star parks were once higher rated, but original
construction does not allow for today's 10-foot, 12-foot, and double-wides
or the 55-foot and 60-foot lengths. If children are allowed, there should
be adequate play area. However, the disarray caused by children may at
times be the determining factor that keeps a three star park at that level
when it otherwise could be rated higher. In addition to the requirements
for one and two star parks, a three star park must have the following:
o Attractive entrance;
o All homes must be in good condition;
o Awnings and cabana rooms on some homes in southern areas;
o Some spaces for large mobile homes;
o Paved or hard surfaced streets;
o Off-street parking or streets wide enough for safe on-street parking;
o Good lawns or substitute throughout, shade trees, some shrubs where
climate permits;
o Concrete patios or the equivalent on all lots;
o All lots neat and attractive;
o All park buildings in good repair; and,
o Good management.
Four Star Park
Four star parks are luxury parks. In addition to the requirements for one,
two and three star parks, a four star park must have the following:
o Good landscaping;
o Most homes skirted with metal skirts, concrete block, ornamental wood
or stone;
o Paved streets, edged or curbed.
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Market Analysis
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o Uncrowded lots;
o Underground utilities if permitted by local conditions and
authorities;
o Most tanks, if present, concealed;
o Any hedges or fences must be attractive and uniform;
o Awnings, cabanas, or porches on most homes in southern areas.
(Excepting double-wide units.);
o Most lots to accommodate large mobile homes;
o Where row parking of homes exists, all must be lined up uniformly;
o Community hall and/or swimming pool and/or recreation programs. If a
park is four star in all but this requirement, the fourth star will be
printed as an open star indicating a four star park without
park-centered recreation; and,
o Excellent management.
Five Star Park
Five star parks are the finest. They should be nearly impossible to
improve. In addition to the requirements for one, two, three, and four
star parks, a five star park must have the following:
o Well planned and laid out spacious appearance;
o Good location in regard to accessibility and desirable neighborhood.
In some locations, park should be enclosed by high hedges or
ornamental fence;
o Wide paved streets in perfect condition. Curbs or lawns edged to
streets, sidewalks, street lights, street signs; Homes set back from
street;
o Exceptionally attractive entrance and park sign;
o Patios at least 8 x 30 feet. (Excepting double-wide units.);
o Paved off-street parking such as carports or planned parking;
o All homes skirted;
o All hitches concealed. Any existing tanks concealed;
o Recreation, some or all of the following: swimming pool (excepting
areas with long, cold winters), shuffleboards, horseshoe pitching,
golf course, hobby shop, hobby classes, games, potlucks, dances or
natural recreational facilities;
o Beautifully equipped recreation hall with kitchen. Room for community
gatherings, tiled restrooms, etc.;
o Uniform storage sheds or central storage facilities;
o All late model homes in excellent condition;
o At least 60 percent occupancy in order to judge quality of residents
which indicates park's ability to maintain a five star rating between
inspections;
o All empty lots grassed, graveled or otherwise well maintained;
o If pets or children allowed, there must be a place for them to run and
play without cluttering the streets and yards.
o Most five star parks are for adults only; and,
o Superior management interested in comfort of residents and maintenance
of park.
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Market Analysis
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The demand for good quality institutional grade manufactured housing
communities is anticipated to increase throughout the 1990's, since manufactured
housing communities provide an alternative form of living for the elderly and
retirees, especially for those living on fixed income. Manufactured home
shipments continue to be strong. Shipments rose 20.0 percent in 1992 and 1994,
and 12.0 percent in 1995. The market for good quality manufactured housing
communities is expected to be strong, with yield and capitalization rates and
prices expected to continue to be competitive, with the REITs leading the way.
Competition
We have surveyed five manufactured housing communities located within the
subject's primary market, including the subject property, containing a total of
1,014 sites. The combined occupancy rate of these five manufactured housing
communities, including the subject property, is approximately 96.55 percent.
Excluding the subject property in our survey, the combined occupancy rate is
approximately 96.91 percent, based on 874 sites.
The name and location of the subject property's primary competition, as
well as the number of sites, occupancy levels, amenities offered, monthly rental
rates and services provided in the monthly rental rate, are presented on the
following facing page, along with a map which identifies the location of each
competing park.
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<TABLE>
<CAPTION>
====================================================================================================================================
SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- ------------------------------------------------------------------------------------------------------------------------------------
Number Age
Of Sites --------- 3-Year
--------- Condition Services Date Of Average
Comp. Name Occupancy --------- Monthly Provided Last Rental Annual Rental
No. Location Level Amenities Park Rating(1) Rent in Rent Increase Increase
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R-1 Terrace View 205 Clubhouse 1974 $348.00/Mo. Refuse Anniversary N/A
13162 Highway 8 --- Pool/Spa ---- To of Lease
Business 90.24% Shuffleboard Good $394.00/Mo.
El Cajon, Playground ----
California RV Storage 3*-4*
- ------------------------------------------------------------------------------------------------------------------------------------
R-2 Mira Vista 158 Clubhouse 1974 $495.00/Mo. Water May, 1997 $15.00/Mo.
9100 Single Oak --- Pool/Spa ---- To
Drive 97.47% Sauna/Laundry Good $525.00/Mo.
El Cajon, Shuffleboard ----
California RV Storage 3*-4*
- ------------------------------------------------------------------------------------------------------------------------------------
R-3 Lakefront MHP 295 2 Clubhouses 1974 $425.00/Mo. None January, 1997 N/A
9395 Harritt Road --- 2 Pools/Spas ---- To
Lakeside, 100% Playground Good $550.00/Mo.
California Basketball ----
Horseshoes 3*-4*
- ------------------------------------------------------------------------------------------------------------------------------------
R-4 Los Coches 126 Clubhouse 1972 $425.00/Mo. Sewer March, 1996 N/A
Mobile Home --- Pool/Spa ---- Refuse
Estates 100% Sauna/Laundry Average
13217 Aurora Playground -------
Drive RV Storage 3*
El Cajon,
California
- ------------------------------------------------------------------------------------------------------------------------------------
R-5 Pepper Villa 90 Clubhouse 1972 $460.00/Mo. Water Anniversary Reportedly,
Mobile Estates -- Pool/Spa ---- To Refuse of Lease the rent has
1315 Pepper Drive 96.67% Sauna/Laundry Average $490.00/Mo. not been
El Cajon, Shuffleboard ------- increased in
California 3* the past 3
years.
- ------------------------------------------------------------------------------------------------------------------------------------
Subject Rancho Valley 140 Clubhouse 1969 $476.00/Mo. Refuse November, 1997 $15.00/Mo.
Village --- Pool/Spa ----
12970 Highway 8 94.29% Sauna/Laundry Good
Business Playground ----
El Cajon, RV Storage 4*
California
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Ratings from One Star to Five Star Parks are defined in the National Overview section of this report.
====================================================================================================================================
</TABLE>
<PAGE>
COMPETING MANUFACTURED HOUSING MAP
[GRAPHIC OMITTED]
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Market Analysis
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Rental rates of manufactured housing communities located within the
subject's primary market range from $348.00 to $550.00 per site, on a monthly
basis. The subject property is currently quoting a monthly rental rate within
the market range, or at $476.00 per site. The last rental rate increase at the
subject property was as of November 1, 1997, whereby the monthly rental payment
increased from $460.00 to $476.00 per site, an increase of $16.00 per month or
3.48 percent. Furthermore, the monthly rental payment is scheduled to increase
to $492.00 per site as of November, 1998, an increase of $16.00 per site, or
3.36 percent.
The enclosed comparable rentals are considered the most competitive to the
subject property regarding amenities offered, condition, location and overall
ranking.
Comparable R-1, Terrace View, is located at 13162 Highway 8 Business, in El
Cajon, California. This comparable property contains 205 sites, and is
presently 90.24 percent occupied, with approximately 20 vacant sites
available. Terrace View was developed in 1974, and is considered to be in
overall good condition. Reportedly, there was not a rental increase in 1997
and it is unknown at this time if a rental increase is scheduled in 1998.
At present, the monthly rental rate for sites within the park ranges from
$348.00 to $394.00, depending upon location within the park. The monthly
rental rate includes only refuse service. Amenities include a clubhouse,
pool/spa, shuffleboard, playground, and RV storage.
Comparable R-2, Mira Vista, is located at 9100 Single Oak Drive, in El
Cajon, California. This comparable property contains 158 sites, and is
presently 97.47 percent occupied, with only four sites presently available.
Mira Vista was developed in 1974, and is considered to be in overall good
condition. The most recent rental increase occurred in May, 1997, and the
monthly rental payment increased by $15.00 per month. Amenities include a
clubhouse, pool/spa, sauna, laundry facility, shuffleboard, and RV storage.
The quoted monthly rental rate reportedly ranges from $495.00 to $525.00
per month, depending upon location within the park, with only water service
included in monthly rental payment.
Comparable R-3, Lakefront Mobile Home Park, is located at 9395 Harritt
Road, in Lakeside, California. This comparable property contains 295 sites,
and is 100.0 percent occupied. Lakefront was developed in 1974, and is
considered to be in overall good condition. The most recent rental increase
occurred in January, 1997, whereby the monthly rental rates increased
between 1.5 and 4.0 percent. Amenities include two clubhouses, two
pools/spas, playground, basketball court, and horseshoes. The quoted
monthly rental rate reportedly ranges from $425.00 to $550.00 per month
with no utilities included in monthly rental payment.
Comparable R-4, Los Coches Mobile Home Estates, is located at 13217 Aurora
Drive, in El Cajon, California. This comparable property contains 126
sites, and is 100.0 percent occupied. Los Coches was developed in 1972, and
is considered to be in overall average condition. The most recent rental
increase occurred in
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Market Analysis
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March, 1996, and the monthly rental payment increased by $20.00 per month.
Amenities include a clubhouse, pool/spa, sauna, laundry facility,
playground, and RV storage. The quoted monthly rental rate is reportedly
$425.00 per month with March, 1996, and the monthly rental payment
increased by $20.00 per month. Amenities include a clubhouse, pool/spa,
sauna, laundry facility, playground, and RV storage. The quoted monthly
rental rate is reportedly $425.00 per month with sewer and refuse service
included in the monthly rental payment.
Comparable R-5, Pepper Villa Mobile Estates, is located at 1315 Pepper
Drive, in El Cajon, California. This comparable property contains 90 sites,
and is 96.67 percent occupied, with three vacant sites available. Pepper
Villa was developed in 1972, and is considered to be in overall average
condition. Reportedly, the monthly rental rate has not increased over the
past three years. Amenities include a clubhouse, pool/spa, sauna, laundry
facility, shuffleboard, and RV storage. The quoted monthly rental rate
reportedly ranges from $460.00 to $490.00, depending upon the location
within the location. Water and refuse service is included in the monthly
rental payment.
In our opinion, and based on conversations with the on-site manager,
properties R-2 and R-3 compete most favorably with the subject property, with
monthly rental rates ranging from $425.00 to $550.00 per site. The subject
property is currently quoting a monthly rental rate of $476.00 per site, which
is within the range of rental rates of our more comparable competing properties.
The subject property competes most effectively with its primary competitors
regarding amenities, condition and current rent structure.
Comparable Manufactured Housing Community Sales
A search of the subject's market revealed four recent sales of manufactured
housing communities located in San Diego County, California. The following is a
brief discussion of each of the manufactured housing sales located within the
subject's market. These sales are summarized on the following facing page.
Comparable Sale I-1, Vista Manor, is located at 200 Olive Avenue, in Vista,
California. This property contains 159 sites, situated on 16.0 acres of
land area. The property was in good condition at the time of sale and was
developed in 1964. Amenities at the property include a clubhouse, pool, and
two laundry facilities. The property was approximately 98.0 percent
occupied at the time of sale. The property was purchased for $5,000,000,
which equates to $31,447 per site.
Comparable Sale I-2, Rancho Mesa, is located at 450 East Bradley Avenue, in
El Cajon, California. This property contains 158 sites, situated on 19.10
acres of land area. The property was in good condition at the time of sale
and was developed in 1970. Amenities include a clubhouse, pool/spa, and
laundry facility. The property was approximately 97.0 percent occupied at
the time of sale. The property was purchased for $6,000,000, which equates
to $37,974 per site.
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<TABLE>
<CAPTION>
=============================================================================================================================
SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- -----------------------------------------------------------------------------------------------------------------------------
Sales Price $EGI/Site
Per Site $Expense/Site
Sales Date Land Area Density ---------- EGIM -------------
Comp. Name ---------- --------- ------- Occupancy ---- Expense Ratio
No. Location Sales Price No. Sites Condition At Sale $NOI/Site OAR % Of EGI
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
I-1 Vista Manor 8/97 16.00 9.94 $31,447 $3,270 6.44x $4,880
200 Olive Avenue ---- --- ---- ------- ----- ------
Vista, California $5,000,000 159 Good 98.0% 10.40% $1,609
------
32.97%
- -----------------------------------------------------------------------------------------------------------------------------
I-2 Rancho Mesa 19.10 8.27 $37,974 $3,688 6.04x $6,285
450 E. Bradley Avenue 12/95 --- ---- ------- ----- ------
El Cajon, California ----- 158 Good 97.0% 9.71% $2,597
$6,000,000 ------
41.32%
- -----------------------------------------------------------------------------------------------------------------------------
I-3 Meadowbrook Mobile 8/95 42.68 7.78 $37,123 $3,996 5.38x $6,896
Estates ---- --- ---- ------- ----- ------
8301 Mission Gorge $12,325,000 332 Good 96.0% 10.76% $2,900
Road ------
Santee, California 42.05%
- -----------------------------------------------------------------------------------------------------------------------------
I-4 Mission Valley 2/95 10.22 11.64 $33,205 $2,941 8.64x $3,842
Village ---- --- ----- ------- ----- ------
6790-6912 Mission $3,951,500 119 Average 95.0% 8.86% $900
Gorge Road ----
San Diego, California 23.45%
- -----------------------------------------------------------------------------------------------------------------------------
Subject Rancho Valley Village - - - 21.73 6.44 - - - $3,714 N/A $6,227
12970 Highway 8 --- ---- 94.29% ------
Business 140 Good $2,513
El Cajon, California ------
40.36%
- -----------------------------------------------------------------------------------------------------------------------------
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<CAPTION>
=============================================================================
- -----------------------------------------------------------------------------
Comp. Name Comparability
No. Location to the Subject Comments
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
- -----------------------------------------------------------------------------
I-1 Vista Manor Similar Developed in 1964; Good
200 Olive Avenue condition; Amenities
Vista, California include a clubhouse, pool,
and two laundry
facilities.
- -----------------------------------------------------------------------------
I-2 Rancho Mesa Similar Developed in 1970; Good
450 E. Bradley Avenue condition; Amenities
El Cajon, California include: clubhouse,
pool/spa, and laundry
facility.
- -----------------------------------------------------------------------------
I-3 Meadowbrook Mobile Similar Developed in 1970;
Estates Good condition; Amenities
8301 Mission Gorge include: clubhouse,
Road pool/spa, sauna, putting
Santee, California green, and shuffleboard.
This is a senior park for
residents 55 years of age
or older.
- -----------------------------------------------------------------------------
I-4 Mission Valley Inferior Developed in 1960's;
Village Average condition;
6790-6912 Mission Amenities include:
Gorge Road clubhouse, pool, and
San Diego, California laundry facility.
- -----------------------------------------------------------------------------
Subject Rancho Valley Village Subject Property Developed in 1969;
12970 Highway 8 Good condition;
Business Amenities include:
El Cajon, California Clubhouse, pool/sauna,
laundry and RV storage.
- -----------------------------------------------------------------------------
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</TABLE>
<PAGE>
Market Analysis
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Comparable Sale I-3, Meadowbrook Mobile Estates, is located at 8301 Mission
Gorge Road, in Santee, California. This property contains 332 sites,
situated on 42.68 acres of land area. The property was in good condition at
the time of sale and was developed in 1970. Amenities include a clubhouse,
pool/spa, sauna, putting green, and shuffleboard. The property was
approximately 96.0 percent occupied at the time of sale. This property is
considered to be a "senior park" for residents 55 years of age or older.
The property was purchased for $12,325,000, which equates to $37,123 per
site.
Comparable Sale I-4, Mission Valley Village, is located at 6790-6912
Mission Gorge Road, in San Diego, California. This property contains 119
sites, situated on 10.22 acres of land area. The park was in average
condition at the time of sale and was developed in approximately 1960.
Amenities include a clubhouse, pool and a laundry facility. The property
was 95.0 percent occupied at the time of sale. The property was purchased
for $3,951,500, which equates to $33,205 per site.
It should be noted that comparability does not imply an identical or exact
duplicate, but rather the possession of a similar utility and affected by
similar supply and demand forces. Also, relative to the subject property,
differences include: time or date of the transactions; location, which
encompasses differences in accessibility; site characteristics, including
differences in size, topography, access, exposure and development capacities;
and improvement characteristics, which include differences in age, quality,
condition, size and amenities.
Demographic Trends
Based on information provided by National Decision Systems (NDS), the
populations within the subject's primary 5-mile and secondary 10-mile market
areas, as of 1997, are 224,368 and 522,050, respectively. The populations of the
subject's primary and secondary market areas are projected to increase to
225,680 and 524,587, respectively, by the year 2002.
According to NDS, the total number of households within the subject's
primary and secondary market areas, are 84,048 and 197,944, respectively, for
1997. The number of households within the subject's primary 5-mile and secondary
10-mile market areas are projected to increase to 86,719 and 203,214,
respectively, by the year 2002.
The average household income levels within the subject's primary and
secondary market areas, for 1997, are $59,351 and $60,037, respectively. The
median household income levels within the subject's primary and secondary market
areas, for 1997, are $43,021
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Market Analysis
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and $44,327, respectively. Per capita income within the subject's primary and
secondary market areas, for 1997, are $22,611 and $23,188, respectively.
Based on the above levels, the demographics of the subject's primary market
area appear to indicate a positive growth trend, based on information provided
by the NDS Report, a copy of which is provided in the Addenda of this report.
Expense Analysis
Expenses exhibited by manufactured housing communities nationally are
typically 35.0 to 45.0 percent of effective gross income. However, expense
ratios of manufactured housing communities located in the southeast and
southwest regions of the nation are typically lower by comparison, due to lower
real estate taxes and common area maintenance charges.
As presented in the Summary of Manufactured Housing Communities Sales,
operating expense ratios of competing parks range from 23.45 to 42.05 percent of
effective gross income levels, but typically from 32.97 to 42.05 percent. On a
per site basis, the comparable sales display operating expenses ranging from
$900 to $2,900, but typically from $1,609 to $2,900 per site. The subject
property is currently reporting expenses, for the 12-month trailing period of
1997, at 40.36 percent of effective gross income and $2,513 on a per site basis.
Operating expenses at the subject property appear to be within the range as
displayed by the comparable sales of manufactured housing communities within the
local area.
Market Supply and Demand
There are a total of five competing manufactured housing communities
located within the subject's market, which total 874 sites, with a corresponding
average occupancy rate of 96.91 percent. No specific absorption statistics were
available, since the subject's competing parks have historically reported
occupancy rates at, or above 90.0 percent. The occupancy rate at the subject
property, based on conversations with management, has historically been slightly
higher than occupancy rates of competing parks, and is currently 94.29 percent
occupied, with approximately eight vacant available sites. We believe the
current occupancy rate of the subject property is stabilized. Based on the
subject's current occupancy rate and occupancy rates at competing parks, demand
appears to be strong, with steady rental rate increases expected.
Conclusion
Historically, the subject's primary market has sustained high occupancy
levels of 95.0 to 100 percent. Rental rates of similar manufactured housing
communities located within the subject's primary market generally range from
$348.00 to $550.00 per site, on a monthly basis. The subject property is
currently quoting, and is currently achieving (based on the most
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Market Analysis
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recent rent roll provided), a monthly rental rate of $476.00 per site, which we
believe is market-orientated.
Based on our research, steady increases in rental rates are anticipated,
based on actual historical performance of competing parks and historical
increases seen at the subject property. Sales transactions of manufactured
housing communities located within the subject's region range from $31,447 to
$37,974 per site, with corresponding overall rates ranging from 8.86 to 10.76
percent. In our opinion, the subject property competes favorably with its
competition regarding amenities, condition, rent structure and overall market
rating.
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SITE PLAN
[GRAPHIC OMITTED]
<PAGE>
PROPERTY DESCRIPTION
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Site Description
The subject site is located along the west side of Highway 8 Business,
approximately one mile north of its intersection with Greenfield Drive, within
an unincorporated area of El Cajon. The east side of the site borders Highway 8
Business. The subject site is irregular in shape and contains 21.73 acres, or
946,559 square feet of land area. Topographically, the site is slightly sloping
with the terrain of the surrounding area.
The Helix Water Company provides the water to the subject park, while San
Diego County Sanitation provides sewer service to the subject property. The San
Diego Gas & Electric Company provides the gas and electric service to the
subject property. Primary access to the subject site is available from Highway 8
Business. Based on conversations with San Diego County, the subject property is
not located in a flood hazard area. However, we recommend a qualified engineer
to determine the existence of any flood hazard areas.
Each developed site is equipped with a dirt site and off-street parking.
The streets within the park have two-lanes, with concrete curbs. Overall, the
subject site is typical of the area and is functionally well suited for its
current use.
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.
Improvements Description
The subject property was originally developed in 1969. The subject
improvements consist of a 140-site manufactured housing community, with a
community center, swimming pool/spa, shuffleboard area, laundry facility and
recreational vehicle and boat storage. Of the 140 total sites, 40 sites are
single-wide, while the remaining 100 sites are double-wide. However,
approximately 89.0 percent of the sites, or 124 sites, can accommodate a
double-wide home. The average site size is approximately 40 feet by 70 feet.
The community center consists of a manager's office, restroom facilities,
and open-space available for resident use, with a fully-equipped kitchen area,
and billiard room. The exterior of the one-story community center is concrete
block with a Spanish tile roof, and appeared to be in overall good condition at
the time of inspection.
The swimming pool/spa, and shuffleboard areas are located adjacent to the
community center. The recreational vehicle and boat storage is located at toward
the northern portion of
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Property Description
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the park. Concrete block fencing surrounds the pool area and a chain link fence
surrounds the recreational vehicle and boat storage area. Off-street parking is
available for each resident. Site improvements within the park include: paved
streets, concrete sites, street lighting and signage. Overall, the site
improvements appeared to be in good condition at the time of inspection.
Rancho Valley Village is a functional manufactured housing community with
good ingress and egress along Highway 8 Business. Overall, the subject community
appears to be well maintained and is in good condition. Rancho Valley is a
functional manufactured housing community and competes favorably with other
existing manufactured housing communities in the area in terms of appearance and
amenities. The subject property would fit the profile of a Four Star Park, as
defined in the National Overview section of this report.
Real Property Taxes and Assessments
Since the passage of Proposition 13, or the Jarvis Gann Initiative in 1978,
real property taxes in the State of California are limited to 1.0 percent of
market value, as of a specified base year. The base year valuation is the
Assessor's 1975 market value estimate, unless there is a transfer of ownership
(sale), new construction, or the property is leased on a long-term basis.
Whenever this occurs, the property is reassessed at full market value. If a
reassessment is not triggered, the assessed value is trended upward at 2.0
percent annually.
According to the San Diego County Assessor's Office, the market value of
the subject property equates to $3,117,969. The subject property is identified
by tax parcel number 400-060-20-00.
The total amount of real estate taxes for fiscal year 1996, payable in 1997
for the subject property amounts to $64,079.58. The total amount of real estate
taxes for fiscal year 1996 payable in 1997 equates to approximately $457.71 per
site.
Zoning
According to zoning officials of San Diego County, the subject property is
currently zoned RMH-7, Residential Mobile Home-7 District. Based on
conversations with zoning officials, the subject property is a legal and
conforming use under its present zoning classification.
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CONCLUSION
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Conclusion
o The subject property, Rancho Valley Village, is a functional
manufactured housing community, which competes favorably in relation
to its competition;
o Comparable manufactured housing communities located within the
subject's market range in monthly rental rates per site from $348.00
to $550.00;
o The subject property is currently quoting, and is currently achieving
(based on the most recent rent roll provided) a monthly rental rate of
$476.00 per site, which is within the range of competing parks, and
appears to be market-oriented;
o Sale transactions of manufactured housing communities located within
the subject's region range in unit sales prices per site from $31,447
to $37,974, with corresponding overall rates ranging from 8.86 to
10.76 percent;
o Operating expenses are within industry standards for a park located in
the southwestern region of the country;
o The subject park appears to be operating at economic levels based on
our review of historical and budgeted 1998 income and expenses;
o The demographic characteristics of the area appear to be positive;
o The population profile of the subject property is 60 percent adult,
with the remaining 40 percent family oriented;
o The current occupancy rate at the subject property is 94.29 percent,
with eight vacant sites available. This stabilized occupancy rate is
evident by a strong local market and demand;
o No significant manufactured housing communities are expected to be
developed in the near future;
o In our opinion, based on Woodall's criteria, the subject property is a
Four Star Park, and the reader's attention is directed to the
corresponding definition and criteria of a Four Star Park, presented
in the National Overview section of this report; and,
o Based on the subject's location, demographic, economic, market and
physical characteristics, we believe Rancho Valley Village will
continue to be a viable manufactured housing community in the
foreseeable future, and is well positioned in the marketplace.
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ASSUMPTIONS AND LIMITING CONDITIONS
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"Report" means the consulting report to which these Assumptions and Limiting
Conditions are annexed.
"Property" means the subject of the Report.
"C&W" means Cushman & Wakefield, Inc. or its subsidiary which issued the Report.
"Appraiser(s)" means the employee(s) of C&W who prepared and signed the Report.
This report is made subject to the following assumptions and limiting
conditions:
1. No responsibility is assumed for the legal description or for any matters
which are legal in nature. 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 Report or upon which the Report 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 Appraisers nor C&W shall be responsible for the
accuracy or completeness of such information, including the correctness of
estimates, opinions, dimensions, sketches, exhibits, and other factual
matters.
3. The information is effective as of the date stated in the Report. Changes
since that date in external and market factors or in the property itself
can significantly affect our analysis.
4. The report is to be used in whole and not in part. No part of the Report
shall be used in conjunction with any other report. Possession of the
Report, or a copy thereof, does not carry with it the right of publication.
Publication of the Report or any portion thereof without the prior written
consent of C&W is prohibited. Except as may be otherwise expressly stated
in the letter of engagement to prepare the Report, C&W does not permit use
of the Report by any person other than the party to whom it is addressed or
for purposes other than those for which it was prepared. If written
permission is given by C&W to use the Report, the Report must be used in
its entirety and only with proper written qualification as approved by C&W.
No part of the Report or the identity of the Appraiser shall be conveyed to
the public through advertising, public relations, news, sales, or other
media or used in any material without C&W's prior written consent.
Reference to the Appraisal Institute or to the MAI designation is
prohibited.
5. The Appraiser shall not be required to give testimony in any court or
administrative proceedings relating to the Property or the Report.
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Assumptions and Limiting Conditions
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6. The Report 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 Report; 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 Report is based.
7. The physical condition of the improvements considered by the Report is
based on visual inspection by the Appraiser or other person identified in
the Report. C&W assumes no responsibility for the soundness of structural
members nor for the condition of mechanical equipment, plumbing, or
electrical components.
8. Unless otherwise stated in the Report, the existence of potentially
hazardous or toxic materials which may have been used in the construction
or maintenance or operation of the improvements or may be located at or
about the Property was not considered in the Report. These materials (such
as formaldehyde foam insulation, asbestos insulation, various soil
contaminants, and other potentially hazardous materials) may affect the
value of the Property. The Appraisers are not qualified to detect such
substances, and C&W urges that an expert in this field be employed to
determine the economic impact of these matters, if any, on the property in
the Report.
9. Unless otherwise stated in the Report, compliance with the requirements of
the Americans With Disabilities Act of 1990 (ADA) has not been considered
in the Report. Failure to comply with the requirements of the ADA may
negatively affect the value of the property. C&W recommends that an expert
in this field be employed.
10. If the Report is submitted to a lender or investor with the prior approval
of C&W, such party should consider the Report as one factor, together with
its independent investment considerations and underwriting criteria, in its
overall investment decision.
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CERTIFICATION
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We certify that, to the best of our knowledge and belief:
1. Nancy D. Piekos inspected the property, and Michael J. Schaeffer and
Stanley R. Dennis, Jr., MAI, have reviewed and approved the report, but did
not inspect 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 on an action or event (such as the
approval of a loan) resulting from the analyses, opinions, or conclusions
in, or the use of, this report.
6. 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 Ethics and
Standards of Professional Practice of the Appraisal Institute.
7. No one provided significant professional assistance to the persons signing
this 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. As of the date of this report, Stanley R. Dennis, Jr., MAI, has completed
the requirements of the continuing education program of the Appraisal
Institute.
/s/ Michael J. Schaeffer /s/ Nancy D. Piekos /s/ Stanley R. Dennis, Jr.
Michael J. Schaeffer Nancy D. Piekos Stanley R. Dennis, Jr., MAI
Director Associate Appraiser Director, Manager
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ADDENDA
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POP-FACT SHEETS
LEGAL DESCRIPTION
QUALIFICATIONS OF APPRAISERS
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38
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POP-FACT SHEETS
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<PAGE>
Tue Dec 2, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP FACTS: SUMMARY REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6511
PREPARED FOR
Cushman & Wakefield
12970 Highway 8 Business
El Cajon, California COORD: 32:48.73 116:55.08
- -------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- -------------------------------------------------------------------------------
POPULATION
2002 PROJECTION 225,680 524,587
1997 ESTIMATE 224,368 522,050
1990 CENSUS 213,338 502,383
1980 CENSUS 162,804 407,905
GROWTH 1980 - 1990 31.04% 23.16%
HOUSEHOLDS
2002 PROJECTION 86,719 203,214
1997 ESTIMATE 84,048 197,944
1990 CENSUS 76,279 181,883
1980 CENSUS 58,472 146,787
GROWTH 1980 - 1990 30.45% 23.91%
1997 ESTIMATED POPULATION BY RACE 224,368 522,050
WHITE 87.22% 82.05%
BLACK 2.73% 4.95%
ASIAN & PACIFIC ISLANDER 3.47% 5.58%
OTHER RACES 6.59% 7.42%
1997 ESTIMATED POPULATION 224,368 522,050
HISPANIC ORIGIN 17.33% 18.02%
OCCUPIED UNITS 76,279 181,883
OWNER OCCUPIED 56.81% 60.62%
RENTER OCCUPIED 43.19% 39.38%
1990 AVERAGE PERSON PER HH 2.74 2.70
1997 ESTIMATED HH BY INCOME 84,048 197,944
$150,000 + 4.46% 4.34%
$100,000 TO $149,999 6.15% 6.43%
$ 75,000 TO $ 99,999 8.68% 9.17%
$ 50,000 TO $ 74,999 22.25% 23.11%
$ 35,000 TO $ 49,999 18.16% 18.38%
$ 25,000 TO $ 34,999 13.49% 13.21%
$ 15,000 TO $ 24,999 13.45% 12.61%
$ 5,000 TO $ 14,999 11.51% 10.74%
UNDER $ 5,000 1.83% 2.01%
1997 EST. AVERAGE HH INCOME $59,351 $60,037
1997 EST. MEDIAN HH INCOME $43,021 $44,327
1997 EST. PER CAPITA INCOME $22,611 $23,188
<PAGE>
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LEGAL DESCRIPTION
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<PAGE>
LEGAL DESCRIPTION
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TICOR TITLE INSURANCE COMPANY
- --------------------------------------------------------------------------------
SCHEDULE A -- CONTINUED
- --------------------------------------------------------------------------------
Policy No.: 943092--15
- --------------------------------------------------------------------------------
EXHIBIT A -- LEGAL DESCRIPTION
PARCEL 1:
ALL THAT PORTION OF LOT 4 IN BLOCK 33 OF THE SUBDIVISION OF THE "S" TRACT OF
RACHO EL CAJON, IN THE COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO
MAP THEREOF RECORDED IN BOOK 170, PAGE 71 OF DEED, RECORDS OF SAN DIEGO COUNTY.
LYING SOUTHEASTERLY OF THE SOUTHEASTERLY BOUNDARY OF RECORD OF SURVEY MAP NO.
1339, FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY, SEPTEMBER
6, 1946.
EXCEPTING FROM THE ABOVE DESCRIBED PROPERTY THAT PORTION LYING WITHIN CALIFORNIA
STATE HIGHWAY VII-SD-12-C AS DESCRIBED IN DEED TO THE STATE OF CALIFORNIA
RECORDED FEBRUARY 11, 1932 IN BOOK 71, PAGE 446 OF OFFICIAL RECORDS.
ALSO EXCEPTING FROM SAID LOT 4 THAT PORTION DESCRIBED AS FOLLOWS:
COMMENCING AT THE MOST SOUTHERLY CORNER OF SAID RECORD OF SURVEY MAP NO. 1339;
THENCE ALONG THE BOUNDARY OF SAID RECORD OF SURVEY MAP NO. 1339; NORTH 21' 01'
13" EAST, 224.21 FEET (RECORD EQUALS NORTH 20(DEGREE) 59' 20" EAST, 224.39 FEET)
TO A CORNER THEREIN AND THE TRUE POINT OF BEGINNING; THENCE CONTINUING ALONG THE
BOUNDARY OF SAID RECORD OF SURVEY MAP NO. 1339 AS FOLLOWS: NORTH 64(DEGREE) 44'
06" WEST, 249.93 FEET (RECORD EQUALS NORTH 64(DEGREE) 51' 20" WEST, 249.55
FEET); NORTH 27(DEGREE) 16' 03" EAST (RECORD EQUALS NORTH 27(DEGREE) 16' 40"
EAST), 20.00 FEET TO THE WESTERLY TERMINUS OF A 99.91 FOOT RADIUS CURVE, THE
CENTER OF WHICH BEARS NORTH 27(DEGREE) 16' 03" EAST (RECORD EQUALS NORTH
27(DEGREE) 16' 40" EAST) FROM SAID POINT AND NORTHEASTERLY AND NORTHERLY ALONG
THE ARC OF SAID CURVE THROUGH A CENTRAL ANGLE OF 109(DEGREE) 34' 28" A DISTANCE
OF 191.07 FEET TO A POINT, A RADIAL LINE OF SAID CURVE BEARS SOUTH 82(DEGREE)
18' 25" EAST TO SAID POINT; THENCE LEAVING SAID BOUNDARY SOUTH 64(DEGREE) 44'
06" EAST, 260.49 FEET; THENCE SOUTH 25(DEGREE) 15' 54" WEST, 150.00 FEET TO A
LINE WHICH BEARS SOUTH 64(DEGREE) 44' 06" EAST FROM THE TRUE POINT OF BEGINNING;
THENCE NORTH 64(DEGREE) 44' 06" EAST FROM THE TRUE POINT OF BEGINNING; THENCE
NORTH 64(DEGREE) 44' 06" WEST, 110.00 FEET TO THE TRUE POINT OF BEGINNING.
PARCEL 2:
AN EASEMENT FOR THE INSTALLATION, ERECTION AND MAINTENANCE OF A COMMUNITY
TELEVISION ANTENNA AND THE CONDUITS AND APPURTENANCES THEREOF OVER, UNDER, UPON
AND ACROSS THE NORTHEASTERLY 10.00 FEET OF THAT PORTION OF LOT 4 IN BLOCK 33 OF
THE SUBDIVISION OF THE "S" TRACT OF RANCHO EL CAJON, IN THE COUNTY OF SAN DIEGO,
STATE OF CALIFORNIA, ACCORDING TO MAP THEREOF RECORDED IN BOOK 170, PAGE 71 OF
DEEDS, RECORDS OF SAN DIEGO COUNTY, DESCRIBED AS FOLLOWS:
COMMENCING AT THE MOST SOUTHERLY CORNER OF RECORD OF SURVEY MAP NO. 1339, FILED
IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY, SEPTEMBER 6, 1946;
THENCE ALONG THE BOUNDARY OF SAID RECORD OF SURVEY MAP NO. 1339, NORTH
21(DEGREE) 01' 13" EAST, 224.21 FEET (RECORD EQUALS NORTH 20(DEGREE) 59' 20"
EAST, 224.39 FEET) TO A CORNER THEREIN AND THE TRUE
EXHIBIT A -- LEGAL CONTINUED
POINT OF BEGINNING; THENCE CONTINUING ALONG SAID BOUNDARY NORTH 64(DEGREE) 44'
06" WEST (RECORD EQUALS NORTH 64(DEGREE) 51' 20" WEST) 191.87 FEET TO AN ANGLE
POINT IN THE BOUNDARY OF LAND DESCRIBED IN DEED TO WILBUR H. LANE, ET UX,
RECORDED JANUARY 18, 1951 IN BOOK 3936, PAGE 364 OF OFFICIAL RECORDS AND A POINT
HEREIN DESIGNATED POINT "A"; THENCE CONTINUING ALONG THE BOUNDARY OF SAID RECORD
OF SURVEY MAP NO. 1339 AS FOLLOWS: NORTH 64(DEGREE) 44' 06" WEST, 58.06 FEET
(RECORD NORTH 64(DEGREE) 51' 20" WEST, 57.68 FEET) TO AN ANGLE POINT THEREIN;
NORTH 27(DEGREE) 16' 03" EAST (RECORD EQUALS NORTH 27(DEGREE) 16' 40" EAST),
20.00 FEET TO THE WESTERLY TERMINUS OF A 99.91 FOOT RADIUS CURVE THE CENTER OF
WHICH BEARS NORTH 27(DEGREE) 16' 03" EAST (RECORD EQUALS NORTH 27(DEGREE) 16'
40" EAST) FROM SAID POINT AND NORTHEASTERLY AND NORTHERLY ALONG THE ARC OF SAID
CURVE THROUGH A CENTRAL ANGLE OF 109(DEGREE) 34' 28" A DISTANCE OF 191.07 FEET
TO A POINT A RADIAL LINE OF SAID CURVE BEARS SOUTH 82(DEGREE) 18' 25" EAST TO
SAID POINT; THENCE LEAVING SAID BOUNDARY SOUTH 64(DEGREE) 44' 06" EAST, 260.49
FEET; THENCE SOUTH 25(DEGREE) 15' 54" WEST, 150.00 FEET TO A LINE WHICH BEARS
SOUTH 64(DEGREE) 44' 06" EAST FROM THE TRUE POINT OF BEGINNING; THENCE NORTH
64(DEGREE) 44' 06" WEST, 110.00 FEET TO THE TRUE POINT OF BEGINNING.
EXCEPTING THEREFROM THAT PORTION LYING WESTERLY OF A LINE WHICH BEARS NORTH
01(DEGREE) 03' 27" EAST (RECORD EQUALS NORTH 01(DEGREE) 26' 40" EAST) FROM SAID
POINT "A", SAID LINE BEING A PORTION OF THE BOUNDARY OF SAID LANE'S LAND.
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QUALIFICATIONS OF APPRAISERS
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<PAGE>
STATEMENT OF QUALIFICATIONS
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NANCY D. PIEKOS
Real Estate Experience
Ms. Piekos has been active in the appraisal of real estate since 1993. The types
of properties appraised include office buildings, industrial buildings,
automotive dealerships, vacant land, and manufactured housing communities.
Education
Bachelor of Arts in Urban Planing from the University of Illinois,
Urbana-Champaign, Illinois, 1993.
Real Estate Education
The following courses have been completed through the Appraisal Institute:
Appraisal Procedures
Principles of Appraisal
Residential Case Studies
Standards of Professional Practice
License
Real Estate Salesperson - State of Illinois
Current Position
Associate Appraiser, Cushman & Wakefield of Illinois, Inc., Valuation Advisory
Services
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
MICHAEL J. SCHAEFFER
Real Estate Experience
Mr. Schaeffer has been active in the appraisal of real estate since 1983.
Appraisal experience includes the valuation of income-producing real estate in
the Chicago area as well as many major cities and small towns throughout the
Midwest. The types of properties appraised include office buildings, regional
malls, shopping centers, country clubs, apartment complexes, subsidized housing
units, industrial buildings, nursing homes, retirement communities, automotive
dealerships, department stores, vacant land, proposed income-producing
properties, and various special purpose properties. Mr. Schaeffer also has had
over 10 years of experience in new construction and renovation of commercial,
industrial, residential and specialized real estate properties.
Education
Bachelor of Arts, University of Cincinnati, Cincinnati, Ohio MBA Graduate Course
Work in Economics and Management, Xavier University, Cincinnati, Ohio
Real Estate Education
The following courses sponsored by the Appraisal Institute have been
successfully completed:
Real Estate Appraisal Principles 1A-1
Basic Valuation Procedures 1A-2
Standards of Professional Practice
Capitalization Theory and Techniques 1BA
Capitalization Theory and Techniques IBB
Advanced Applications 550
Report Writing & Valuation Analysis 540
Mr. Schaeffer has also attended numerous lectures and seminars sponsored by the
Appraisal Institute.
Mr. Schaeffer is currently a candidate for the MAI designation of the Appraisal
Institute, and has completed the educational and experience requirements for the
MAI designation.
Current Position
Director, Appraisal Services, Cushman & Wakefield, Inc., Chicago, Illinois
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
STANLEY R. DENNIS, JR., MAI
Real Estate Experience
Director, Manager, Cushman & Wakefield Valuation Advisory Services, Chicago,
Illinois. Division is responsible for the appraisal and consultation function of
Cushman & Wakefield, Inc., a national full service real estate organization,
1989.
Vice President, Manager, Cushman & Wakefield Appraisal Services, Portland,
Oregon, 1983.
Principal, Stanley R. Dennis & Associates, Portland, Oregon, 1982.
Education
Portland State University, Portland, Oregon
Bachelor of Science Degree, 1977, Finance and Real Estate
Appraisal Institute
Course I-A Fundamentals and Principles of Real Estate Appraisal
Course I-B Capitalization Theory and Techniques
Course II-I Case Studies in Real Estate Valuation
Course II-2 Valuation Analysis and Report Writing
Course II-3 Standards of Professional Practice
Course IV Litigation/Condemnation Valuation
Course VI Investment Analysis
Course VIII Residential Case Studies
Course X Market Analysis
Seminar Feasibility Analysis and Highest and Best Use
Seminar Discounted Cash Flow Analysis
Seminar Cash Equivalency
Seminar Subdivision Analysis
Seminar Rates, Ratios and Reasonableness
Professional Affiliations
American Institute of Real Estate Appraisers, Member (Designation #6754)
Building Owners and Managers Association (BOMA)
National Association of Corporate Real Estate Executives (NACORE)
<PAGE>
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MARKET STUDY OF REAL PROPERTY
Eldorado Village
2505 East Bay Drive
Largo, Pinellas County, Florida
================================================================================
As of December 2, 1997
Prepared For:
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Prepared By:
Cushman & Wakefield of Illinois, Inc.
Valuation Advisory Services
455 North Cityfront Plaza Drive, Suite 2800
Chicago, Illinois 60611-5555
CUSHMAN &
WAKEFIELD(R)
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[Letterhead of Cushman & Wakefield of Illinois, Inc.]
December 8, 1997
Mr. Edward J. Welch
Director
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Re: Market Study of Real Property
Eldorado Village
2505 East Bay Drive
Largo, Pinellas County, Florida 49201
Dear Mr. Welch:
In fulfillment of our agreement as outlined in the Letter of Engagement,
Cushman & Wakefield of Illinois, Inc., is pleased to transmit our market study
and consulting report evaluating the above referenced real property.
As specified in the Letter of Engagement, our market study and consulting
report is qualified by certain assumptions, limiting conditions, certifications,
and definitions, which are set forth in the report.
This consulting report was prepared for the Client, and it is intended
only for the specified use of the Client. It may not be distributed to or relied
upon by other persons or entities without written permission of Cushman &
Wakefield, Inc.
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the above
referenced real property, as of the date of our property inspection. The
function of the report is to assist the client, in evaluating the property for
underwriting and rating purposes.
<PAGE>
Mr. Edward J. Welch - 2 - December 8, 1997
This market study and consulting report was prepared in conformity with
the requirements of the Code of Ethics and Standards of Professional Appraisal
Practice of the Appraisal Institute and the Uniform Standards of Professional
Practice (USPAP) adopted by the Appraisal Standards Board of the Appraisal
Foundation.
This letter is invalid if detached from the report, which contains the
text, exhibits, and the Addenda.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF ILLINOIS, INC.
/s/ Jennifer L. Estrella
Jennifer L. Estrella
Associate Appraiser
/s/ Michael J. Schaeffer
Michael J. Schaeffer
Director
/s/ Stanley R. Dennis, Jr.
Stanley R. Dennis, Jr., MAI
Director, Manager
CUSHMAN &
WAKEFIELD(R)
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SUMMARY OF SALIENT FACTS
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Property Name: Eldorado Village
Location: 2505 East Bay Drive Largo, Pinellas
County, Florida
Assessor's Parcel Number: Based on information provided by the
client, the subject property is identified
by Assessor's Parcel Number
36-29-15-70236-300-0700.
Date of Inspection: The property was inspected December 2,
1997.
Ownership: The subject property is legally entitled
to Orangeland Vistas, an Illinois
Corporation, and MHC Financing Limited
Partnership, as beneficiary.
Land Area: Based on information provided by the
property's legal plat of survey, the
subject property contains approximately
25.13 acres of land area, or 1,094,663
square feet.
Zoning: Based on information provided by the City
of Largo, the subject property is zoned
R-U, Residential Urban. The subject
property is a legal, non-conforming use.
Improvements
Type: A manufactured housing community.
Year Built: The subject property was originally
developed in approximately 1969.
Size: The subject property consists of a
227-site manufactured housing community.
Condition: At the time of inspection, the subject
property was in good condition.
Property Rating: Five Star manufactured home community.
Special Assumptions: 1. Information regarding the subject
property, including its physical
characteristics, was provided to us by the
client and the on-site manager, and is
assumed to be accurate.
CUSHMAN &
WAKEFIELD(R)
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Summary of Salient Facts
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2. The existence of potentially hazardous
or toxic materials, which may be located
on or about the property, was not
considered in our evaluation. The
appraisers are not qualified to detect
such substances, and Cushman & Wakefield
urges that an expert in this field be
employed to determine the existence, if
any, of hazardous materials located on or
about the site.
3. Our market and consulting report
regarding the subject assumes the subject
property, as presently improved,
represents its highest and best use.
4. It is unknown to the appraiser if the
subject property complies with the
Americans with Disabilities Act (ADA). We
recommend a qualified specialist in the
final determination regarding any ADA
compliance deficiencies that may be
present at the subject property.
5. Please refer to the complete list of
assumptions and limiting conditions
included at the end of this report.
CUSHMAN &
WAKEFIELD(R)
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<PAGE>
TABLE OF CONTENTS
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Page
PHOTOGRAPHS OF SUBJECT PROPERTY................................................1
INTRODUCTION...................................................................5
Identification of Property.................................................5
Property Ownership and Recent History......................................5
Purpose and Function of the Market Study and Consulting Assignment.........5
Scope of the Market Study and Consulting Assignment........................5
Date of Property Inspection................................................5
Definitions and Other Pertinent Terms......................................5
REGIONAL ANALYSIS..............................................................8
NEIGHBORHOOD ANALYSIS.........................................................16
MARKET ANALYSIS...............................................................18
National Overview.........................................................18
Competition...............................................................25
Comparable Manufactured Housing Community Sales...........................29
Demographic Trends........................................................31
Expense Analysis..........................................................32
Market Supply and Demand..................................................32
Conclusion................................................................33
PROPERTY DESCRIPTION..........................................................35
Site Description..........................................................35
Improvements Description..................................................35
REAL PROPERTY TAXES AND ASSESSMENTS...........................................36
ZONING........................................................................36
CONCLUSION....................................................................37
ASSUMPTIONS AND LIMITING CONDITIONS...........................................38
CERTIFICATION.................................................................40
ADDENDA.......................................................................41
Pop-Fact Sheets
Legal Description
Qualifications of Appraisers
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PHOTOGRAPHS OF SUBJECT PROPERTY
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[PHOTO OMITTED]
Front Entrance of the Subject Property
[PHOTO OMITTED]
Exterior View of the Clubhouse
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Photographs of Subject Property
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[PHOTO OMITTED]
Interior View of the Clubhouse
[PHOTO OMITTED]
View of Lake at the Subject Property
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Photographs of Subject Property
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[PHOTO OMITTED]
Typical Interior View of the Subject Park
[PHOTO OMITTED]
Typical Interior View of the Subject Park
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Photographs of Subject Property
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[PHOTO OMITTED]
Street Scene Facing East Along East Bay Drive
[PHOTO OMITTED]
Street Scene Facing West Along East Bay Drive
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INTRODUCTION
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Identification of Property
The subject property consists of a 227-site manufactured housing
community, situated on approximately 25.13 acres of land area, located on the
east side of Starkey Road (known as Keene Road, north of East Bay Drive),
between East Bay Drive and Taylor Avenue, in the city of Largo, Pinellas County,
Florida. The property's street address is 2505 East Bay Drive. The property was
constructed in 1969, and was 100.0 percent occupied at the time of inspection.
Property Ownership and Recent History
The subject property is currently entitled to Orangeland Vistas, an
Illinois corporation, and MHC Financing Limited Partnership, as beneficiary. The
subject property was originally developed in 1969, with 227 manufactured housing
sites.
Purpose and Function of the Market Study and Consulting Assignment
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the subject
property, as of the date of property inspection. The function of the consulting
report is to assist the client in evaluating the property for underwriting and
rating purposes.
Scope of the Market Study and Consulting Assignment
In the process of preparing this report, we inspected the property,
interviewed the on-site manager, conducted market research into asking rental
rates for comparable properties, conducted market investigations, and
ascertained sales prices of comparable properties. Additionally, we conducted
market research and evaluated demographic and economic trends; and, the market
position and rating of the subject property.
Date of Property Inspection
The property was inspected December 2, 1997.
Definitions and Other Pertinent Terms
Definitions of pertinent terms taken from the Dictionary of Real Estate
Appraisal, Third Edition (1993), published by the Appraisal Institute, is as
follows:
Market Rent
The rental income that a property would most probably command on the open
market; indicated by current rents paid and asked for comparable space as
of the date of the appraisal.
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Introduction
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Evaluation
Evaluation is a study of the nature, quality, or utility of a parcel of
real estate or interest in, or aspects of, real property, in which a value
estimate is not necessarily required.
Market Study
A macroeconomic analysis that examines the general market conditions of
supply, demand, and pricing or the demographics of demand for a specific
area or property type.
Legal Description
The subject property is located along the east side of Starkey Road,
between East Bay Drive and Taylor Avenue , in the city of Largo, Pinellas
County, Florida. The street address of the subject property is 2505 East Bay
Drive, Largo, Florida. The property is identified by tax parcel number
36-29-15-70236-300-0700, according to information provided by the client. Due to
the lengthy metes and bounds legal description, the subject property's legal
description is presented in the Addenda of this report, and reference is made
thereto.
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LOCATION MAP
[MAP OMITTED]
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REGIONAL ANALYSIS
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The subject property is located in the West Central Region of Florida.
West Central Florida, as the name suggests, is centrally located along Florida's
west coast. It is comprised primarily of a nine-county area anchored by the
Tampa-St. Petersburg-Clearwater Metropolitan Statistical Area (MSA). According
to Sales and Marketing Management's 1997 Survey of Buying Power, the 1996
estimated population of the nine county West Central Florida region is
3,397,000. The Tampa-St. Petersburg-Clearwater MSA has a 1996 estimated
population of 2,240,200.
Overview
The Tampa-St. Petersburg-Clearwater MSA (hereinafter referred to as the
Tampa MSA) includes Hillsborough, Pinellas, Pasco, and Hernando Counties.
Florida's economy has expanded rapidly during the past decade due to a
favorable business climate rated as one of the best in the country. Tourism and
agriculture have traditionally been the largest industries in Florida, but the
expansion of the nation's space program during the 1960's led to growth in the
high technology fields. Like many areas of the nation, the service sector
experienced dramatic growth in the 1980's. The Tampa MSA is representative of
Florida as a whole, with a diversified economy including tourism, agriculture,
high technology industries, and a large service sector.
Population and housing growth have been influenced by Florida's relatively
low cost of living, and business expansion has continued to provide job
opportunities for skilled workers from economically stagnating economies in the
north. According to the Bureau of Economic and Business Research at the
University of Florida, the statewide unemployment rate as of September, 1997 was
5.2 percent.
A legacy of the state's unprecedented 1980s economic growth has been the
inability of infrastructure in many areas, including Tampa Bay, to keep pace
with development. Because Florida does not have a state income tax, and the
overall tax base is lower than in most other states, problems such as inadequate
highways, municipal services, land use planning, and environmental quality have
received considerable attention. To overcome this, the state is cooperating with
local governments to institute growth management and planning. Impact fees on
new developments, for example, continue to increase while gasoline taxes and
new-resident automobile taxes are earmarked for highway improvement. This places
more of the burden for funding capital improvement projects on developers and
consumers, while avoiding the need to impose state income taxes.
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Regional Analysis
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Population
West Central Florida consists of a nine county area centered around Tampa
Bay. The 1996 estimated population of the West Central Florida region is
3,397,000. The following chart illustrates the historic and estimated future
population growth by county.
================================================================================
PROJECTED
COUNTY 1980 1990 1995 2000
================================================================================
Hillsborough 646,960 859,329 883,202 930,002
- --------------------------------------------------------------------------------
Pinellas 728,531 839,912 870,296 888,059
- --------------------------------------------------------------------------------
Pasco 193,643 281,619 303,692 325,174
- --------------------------------------------------------------------------------
Polk 321,652 413,544 435,619 464,408
- --------------------------------------------------------------------------------
Manatee 148,442 195,328 229,029 245,525
- --------------------------------------------------------------------------------
Sarasota 202,251 271,714 296,283 313,914
- --------------------------------------------------------------------------------
Hernando 44,469 106,770 120,246 138,465
- --------------------------------------------------------------------------------
Citrus 54,703 99,980 106,569 119,006
- --------------------------------------------------------------------------------
Sumter 24,272 32,895 33,837 35,991
----------- ---------- ----------- -----------
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TOTAL 2,364,923 3,101,091 3,278,773 3,460,544
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Source: Source Book of County Demographics
As indicated on the preceding chart, the population of west central
Florida increased during the 1980's by 736,168 residents, indicating an annual
compound growth rate of nearly 2.75 percent. This rate of growth has slowed
since 1990 due to a downturn in the national and local economy. The projections
for population growth for the year 2000 indicate continuing increases in
population for all 9 counties.
Governmental and Political Characteristics
On October 27, 1994, Hillsborough County adopted a comprehensive land use
plan known as the "2015 Land Use Plan". The planning effort was mandated by the
Comprehensive Planning Act passed by the Florida Legislature in 1975. The plan
was intended to provide for infrastructure planning and to guide growth and
development in an orderly manner, and has been modified to accommodate new
development patterns.
Recently, Hillsborough County and the city of Tampa revised their zoning
ordinances in the context of objectives set forth in the land use plan, which
also recently underwent major
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Regional Analysis
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revisions. These changes were part of an attempt by the Hillsborough County
City-County Planning Commission, the Hillsborough County Department of
Development Coordination, and other local planning and zoning agencies to more
effectively plan for new growth and development and avoid many of the problems
experienced in recent years.
The state of Florida and its municipalities do not levy personal income
taxes. Property taxes in the Tampa Bay area are typical of most urban areas in
Florida. Continued commercial and industrial development has kept millage rates
levied by Hillsborough County relatively low, although assessed valuations of
commercial properties have recently increased. This has resulted in a moderate
property tax burden for residential property owners, with further relief
provided by homestead exemptions of the first $25,000 of assessed valuations on
primary residences. However, property taxes are anticipated to increase in
future years to help fund infrastructure costs.
Geographic and Physical Characteristics
The Tampa area has long been a desirable place in which to vacation and
retire. Its warm, semitropical climate and location on Tampa Bay near the Gulf
of Mexico, coupled with new industry and new development, continue to attract
new residents.
Because of its strategic geographical location and transportation network,
Tampa is the manufacturing and distribution hub of Florida. The port of Tampa is
the largest in the state of Florida, the nation's 7th largest in size, and 3rd
largest in tonnage. It represents the largest deep-water port to the Panama
Canal and serves as a major distribution and trade center of Florida and the
southern United States. Its 50 terminals handle phosphate, fertilizer, chemical
and dry bulk products, grain, cement, coal, steel, citrus products, bananas,
petroleum products, and liquid sulfur.
In addition to the manufacturing base in Tampa, west central Florida has
some of the most pristine beaches in the state. The coastal counties in the
region, primarily Sarasota, Manatee and Pinellas, rely heavily on their beaches
to attract tourists from the United States, Canada, and Europe. Pinellas County
in particular has been very successful attracting British, Dutch and German
tourists who previously vacationed in southeast Florida.
The eastern counties in the region are mostly flat, with rich soils
suitable for citrus groves and cattle grazing. Polk County is one of the top
five counties in the state for citrus crops. Other areas of Polk County are
heavily mined for phosphate. Sumter, Citrus, Hernando and Pasco Counties were
all heavily planted with citrus from 1940 through the 1970's but increasingly
cold weather destroyed most of the citrus in those counties. Most large scale
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Regional Analysis
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citrus grove operators recognize State Road 60 as the northernmost boundary for
citrus production. This arbitrary boundary indicates southern Polk County,
Manatee County, and Sarasota County are more suitable for citrus due to the
likelihood of cold weather to the north.
Transportation
Major interstate highways through the region allow unrestricted traffic
flow to other areas of the state. The two interstate highways in the region are
Interstate 75 and Interstate 4.
Interstate 75 extends from Miami westward to Naples. From Naples, it
extends northward along the west coast of Florida, continuing through the lower
peninsula of Michigan. Interstate 75 was completed through west central Florida
in 1986 and its completion was a tremendous catalyst for growth along its path,
particularly in Hillsborough County, Manatee County, and Sarasota County. The
growth consisted of a variety of developments including residential
subdivisions, industrial parks, and office parks.
Interstate 4 extends eastward from Tampa to Daytona Beach on Florida's
east coast. It is very heavily traveled, especially during the winter and spring
tourist seasons because it connects the Tampa Bay area and Orlando, two primary
tourist destinations in the state. The intersection of Interstate 4 and
Interstate 75 is approximately six miles east of downtown Tampa and the Port of
Tampa. The area around this intersection is heavily developed with office and
industrial parks where tenants need proximity to the interstate highway system.
The Veterans Expressway was completed in October 1995 and the proposed
construction of the Suncoast Parkway should alleviate a great deal of the
congestion in and around north Tampa. The Suncoast Parkway is proposed to
connect north Tampa (via an interchange on the Veterans Expressway) with an
undetermined point in Citrus, Sumter or Levy County. The intent is to provide a
highway to the western (and most populous) areas of west central Florida.
Tampa International Airport (TIA) is one of the world's most modern
airports. It is centrally located in northwest Hillsborough County to serve
Hillsborough, Pinellas, Pasco, Hernando, Citrus, Sumter, and western Polk
Counties. Situated on 3,000 acres, the airport is centrally located near
interstate 275 and is easily accessible from State Road 60. To serve 15 domestic
and international airlines carrying nearly 10,000,000 passengers a year, it has
five levels of short-term parking, an air cargo terminal, aircraft maintenance
buildings, a general aviation terminal, two-way shuttle systems to air-side
terminals, an Airport Marriot Hotel, and other facilities.
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Regional Analysis
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Social and Cultural Characteristics
The 9 county west central Florida region is fairly disparate in terms of
population age distribution. Hillsborough County has the most industrial
orientation and the median age (33.7) is the lowest in the region. Like the
nation as a whole, the population of Hillsborough County is increasing.
Conversely, Pasco County has traditionally been a retirement area, and it has
the highest median age in the region (51.2). Due to its proximity to employment
centers in Hillsborough and Pinellas County, many families are moving into the
county.
The relative prosperity of the 1980's increased demand for upscale housing
in the region. In Pinellas and Hillsborough Counties the result was the
development of more golf course communities like Cheval, Tampa Palms, and
Feather Sound. In Pasco and Hernando Counties, more modest, retiree-oriented
communities like Beacon Woods and Glen Lakes were developed. Some of these large
scale communities over-invested in "up front" infrastructure and they had
difficulty servicing their debt as the housing market softened over the past few
years. However, these large scale golf course communities have been the first
residential developments to rebound as single family home sales improved
significantly in the last two years.
Tampa is not as tourist oriented as Orlando or several of the beach
communities in Pinellas County, though it is conveniently located between the
Gulf Beaches and Walt Disney World. However, Busch Gardens which is located on
Busch Boulevard in northeast Tampa is the second largest tourist attraction in
Florida. Several major golf and tennis resorts such as Avila, Cheval, and
Saddlebrook are also located in the vicinity, and several major-league baseball
franchises relocate to the area for spring training.
Houlihan Stadium, formerly known as Tampa Stadium, is located at the
southeast corner of North Dale Mabry Highway and Dr. Martin Luther King
Boulevard. It is home of the Tampa Bay Buccaneers, who began their 22nd season
in the fall of 1997. The home of the bay area's National Hockey League
franchise, "The Lightnings," is the Ice Palace. The Ice Palace, completed in
1996, is a $110,000,000, 21,000-seat hockey arena, located in the central
business district of Tampa.
In March 1995, Tampa Bay received one of two major-league baseball
franchises. The baseball team is known as the Tampa Bay Devil Rays and plays in
St. Petersburg Tropicana Field in 1998. In addition, the Tampa Bay Mutiny, a
major-league soccer team, began playing at Houlihan Stadium in 1996.
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Regional Analysis
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The downtown waterfront will see further major developments in years to
come. Around the Tampa Port Authority's recently developed 21-acre cruise ship
terminal, investors have confirmed plans for additional mixed-use commercial
developments. The waterfront area between Harbour Island and Ybor City is
projected to become the nucleus of the revitalization of Tampa's downtown area
over the next five years.
Recreation
Hillsborough County contains numerous parks, fishing camps, marinas,
campgrounds, and recreational facilities to appeal to the outdoor sportsman. In
addition, both public and private golf courses and tennis courts abound
throughout the county. Boating of all types takes place in Tampa Bay, with easy
access to the Gulf of Mexico.
Economic Characteristics
The most recent economic data indicate that Florida and West Central
Florida are benefiting from the economic growth in the national economy.
Florida's unemployment rate was 5.2 percent in September 1997. The largest
populated counties in West Central Florida, Hillsborough and Pinellas counties,
each had a September, 1997 unemployment rate of 3.6 percent. The major employers
in Hillsborough County are presented in the chart below.
================================================================================
Major Employers in Hillsborough County
- --------------------------------------------------------------------------------
Firm Business Employees
- --------------------------------------------------------------------------------
Hillsborough County School System Public education 22,000
- --------------------------------------------------------------------------------
GTE Telecommunications 10,155
- --------------------------------------------------------------------------------
MacDill Air Force Base Military 8,700
- --------------------------------------------------------------------------------
Hillsborough County Government Public services 7,500
- --------------------------------------------------------------------------------
U.S. Postal Service Mail delivery 6,573
- --------------------------------------------------------------------------------
Tampa International Airport Airport 4,899
- --------------------------------------------------------------------------------
City of Tampa City government 4,347
- --------------------------------------------------------------------------------
University of South Florida Higher education 4,202
- --------------------------------------------------------------------------------
Tampa General Hospital Hospital 4,200
- --------------------------------------------------------------------------------
St. Joseph Hospital Hospital 3,800
- --------------------------------------------------------------------------------
Humana Tampa Bay Hospitals, managed care 3,500
- --------------------------------------------------------------------------------
Tampa Electric Company Utility 3,200
- --------------------------------------------------------------------------------
NationsBank Financial institution 3,005
- --------------------------------------------------------------------------------
James A. Haley Veterans Hospital Hospital 2,480
- --------------------------------------------------------------------------------
Busch Entertainment Corporation Theme park 2,200
================================================================================
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<PAGE>
Regional Analysis
================================================================================
Employment in the southeast is expected to grow faster than the national
average through the year 2000, and Florida is expected to have the greatest
increase in employment of all of the eight southeastern states. America
Demographics, a leading local economic forecaster, projects a 27.6 percent
employment growth rate in the next decade for the Tampa Bay area, while in 1985
their 10-year projection was more optimistic, 41.7 percent.
The chart below illustrates the dispersion of median household income in
the nine county region. Not surprisingly, the more urban counties, Hillsborough,
Pinellas and Sarasota, have a higher percentage of households with income in
excess of $50,000 annually. Sarasota County, a traditionally high end retiree
area, is the highest with 18.8 percent of the households earning over $50,000.
The more rural counties have smaller populations with a higher percentage of
households with annual income less than $25,000.
================================================================================
DISTRIBUTION OF 1995 HOUSEHOLDS BY INCOME (%)
================================================================================
Less $15,000 $25,000 $50,000 $100,000 $150,000
1995 # than to to to to or
COUNTY Household $15,000 $24,999 $49,999 $99,999 $149,999 More
================================================================================
Hillsborough 343,118 18.1 16.5 35.3 24.4 4.1 1.7
- --------------------------------------------------------------------------------
Pinellas 387,842 18.7 18.9 35.4 20.7 4.1 2.1
- --------------------------------------------------------------------------------
Pasco 130,302 26.2 24.2 35.4 12.7 1.1 0.4
- --------------------------------------------------------------------------------
Polk 155,969 21.0 19.4 37.2 18.7 2.6 1.1
- --------------------------------------------------------------------------------
Manatee 98,182 17.5 19.9 37.5 20.4 3.3 1.4
- --------------------------------------------------------------------------------
Sarasota 133,384 15.4 17.8 37.0 22.5 4.6 2.8
- --------------------------------------------------------------------------------
Hernando 50,284 22.2 25.4 36.9 13.6 1.3 0.5
- --------------------------------------------------------------------------------
Citrus 46,198 29.2 25.3 31.1 12.7 1.2 0.5
- --------------------------------------------------------------------------------
Sumter 13,142 31.0 21.9 33.5 12.0 1.0 0.6
================================================================================
Summary and Conclusions
In conclusion, the long term outlook for the region is positive. Previous
declines in population growth and employment growth rates are giving way to job
growth and the consequent encouragement of immigration of all type of labor.
This puts into perspective the recessionary conditions of the last two to three
years. In summary, the Tampa Bay economy is considered well balanced and should
be able to sustain healthy levels of growth and expansion into the foreseeable
future.
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<PAGE>
NEIGHBORHOOD MAP
[MAP OMITTED]
<PAGE>
NEIGHBORHOOD ANALYSIS
================================================================================
The subject property is situated along the east side of Starkey Road,
between East Bay Drive and Taylor Avenue, in the city of Largo, Florida. The
subject's immediate neighborhood is bordered by Alternate State Highway 19 to
the west, Belleair Road to the north, State Highway 19 to the east and Ulmerton
Road to the south. Development in the immediate neighborhood of the subject
property consists of manufactured housing communities, single-family housing,
multi-family housing, and commercial development along the major thoroughfares.
Regional access to the subject property is excellent via East Bay Drive,
which provides access to State Highway 19. State Highway 19 runs north and south
in the St. Petersburg-Tampa Bay area and is located two miles east of the
subject property. Major thoroughfares in the immediate neighborhood of the
subject property provide excellent neighborhood access to the subject property.
Major thoroughfares in the subject's immediate neighborhood include: Starkey
Road, Ulmterton Road, Belcher Road, and Taylor Avenue. The subject property
enjoys excellent visibility along Starkey Road, which runs north and south in
the St. Petersburg-Tampa area.
Development in the immediate neighborhood of the subject property consists
of manufactured housing communities, single-family housing, multi-family
housing, and commercial development along the major thoroughfares. Multi-family
housing in the neighborhood of the subject property includes: Forest Brook
Apartments, East Bay Green Apartments, Willowcreek Townhomes, and the Homestead
Retirement Community. Businesses in the immediate neighborhood of the subject
property include: Walgreen's, McDonald's, Texaco, AutoZone, Po Folks Restaurant,
and Largo Veterinary Hospital. There are also small strip-commercial shopping
centers in the immediate neighborhood of the subject property. Manufactured
housing communities in the immediate neighborhood of the subject property
include Island in the Sun, and East Bay Oaks.
According to the City of Largo, Department of Community Development, the
December 1995 population of the City of Largo was 67,465. The median age of the
Largo population was 47 years. The largest age group in Largo, approximately
34.1 percent of the total population, included those individuals between 18 to
44 years of age. The next largest age group were those individuals 65 years of
age or older, approximately 32.3 percent of the total population.
According to housing statistics in December 1996, the largest number of
housing units consisted of multi-family housing, approximately 34.9 percent of
total housing. Single-family
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Neighborhood Analysis
================================================================================
housing, the next largest housing unit group, comprised approximately 31.2
percent of total housing. Manufactured housing accounted for 29.7 percent of
total housing in Largo. In 1995, the median housing price for existing and new
housing in Largo was $83,491, and $88,679, respectively. Average apartment rents
for efficiency and one to three bedroom units ranged from $405 to $723 per
month.
The 1996 median household income (adjusted to family size) was $39,400.
According to the 1990 Census, approximately 77.1 percent of the Largo population
completed high school education, and 13.8 percent completed four years of
college or higher.
Total land area in the City of Largo is approximately 14.9 square miles.
The majority of developed land uses are residential, followed by commercial land
uses. Approximately 1,400 acres in Largo are designated as public lands.
The largest employers in Largo are presented in the table below.
<TABLE>
<CAPTION>
========================================================================================
1997 LARGEST EMPLOYERS IN THE CITY OF LARG0, PINELLAS COUNTY, FLORIDA
- ----------------------------------------------------------------------------------------
COMPANY TYPE NO. OF EMPLOYEES
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 Pinellas County School Board Public Education 15,497
- ----------------------------------------------------------------------------------------
2 AT & T Paradyne Data Communications 1,000
- ----------------------------------------------------------------------------------------
3 Val-Pak Coupon Manufacturing 847
- ----------------------------------------------------------------------------------------
4 Lockheed Martin Research and Development of 620
Electric Products
- ----------------------------------------------------------------------------------------
5 Linvatec Orthopedic Arthroscopy Equipment 580
- ----------------------------------------------------------------------------------------
Source: Greater Largo Chamber of Commerce
========================================================================================
</TABLE>
The subject property is situated in an area well suited for manufactured
housing development. Real estate values are anticipated to increase at a steady
pace. The economy in the area is anticipated to be good, with unemployment
steadily decreasing. The growth in population is anticipated to remain constant.
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MARKET ANALYSIS
================================================================================
National Overview
Reportedly, the largest property owners of manufactured housing
communities in the United States are: ROC Communities, headquartered in
Colorado; MHC, Inc., headquartered in Illinois; Ellenburg Capital, headquartered
in Oregon; Lautrec Ltd., headquartered in Michigan; Clayton Homes, headquartered
in Tennessee; Clayton Williams and Sherwood, headquartered in California;
Chateau Properties, Sun Communities and UNIPROP, headquartered in Michigan.
The following represents the top ten manufactured housing community firms,
as reported by GFA Management, as of 1997.
<TABLE>
<CAPTION>
=========================================================================================
1997 Firm Name State No. of Sites No. of Communities
Rank Owned/Managed Owned/Managed
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Sun Communities Michigan 30,295/0 84/0
- -----------------------------------------------------------------------------------------
2 ROC Communities Colorado 22,441/7,167 77/36
- -----------------------------------------------------------------------------------------
3 Manufactured Home Communities Illinois 27,349/838 69/3
- -----------------------------------------------------------------------------------------
4 Ellenburg Capital Florida 25,173/0 63/0
- -----------------------------------------------------------------------------------------
5 Lautrec Ltd. Michigan 22,652/0 58/0
- -----------------------------------------------------------------------------------------
6 Chateau Properties Michigan 20,003/0 47/0
- -----------------------------------------------------------------------------------------
7 Clayton Homes Tennessee 18,000/0 66/0
- -----------------------------------------------------------------------------------------
8 Clayton, Williams and Sherwood California 16,946/0 44/0
- -----------------------------------------------------------------------------------------
9 UNIPROP Michigan 14,931/0 40/0
- -----------------------------------------------------------------------------------------
10 The Bloch Organization Michigan 14,379/0 37/0
=========================================================================================
</TABLE>
According to the U.S. Census Bureau, more than 8,521,000 people were
living in manufactured housing communities as of 1990 compared to 3,838,678 in
1980. This represents an increase in manufactured housing community living of
approximately 122.0 percent over the last ten years. Over the last ten years,
there has been a steady increase in manufactured housing community development
across the country. Among the demographic factors which account for the increase
in manufactured housing community living are: decreasing household size, a
growing demand for smaller housing, as well as an alternative to the increasing
cost of housing. Nationally, the largest percentage of manufactured housing
communities are located in California, Michigan, Colorado, Florida, New York,
Minnesota, Indiana, Arizona, Ohio, and Wisconsin.
The manufactured home industry has dramatically changed over the last 20
years. Manufactured homes are now designed and constructed to accommodate
spacious and
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Market Analysis
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attractive living requirements. Today, approximately one out of sixteen families
live in manufactured housing units. The manufactured housing market share has
been growing steadily over the last 10 years. In 1990, 6.7 percent of Americans
lived in manufactured housing units, up from 2.9 percent compared to 1970,
according to the U.S. Census Bureau, which represents 12.0 to 14.0 percent of
all new housing built since the mid-1980's, according to the Manufactured
Housing Institute in Arlington, Virginia.
In 1990, the average cost of a manufactured housing unit was $27,800
compared to $149,000 for a new house (including land), according to the
Manufactured Housing Institute. This reflects a 28.0 percent increase in the
cost of manufactured housing since 1980 versus a 49.0 percent increase in
conventional housing. Industry experts estimate that a single-family home
selling for $150,000 would require an annual income of $52,671. To purchase a
$27,800 manufactured housing unit, only a $19,984 income level would be
required.
At Fleetwood Enterprises, the nation's largest manufacturer of
manufactured housing units, units may be purchased for up to $100,000, which
would include a three-bedroom, two-bath unit of 2,100 square feet, with vaulted
ceilings.
In 1990, approximately 10.0 percent of manufactured home owners lived in
units worth approximately $40,000, up from 4.0 percent compared to 1981,
according to a study conducted by Foremost Insurance Company in Grand Rapids,
Michigan. Also, according to the study, approximately 21.0 percent of the
manufactured housing households are occupied by people' 65 years of age or
older, slightly lower than the age group for conventional homes, as reported by
Foremost Insurance.
The demand for good quality institutional grade manufactured housing
communities has substantially increased over the last ten years. Manufactured
housing communities provide an affordable alternative to the increasing cost of
housing. Also, manufactured housing communities provide an alternative form of
living for the elderly and retirees, especially for those living on fixed
incomes.
Acquisitions of manufactured housing communities during 1993 and 1994 were
clearly dominated by Real Estate Investment Trusts. During 1994 and 1995
Manufactured Home Communities (MHC) and ROC communities lead the acquisition of
manufactured housing communities nationally. During 1996, Sun Communities
captured the lead and, together with ROC and MHC dominate the Real Estate
Investment Trust market.
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<PAGE>
Market Analysis
================================================================================
The following chart represents the largest Real Estate Investment Trusts,
from 1991 to 1996, as reported by GFA Management
================================================================================
HOME SITE GROWTH, DEVELOPMENT AMONG THE LARGEST
REAL ESTATE INVESTMENT TRUST (REITS)
- --------------------------------------------------------------------------------
Year ROC MHC Chateau Sun United Total Annual
Growth
- --------------------------------------------------------------------------------
1996 29,608 28,187 20,003 30,295 5,234 113,327 17.0%
- --------------------------------------------------------------------------------
1995 27,910 26,237 19,594 18,000 4,850 96,591 9.0%
- --------------------------------------------------------------------------------
1994 26,231 28,407 15,689 13,500 4,623 88,450 37.8%
- --------------------------------------------------------------------------------
1993 20,142 14,700 15,261 9,036 5,050 64,189 17.8%
- --------------------------------------------------------------------------------
1992 18,745 12,873 10,032 7,600 5,200 54,450 N/A
- --------------------------------------------------------------------------------
1991 9,030 13,079 9,759 N/R N/R N/A N/A
- --------------------------------------------------------------------------------
N/R = No report N/A = Not applicable
- --------------------------------------------------------------------------------
NOTE: The 113,327 sites counted for the top five REITs in 1996 make up 20
percent of the total sites surveyed in the 1997 Allen Report. These rental sites
are located in 339 communities, accounting for about 1 percent of some 50,000
existing manufactured housing communities nationwide. The community counts for
the five major REITs are: ROC (113), MHC (72), Chateau (47), Sun (84) and United
(23). The proportion of communities owned by each of the REITs compared to the
others is: ROC (33%), MHC (21%), Chateau (14%), Sun (25%) and United (7%).
================================================================================
Manufactured Home Communities (MHC) is expected to continue an aggressive
acquisition campaign through 1997 and beyond. As of September 1997, the MHC REIT
had a market cap of $632.0 million, and continues to pursue the acquisition of
manufactured home communities. Aside from the ELL-CAP $300.0 million
transaction, in September 1997 Manufactured Home Communities, Inc. completed a
$107.0 million purchase of 18 manufactured housing communities and two related
commercial properties from partnerships affiliated with Mobileparks West. The
communities, with 3,505 sites, were purchased with about $3.0 million
manufactured home operating units, $16.0 million in cash and $20.0 million of
installment notes and assumed debt. The communities have an average monthly
rental of $349.00. The communities are located in California, Utah, Oregon,
Washington and Nevada. MHC may be the first manufactured home community REIT to
reach $1.0 billion.
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<PAGE>
Market Analysis
================================================================================
The MHC REIT continues to perform and expand, and as of September 1997 was
trading at $25.625, with a current yield of 5.2 percent. The top traded REITs,
are presented as follows.
================================================================================
REIT MARKET UPDATE
- --------------------------------------------------------------------------------
Company Price Current 52 Week 52 Week Annual 12 Mth
Symbol (9/19/97) Yield High Low Dividend Tot Rtn
- --------------------------------------------------------------------------------
CPJ $29.688 5.8% $31.125 $22.250 1.72 26.6%
- --------------------------------------------------------------------------------
MHC $25.625 5.2% $26.428 $18.875 1.32 30.7%
- --------------------------------------------------------------------------------
SUI $37.428 5.0% $ 38.00 $27.750 1.88 31.8%
- --------------------------------------------------------------------------------
UMH $11.625 6.0% $13.625 $10.875 0.70 -1.7%
- --------------------------------------------------------------------------------
Total return figures obtained through Standard & Poors and are for the period
through Sept 1997.
================================================================================
The Southwest and Northwest Regions of the nation are the preferred
locations regarding recent and future manufactured housing community
acquisitions. However, investors seeking moderate, but consistent growth
expectations, are still looking at the midwest region. Also, southern portions
of Florida are still considered a prime area for investors seeking good quality
manufactured housing communities, with good up-side potential. What was once a
stagnant market, the northeast region is now being considered for future
acquisitions.
According to a recent study prepared by Merrill Lynch & Company, ownership
in the manufactured housing community industry is highly fragmented. The top 150
owner-operators account for less than 5.0 percent of the total industry, whereas
a host of "mom-and-pop" private companies account for the other 95.0 percent.
This unglamorous niche industry is ripe for consolidation, and an infusion of
professional management expertise is likely to yield significant economies of
scale. The four REIT's specializing in manufactured housing communities are
already among the top ten owner-operators, and are well positioned to facilitate
and hasten the industry's consolidation to the likely benefit of their
stockholders.
Manufactured homes are the fastest growing component of the nation's
housing inventory, due to their affordability, good quality design and safety
standards. According to the Merrill Lynch & Company Manufactured Housing
Community Industry Report, factory-built homes appeal especially to senior
citizens and to households with limited economic needs, two segments of the
population that are likely to grow rapidly in coming years.
Consistent returns in manufactured housing community investments have been
the mainstay of the industry. For this reason, as well as the amount of
acquisitions seen by Real Estate Investment Trusts (REITs) from 1991 to 1996,
the availability of good quality
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Market Analysis
================================================================================
manufactured housing communities has been substantially reduced compared to the
1980's. Good quality manufactured housing communities still command premium
prices, thus driving down overall capitalization rates.
Cushman & Wakefield's Valuation Advisory Services has tracked sale
transactions of manufactured housing communities since 1985. Overall
capitalization rates have consistently been within the 8.75 to 10.00 percent
range for communities located in moderate to increasing growth markets, and as
low as near 8.0 percent for those communities located in growing markets that
poses significant upside potential. Overall capitalization rates are clearly
affected and are differentiated among the properties relative to rent levels,
age, quality, condition, location, amenities, demographic characteristics,
resident profile, as well as the quality of management.
Manufactured housing communities fall within, and are categorized by their
overall appearance, age, and amenities, but more importantly the strength of the
local market. The various categories of manufactured housing communities,
according to the Woodall Directory, can be ranked as 1 to 5 Star Parks These
rankings are defined as follows:
One Star Park
The most important consideration for a one star park is overall
appearance. If it is not a decent place to live, it will not be listed in
Woodall's Directory. The following are general requirements:
o Fair overall appearance;
o Patios on most lots. May be concrete, asphalt, wood, or some
suitable material;
o Grass, rock or shell to cover ground;
o Streets fair to good. May be dirt, asphalt or gravel in reasonable
condition;
o Restrooms clean, if any;
o Adequate laundry or laundromat nearby;
o If fences allowed, must be neat;
o Mail service;
o Homes may be old models, but show evidence of care; and,
o Manager available some hours of each day.
Two Star Park
In addition to the requirements for a one star park, a two star park will
have the following:
o Landscaping - some lawns and shrubs;
o Streets in good condition. Must be dust free of crushed rock, gravel
or shell minimum;
o Neat storage;
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Market Analysis
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o Well equipped laundry or laundromat nearby;
o 200 volt connections available;
o If children accepted, park should have play area;
o Park free of clutter, such as old cars and other abandoned
equipment; and,
o Well maintained and managed.
Three Star Park
What a three star park does it does well, but not as uniformly as higher
rated parks. Many three star parks were once higher rated, but original
construction does not allow for today's 10-foot, 12-foot, and double-wides
or the 55-foot and 60-foot lengths. If children are allowed, there should
be adequate play area. However, the disarray caused by children may at
times be the determining factor that keeps a three star park at that level
when it otherwise could be rated higher. In addition to the requirements
for one and two star parks, a three star park must have the following:
o Attractive entrance;
o All homes must be in good condition;
o Awnings and cabana rooms on some homes in southern areas;
o Some spaces for large mobile homes;
o Paved or hard surfaced streets;
o Off-street parking or streets wide enough for safe on-street
parking;
o Good lawns or substitute throughout, shade trees, some shrubs where
climate permits;
o Concrete patios or the equivalent on all lots;
o All lots neat and attractive;
o All park buildings in good repair; and,
o Good management.
Four Star Park
Four star parks are luxury parks. In addition to the requirements for one,
two and three star parks, a four star park must have the following:
o Good landscaping;
o Most homes skirted with metal skirts, concrete block, ornamental
wood or stone;
o Paved streets, edged or curbed.
o Uncrowded lots;
o Underground utilities if permitted by local conditions and
authorities;
o Most tanks, if present, concealed;
o Any hedges or fences must be attractive and uniform;
o Awnings, cabanas, or porches on most homes in southern areas.
(Excepting double-wide units.);
o Most lots to accommodate large mobile homes;
o Where row parking of homes exists, all must be lined up uniformly;
o Community hall and/or swimming pool and/or recreation programs. If a
park is four star in all but this requirement, the fourth star will
be printed as an open star indicating a four star park without
park-centered recreation; and,
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Market Analysis
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o Excellent management.
Five Star Park
Five star parks are the finest. They should be nearly impossible to
improve. In addition to the requirements for one, two, three, and four
star parks, a five star park must have the following:
o Well planned and laid out spacious appearance;
o Good location in regard to accessibility and desirable neighborhood.
In some locations, park should be enclosed by high hedges or
ornamental fence;
o Wide paved streets in perfect condition. Curbs or lawns edged to
streets, sidewalks, street lights, street signs;
o Homes set back from street;
o Exceptionally attractive entrance and park sign;
o Patios at least 8 x 30 feet. (Excepting double-wide units.);
o Paved off-street parking such as carports or planned parking;
o All homes skirted;
o All hitches concealed. Any existing tanks concealed;
o Recreation, some or all of the following: swimming pool (excepting
areas with long, cold winters), shuffleboards, horseshoe pitching,
golf course, hobby shop, hobby classes, games, potlucks, dances or
natural recreational facilities;
o Beautifully equipped recreation hall with kitchen. Room for
community gatherings, tiled restrooms, etc.;
o Uniform storage sheds or central storage facilities;
o All late model homes in excellent condition;
o At least 60 percent occupancy in order to judge quality of residents
which indicates park's ability to maintain a five star rating
between inspections;
o All empty lots grassed, graveled or otherwise well maintained;
o If pets or children allowed, there must be a place for them to run
and play without cluttering the streets and yards. Most five star
parks are for adults only; and,
o Superior management interested in comfort of residents and
maintenance of park.
The demand for good quality institutional grade manufactured housing
communities is anticipated to increase throughout the 1990's, since manufactured
housing communities provide an alternative form of living for the elderly and
retirees, especially for those living on fixed income. Manufactured home
shipments continue to be strong. Shipments rose 20.0 percent in 1992 and 1994,
and 12.0 percent in 1995. The market for good quality manufactured housing
communities is expected to be strong, with yield and capitalization rates and
prices expected to continue to be competitive, with the REITs leading the way.
================================================================================
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<PAGE>
Market Analysis
================================================================================
Competition
We have surveyed six manufactured housing communities located within the
subject's primary market, including the subject property, containing a total of
3,311 sites. The combined occupancy rate of these six manufactured housing
communities, including the subject property, is approximately 98.6 percent.
Excluding the subject property in our survey, the combined occupancy rate is
approximately 98.5 percent, based on 3,084 sites.
The name and location of the subject property's primary competition, as
well as the number of sites, occupancy levels, amenities offered, monthly rental
rates and services provided in the monthly rental rate, are presented on the
following facing page, along with a map which identifies the location of each
competing park.
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<PAGE>
<TABLE>
<CAPTION>
===========================================================================================================================
SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- ---------------------------------------------------------------------------------------------------------------------------
Number Age
Of Sites ---
-------- Condition Services Date Of
Comp. Name Occupancy --------- Monthly Provided Last Rental
No. Location Level Amenities Park Rating(1) Rent in Rent Increase
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
R-1 Ranchero Village 946 Clubhouse 1970 $325.00/Mo. Water January, 1997
7100 Ulmerton Road ---- Pool ---- To Sewer
Largo, Florida 100% Tennis Courts Good $401.00/Mo. Refuse
Laundry ---- Lawn Service
5*
- ---------------------------------------------------------------------------------------------------------------------------
R-2 Sugar Creek 250 Clubhouse 1979 $322.50/Mo. Water January, 1997
10265 Ulmerton Road --- Pool ---- To Sewer
Largo, Florida 99% Laundry Good $344.50/Mo. Rufuse
---- Lawn Service
5*
- ---------------------------------------------------------------------------------------------------------------------------
R-3 Island in the Sun 831 Clubhouse 1985 $200.00/Mo. Water January, 1996
1001 Starkey Road ---- Pool ---- Sewer
Largo, Florida 95% Laundry Good Refuse
Shuffleboard ---- Lawn Service
Spa 5*
- ---------------------------------------------------------------------------------------------------------------------------
R-4 Oak Crest 654 Clubhouse 1974/1980 $331.00/Mo. Refuse July, 1997
9225 Ulmerton Road ---- Pool --------- Lawn
Largo, Florida 99% Spa Good
Shuffleboard ----
Horseshoes 5*
Basketball
Laundry
- ---------------------------------------------------------------------------------------------------------------------------
R-5 Bay Ranch 403 Clubhouse 1969 $301.00/Mo. Water January, 1997
7349 Ulmerton Road ---- Pool ---- To Sewer
Largo, Florida 99% Shuffleboard Average $309.00/Mo. Refuse
Laundry ------- Lawn
Storage 4*
- ---------------------------------------------------------------------------------------------------------------------------
Subject Eldorado Village 227 Clubhouse 1969 $316.00/Mo. Water January, 1997
2505 East Bay Drive ---- Pool ---- To Sewer
Largo, Florida 100% Hot Tub Good $324.00/Mo. Refuse
Shuffleboard ---- Lawn Service
Horseshoes 5*
Lake
- ---------------------------------------------------------------------------------------------------------------------------
(1) Ratings from One Star to Five Star Parks are defined in the National Overview section of this report.
===========================================================================================================================
<CAPTION>
===========================================================
SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- -----------------------------------------------------------
3-Year
Average
Comp. Name Annual Rental
No. Location Increase
- -----------------------------------------------------------
<S> <C> <C>
R-1 Ranchero Village $9.50/Mo.
7100 Ulmerton Road
Largo, Florida
- -----------------------------------------------------------
R-2 Sugar Creek $12.00/Mo.
10265 Ulmerton Road
Largo, Florida
- -----------------------------------------------------------
R-3 Island in the Sun Leases are 15 years
1001 Starkey Road in length, with
Largo, Florida increases
implemented every
five years. The
last increase was
$25.00/Mo.
- -----------------------------------------------------------
R-4 Oak Crest $12.00/Mo.
9225 Ulmerton Road
Largo, Florida
- -----------------------------------------------------------
R-5 Bay Ranch $18.00/Mo.
7349 Ulmerton Road (Last Increase)
Largo, Florida
- -----------------------------------------------------------
Subject Eldorado Village $12.67/Mo.
2505 East Bay Drive
Largo, Florida
- -----------------------------------------------------------
===========================================================
</TABLE>
<PAGE>
COMPETITIVE MANUFACTURED HOUSING MAP
[MAP OMITTED]
CUSHMAN &
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<PAGE>
Market Analysis
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Rental rates of manufactured housing communities located within the
subject's primary market range from $200.00 to $401.00 per site, on a monthly
basis. The subject property is currently quoting monthly rental rates within the
market range, or $316.00 to $324.00 per site. The last rental rate increase at
the subject property was as of January 1, 1997. One manufactured home at the
subject property is leased with the option to buy, the lease rate on the home is
$229.00.
The enclosed comparable rentals are considered the most competitive to the
subject property regarding amenities offered, condition, location and overall
ranking.
Comparable R-1, Ranchero Village, is located at 7100 Ulmerton Road, in
Largo, Florida. This comparable property contains 946 sites, and is 100.0
percent occupied. Ranchero Village was developed in 1970, and is in
overall good condition. Amenities include a clubhouse, pool, tennis courts
and laundry facilities. Over the last three years, the average annual
rental rate increase was approximately $9.50 per month. Monthly rental
rates range from $325.00 to $401.00, with water, sewer, refuse, and lawn
service included in monthly rental payment. Residents of Ranchero Village
must be 55 years of age or older.
Comparable R-2, Sugar Creek, is located at 10265 Ulmerton Road, in Largo,
Florida. Sugar Creek contains 250 sites, and is 99.0 percent occupied.
Sugar Creek was developed in 1979, and is in overall good condition.
Amenities include a clubhouse, pool, and laundry facility. Over the last
three years, the average annual rental rate increase was approximately
$12.00 per month. Monthly rental rates range from $322.50 to $344.50, with
water, sewer, refuse, and lawn service included in the monthly rental
payment. Residents of Sugar Creek must be 55 years of age or older.
Comparable R-3, Island in the Sun, is located at 1001 Starkey Road, in
Largo, Florida. Island in the Sun contains 831 sites, and is 95.0 percent
occupied. Island in the Sun was developed in 1985, and is in overall good
condition. Amenities include a clubhouse, pool, a laundry facility,
shuffleboard courts, and a spa. Leases are 15 years in length, with
increases occurring every five years. In 1995, the increase was $25.00 per
month. The current monthly rental rate is $200.00, with water, sewer
refuse, and lawn service included in monthly rental payment. Residents of
Island in the Sun must be 55 years of age or older.
Comparable R-4, Oak Crest, is located at 9225 Ulmerton Road, in Largo
Florida. Oak Crest contains 654 sites, and is 99.0 percent occupied. Oak
Crest was developed in 1974 with expansion in 1980, and is in overall good
condition. Amenities include a clubhouse, pool, spa, shuffleboard,
horseshoe pit, basketball court, and laundry facilities. Over the last
three years, the average annual rental rate increase was approximately
$12.00 per month. The monthly rental rate is $331.00, with refuse and lawn
service included in monthly rental payment. Residents of Oak Crest must be
55 years of age or older.
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Market Analysis
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Comparable R-5, Bay Ranch, is located at 7349 Ulmerton Road, in Largo,
Florida. Bay Ranch contains 403 sites, and is 99.0 percent occupied. Bay
Ranch was developed in 1969, and is in overall good condition. Amenities
include a clubhouse, pool, shuffleboard courts, laundry facilities, and a
storage area. Over the last year, the annual rental rate increase was
$18.00 per month. The monthly rental rates range from $301.00 to $309.00,
with water, sewer refuse and lawn service included in the monthly rental
payment. Residents of Bay Ranch must be 55 years of age or older.
In our opinion, and based on conversations with the on-site manager,
properties R-1, R-3 and R-4 compete most favorably with the subject property,
with the monthly rental rates ranging from $200.00 to $401.00 per month per
site. The subject property is currently quoting monthly rental rates ranging
from $316.00 to $324.00 per site, which is within the range of rental rates of
our more comparable competing properties. The subject property competes most
effectively with its primary competitors regarding amenities, condition and
current rent structure.
Comparable Manufactured Housing Community Sales
A search of the subject's market revealed six recent sales of manufactured
housing communities located in the Tampa-St. Petersburg, Florida area. The
following is a brief discussion of each of the manufactured housing sales
located within the subject's market. These sales are summarized on the following
facing page.
Comparable Sale I-1, Sun Valley, is located at 39248 U.S. Highway 19, in
Tarpon Springs, Florida. This property contains 261 sites. The property
was in good condition at the time of sale and was developed in 1970.
Amenities include a clubhouse, pool, shuffleboard courts, and laundry
facilities. The property was approximately 99.0 percent occupied at the
time of sale. The property was purchased for $5,027,100, which equates to
$19,261 per site.
Comparable Sale I-2, Park Royal, is located at 10611 66th Street, in
Pinellas Park, Florida. This property contains 309 sites. The property was
in excellent condition at the time of sale and was developed in 1991.
Amenities include a clubhouse, pool, shuffleboard courts, and laundry. The
property was approximately 90.0 percent occupied at the time of sale. The
property was purchased for $5,695,260, which equates to $18,431 per site.
Comparable Sale I-3, Southern Comfort, is located at 24479 U.S. Highway 19
North, in Clearwater, Florida. This property contains 180 sites, situated
on 21.56 acres of land area. The property was in good condition at the
time of sale and was developed in 1955. Amenities include a laundry
facility. Information
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<TABLE>
<CAPTION>
=======================================================================================================================
SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- -----------------------------------------------------------------------------------------------------------------------
Sales Price
Per Site
Sales Date Land Area Density -------- EGIM
Comp. Name ---------- --------- -------- Occupancy ----
No. Location Sales Price No. Sites Condition At Sale $NOI/Site OAR
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
I-1 Sun Valley 5/97 N/A N/A $19,261 $2,137 4.99x
39248 U.S. Highway 19 ----- --- --- ------- -----
Tarpon Springs, Florida $5,027,100 261 Good 99% 11.09%
------
- -----------------------------------------------------------------------------------------------------------------------
I-2 Park Royal 5/97 N/A N/A $18,431 $1,913 5.30
10611 66th Street ----- --- --- ------- ----
Pinellas Park, Florida $5,695,260 309 Good 90% 10.38%
------
- -----------------------------------------------------------------------------------------------------------------------
I-3 Southern Comfort 4/96 21.56 8.35 $19,307 N/A N/A
24479 U.S. Highway 19 North ----- ----- ---- -------
Clearwater, Florida $3,475,200 180 Average N/A
- -----------------------------------------------------------------------------------------------------------------------
I-4 Southgate Mobile Home Park 4/96 24.00 6.96 $25,749 $2,306 6.92x
20000 U.S. Highway 19 North ----- ----- ---- ------- -----
Clearwater, Florida $4,300,000 167 Good 90% 8.96%
- -----------------------------------------------------------------------------------------------------------------------
I-5 Serendipity 5/95 56.00 7.59 $31,118 $2,698 7.83x
29081 U.S. 19 North ---- ----- ---- ------- -----
Clearwater, Florida $13,225,000 425 Good 98% 8.67%
- -----------------------------------------------------------------------------------------------------------------------
I-6 Doral Mobile Home Park 5/95 70.00 7.53 $30,361 $2,995 6.72x
29250 U.S. 19 North ----- ----- ---- ------- -----
Clearwater, Florida $16,000,000 527 Good 98% 9.87%
- -----------------------------------------------------------------------------------------------------------------------
Subject Eldorado Village - - - 25.13 9.03 - - - $2,396(1) N/A
2505 East Bay Drive ------ ---- 100%
Largo, Florida 227 Good
- -----------------------------------------------------------------------------------------------------------------------
(1) 1997 Trailing 12 months
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<CAPTION>
============================================================================================================
SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- ------------------------------------------------------------------------------------------------------------
$EGI/Site
---------
$Expense/Site
-------------
Comp. Name Expense Ratio Comparability to
No. Location % Of EGI to the Subject Comments
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
I-1 Sun Valley $3,861 Similar Developed in 1970; Good
39248 U.S. Highway 19 ------ condition; Amenities include a
Tarpon Springs, Florida $1,724 clubhouse, pool, shuffleboard
------ courts, and laundry facilities.
44.66%
- ------------------------------------------------------------------------------------------------------------
I-2 Park Royal $3,478 Superior Developed in 1991; Excellent
10611 66th Street ------ condition; Amenities include:
Pinellas Park, Florida $1,565 clubhouse, pool, shuffleboard
------ courts, laundry.
45.00%
- ------------------------------------------------------------------------------------------------------------
I-3 Southern Comfort N/A Inferior Developed in 1955;
24479 U.S. Highway 19 North Average condition; Minimal
Clearwater, Florida amenities.
- ------------------------------------------------------------------------------------------------------------
I-4 Southgate Mobile Home Park $3,720 Similar Developed in 1971;
20000 U.S. Highway 19 North ------ Good condition; Amenities
Clearwater, Florida $1,414 include: clubhouse, pool,
------ shuffleboard courts, and
38.00% laundry facilities.
- ------------------------------------------------------------------------------------------------------------
I-5 Serendipity $3,975 Superior Developed in 1975; Good
29081 U.S. 19 North ------ condition; Amenities include:
Clearwater, Florida $1,277 clubhouse, pool, shuffleboard
------ courts, and laundry facilities.
32.13%
- ------------------------------------------------------------------------------------------------------------
I-6 Doral Mobile Home Park $4,516 Similar Developed in 1972; Good
29250 U.S. 19 North ------ condition; Amenities include:
Clearwater, Florida $1,521 clubhouse, pool, shuffleboard
------ courts, and laundry facilities.
33.67%
- ------------------------------------------------------------------------------------------------------------
Subject Eldorado Village $3,778 Subject Property Developed in 1969;
2505 East Bay Drive ------ Good condition;
Largo, Florida $1,382 Amenities include: Clubhouse,
------ pool, hot tub, shuffleboard
36.59% court, horseshoe pit, and lake.
- ------------------------------------------------------------------------------------------------------------
============================================================================================================
</TABLE>
<PAGE>
regarding the occupancy of the property at the time of sale was
unavailable. The property was purchased for $3,475,200, which equates to
$19,307 per site.
Comparable Sale I-4, Southgate Mobile Home Park, is located at 20000 U.S.
Highway 19 North, in Clearwater, Florida. This property contains 167
sites, situated on 24.0 acres of land area. The park was in good condition
at the time of sale and was developed in approximately 1971. Amenities
include a clubhouse, swimming pool, shuffleboard courts, and laundry
facilities. The property was 90.0 percent occupied at the time of sale.
The property was purchased for $4,300,000, which equates to $25,749 per
site.
Comparable Sale I-5, Serendipity, is located at 29081 U.S. 19 North, in
Clearwater, Florida. This property contains 425 sites, situated on 56.0
acres of land area. The park was in good condition at the time of sale and
was developed in 1975. Amenities include a clubhouse, pool, shuffleboard
courts, and laundry facilities. The property was 98.0 percent occupied at
the time of sale. The property was purchased for $13,225,000, which
equates to $31,118 per site.
Comparable Sale I-6, Doral Mobile Home Park, is located at 29250 U.S. 19
North, in Clearwater, Florida. This property contains 527 sites, situated
on 70.0 acres of land area. The park was in good condition at the time of
sale and was developed in 1972. Amenities include a clubhouse, pool,
shuffleboard courts, and laundry facilities. The property was 98.0 percent
occupied at the time of sale. The property was purchased for $16,000,000,
which equates to $30,361 per site.
It should be noted that comparability does not imply an identical or exact
duplicate, but rather the possession of a similar utility and affected by
similar supply and demand forces. Also, relative to the subject property,
differences include: time or date of the transactions; location, which
encompasses differences in accessibility; site characteristics, including
differences in size, topography, access, exposure and development capacities;
and improvement characteristics, which include differences in age, quality,
condition, size and amenities.
Demographic Trends
Based on information provided by National Decision Systems (NDS), the
populations within the subject's primary 5-mile and secondary 10-mile market
areas, as of 1997, are 235,103 and 594,545, respectively. The populations of the
subject's primary and secondary market areas are projected to increase to
242,468 and 618,630, respectively, by the year 2002.
According to NDS, the total number of households within the subject's
primary and secondary market areas, are 109,472 and 279,236, respectively, for
1997. The number of
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Market Analysis
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households within the subject's primary 5-mile and secondary 10-mile market
areas are projected to increase to 114,677 and 293,654, respectively, by the
year 2002.
The average household income levels within the subject's primary and
secondary market areas, for 1997, are $47,475 and $48,605, respectively, and are
expected to increase to $60,624 and $62,599, respectively, by the year 2002. The
median household income levels within the subject's primary and secondary market
areas, for 1997, are $31,931 and $32,598, respectively, and are expected to
increase to $38,034 and $39,080, respectively, by the year 2002. Per capita
income within the subject's primary and secondary market areas, for 1997, are
$22,654 and $23,252, respectively, and are expected to increase to $29,407 and
$30,275, respectively, by the year 2002.
Based on the above levels, the demographics of the subject's primary
market area appear to indicate a positive growth trend, based on information
provided by the NDS report, a copy of which is provided in the Addenda of this
report.
Expense Analysis
Expenses exhibited by manufactured housing communities nationally are
typically 35.0 to 45.0 percent of effective gross income. However, expense
ratios of manufactured housing communities located in the southeast and
southwest regions of the nation are typically lower by comparison, due to lower
real estate taxes and common area maintenance charges.
As presented in the Summary of Manufactured Housing Communities Sales,
operating expense ratios of competing parks range from 32.1 to 45.0 percent of
effective gross income levels, and $1,277 to $1,724 on a per site basis. The
subject property is currently reporting expenses, for the 12-month trailing
period of 1997, at 36.59 percent of effective gross income and $1,382 on a per
site basis. Operating expenses appear to be within the range of comparable
properties on a per site basis as well as on a percentage of effective gross
income.
Market Supply and Demand
There are a total of five competing manufactured housing communities
located within the subject's market, which total 3,084 sites, with a
corresponding average occupancy rate of 98.4 percent. No specific absorption
statistics were available, since the subject's competing parks have historically
reported occupancy rates at, or above 95.0 percent. The occupancy rate of the
subject property, based on conversations with management, has historically been
slightly higher than occupancy rates of competing parks, and is currently 100.0
percent occupied. We believe the current occupancy rate of the subject property
is stabilized, and is
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Market Analysis
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slightly higher than the occupancy rates of competing parks presently presented.
Based on the subject's current occupancy rate and occupancy rates at competing
parks, demand appears to be strong, with steady rental rate increases expected.
Conclusion
Historically, the subject's primary market has sustained high occupancy
levels of 95.0 to 100 percent. Rental rates of similar manufactured housing
communities located within the subject's primary market generally range from
$200.00 to $401.00 per site, on a monthly basis. The subject property is
currently quoting, and is currently achieving (based on the most recent rent
roll provided), a monthly rental rate within the range of competing parks, or at
$316.00 to $324.00 per site, which we believe is market-orientated.
Based on our research, steady increases in rental rates are anticipated,
based on actual historical performance of competing parks and historical
increases seen at the subject property. Sales transactions of manufactured
housing communities located within the subject's region range from $18,431 to
$31,118 per site, with corresponding overall rates ranging from 8.67 to 11.09
percent. In our opinion, the subject property competes favorably with its
competition regarding amenities, condition, rent structure and overall market
rating.
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SITE PLAN
[MAP OMITTED]
<PAGE>
PROPERTY DESCRIPTION
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Site Description
The subject site is located on the east side of Starkey Road, between East
Bay Drive and Taylor Avenue. East Bay Drive is also known as Roosevelt
Boulevard, or U.S. Highway 686. The subject site is effectively rectangular in
shape and contains 25.13 acres, or 1,094,663 square feet of land area.
Topographically, the site is basically level and at street grade.
Sewer and water service are provided by Pinellas County Utilities.
Electric Service is provided by Florida Power Company. The City of Clearwater
provides gas service, and GTE Company provides telephone service. The subject
property is accessible via East Bay Drive and Starkey Road. Based on
conversations with the Engineering Department of the City of Largo, the subject
property is not located in a flood hazard area. However, we recommend a
qualified engineer to determine the existence of any flood hazard areas.
Each developed site has a concrete driveway. The streets within the park
have two-lanes, with concrete curbs. Overall, the subject site is typical of the
area and is functionally well suited for its current use.
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.
Improvements Description
The subject property was originally developed in 1969. The subject
improvements consist of a 227-site manufactured housing community, with a
clubhouse, pool, hot tub, shuffleboard courts, horseshoe pits, and a lake. The
227-total sites can fit both double-wide and single-wide homes.
The clubhouse consists of open-space available for resident use, a kitchen
and a library. The exterior of the one-story clubhouse is concrete block, and
appeared to be in overall good condition at the time of inspection.
The shuffleboard courts, pool, hot tub, and horseshoe pits are adjacent to
the clubhouse. Off-street parking is available for each resident. Site
improvements within the
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Property Description
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park include: paved streets, concrete driveways, street lighting and signage.
Overall, the site improvements appeared to be in good condition at the time of
inspection.
Eldorado Village is a functional manufactured housing community with good
ingress and egress from East Bay Drive and Starkey Road. Overall, the subject
community appears to be well maintained and is in good condition. Eldorado
Village is a functional manufactured housing community and competes favorably
with other existing manufactured housing communities in the area in terms of
appearance and amenities. The subject property would fit the profile of a Five
Star Park, as defined in the National Overview section of this report.
Real Property Taxes and Assessments
Assessed value of commercial property in Pinellas County is assessed at
100.0 percent of the Assessor's opinion of market value. The subject property is
identified by tax parcel number 36-29-15-70236-300-0700.
Real estate taxes in Pinellas County are assessed in arrears. Real estate
taxes for 1997 were billed in November of 1997. The total amount of real estate
taxes for 1997 for the subject property amounts to $92,133.72. Taxes are
discounted if paid in full before March 31, 1997. The total amount of real
estate taxes for 1997 equates to approximately $405.88 per site.
Zoning
According to zoning officials of the City of Largo, the subject property
is currently zoned R-U, Residential Urban. Based on conversations with zoning
officials of the City of Largo, the subject property is a legal, but
non-conforming use in the R-U, Residential Urban district.
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CONCLUSION
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Conclusion
o The subject property, Eldorado Village, is a functional manufactured
housing community, which competes favorably in relation to its
competition;
o Comparable manufactured housing communities located within the
subject's market range in monthly rental rates per site from $200.00
to $401.00;
o The subject property is currently quoting, and is currently
achieving (based on the most recent rent roll provided) a monthly
rental rate ranging from $316.00 to $324.00 per site, which is
within the range of competing parks, and appears to be
market-oriented;
o Sale transactions of manufactured housings located within the
subject's region range in unit sales prices per site from $18,431 to
$31,118, with corresponding overall rates ranging from 8.67 to 11.09
percent;
o Operating expenses are within industry standards for a park located
in the southeastern region of the country;
o The subject park appears to be operating at economic levels based on
our review of historical and budgeted 1998 income and expenses;
o The demographic characteristics of the area appear to be positive;
o The population profile of the subject property is 80 percent retired
adults, and 20 percent working adults, 55 years of age or older. The
subject property is a retirement park, with residents required to be
55 years of age or older.
o The current occupancy rate at the subject property of 100 percent is
evident by a strong local market and demand;
o No significant manufactured housing communities are expected to be
developed in the near future;
o In our opinion, based on Woodall's criteria, the subject property is
a Five Star Park, and the reader's attention is directed to the
corresponding definition and criteria of a Five Star Park, presented
in the National Overview section of this report.
o Based on the subject's location, demographic, economic, market and
physical characteristics, we believe Eldorado Village will continue
to be a viable manufactured housing community in the foreseeable
future, and is well positioned in the marketplace.
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ASSUMPTIONS AND LIMITING CONDITIONS
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"Report" means the consulting report to which these Assumptions and Limiting
Conditions are annexed.
"Property" means the subject of the Report.
"C&W" means Cushman & Wakefield, Inc. or its subsidiary which issued the Report.
"Appraiser(s)" means the employee(s) of C&W who prepared and signed the Report.
This report is made subject to the following assumptions and limiting
conditions:
1. No responsibility is assumed for the legal description or for any matters
which are legal in nature. 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 Report or upon which the Report 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 Appraisers nor C&W shall be responsible for the
accuracy or completeness of such information, including the correctness of
estimates, opinions, dimensions, sketches, exhibits, and other factual
matters.
3. The information is effective as of the date stated in the Report. Changes
since that date in external and market factors or in the property itself
can significantly affect our analysis.
4. The report is to be used in whole and not in part. No part of the Report
shall be used in conjunction with any other report. Possession of the
Report, or a copy thereof, does not carry with it the right of
publication. Publication of the Report or any portion thereof without the
prior written consent of C&W is prohibited. Except as may be otherwise
expressly stated in the letter of engagement to prepare the Report, C&W
does not permit use of the Report by any person other than the party to
whom it is addressed or for purposes other than those for which it was
prepared. If written permission is given by C&W to use the Report, the
Report must be used in its entirety and only with proper written
qualification as approved by C&W. No part of the Report or the identity of
the Appraiser shall be conveyed to the public through advertising, public
relations, news, sales, or other media or used in any material without
C&W's prior written consent. Reference to the Appraisal Institute or to
the MAI designation is prohibited.
5. The Appraiser shall not be required to give testimony in any court or
administrative proceedings relating to the Property or the Report.
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6. The Report 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 Report; 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 Report is based.
7. The physical condition of the improvements considered by the Report is
based on visual inspection by the Appraiser or other person identified in
the Report. C&W assumes no responsibility for the soundness of structural
members nor for the condition of mechanical equipment, plumbing, or
electrical components.
8. Unless otherwise stated in the Report, the existence of potentially
hazardous or toxic materials which may have been used in the construction
or maintenance or operation of the improvements or may be located at or
about the Property was not considered in the Report. These materials (such
as formaldehyde foam insulation, asbestos insulation, various soil
contaminants, and other potentially hazardous materials) may affect the
value of the Property. The Appraisers are not qualified to detect such
substances, and C&W urges that an expert in this field be employed to
determine the economic impact of these matters, if any, on the property in
the Report.
9. Unless otherwise stated in the Report, compliance with the requirements of
the Americans With Disabilities Act of 1990 (ADA) has not been considered
in the Report. Failure to comply with the requirements of the ADA may
negatively affect the value of the property. C&W recommends that an expert
in this field be employed.
10. If the Report is submitted to a lender or investor with the prior approval
of C&W, such party should consider the Report as one factor, together with
its independent investment considerations and underwriting criteria, in
its overall investment decision.
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CERTIFICATION
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We certify that, to the best of our knowledge and belief:
1. Jennifer L. Estrella inspected the property, and Michael J. Schaeffer and
Stanley R. Dennis, Jr., MAI, have reviewed and approved the report, but
did not inspect 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 on an action or event (such as the
approval of a loan) resulting from the analyses, opinions, or conclusions
in, or the use of, this report.
6. 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 Ethics and Standards of Professional Practice of the Appraisal
Institute.
7. No one provided significant professional assistance to the persons signing
this 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. As of the date of this report, Stanley R. Dennis, Jr., MAI, has completed
the requirements of the continuing education program of the Appraisal
Institute.
/s/ Michael J. Schaeffer /s/ Jennifer L. Estrella /s/ Stanley R. Dennis, Jr.
Michael J. Schaeffer Jennifer L. Estrella Stanley R. Dennis, Jr., MAI
Director Associate Appraiser Director, Manager
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ADDENDA
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POP-FACT SHEETS
LEGAL DESCRIPTION
QUALIFICATIONS OF APPRAISERS
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41
<PAGE>
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POP-FACT SHEETS
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<PAGE>
Tue Nov 25, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP FACTS: SUMMARY REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6510
PREPARED FOR
CUSHMAN & WAKEFIELD, INC
EAST BAY DR & STARKEY RD
LARGO, FL COORD: 27:54.98 82:45.76
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- --------------------------------------------------------------------------------
POPULATION
2002 PROJECTION 242,468 618,630
1997 ESTIMATE 235,103 594,545
1990 CENSUS 232,646 582,604
1980 CENSUS 206,941 504,483
GROWTH 1980 - 1990 12.42% 15.49%
HOUSEHOLDS
2002 PROJECTION 114,677 293,654
1997 ESTIMATE 109,472 279,236
1990 CENSUS 103,294 262,074
1980 CENSUS 89,496 220,564
GROWTH 1980 - 1990 15.42% 18.82%
1997 ESTIMATED POPULATION BY RACE 235,103 594,545
WHITE 90.78% 93.56%
BLACK 6.60% 3.69%
ASIAN & PACIFIC ISLANDER 1.67% 1.79%
OTHER RACES 0.95% 0.96%
1997 ESTIMATED POPULATION 235,103 594,545
HISPANIC ORIGIN 3.71% 3.87%
OCCUPIED UNITS 103,294 262,074
OWNER OCCUPIED 68.36% 70.96%
RENTER OCCUPIED 31.64% 29.04%
1990 AVERAGE PERSON PER HH 2.18 2.17
1997 ESTIMATED HH BY INCOME 109,472 279,236
$150,000 + 3.23% 3.40%
$100,000 TO $149,999 4.11% 4.22%
$ 75,000 TO $ 99,999 5.30% 5.70%
$ 50,000 TO $ 74,999 15.65% 15.85%
$ 35,000 TO $ 49,999 16.86% 16.98%
$ 25,000 TO $ 34,999 15.81% 16.00%
$ 15,000 TO $ 24,999 18.66% 18.15%
$ 5,000 TO $ 14,999 17.05% 16.41%
UNDER $ 5,000 3.34% 3.27%
1997 EST. AVERAGE HH INCOME $47,475 $48,605
1997 EST. MEDIAN HH INCOME $31,931 $32,598
1997 EST. PER CAPITA INCOME $22,654 $23,252
<PAGE>
Tue Nov 25, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP FACTS: SUMMARY REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6510
PREPARED FOR
CUSHMAN & WAKEFIELD, INC
EAST BAY DR & STARKEY RD
LARGO, FL COORD: 27:54.98 82:45.76
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- --------------------------------------------------------------------------------
POP_80: TOTAL 206,941 504,483
POP_90: TOTAL 232,646 582,604
POP_97: TOTAL (EST.) 235,103 594,545
POP_02: TOTAL (PROJ.) 242,468 618,630
HH_80: TOTAL 89,496 220,564
HH_90: TOTAL 103,294 262,074
HH_97: TOTAL (EST.) 109,472 279,236
HH_02: TOTAL (PROJ.) 114,677 293,654
INC_80: PER CAPITA (EST.) $7,821 $7,868
INC_90: PER CAPITA $15,168 $15,686
INC_97: PER CAPITA (EST. $22,654 $23,252
INC_02: PER CAPITA (PROJ $29,407 $30,275
HH_90_BY INCOME_89: MEDIAN $26,188 $26,882
HH_97_BY INCOME: MEDIAN $31,931 $32,598
HH_02_BY INCOME: MEDIAN $38,034 $39,080
HH_80_BY INCOME_79: AVERAGE $18,084 $17,996
HH_90_BY INCOME_89: AVERAGE $33,510 $34,288
HH_97_BY INCOME: AVERAGE $47,475 $48,605
HH_02_BY INCOME: AVERAGE $60,624 $62,599
<PAGE>
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LEGAL DESCRIPTION
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<PAGE>
LEGAL DESCRIPTION
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EXHIBIT "A" TO SCHEDULE "A"
PARCEL NO. N24-21589-10 (Eldorado):
Portions of Lots 5, 6 and 7, PINELLAS GROVES SUBDIVISION, of the Southwest 1/4
of Section 36, Township 29 South, Range 15 East, according to plat thereof
recorded in Plat Book 1, page 55, of the public records of Pinellas County,
Florida, more particularly described as follows:
Commence at the Northwest corner of the Southwest 1/4 of said Section 36;
thence S. 00(degrees)46'05" W., along the West boundary of said Section 36,
233.00 feet for a Point of Beginning; thence S. 89(degrees)13'59" E., parallel
to the East and West centerline of said Section 36, 233.00 feet; thence N.
00(degrees)46'05" E., 35.00 feet; thence S. 89(degrees)13'59" E., 92.00 feet;
thence N. 00(degrees)46'05" E., 165.00 feet; thence S. 89(degrees)13'59" E.,
33.00 feet South of and parallel to the East and West centerline of said Section
36, 75.00 feet; thence S. 00(degrees)46'05" W., 165.00 feet; thence S.
89(degrees)13'59" E., 597.88 feet; thence S. OO(degrees)35'00" W., along the
East boundary of said Lot 5, 1,146.50 feet; thence N. 89(degrees)10'31" W.,
along the South boundary of said Lots 5 and 7, being also the South boundary of
the Northwest 1/4 of the Southwest 1/4 of said Section 36, 1,001.57 feet; thence
N. 00(degrees)46'05" E., along the West boundary of said Section 36, 1,110.48
feet to the Point of Beginning.
- --------------------------------------------------------------------------------
<PAGE>
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QUALIFICATIONS OF APPRAISERS
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<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
JENNIFER L. ESTRELLA
Education
Master of Urban Planning, Economic Development Concentration
University of Illinois at Urbana-Champaign, 1996
Bachelor of Business Administration, Finance Major
Loyola University Chicago, 1991
Real Estate Education
The following courses have been completed through the Real Estate Program at
the University of Illinois at Urbana-Champaign:
Real Estate Financial Market
Urban Real Estate Valuation
Real Estate and Urban Land Economics
Current Position
Associate Appraiser, Cushman & Wakefield of Illinois, Inc., Valuation Advisory
Services
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
MICHAEL J. SCHAEFFER
Real Estate Experience
Mr. Schaeffer has been active in the appraisal of real estate since 1983.
Appraisal experience includes the valuation of income-producing real estate in
the Chicago area as well as many major cities and small towns throughout the
Midwest. The types of properties appraised include office buildings, regional
malls, shopping centers, country clubs, apartment complexes, subsidized housing
units, industrial buildings, nursing homes, retirement communities, automotive
dealerships, department stores, vacant land, proposed income-producing
properties, and various special purpose properties. Mr. Schaeffer also has had
over 10 years of experience in new construction and renovation of commercial,
industrial, residential and specialized real estate properties.
Education
Bachelor of Arts, University of Cincinnati, Cincinnati, Ohio MBA Graduate Course
Work in Economics and Management, Xavier University, Cincinnati, Ohio
Real Estate Education
The following courses sponsored by the Appraisal Institute have been
successfully completed:
Real Estate Appraisal Principles 1A-1
Basic Valuation Procedures 1A-2
Standards of Professional Practice
Capitalization Theory and Techniques 1BA
Capitalization Theory and Techniques IBB
Advanced Applications 550
Report Writing & Valuation Analysis 540
Mr. Schaeffer has also attended numerous lectures and seminars sponsored by the
Appraisal Institute.
Mr. Schaeffer is currently a candidate for the MAI designation of the Appraisal
Institute, and has completed the educational and experience requirements for the
MAI designation.
Current Position
Director, Appraisal Services, Cushman & Wakefield, Inc., Chicago, Illinois
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
STANLEY R. DENNIS, JR., MAI
Real Estate Experience
Director, Manager, Cushman & Wakefield Valuation Advisory Services, Chicago,
Illinois. Division is responsible for the appraisal and consultation function of
Cushman & Wakefield, Inc., a national full service real estate organization,
1989.
Vice President, Manager, Cushman & Wakefield Appraisal Services, Portland,
Oregon, 1983.
Principal, Stanley R. Dennis & Associates, Portland, Oregon, 1982.
Education
Portland State University, Portland, Oregon
Bachelor of Science Degree, 1977, Finance and Real Estate
Appraisal Institute
Course I-A Fundamentals and Principles of Real Estate Appraisal
Course I-B Capitalization Theory and Techniques
Course II-I Case Studies in Real Estate Valuation
Course II-2 Valuation Analysis and Report Writing
Course II-3 Standards of Professional Practice
Course IV Litigation/Condemnation Valuation
Course VI Investment Analysis
Course VIII Residential Case Studies
Course X Market Analysis
Seminar Feasibility Analysis and Highest and Best Use
Seminar Discounted Cash Flow Analysis
Seminar Cash Equivalency
Seminar Subdivision Analysis
Seminar Rates, Ratios and Reasonableness
Professional Affiliations
American Institute of Real Estate Appraisers, Member (Designation #6754)
Building Owners and Managers Association (BOMA)
National Association of Corporate Real Estate Executives (NACORE)
<PAGE>
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MARKET STUDY OF REAL PROPERTY
Country Place
2535 Country Place Boulevard
New Port Richey, Pasco County, Florida
================================================================================
As of December 3, 1997
Prepared For:
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Prepared By:
Cushman & Wakefield of Illinois, Inc.
Valuation Advisory Services
455 North Cityfront Plaza Drive, Suite 2800
Chicago, Illinois 60611-5555
CUSHMAN &
WAKEFIELD(R)
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<PAGE>
[Letterhead of Cushman & Wakefield of Illinois, Inc.]
December 12, 1997
Mr. Edward J. Welch
Director
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Re: Market Study of Real Property
Country Place
2535 Country Place Boulevard
New Port Richey, Pasco County Florida 34655
Dear Mr. Welch:
In fulfillment of our agreement as outlined in the Letter of Engagement,
Cushman & Wakefield of Illinois, Inc., is pleased to transmit our market study
and consulting report evaluating the above referenced real property.
As specified in the Letter of Engagement, our market study and consulting
report is qualified by certain assumptions, limiting conditions, certifications,
and definitions, which are set forth in the report.
This consulting report was prepared for the Client, and it is intended
only for the specified use of the Client. It may not be distributed to or relied
upon by other persons or entities without written permission of Cushman &
Wakefield, Inc.
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the above
referenced real property, as of the date of our property inspection. The
function of the report is to assist the client, in evaluating the property for
underwriting and rating purposes.
<PAGE>
Mr. Edward J. Welch - 2 - December 12, 1997
This market study and consulting report was prepared in conformity with
the requirements of the Code of Ethics and Standards of Professional Appraisal
Practice of the Appraisal Institute and the Uniform Standards of Professional
Practice (USPAP) adopted by the Appraisal Standards Board of the Appraisal
Foundation.
This letter is invalid if detached from the report, which contains the
text, exhibits, and the Addenda.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF ILLINOIS, INC.
/s/ Jennifer L. Estrella
Jennifer L. Estrella
Associate Appraiser
/s/ Michael J. Schaeffer
Michael J. Schaeffer
Director
/s/ Stanley R. Dennis, Jr.
Stanley R. Dennis, Jr., MAI
Director, Manager
CUSHMAN &
WAKEFIELD(R)
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SUMMARY OF SALIENT FACTS
================================================================================
Property Name: Country Place
Location: 2535 Country Place Boulevard
New Port Richey, Pasco County, Florida
Assessor's Parcel Number: Based on information provided by the client,
the subject property is identified by
Assessor's Parcel Numbers
30-26-17-0000-00500-0000 and
29-26-17-0000-00400-0000.
Date of Inspection: The property was inspected December 3, 1997.
Ownership: The subject property is legally entitled to
Samuel Zell (Trustee under No. 41586), and
MHC Financing Limited Partnership, as
beneficiary.
Land Area: Based on information provided by the
property's legal plat of survey, the subject
property contains approximately 81.68 acres
of land area, or 3,557,981 square feet.
Zoning: Based on information provided by the County
of Pasco, the subject property is zoned RMH,
Residential Mobile Home and AR, Agricultural
Residential. The subject property is a legal
and conforming use.
Improvements
Type: A manufactured housing community.
Year Built: The subject property was developed in phases
between 1986 to 1997.
Size: The subject property consists of a 515-site
manufactured housing community.
Condition: At the time of inspection, the subject
property was in good condition.
Property Rating: Five Star manufactured home community.
Special Assumptions: 1. Information regarding the subject
property, including its physical
characteristics, was provided to us by the
client and the on-site manager, and is
assumed to be accurate.
CUSHMAN &
WAKEFIELD(R)
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Summary Of Salient Facts
================================================================================
2. The existence of potentially hazardous or
toxic materials, which may be located on or
about the property, was not considered in
our evaluation. The appraisers are not
qualified to detect such substances, and
Cushman & Wakefield urges that an expert in
this field be employed to determine the
existence, if any, of hazardous materials
located on or about the site.
3. Our market and consulting report
regarding the subject assumes the subject
property, as presently improved, represents
its highest and best use.
4. It is unknown to the appraiser if the
subject property complies with the Americans
with Disabilities Act (ADA). We recommend a
qualified specialist in the final
determination regarding any ADA compliance
deficiencies that may be present at the
subject property.
5. Please refer to the complete list of
assumptions and limiting conditions included
at the end of this report.
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
TABLE OF CONTENTS
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Page
PHOTOGRAPHS OF SUBJECT PROPERTY...............................................1
INTRODUCTION..................................................................5
Identification of Property..................................................5
Property Ownership and Recent History.......................................5
Purpose and Function of the Market Study and Consulting Assignment..........5
Scope of the Market Study and Consulting Assignment.........................5
Date of Property Inspection.................................................5
Definitions and Other Pertinent Terms.......................................5
REGIONAL ANALYSIS.............................................................8
NEIGHBORHOOD ANALYSIS........................................................16
MARKET ANALYSIS..............................................................18
National Overview..........................................................18
Competition................................................................25
Comparable Manufactured Housing Community Sales............................29
Demographic Trends.........................................................31
Expense Analysis...........................................................32
Market Supply and Demand...................................................32
Conclusion.................................................................32
PROPERTY DESCRIPTION.........................................................35
Site Description...........................................................35
Improvements Description...................................................35
REAL PROPERTY TAXES AND ASSESSMENTS..........................................36
ZONING.......................................................................36
CONCLUSION...................................................................37
ASSUMPTIONS AND LIMITING CONDITIONS..........................................38
CERTIFICATION................................................................40
ADDENDA......................................................................41
Pop-Fact Sheets
Legal Description
Qualifications of Appraisers
CUSHMAN &
WAKEFIELD(R)
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PHOTOGRAPHS OF SUBJECT PROPERTY
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[PHOTO OMITTED]
Front Entrance of the Subject Property
[PHOTO OMITTED]
Interior of the Clubhouse
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Photographs of Subject Property
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[PHOTO OMITTED]
Interior of the Clubhouse
[PHOTO OMITTED]
View of Lake at the Subject Property
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Photographs of Subject Property
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[PHOTO OMITTED]
Typical Interior View of the Subject Park
[PHOTO OMITTED]
Typical Interior View of the Subject Park
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<PAGE>
Photographs of Subject Property
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[PHOTO OMITTED]
Street Scene Facing East Along State Road 54
[PHOTO OMITTED]
Street Scene Facing West Along State Road 54
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INTRODUCTION
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Identification of Property
The subject property consists of a 515-site manufactured housing
community, situated on approximately 81.68 acres of land area, located on the
north side of State Road 54, two miles east of Little Road, in Pasco County,
Florida. The City of New Port Richey is located four miles northwest of the
subject property. The property's street address is 2535 Country Place Boulevard.
The property was constructed in phases between 1986 and 1997. According to
information provided by the property manager at the time of inspection, the
occupancy rate at the subject property was 71.5 percent.
Property Ownership and Recent History
The subject property is currently entitled to Samuel Zell, as Trustee
under Trust No. 41586, and MHC Financing Limited Partnership, as beneficiary.
The subject property was originally developed in phases between 1986 and 1997.
Purpose and Function of the Market Study and Consulting Assignment
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the subject
property, as of the date of property inspection. The function of the consulting
report is to assist the client in evaluating the property for underwriting and
rating purposes.
Scope of the Market Study and Consulting Assignment
In the process of preparing this report, we inspected the property,
interviewed the on-site manager, conducted market research into asking rental
rates for comparable properties, conducted market investigations, and
ascertained sales prices of comparable properties. Additionally, we conducted
market research and evaluated demographic and economic trends; and, the market
position and rating of the subject property.
Date of Property Inspection
The property was inspected December 3, 1997.
Definitions and Other Pertinent Terms
Definitions of pertinent terms taken from the Dictionary of Real Estate
Appraisal, Third Edition (1993), published by the Appraisal Institute, is as
follows:
Market Rent
The rental income that a property would most probably command on the open
market; indicated by current rents paid and asked for comparable space as
of the date of the appraisal.
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Introduction
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Evaluation
Evaluation is a study of the nature, quality, or utility of a parcel of
real estate or interest in, or aspects of, real property, in which a value
estimate is not necessarily required.
Market Study
A macroeconomic analysis that examines the general market conditions of
supply, demand, and pricing or the demographics of demand for a specific
area or property type.
Legal Description
The subject property is located along the north side of State Road 54, in
Pasco County, Florida. The street address of the subject property is 2535
Country Place Boulevard. The property is identified by tax parcel numbers
30-26-17-0000-00500-0000 and 29-26-17-0000-00400-0000, according to information
provided by the client. Due to the lengthy metes and bounds legal description,
the subject property's legal description is presented in the Addenda of this
report, and reference is made thereto.
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LOCATION MAP
[MAP OMITTED]
<PAGE>
REGIONAL ANALYSIS
================================================================================
The subject property is located in the West Central Region of Florida.
West Central Florida, as the name suggests, is centrally located along Florida's
west coast. It is comprised primarily of a nine county area anchored by the
Tampa-St. Petersburg-Clearwater Metropolitan Statistical Area (MSA). According
to Sales and Marketing Management's 1997 Survey of Buying Power, the 1996
estimated population of the nine county West Central Florida region is
3,397,000. The Tampa-St. Petersburg-Clearwater MSA has a 1996 estimated
population of 2,240,200.
Overview
The Tampa-St. Petersburg-Clearwater MSA (hereinafter referred to as the
Tampa MSA) includes Hillsborough, Pinellas, Pasco, and Hernando Counties.
Florida's economy has expanded rapidly during the past decade due to a
favorable business climate rated as one of the best in the country. Tourism and
agriculture have traditionally been the largest industries in Florida, but the
expansion of the nation's space program during the 1960's led to growth in the
high technology fields. Like many areas of the nation, the service sector
experienced dramatic growth in the 1980's. The Tampa MSA is representative of
Florida as a whole, with a diversified economy including tourism, agriculture,
high technology industries, and a large service sector.
Population and housing growth have been influenced by Florida's relatively
low cost of living, and business expansion has continued to provide job
opportunities for skilled workers from economically stagnating economies in the
north. According to the Bureau of Economic and Business Research at the
University of Florida, the statewide unemployment rate as of September, 1997 was
5.2 percent.
A legacy of the state's unprecedented 1980s economic growth has been the
inability of infrastructure in many areas, including Tampa Bay, to keep pace
with development. Because Florida does not have a state income tax, and the
overall tax base is lower than in most other states, problems such as inadequate
highways, municipal services, land use planning, and environmental quality have
received considerable attention. To overcome this, the state is cooperating with
local governments to institute growth management and planning. Impact fees on
new developments, for example, continue to increase while gasoline taxes and
new-resident automobile taxes are earmarked for highway improvement. This places
more of the burden for funding capital improvement projects on developers and
consumers, while avoiding the need to impose state income taxes.
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Regional Analysis
================================================================================
Population
West Central Florida consists of a nine county area centered around Tampa
Bay. The 1996 estimated population of the West Central Florida region is
3,397,000. The following chart illustrates the historic and estimated future
population growth by county.
================================================================================
PROJECTED
COUNTY 1980 1990 1995 2000
================================================================================
Hillsborough 646,960 859,329 883,202 930,002
- --------------------------------------------------------------------------------
Pinellas 728,531 839,912 870,296 888,059
- --------------------------------------------------------------------------------
Pasco 193,643 281,619 303,692 325,174
- --------------------------------------------------------------------------------
Polk 321,652 413,544 435,619 464,408
- --------------------------------------------------------------------------------
Manatee 148,442 195,328 229,029 245,525
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Sarasota 202,251 271,714 296,283 313,914
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Hernando 44,469 106,770 120,246 138,465
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Citrus 54,703 99,980 106,569 119,006
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Sumter 24,272 32,895 33,837 35,991
--------- --------- --------- ---------
- --------------------------------------------------------------------------------
TOTAL 2,364,923 3,101,091 3,278,773 3,460,544
================================================================================
Source: Source Book of County Demographics
As indicated on the preceding chart, the population of west central
Florida increased during the 1980's by 736,168 residents, indicating an annual
compound growth rate of nearly 2.75%. This rate of growth has slowed since 1990
due to a downturn in the national and local economy. The projections for
population growth for the year 2000 indicate continuing increases in population
for all 9 counties.
Governmental and Political Characteristics
On October 27, 1994, Hillsborough County adopted a comprehensive land use
plan known as the "2015 Land Use Plan". The planning effort was mandated by the
Comprehensive Planning Act passed by the Florida Legislature in 1975. The plan
was intended to provide for infrastructure planning and to guide growth and
development in an orderly manner, and has been modified to accommodate new
development patterns.
Recently, Hillsborough County and the city of Tampa revised their zoning
ordinances in the context of objectives set forth in the land use plan, which
also recently underwent major
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Regional Analysis
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revisions. These changes were part of an attempt by the Hillsborough County
City-County Planning Commission, the Hillsborough County Department of
Development Coordination, and other local planning and zoning agencies to more
effectively plan for new growth and development and avoid many of the problems
experienced in recent years.
The state of Florida and its municipalities do not levy personal income
taxes. Property taxes in the Tampa Bay area are typical of most urban areas in
Florida. Continued commercial and industrial development has kept millage rates
levied by Hillsborough County relatively low, although assessed valuations of
commercial properties have recently increased. This has resulted in a moderate
property tax burden for residential property owners, with further relief
provided by homestead exemptions of the first $25,000 of assessed valuations on
primary residences. However, property taxes are anticipated to increase in
future years to help fund infrastructure costs.
Geographic and Physical Characteristics
The Tampa area has long been a desirable place in which to vacation and
retire. Its warm, semitropical climate and location on Tampa Bay near the Gulf
of Mexico, coupled with new industry and new development, continue to attract
new residents.
Because of its strategic geographical location and transportation network,
Tampa is the manufacturing and distribution hub of Florida. The port of Tampa is
the largest in the state of Florida, the nation's 7th largest in size, and 3rd
largest in tonnage. It represents the largest deep-water port to the Panama
Canal and serves as a major distribution and trade center of Florida and the
southern United States. Its 50 terminals handle phosphate, fertilizer, chemical
and dry bulk products, grain, cement, coal, steel, citrus products, bananas,
petroleum products, and liquid sulfur.
In addition to the manufacturing base in Tampa, west central Florida has
some of the most pristine beaches in the state. The coastal counties in the
region, primarily Sarasota, Manatee and Pinellas, rely heavily on their beaches
to attract tourists from the United States, Canada, and Europe. Pinellas County
in particular has been very successful attracting British, Dutch and German
tourists who previously vacationed in southeast Florida.
The eastern counties in the region are mostly flat, with rich soils
suitable for citrus groves and cattle grazing. Polk County is one of the top
five counties in the state for citrus crops. Other areas of Polk County are
heavily mined for phosphate. Sumter, Citrus, Hernando and Pasco Counties were
all heavily planted with citrus from 1940 through the 1970's but increasingly
cold weather destroyed most of the citrus in those counties. Most large scale
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Regional Analysis
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citrus grove operators recognize State Road 60 as the northernmost boundary for
citrus production. This arbitrary boundary indicates southern Polk County,
Manatee County, and Sarasota County are more suitable for citrus due to the
likelihood of cold weather to the north.
Transportation
Major interstate highways through the region allow unrestricted traffic
flow to other areas of the state. The two interstate highways in the region are
Interstate 75 and Interstate 4.
Interstate 75 extends from Miami westward to Naples. From Naples, it
extends northward along the west coast of Florida, continuing through the lower
peninsula of Michigan. Interstate 75 was completed through west central Florida
in 1986 and its completion was a tremendous catalyst for growth along its path,
particularly in Hillsborough County, Manatee County, and Sarasota County. The
growth consisted of a variety of developments including residential
subdivisions, industrial parks, and office parks.
Interstate 4 extends eastward from Tampa to Daytona Beach on Florida's
east coast. It is very heavily traveled, especially during the winter and spring
tourist seasons because it connects the Tampa Bay area and Orlando, two primary
tourist destinations in the state. The intersection of Interstate 4 and
Interstate 75 is approximately 6 miles east of downtown Tampa and the Port of
Tampa. The area around this intersection is heavily developed with office and
industrial parks where tenants need proximity to the interstate highway system.
The Veterans Expressway was completed in October 1995 and the proposed
construction of the Suncoast Parkway should alleviate a great deal of the
congestion in and around north Tampa. The Suncoast Parkway is proposed to
connect north Tampa (via an interchange on the Veterans Expressway) with an
undetermined point in Citrus, Sumter or Levy County. The intent is to provide a
highway to the western (and most populous) areas of west central Florida.
Tampa International Airport (TIA) is one of the world's most modern
airports. It is centrally located in northwest Hillsborough County to serve
Hillsborough, Pinellas, Pasco, Hernando, Citrus, Sumter, and western Polk
Counties. Situated on 3,000 acres, the airport is centrally located near
interstate 275 and is easily accessible from State Road 60. To serve 15 domestic
and international airlines carrying nearly 10,000,000 passengers a year, it has
five levels of short-term parking, an air cargo terminal, aircraft maintenance
buildings, a general aviation terminal, two-way shuttle systems to air-side
terminals, an Airport Marriot Hotel, and other facilities.
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Regional Analysis
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Social and Cultural Characteristics
The nine county west central Florida region is fairly disparate in terms
of population age distribution. Hillsborough County has the most industrial
orientation and the median age (33.7) is the lowest in the region. Like the
nation as a whole, the population of Hillsborough County is increasing.
Conversely, Pasco County has traditionally been a retirement area, and it has
the highest median age in the region (51.2). Due to its proximity to employment
centers in Hillsborough and Pinellas County, many families are moving into the
county.
The relative prosperity of the 1980's increased demand for upscale housing
in the region. In Pinellas and Hillsborough Counties the result was the
development of more golf course communities like Cheval, Tampa Palms, and
Feather Sound. In Pasco and Hernando Counties, more modest, retiree-oriented
communities like Beacon Woods and Glen Lakes were developed. Some of these large
scale communities over-invested in "up front" infrastructure and they had
difficulty servicing their debt as the housing market softened over the past few
years. However, these large scale golf course communities have been the first
residential developments to rebound as single family home sales improved
significantly in the last two years.
Tampa is not as tourist oriented as Orlando or several of the beach
communities in Pinellas County, though it is conveniently located between the
Gulf Beaches and Walt Disney World. However, Busch Gardens which is located on
Busch Boulevard in northeast Tampa is the second largest tourist attraction in
Florida. Several major golf and tennis resorts such as Avila, Cheval, and
Saddlebrook are also located in the vicinity, and several major-league baseball
franchises relocate to the area for spring training.
Houlihan Stadium, formerly known as Tampa Stadium, is located at the
southeast corner of North Dale Mabry Highway and Dr. Martin Luther King
Boulevard. It is home of the Tampa Bay Buccaneers, who began their 22nd season
in the fall of 1997. The home of the bay area's National Hockey League
franchise, "The Lightnings," is the Ice Palace. The Ice Palace, completed in
1996, is a $110,000,000, 21,000-seat hockey arena, located in the central
business district of Tampa.
In March 1995, Tampa Bay received one of two major-league baseball
franchises. The baseball team is known as the Tampa Bay Devil Rays and plays in
St. Petersburg Tropicana Field in 1998. In addition, the Tampa Bay Mutiny, a
major-league soccer team, began playing at Houlihan Stadium in 1996.
================================================================================
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Regional Analysis
================================================================================
The downtown waterfront will see further major developments in years to
come. Around the Tampa Port Authority's recently developed 21-acre cruise ship
terminal, investors have confirmed plans for additional mixed-use commercial
developments. The waterfront area between Harbour Island and Ybor City is
projected to become the nucleus of the revitalization of Tampa's downtown area
over the next five years.
Recreation
Hillsborough County contains numerous parks, fishing camps, marinas,
campgrounds, and recreational facilities to appeal to the outdoor sportsman. In
addition, both public and private golf courses and tennis courts abound
throughout the county. Boating of all types takes place in Tampa Bay, with easy
access to the Gulf of Mexico.
Economic Characteristics
The most recent economic data indicate that Florida and West Central
Florida are benefiting from the economic growth in the national economy.
Florida's unemployment rate was 5.2 percent in September 1997. The largest
populated counties in West Central Florida, Hillsborough and Pinellas counties,
each had a September, 1997 unemployment rate of 3.6 percent. The major employers
in Hillsborough County are presented in the chart on the following page.
================================================================================
Major Employers in Hillsborough County
- --------------------------------------------------------------------------------
Firm Business Employees
- --------------------------------------------------------------------------------
Hillsborough County School System Public education 22,000
- --------------------------------------------------------------------------------
GTE Telecommunications 10,155
- --------------------------------------------------------------------------------
MacDill Air Force Base Military 8,700
- --------------------------------------------------------------------------------
Hillsborough County Government Public services 7,500
- --------------------------------------------------------------------------------
U.S. Postal Service Mail delivery 6,573
- --------------------------------------------------------------------------------
Tampa International Airport Airport 4,899
- --------------------------------------------------------------------------------
City of Tampa City government 4,347
- --------------------------------------------------------------------------------
University of South Florida Higher education 4,202
- --------------------------------------------------------------------------------
Tampa General Hospital Hospital 4,200
- --------------------------------------------------------------------------------
St. Joseph Hospital Hospital 3,800
- --------------------------------------------------------------------------------
Humana Tampa Bay Hospitals, managed care 3,500
- --------------------------------------------------------------------------------
Tampa Electric Company Utility 3,200
- --------------------------------------------------------------------------------
NationsBank Financial institution 3,005
- --------------------------------------------------------------------------------
James A. Haley Veterans Hospital Hospital 2,480
- --------------------------------------------------------------------------------
Busch Entertainment Corporation Theme park 2,200
================================================================================
Employment in the southeast is expected to grow faster than the national
average through the year 2000, and Florida is expected to have the greatest
increase in employment of all of the eight southeastern states. America
Demographics, a leading local economic
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<PAGE>
forecaster, projects a 27.6 percent employment growth rate in the next decade
for the Tampa Bay area, while in 1985 their 10-year projection was more
optimistic, 41.7 percent.
The chart on the following page illustrates the dispersion of median
household income in the nine county region. Not surprisingly, the more urban
counties, Hillsborough, Pinellas and Sarasota, have a higher percentage of
households with income in excess of $50,000 annually. Sarasota County, a
traditionally high end retiree area, is the highest with 18.8% of the households
earning over $50,000. The more rural counties have smaller populations with a
higher percentage of households with annual income less than $25,000.
<TABLE>
<CAPTION>
==================================================================================
DISTRIBUTION OF 1995 HOUSEHOLDS BY INCOME (%)
==================================================================================
Less $15,000 $25,000 $50,000 $100,000 $150,000
1995 # than to to to to or
COUNTY Household $15,000 $24,999 $49,999 $99,999 $149,999 More
==================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Hillsboroug 343,118 18.1 16.5 35.3 24.4 4.1 1.7
Pinellas 387,842 18.7 18.9 35.4 20.7 4.1 2.1
Pasco 130,302 26.2 24.2 35.4 12.7 1.1 0.4
Polk 155,969 21.0 19.4 37.2 18.7 2.6 1.1
Manatee 98,182 17.5 19.9 37.5 20.4 3.3 1.4
Sarasota 133,384 15.4 17.8 37.0 22.5 4.6 2.8
Hernando 50,284 22.2 25.4 36.9 13.6 1.3 0.5
Citrus 46,198 29.2 25.3 31.1 12.7 1.2 0.5
Sumter 13,142 31.0 21.9 33.5 12.0 1.0 0.6
==================================================================================
</TABLE>
Summary and Conclusions
In conclusion, the long term outlook for the region is positive. Previous
declines in population growth and employment growth rates are giving way to job
growth and the consequent encouragement of immigration of all type of labor.
This puts into perspective the recessionary conditions of the last two to three
years. In summary, the Tampa Bay economy is considered well balanced and should
be able to sustain healthy levels of growth and expansion into the foreseeable
future.
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NEIGHBORHOOD MAP
[MAP OMITTED]
<PAGE>
NEIGHBORHOOD ANALYSIS
================================================================================
The subject property is situated along north side of State Road 54, two
miles east of Little Road, in Pasco County, Florida. The subject's immediate
neighborhood is bordered by Little Road to the west, County Road 587 to the
north, Gunn Highway to the east and the Hillsborough County limits to the south.
There is little development in the immediate neighborhood of the subject
property, as the area is rural in nature. Other development in the area consists
of single-family housing.
Regional access to the subject property is excellent via State Road 54,
which provides access to State Highway 19 and Interstate Highway 75. Both
Interstate Highway 75 and State Highway 19 run north and south through the
Tampa-St. Petersburg area in Florida. State Road 54 is the only major
thoroughfare running through the immediate neighborhood of the subject property.
The subject property enjoys excellent visibility along State Road 54, which runs
east and west in the Pasco County area.
The subject property enjoys a country-like setting, as it is located four
miles southeast of the City of New Port Richey. According to the Pasco Chamber
of Commerce, the 1996 estimated population of Pasco is 311,074 . The median age
in Pasco County is reported at 47.2 years. The largest age group in Pasco County
includes those individuals 65 years of age or older, comprising 32.5 percent of
the population. The next largest age group includes those individuals between
the age of 25 and 44 years of age.
The 1996 total number of households is 134,005. Approximately 80.9 percent
of the total housing units is reportedly owner occupied, and 19.1 percent are
renter occupied. The 1996 estimated median household income was $25,972. The
majority of households in Pasco County, approximately 36.4 percent, have a
household income between $25,000 and $49,999.
The top ten employers in Pasco County presented in the table on the
following page.
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Neighborhood Analysis
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================================================================================
TOP EMPLOYERS IN PASCO COUNTY
- --------------------------------------------------------------------------------
RANK COMPANY NUMBER OF EMPLOYEES
- --------------------------------------------------------------------------------
1 Pasco County School District 5,600
- --------------------------------------------------------------------------------
2 Pasco County Government 1,507
- --------------------------------------------------------------------------------
3 Lykes Pasco, Inc. 1,350
- --------------------------------------------------------------------------------
4 Publix Supermarket 1,313
- --------------------------------------------------------------------------------
5 Winn-Dixie Supermarkets 1,300
- --------------------------------------------------------------------------------
6 State of Florida Government 1,276
- --------------------------------------------------------------------------------
7 Columbia New Port Richey Hospital 1,200
- --------------------------------------------------------------------------------
8 Columbia Regional Medical Center 1,200
- --------------------------------------------------------------------------------
9 East Pasco Medical Center 1,106
- --------------------------------------------------------------------------------
10 Wal Mart Stores 945
- --------------------------------------------------------------------------------
SOURCE: PASCO COUNTY COMMITTEE
================================================================================
The subject property is situated in an area well suited for manufactured
housing development. Real estate values are anticipated to increase at a steady
pace. The economy in the area is anticipated to be good, with unemployment
steadily decreasing. The growth in population is anticipated to remain constant.
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MARKET ANALYSIS
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National Overview
Reportedly, the largest property owners of manufactured housing
communities in the United States are: ROC Communities, headquartered in
Colorado; MHC, Inc., headquartered in Illinois; Ellenburg Capital, headquartered
in Oregon; Lautrec Ltd., headquartered in Michigan; Clayton Homes, headquartered
in Tennessee; Clayton Williams and Sherwood, headquartered in California;
Chateau Properties, Sun Communities and UNIPROP, headquartered in Michigan.
The following represents the top ten manufactured housing community firms,
as reported by GFA Management, as of 1997.
<TABLE>
<CAPTION>
=========================================================================================
1997 Firm Name State No. of Sites No. of Communities
Rank Owned/Managed Owned/Managed
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Sun Communities Michigan 30,295/0 84/0
- -----------------------------------------------------------------------------------------
2 ROC Communities Colorado 22,441/7,167 77/36
- -----------------------------------------------------------------------------------------
3 Manufactured Home Communities Illinois 27,349/838 69/3
- -----------------------------------------------------------------------------------------
4 Ellenburg Capital Florida 25,173/0 63/0
- -----------------------------------------------------------------------------------------
5 Lautrec Ltd. Michigan 22,652/0 58/0
- -----------------------------------------------------------------------------------------
6 Chateau Properties Michigan 20,003/0 47/0
- -----------------------------------------------------------------------------------------
7 Clayton Homes Tennessee 18,000/0 66/0
- -----------------------------------------------------------------------------------------
8 Clayton, Williams and Sherwood California 16,946/0 44/0
- -----------------------------------------------------------------------------------------
9 UNIPROP Michigan 14,931/0 40/0
- -----------------------------------------------------------------------------------------
10 The Bloch Organization Michigan 14,379/0 37/0
=========================================================================================
</TABLE>
According to the U.S. Census Bureau, more than 8,521,000 people were
living in manufactured housing communities as of 1990 compared to 3,838,678 in
1980. This represents an increase in manufactured housing community living of
approximately 122.0 percent over the last ten years. Over the last ten years,
there has been a steady increase in manufactured housing community development
across the country. Among the demographic factors which account for the increase
in manufactured housing community living are: decreasing household size, a
growing demand for smaller housing, as well as an alternative to the increasing
cost of housing. Nationally, the largest percentage of manufactured housing
communities are located in California, Michigan, Colorado, Florida, New York,
Minnesota, Indiana, Arizona, Ohio, and Wisconsin.
The manufactured home industry has dramatically changed over the last 20
years. Manufactured homes are now designed and constructed to accommodate
spacious and
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Market Analysis
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attractive living requirements. Today, approximately one out of sixteen families
live in manufactured housing units. The manufactured housing market share has
been growing steadily over the last 10 years. In 1990, 6.7 percent of Americans
lived in manufactured housing units, up from 2.9 percent compared to 1970,
according to the U.S. Census Bureau, which represents 12.0 to 14.0 percent of
all new housing built since the mid-1980's, according to the Manufactured
Housing Institute in Arlington, Virginia.
In 1990, the average cost of a manufactured housing unit was $27,800
compared to $149,000 for a new house (including land), according to the
Manufactured Housing Institute. This reflects a 28.0 percent increase in the
cost of manufactured housing since 1980 versus a 49.0 percent increase in
conventional housing. Industry experts estimate that a single-family home
selling for $150,000 would require an annual income of $52,671. To purchase a
$27,800 manufactured housing unit, only a $19,984 income level would be
required.
At Fleetwood Enterprises, the nation's largest manufacturer of
manufactured housing units, units may be purchased for up to $100,000, which
would include a three-bedroom, two-bath unit of 2,100 square feet, with vaulted
ceilings.
In 1990, approximately 10.0 percent of manufactured home owners lived in
units worth approximately $40,000, up from 4.0 percent compared to 1981,
according to a study conducted by Foremost Insurance Company in Grand Rapids,
Michigan. Also, according to the study, approximately 21.0 percent of the
manufactured housing households are occupied by people' 65 years of age or
older, slightly lower than the age group for conventional homes, as reported by
Foremost Insurance.
The demand for good quality institutional grade manufactured housing
communities has substantially increased over the last ten years. Manufactured
housing communities provide an affordable alternative to the increasing cost of
housing. Also, manufactured housing communities provide an alternative form of
living for the elderly and retirees, especially for those living on fixed
incomes.
Acquisitions of manufactured housing communities during 1993 and 1994 were
clearly dominated by Real Estate Investment Trusts. During 1994 and 1995
Manufactured Home Communities (MHC) and ROC communities lead the acquisition of
manufactured housing communities nationally. During 1996, Sun Communities
captured the lead and, together with ROC and MHC dominate the Real Estate
Investment Trust market.
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Market Analysis
================================================================================
The following chart represents the largest Real Estate Investment Trusts,
from 1991 to 1996, as reported by GFA Management
================================================================================
HOME SITE GROWTH, DEVELOPMENT AMONG THE LARGEST
REAL ESTATE INVESTMENT TRUST (REITS)
- --------------------------------------------------------------------------------
Year ROC MHC Chateau Sun United Total Annual
Growth
- --------------------------------------------------------------------------------
1996 29,608 28,187 20,003 30,295 5,234 113,327 17.0%
- --------------------------------------------------------------------------------
1995 27,910 26,237 19,594 18,000 4,850 96,591 9.0%
- --------------------------------------------------------------------------------
1994 26,231 28,407 15,689 13,500 4,623 88,450 37.8%
- --------------------------------------------------------------------------------
1993 20,142 14,700 15,261 9,036 5,050 64,189 17.8%
- --------------------------------------------------------------------------------
1992 18,745 12,873 10,032 7,600 5,200 54,450 N/A
- --------------------------------------------------------------------------------
1991 9,030 13,079 9,759 N/R N/R N/A N/A
- --------------------------------------------------------------------------------
N/R = No report N/A = Not applicable
- --------------------------------------------------------------------------------
NOTE: The 113,327 sites counted for the top five REITs in 1996 make up 20
percent of the total sites surveyed in the 1997 Allen Report. These rental sites
are located in 339 communities, accounting for about 1 percent of some 50,000
existing manufactured housing communities nationwide. The community counts for
the five major REITs are: ROC (113), MHC (72), Chateau (47), Sun (84) and United
(23). The proportion of communities owned by each of the REITs compared to the
others is: ROC (33%), MHC (21%), Chateau (14%), Sun (25%) and United (7%).
================================================================================
Manufactured Home Communities (MHC) is expected to continue an aggressive
acquisition campaign through 1997 and beyond. As of September 1997, the MHC REIT
had a market cap of $632.0 million, and continues to pursue the acquisition of
manufactured home communities. Aside from the ELL-CAP $300.0 million
transaction, in September 1997 Manufactured Home Communities, Inc. completed a
$107.0 million purchase of 18 manufactured housing communities and two related
commercial properties from partnerships affiliated with Mobileparks West. The
communities, with 3,505 sites, were purchased with about $3.0 million
manufactured home operating units, $16.0 million in cash and $20.0 million of
installment notes and assumed debt. The communities have an average monthly
rental of $349.00. The communities are located in California, Utah, Oregon,
Washington and Nevada. MHC may be the first manufactured home community REIT to
reach $1.0 billion.
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Market Analysis
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The MHC REIT continues to perform and expand, and as of September 1997 was
trading at $25.625, with a current yield of 5.2 percent. The top traded REITs,
are presented as follows.
================================================================================
REIT MARKET UPDATE
- --------------------------------------------------------------------------------
Company Price Current 52 Week 52 Week Annual 12 Mth
Symbol (9/19/97) Yield High Low Dividend Tot Rtn
- --------------------------------------------------------------------------------
CPJ $29.688 5.8% $31.125 $22.250 1.72 26.6%
- --------------------------------------------------------------------------------
MHC $25.625 5.2% $26.428 $18.875 1.32 30.7%
- --------------------------------------------------------------------------------
SUI $37.428 5.0% $ 38.00 $27.750 1.88 31.8%
- --------------------------------------------------------------------------------
UMH $11.625 6.0% $13.625 $10.875 0.70 -1.7%
- --------------------------------------------------------------------------------
Total return figures obtained through Standard & Poors and are for the period
through Sept 1997.
================================================================================
The Southwest and Northwest Regions of the nation are the preferred
locations regarding recent and future manufactured housing community
acquisitions. However, investors seeking moderate, but consistent growth
expectations, are still looking at the midwest region. Also, southern portions
of Florida are still considered a prime area for investors seeking good quality
manufactured housing communities, with good up-side potential. What was once a
stagnant market, the northeast region is now being considered for future
acquisitions.
According to a recent study prepared by Merrill Lynch & Company, ownership
in the manufactured housing community industry is highly fragmented. The top 150
owner-operators account for less than 5.0 percent of the total industry, whereas
a host of "mom-and-pop" private companies account for the other 95.0 percent.
This unglamorous niche industry is ripe for consolidation, and an infusion of
professional management expertise is likely to yield significant economies of
scale. The four REIT's specializing in manufactured housing communities are
already among the top ten owner-operators, and are well positioned to facilitate
and hasten the industry's consolidation to the likely benefit of their
stockholders.
Manufactured homes are the fastest growing component of the nation's
housing inventory, due to their affordability, good quality design and safety
standards. According to the Merrill Lynch & Company Manufactured Housing
Community Industry Report, factory-built homes appeal especially to senior
citizens and to households with limited economic needs, two segments of the
population that are likely to grow rapidly in coming years.
Consistent returns in manufactured housing community investments have been
the mainstay of the industry. For this reason, as well as the amount of
acquisitions seen by Real Estate Investment Trusts (REITs) from 1991 to 1996,
the availability of good quality
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Market Analysis
================================================================================
manufactured housing communities has been substantially reduced compared to the
1980's. Good quality manufactured housing communities still command premium
prices, thus driving down overall capitalization rates.
Cushman & Wakefield's Valuation Advisory Services has tracked sale
transactions of manufactured housing communities since 1985. Overall
capitalization rates have consistently been within the 8.75 to 10.00 percent
range for communities located in moderate to increasing growth markets, and as
low as near 8.0 percent for those communities located in growing markets that
poses significant upside potential. Overall capitalization rates are clearly
affected and are differentiated among the properties relative to rent levels,
age, quality, condition, location, amenities, demographic characteristics,
resident profile, as well as the quality of management.
Manufactured housing communities fall within, and are categorized by their
overall appearance, age, and amenities, but more importantly the strength of the
local market. The various categories of manufactured housing communities,
according to the Woodall Directory, can be ranked as 1 to 5 Star Parks These
rankings are defined as follows:
One Star Park
The most important consideration for a one star park is overall
appearance. If it is not a decent place to live, it will not be listed in
Woodall's Directory. The following are general requirements:
o Fair overall appearance;
o Patios on most lots. May be concrete, asphalt, wood, or some
suitable material;
o Grass, rock or shell to cover ground;
o Streets fair to good. May be dirt, asphalt or gravel in reasonable
condition;
o Restrooms clean, if any; Adequate laundry or laundromat nearby;
o If fences allowed, must be neat;
o Mail service; Homes may be old models, but show evidence of care;
and,
o Manager available some hours of each day.
Two Star Park
In addition to the requirements for a one star park, a two star park will
have the following:
o Landscaping - some lawns and shrubs;
o Streets in good condition. Must be dust free of crushed rock, gravel
or shell minimum;
o Neat storage;
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Market Analysis
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o Well equipped laundry or laundromat nearby;
o 200 volt connections available;
o If children accepted, park should have play area;
o Park free of clutter, such as old cars and other abandoned
equipment; and,
o Well maintained and managed.
Three Star Park
What a three star park does it does well, but not as uniformly as higher
rated parks. Many three star parks were once higher rated, but original
construction does not allow for today's 10-foot, 12-foot, and double-wides
or the 55-foot and 60-foot lengths. If children are allowed, there should
be adequate play area. However, the disarray caused by children may at
times be the determining factor that keeps a three star park at that level
when it otherwise could be rated higher. In addition to the requirements
for one and two star parks, a three star park must have the following:
o Attractive entrance;
o All homes must be in good condition;
o Awnings and cabana rooms on some homes in southern areas;
o Some spaces for large mobile homes;
o Paved or hard surfaced streets;
o Off-street parking or streets wide enough for safe on-street
parking;
o Good lawns or substitute throughout, shade trees, some shrubs where
climate permits;
o Concrete patios or the equivalent on all lots;
o All lots neat and attractive;
o All park buildings in good repair; and,
o Good management.
Four Star Park
Four star parks are luxury parks. In addition to the requirements for one,
two and three star parks, a four star park must have the following:
o Good landscaping;
o Most homes skirted with metal skirts, concrete block, ornamental
wood or stone;
o Paved streets, edged or curbed.
o Uncrowded lots;
o Underground utilities if permitted by local conditions and
authorities;
o Most tanks, if present, concealed;
o Any hedges or fences must be attractive and uniform;
o Awnings, cabanas, or porches on most homes in southern areas.
(Excepting double-wide units.);
o Most lots to accommodate large mobile homes;
o Where row parking of homes exists, all must be lined up uniformly;
o Community hall and/or swimming pool and/or recreation programs. If a
park is four star in all but this requirement, the fourth star will
be printed as an open star indicating a four star park without
park-centered recreation; and,
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Market Analysis
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o Excellent management.
Five Star Park
Five star parks are the finest. They should be nearly impossible to
improve. In addition to the requirements for one, two, three, and four
star parks, a five star park must have the following:
o Well planned and laid out spacious appearance;
o Good location in regard to accessibility and desirable neighborhood.
In some locations, park should be enclosed by high hedges or
ornamental fence;
o Wide paved streets in perfect condition. Curbs or lawns edged to
streets, sidewalks, street lights, street signs;
o Homes set back from street;
o Exceptionally attractive entrance and park sign;
o Patios at least 8 x 30 feet. (Excepting double-wide units.);
o Paved off-street parking such as carports or planned parking;
o All homes skirted;
o All hitches concealed.
o Any existing tanks concealed;
o Recreation, some or all of the following: swimming pool (excepting
areas with long, cold winters), shuffleboards, horseshoe pitching,
golf course, hobby shop, hobby classes, games, potlucks, dances or
natural recreational facilities;
o Beautifully equipped recreation hall with kitchen. Room for
community gatherings, tiled restrooms, etc.;
o Uniform storage sheds or central storage facilities;
o All late model homes in excellent condition;
o At least 60 percent occupancy in order to judge quality of residents
which indicates park's ability to maintain a five star rating
between inspections;
o All empty lots grassed, graveled or otherwise well maintained;
o If pets or children allowed, there must be a place for them to run
and play without cluttering the streets and yards. Most five star
parks are for adults only; and,
o Superior management interested in comfort of residents and
maintenance of park.
The demand for good quality institutional grade manufactured housing
communities is anticipated to increase throughout the 1990's, since manufactured
housing communities provide an alternative form of living for the elderly and
retirees, especially for those living on fixed income. Manufactured home
shipments continue to be strong. Shipments rose 20.0 percent in 1992 and 1994,
and 12.0 percent in 1995. The market for good quality manufactured housing
communities is expected to be strong, with yield and capitalization rates and
prices expected to continue to be competitive, with the REITs leading the way.
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Market Analysis
================================================================================
Competition
We have surveyed five manufactured housing communities located within the
subject's primary market, including the subject property, containing a total of
1,637 sites. The combined occupancy rate of these five manufactured housing
communities, including the subject property, is approximately 81.9 percent.
Excluding the subject property in our survey, the combined occupancy rate is
approximately 86.7 percent, based on 1,122 sites.
The name and location of the subject property's primary competition, as
well as the number of sites, occupancy levels, amenities offered, monthly rental
rates and services provided in the monthly rental rate, are presented on the
following facing page, along with a map which identifies the location of each
competing park.
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<PAGE>
<TABLE>
<CAPTION>
========================================================================================================================
SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- ------------------------------------------------------------------------------------------------------------------------
Number Age
Of Sites -------------
--------- Condition Services Date Of
Comp. Name Occupancy ------------- Monthly Provided Last Rental
No. Location Level Amenities Park Rating(1) Rent in Rent Increase
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
R-1 Grand Valley 200 Clubhouse 1992 $150.00/Mo. Refuse No increase
7306 Osteen Road --- Pool ---- Lawn Service since opening
Florida 36% Storage Good date.
Shuffleboard ----
5*
- ------------------------------------------------------------------------------------------------------------------------
R-2 Harbor View 471 Clubhouse 1972 $200/Mo. Water February, 1997
6617 Louisiana Avenue --- Pool ---- To Sewer
New Port Richey, 100% Good $225.00/Mo. Refuse
Florida ---- Lawn Service
4*
- ------------------------------------------------------------------------------------------------------------------------
R-3 Colony Cove 288 Clubhouse 1974 $270/Mo. Sewer Per Resident
5229 Rubber Tree Circle --- Pool ---- (Average) Refuse Lease Anniversary
Pasco County, 100% Spa Good Lawn Service
Florida Shuffleboard ----
5*
- ------------------------------------------------------------------------------------------------------------------------
R-4 Bayonet Pointe Village 163 Clubhouse 1985 $189.00/Mo. Refuse January, 1997
10705 Malden Drive --- Pool ---- (Average) Lawn Service
Bayonet Point, 88% Shuffleboard Good
Florida Mini-Golf ----
5*
- ------------------------------------------------------------------------------------------------------------------------
Subject Country Place 515 Clubhouse 1986-1997 $202.50/Mo. Lawn Service January, 1997
2535 Country Place --- Pool --------- To
Boulevard 72% Spa Good $220.50/Mo.
Florida Tennis Courts ----
Shuffleboard 5*
Horseshoes
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
======================================================
- ------------------------------------------------------
3-Year
Average
Annual
Comp. Name Rental
No. Location Increase
- ------------------------------------------------------
R-1 Grand Valley N/A
7306 Osteen Road
Florida
- ------------------------------------------------------
R-2 Harbor View $5.00/Mo.
6617 Louisiana Avenue
New Port Richey,
Florida
- ------------------------------------------------------
R-3 Colony Cove Annual increases
5229 Rubber Tree Circle are either 10%
Pasco County, cap or based on
Florida CPI.
- ------------------------------------------------------
R-4 Bayonet Pointe Village $5.00/Mo.
10705 Malden Drive (Last Increase)
Bayonet Point,
Florida
- ------------------------------------------------------
Subject Country Place $8.83/Mo.
2535 Country Place
Boulevard
Florida
- --------------------------------------------------------------------------------
(1) Ratings from One Star to Five Star Parks are defined in the National
Overview section of this report.
================================================================================
<PAGE>
COMPETING MANUFACTURED HOUSING MAP
[MAP OMITTED]
CUSHMAN &
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Market Analysis
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Rental rates of manufactured housing communities located within the
subject's primary market range from $150.00 to $270.00 (approximately) per site,
on a monthly basis. The subject property is currently quoting monthly rental
rates within the market range, or $202.50 to $220.50 per site. The last rental
rate increase at the subject property was as of January 1, 1997, of $8.83 per
site per month.
The enclosed comparable rentals are considered the most competitive to the
subject property regarding amenities offered, condition, location and overall
ranking.
Comparable R-1, Grand Valley, is located at 7306 Osteen Road, in Pasco
County, Florida. This comparable property contains 200 sites, and is 36
percent occupied. Grand Valley was developed in 1992, and is in overall
good condition. Amenities include a clubhouse, pool, storage and
shuffleboard. As a newer park, Grand Valley is still in the lease-up
process. There has been no rent increase since the park opened. The
monthly rental rate is $150.00 for all sites, refuse and lawn service
included in monthly rental payment. Residents of Grand Valley must be 55
years of age or older.
Comparable R-2, Harbor View, is located at 6617 Louisiana Avenue, in New
Port Richey, Florida. Harbor View contains 471 sites, and is 100.0 percent
occupied. Harbor View was developed in 1972, and is in overall good
condition. Amenities include a clubhouse and pool. Over the last three
years, the average annual rental rate increase was approximately $5.00 per
month. Monthly rental rates range from $200.00 to $225.00, with water,
sewer, refuse, and lawn service included in the monthly rental payment.
Residents of Harbor View must be 55 years of age or older.
Comparable R-3, Colony Cove, is located at 5229 Rubber Tree Circle, in
Pasco County, Florida. Colony Cove contains 288 sites, and is 100.0
percent occupied. Colony Cove was developed in 1974, and is in overall
good condition. Amenities include a clubhouse, pool, spa, and shuffleboard
courts. Over the past three years, residents have paid increases based on
their lease contract terms, which is either 10.0 percent or based on the
Consumer Price Index (CPI). The average monthly rental rate is $270.00,
with sewer, refuse and lawn service included in the monthly rental
payment. Residents of Colony Cove must be 55 years of age or older.
Comparable R-4, Bayonet Point Village, is located at 10705 Malden Drive,
in Bayonet Point, Florida. Bayonet Point Village contains 163 sites, and
is 88.0 percent occupied. Bayonet Point Village was developed in the 1985,
and is in overall good condition. Amenities include a clubhouse, pool,
shuffleboard courts, and mini-golf. The last rental rate increase was
approximately $5.00 per month. The average monthly rental rate is $189.00,
with refuse and lawn service included in monthly rental payment. Residents
of Bayonet Point Village must be 55 years of age or older.
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Market Analysis
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In our opinion, and based on conversations with the on-site manager,
property R-1 competes most favorably with the subject property, with the monthly
rental rate at $150.00 per month per site. The subject property is currently
quoting monthly rental rates ranging from $202.50 to $220.50 per site, which is
within the range of rental rates of the other competing properties. The subject
property competes most effectively with its primary competitors regarding
amenities, condition and current rent structure.
Comparable Manufactured Housing Community Sales
A search of the subject's market revealed six recent sales of manufactured
housing communities located in the Tampa-St. Petersburg, Florida area. The
following is a brief discussion of each of the manufactured housing sales
located within the subject's market. These sales are summarized on the following
facing page.
Comparable Sale I-1, Sun Valley, is located at 39248 U.S. Highway 19, in
Tarpon Springs, Florida. This property contains 261 sites. The property
was in good condition at the time of sale and was developed in 1970.
Amenities include a clubhouse, pool, shuffleboard courts, and laundry
facilities. The property was approximately 99.0 percent occupied at the
time of sale. The property was purchased for $5,027,100, which equates to
$19,261 per site.
Comparable Sale I-2, Park Royal, is located at 10611 66th Street, in
Pinellas Park, Florida. This property contains 309 sites. The property was
in excellent condition at the time of sale and was developed in 1991.
Amenities include a clubhouse, pool, shuffleboard courts, and laundry. The
property was approximately 90.0 percent occupied at the time of sale. The
property was purchased for $5,695,260, which equates to $18,431 per site.
Comparable Sale I-3, Southern Comfort, is located at 24479 U.S. Highway 19
North, in Clearwater, Florida. This property contains 180 sites, situated
on 21.56 acres of land area. The property was in good condition at the
time of sale and was developed in 1955. Amenities include a laundry
facility. Information regarding the occupancy of the property at the time
of sale was unavailable. The property was purchased for $3,475,200, which
equates to $19,307 per site.
Comparable Sale I-4, Southgate Mobile Home Park, is located at 20000 U.S.
Highway 19 North, in Clearwater, Florida. This property contains 167
sites, situated on 24.0 acres of land area. The park was in good condition
at the time of sale and was developed in approximately 1971. Amenities
include a clubhouse, swimming pool, shuffleboard courts, and laundry
facilities. The property was 90.0 percent occupied at the time of sale.
The property was purchased for $4,300,000, which equates to $25,749 per
site.
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<TABLE>
<CAPTION>
==========================================================================================================================
SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- --------------------------------------------------------------------------------------------------------------------------
$EGI/Site
Sales Price ---------
Per Site $Expense/Site
Sales Date Land Area Density ----------- EGIM -------------
Comp. Name ---------- --------- --------- Occupancy ---- Expense Ratio
No. Location Sales Price No. Sites Condition At Sale $NOI/Site OAR % Of EGI
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
I-1 Sun Valley 5/97 N/A N/A $19,261 $2,137 4.99x $3,861
39248 U.S. Highway 19 ---- --- --- ------- ----- ------
Tarpon Springs, Florida $5,027,100 261 Good 99% 11.09% $1,724
------
44.66%
- --------------------------------------------------------------------------------------------------------------------------
I-2 Park Royal 5/97 N/A N/A $18,431 $1,913 5.30 $3,478
10611 66th Street ---- --- --- ------- ---- ------
Pinellas Park, Florida $5,695,260 309 Good 90% 10.38% $1,565
------
45.00%
- --------------------------------------------------------------------------------------------------------------------------
I-3 Southern Comfort 4/96 21.56 8.35 $19,307 N/A N/A N/A
24479 U.S. Highway 19 North ---- ----- ---- -------
Clearwater, Florida $3,475,200 180 Average N/A
- --------------------------------------------------------------------------------------------------------------------------
I-4 Southgate Mobile Home Park 4/96 24.00 6.96 $25,749 $2,306 6.92x $3,720
20000 U.S. Highway 19 North ---- ----- ---- ------- ----- ------
Clearwater, Florida $4,300,000 167 Good 90% 8.96% $1,414
------
38.00%
- --------------------------------------------------------------------------------------------------------------------------
I-5 Serendipity 5/95 56.00 7.59 $31,118 $2,698 7.83x $3,975
29081 U.S. Highway 19 North ---- ----- ---- ------- ----- ------
Clearwater, Florida $13,225,000 425 Good 98% 8.67% $1,277
------
32.13%
- --------------------------------------------------------------------------------------------------------------------------
I-6 Doral Mobile Home Park 5/95 70.00 7.53 $30,361 $2,995 6.72x $4,516
29250 U.S. Highway 19 North ---- ----- ---- ------- ----- ------
Clearwater, Florida $16,000,000 527 Good 98% 9.87% $1,521
------
33.67%
- --------------------------------------------------------------------------------------------------------------------------
Subject Country Place - - - 81.68 6.28 - - - $866(1) N/A $1,668
2535 Country Place Boulevard ----- ---- 72% ------
Pasco County, Florida 515 Good $800
------
48.11%
<CAPTION>
======================================================================================
- --------------------------------------------------------------------------------------
Comp. Name Comparability
No. Location to the Subject Comments
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
I-1 Sun Valley Similar Developed in 1970; Good
39248 U.S. Highway 19 condition; Amenities include a
Tarpon Springs, Florida clubhouse, pool, shuffleboard
courts, and laundry facilities.
- --------------------------------------------------------------------------------------
I-2 Park Royal Superior Developed in 1991; Excellent
10611 66th Street condition; Amenities include:
Pinellas Park, Florida clubhouse, pool, shuffleboard
courts, laundry.
- --------------------------------------------------------------------------------------
I-3 Southern Comfort Inferior Developed in 1955;
24479 U.S. Highway 19 North Average condition; Minimal
Clearwater, Florida amenities.
- --------------------------------------------------------------------------------------
I-4 Southgate Mobile Home Park Similar Developed in 1971;
20000 U.S. Highway 19 North Good condition; Amenities
Clearwater, Florida include: clubhouse, pool,
shuffleboard courts, and
laundry facilities.
- --------------------------------------------------------------------------------------
I-5 Serendipity Superior Developed in 1975; Good
29081 U.S. Highway 19 North condition; Amenities include:
Clearwater, Florida clubhouse, pool, shuffleboard
courts, and laundry facilities.
- --------------------------------------------------------------------------------------
I-6 Doral Mobile Home Park Similar Developed in 1972; Good
29250 U.S. Highway 19 North condition; Amenities include:
Clearwater, Florida clubhouse, pool, shuffleboard
courts, and laundry facilities.
- --------------------------------------------------------------------------------------
Subject Country Place Subject Developed between 1986 and
2535 Country Place Boulevard Property 1997;
Pasco County, Florida Good condition;
Amenities include:
Clubhouse, pool, spa, tennis
courts, shuffleboard courts,
and horseshoes.
</TABLE>
- --------------------------------------------------------------------------------
(1) 1997 Trailing 12 months
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<PAGE>
Market Analysis
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Comparable Sale I-5, Serendipity, is located at 29081 U.S. Highway 19
North, in Clearwater, Florida. This property contains 425 sites, situated
on 56.0 acres of land area. The park was in good condition at the time of
sale and was developed in 1975. Amenities include a clubhouse, pool,
shuffleboard courts, and laundry facilities. The property was 98.0 percent
occupied at the time of sale. The property was purchased for $13,225,000,
which equates to $31,118 per site.
Comparable Sale I-6, Doral Mobile Home Park, is located at 29250 U.S.
Highway 19 North, in Clearwater, Florida. This property contains 527
sites, situated on 70.0 acres of land area. The park was in good condition
at the time of sale and was developed in 1972. Amenities include a
clubhouse, pool, shuffleboard courts, and laundry facilities. The property
was 98.0 percent occupied at the time of sale. The property was purchased
for $16,000,000, which equates to $30,361 per site.
It should be noted that comparability does not imply an identical or exact
duplicate, but rather the possession of a similar utility and affected by
similar supply and demand forces. Also, relative to the subject property,
differences include: time or date of the transactions; location, which
encompasses differences in accessibility; site characteristics, including
differences in size, topography, access, exposure and development capacities;
and improvement characteristics, which include differences in age, quality,
condition, size and amenities.
Demographic Trends
Based on information provided by National Decision Systems (NDS), the
populations within the subject's primary 5-mile and secondary 10-mile market
areas, as of 1997, are 29,239 and 269,180, respectively. The populations of the
subject's primary and secondary market areas are projected to increase to 34,278
and 301,411, respectively, by the year 2002.
According to NDS, the total number of households within the subject's
primary and secondary market areas, are 12,995 and 122,497, respectively, for
1997. The number of households within the subject's primary 5-mile and secondary
10-mile market areas are projected to increase to 15,310 and 137,306,
respectively, by the year 2002.
The average household income levels within the subject's primary and
secondary market areas, for 1997, are $40,924 and $42,286, respectively, and are
expected to increase to $47,762 and $51,926, respectively, by the year 2002. The
median household income levels within the subject's primary and secondary market
areas, for 1997, are $30,930 and $29,133, respectively, and are expected to
increase to $32,987 and $32,567, respectively, by the year 2002. Per capita
income within the subject's primary and secondary market areas, for 1997,
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Market Analysis
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are $18,365 and $19,493, respectively, and are expected to increase to $21,507
and $23,949, respectively, by the year 2002.
Based on the above levels, the demographics of the subject's primary
market area appear to indicate a positive growth trend, based on information
provided by NDS.
Expense Analysis
Expenses exhibited by manufactured housing communities nationally are
typically 35.0 to 45.0 percent of effective gross income. However, expense
ratios of manufactured housing communities located in the southeast and
southwest regions of the nation are typically lower by comparison, due to lower
real estate taxes and common area maintenance charges.
As presented in the Summary of Manufactured Housing Communities Sales,
operating expense ratios of competing parks range from 32.1 to 45.0 percent of
effective gross income levels, and $1,277 to $1,724 on a per site basis. The
subject property is currently reporting expenses, for the 12-month trailing
period of 1997, at 48.11 percent of effective gross income and $800 on a per
site basis. Operating expenses appear to be below the range of comparable
properties on a per site basis, but slightly higher based on a percentage of
effective gross income, due to the subject property's lower occupancy rate, by
comparison. The subject's operating expense ratio budgeted for 1998 of 40.78
percent is more representative, and in-line with industry standards and
competing parks. The subject property is still in a lease-up phase.
Market Supply and Demand
There are a total of four competing manufactured housing communities
located within the subject's market, which total 1,122 sites, with a
corresponding average occupancy rate of 86.7 percent. No specific absorption
statistics were available, since the majority subject's competing parks have
historically reported occupancy rates at, or above 85.0 percent. The subject
property is a new park and is in a lease-up phase and is currently 71.5 percent
occupied. We believe the current occupancy rate of the subject property is not
stabilized, but will be stabilized over the next three years. Based on the
subject's current occupancy rate and occupancy rates at competing parks, demand
appears to be relatively strong, with steady rental rate increases expected.
Conclusion
Historically, the subject's primary market has sustained high occupancy
levels of 85.0 to 100 percent. The subject property and its primary competitor,
Grand Valley, are in the lease-up stage, therefore their occupancy rates are not
stabilized. Rental rates of similar
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Market Analysis
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manufactured housing communities located within the subject's primary market
generally range from $150.00 to $270.00 per site, on a monthly basis. The
subject property is currently quoting, and is currently achieving (based on the
most recent rent roll provided), monthly rental rates within the range of
competing parks, or at $202.50 to $220.50 per site, which we believe is
market-orientated.
Based on our research, steady increases in rental rates are anticipated,
based on actual historical performance of competing parks and historical
increases seen at the subject property. Sales transactions of manufactured
housing communities located within the subject's region range from $18,431 to
$31,118 per site, with corresponding overall rates ranging from 8.67 to 11.09
percent. In our opinion, the subject property competes favorably with its
competition regarding amenities, condition, rent structure and overall market
rating.
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SITE PLAN
[GRAPHIC OMITTED]
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PROPERTY DESCRIPTION
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Site Description
The subject site is located on the north side of State Road 54, two miles
east of Little Road, Pasco County, Florida. The subject property is located four
miles southeast of the City of New Port Richey. The subject site is irregular in
shape and contains 81.68 acres, or 3,577,981 square feet of land area.
Topographically, the site is basically level and at street grade.
Sewer and water service are provided by Aloha Company. Electric Service is
provided by Florida Power Company. Bay City Company provides gas service, and
GTE Company provides telephone service. The subject property is accessible via
State Road 54. Based on information provided by the client, portions of the
subject property are located within the 100-year floodplain. However, during the
development process, the flood controls were installed. According to the
property manager, there has been no flood problems at the subject property since
its opening in 1986. However, we recommend a qualified engineer to determine the
existence of any flood hazard areas.
Each developed site has a concrete driveway. The streets within the park
have two-lanes, with concrete curbs. Overall, the subject site is typical of the
area and is functionally well suited for its current use.
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.
Improvements Description
The subject property was developed in phases between 1986 and 1997. The
subject improvements consist of a 515-site manufactured housing community, with
a clubhouse, pool, spa, tennis courts, shuffleboard courts, and horseshoe pits.
The 515-total sites can fit both double-wide and single-wide homes, but only
double-wide homes are allowed in the park. Some sites may fit triple-wide homes.
The clubhouse consists of open-space available for resident use, and a
kitchen. The exterior of the one-story clubhouse is painted concrete, and
appeared to be in overall good condition at the time of inspection.
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Property Description
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The shuffleboard courts, tennis courts, pool, and horseshoe pits are
adjacent to the clubhouse. Off-street parking is available for each resident.
Site improvements within the park include: paved streets, concrete driveways,
street lighting and signage. Overall, the site improvements appeared to be in
good condition at the time of inspection.
Country Place is a functional manufactured housing community with good
ingress and egress from State Road 54. Overall, the subject community appears to
be well maintained and is in good condition. Country Place is a functional
manufactured housing community and competes favorably with other existing
manufactured housing communities in the area in terms of appearance and
amenities. The subject property would fit the profile of a Five Star Park, as
defined in the National Overview section of this report.
Real Property Taxes and Assessments
Assessed value of commercial property in Pasco County is assessed at 100.0
percent of the Assessor's opinion of market value. The subject property is
identified by tax parcel numbers 30-26-17-0000-00500-0000 and
29-26-17-0000-00400-0000.
Real estate taxes in Pasco County are assessed in arrears. Real estate
taxes for 1997 were billed in November of 1997. The total amount of real estate
taxes for 1997 for the subject property amounts to $90,652.05. Taxes are
discounted if paid in full before March 31, 1997. The total amount of real
estate taxes for 1997 equates to approximately $176.71 per site.
Zoning
According to zoning officials of Pasco County, the subject property is
currently zoned RMH, Residential Mobile Home and AR, Agricultural Residential.
Tax parcel 30-26-17-0000-00500-0000 is zoned RMH, Residential Mobile Home, and
tax parcel 29-26-17-0000-00400-0000 is zoned AR, Agricultural Residential. Based
on conversations with zoning officials of Pasco County, the subject property is
a legal and conforming use in the RMH, Residential Mobile Home and AR,
Agricultural Residential, districts.
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CONCLUSION
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Conclusion
o The subject property, Country Place, is a functional manufactured
housing community, which competes favorably in relation to its
competition;
o Comparable manufactured housing communities located within the
subject's market range in monthly rental rates per site from $150.00
to $270.00;
o The subject property is currently quoting, and is currently
achieving (based on the most recent rent roll provided) monthly
rental rates ranging from $202.50 to $220.50 per site, which is
within the range of competing parks, and appears to be
market-oriented;
o Sale transactions of manufactured housings located within the
subject's region range in unit sales prices per site from $18,431 to
$31,118, with corresponding overall rates ranging from 8.67 to 11.09
percent;
o Operating expenses at stabilized occupancy are expected to be within
industry standards for a park located in the southeastern region of
the country;
o The subject park appears to be operating at economic levels based on
our review of historical and budgeted 1998 income and expenses,
considering the park is still in a lease-up phase.
o The demographic characteristics of the area appear to be positive;
o The population profile of the subject property is over 90 percent
retired adults, 55 years of age or older. The subject property is a
retirement park, with residents required to be 55 years of age or
older.
o The current occupancy rate at the subject property is not at
stabilized operations, but the local market appears to be strong.
o No significant manufactured housing communities are expected to be
developed in the near future;
o In our opinion, based on Woodall's criteria, the subject property is
a Five Star Park, and the reader's attention is directed to the
corresponding definition and criteria of a Five Star Park, presented
in the National Overview section of this report.
o Based on the subject's location, demographic, economic, market and
physical characteristics, we believe Country Place will continue to
be a viable manufactured housing community in the foreseeable
future, and is well positioned in the marketplace.
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ASSUMPTIONS AND LIMITING CONDITIONS
================================================================================
"Report" means the consulting report to which these Assumptions and Limiting
Conditions are annexed.
"Property" means the subject of the Report.
"C&W" means Cushman & Wakefield, Inc. or its subsidiary which issued the Report.
"Appraiser(s)" means the employee(s) of C&W who prepared and signed the Report.
This report is made subject to the following assumptions and limiting
conditions:
1. No responsibility is assumed for the legal description or for any matters
which are legal in nature. 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 Report or upon which the Report 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 Appraisers nor C&W shall be responsible for the
accuracy or completeness of such information, including the correctness of
estimates, opinions, dimensions, sketches, exhibits, and other factual
matters.
3. The information is effective as of the date stated in the Report. Changes
since that date in external and market factors or in the property itself
can significantly affect our analysis.
4. The report is to be used in whole and not in part. No part of the Report
shall be used in conjunction with any other report. Possession of the
Report, or a copy thereof, does not carry with it the right of
publication. Publication of the Report or any portion thereof without the
prior written consent of C&W is prohibited. Except as may be otherwise
expressly stated in the letter of engagement to prepare the Report, C&W
does not permit use of the Report by any person other than the party to
whom it is addressed or for purposes other than those for which it was
prepared. If written permission is given by C&W to use the Report, the
Report must be used in its entirety and only with proper written
qualification as approved by C&W. No part of the Report or the identity of
the Appraiser shall be conveyed to the public through advertising, public
relations, news, sales, or other media or used in any material without
C&W's prior written consent. Reference to the Appraisal Institute or to
the MAI designation is prohibited.
5. The Appraiser shall not be required to give testimony in any court or
administrative proceedings relating to the Property or the Report.
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Assumptions and Limiting Conditions
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6. The Report 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 Report; 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 Report is based.
7. The physical condition of the improvements considered by the Report is
based on visual inspection by the Appraiser or other person identified in
the Report. C&W assumes no responsibility for the soundness of structural
members nor for the condition of mechanical equipment, plumbing, or
electrical components.
8. Unless otherwise stated in the Report, the existence of potentially
hazardous or toxic materials which may have been used in the construction
or maintenance or operation of the improvements or may be located at or
about the Property was not considered in the Report. These materials (such
as formaldehyde foam insulation, asbestos insulation, various soil
contaminants, and other potentially hazardous materials) may affect the
value of the Property. The Appraisers are not qualified to detect such
substances, and C&W urges that an expert in this field be employed to
determine the economic impact of these matters, if any, on the property in
the Report.
9. Unless otherwise stated in the Report, compliance with the requirements of
the Americans With Disabilities Act of 1990 (ADA) has not been considered
in the Report. Failure to comply with the requirements of the ADA may
negatively affect the value of the property. C&W recommends that an expert
in this field be employed.
10. If the Report is submitted to a lender or investor with the prior approval
of C&W, such party should consider the Report as one factor, together with
its independent investment considerations and underwriting criteria, in
its overall investment decision.
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CERTIFICATION
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We certify that, to the best of our knowledge and belief:
1. Jennifer L. Estrella inspected the property, and Michael J. Schaeffer and
Stanley R. Dennis, Jr., MAI, have reviewed and approved the report, but
did not inspect 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 on an action or event (such as the
approval of a loan) resulting from the analyses, opinions, or conclusions
in, or the use of, this report.
6. 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 Ethics and Standards of Professional Practice of the Appraisal
Institute.
7. No one provided significant professional assistance to the persons signing
this 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. As of the date of this report, Stanley R. Dennis, Jr., MAI, has completed
the requirements of the continuing education program of the Appraisal
Institute.
/s/ Michael J. Schaeffer /s/ Jennifer L. Estrella /s/ Stanley R. Dennis, Jr.
Michael J. Schaeffer Jennifer L. Estrella Stanley R. Dennis, Jr., MAI
Director Associate Appraiser Director, Manager
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<PAGE>
ADDENDA
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POP-FACT SHEETS
LEGAL DESCRIPTION
QUALIFICATIONS OF APPRAISERS
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POP-FACT SHEETS
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<PAGE>
Tue Nov 25, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP FACTS: SUMMARY REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6510
PREPARED FOR
CUSHMAN & WAKEFIELD, INC
2535 COUNTRY PLACE BLVD
NEW PORT RICHEY, FL COORD: 28:11.81 82:37.71
- ---------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- ---------------------------------------------------------------
POPULATION
2002 PROJECTION 34,278 301,411
1997 ESTIMATE 29,239 269,180
1990 CENSUS 24,485 234,948
1980 CENSUS 16,153 142,813
GROWTH 1980 - 1990 51.58% 64.51%
HOUSEHOLDS
2002 PROJECTION 15,310 137,306
1997 ESTIMATE 12,995 122,497
1990 CENSUS 10,256 103,114
1980 CENSUS 6,107 62,368
GROWTH 1980 - 1990 67.95% 65.33%
1997 ESTIMATED POPULATION BY RACE 29,239 269,180
WHITE 97.30% 95.74%
BLACK 0.85% 1.98%
ASIAN & PACIFIC ISLANDER 0.78% 1.21%
OTHER RACES 1.07% 1.07%
1997 ESTIMATED POPULATION 29,239 269,180
HISPANIC ORIGIN 4.37% 5.71%
OCCUPIED UNITS 10,256 103,114
OWNER OCCUPIED 85.18% 78.83%
RENTER OCCUPIED 14.82% 21.17%
1990 AVERAGE PERSON PER HH 2.36 2.25
1997 ESTIMATED HH BY INCOME 12,995 122,497
$150,000 + 2.02% 2.31%
$100,000 TO $149,999 1.91% 3.28%
$ 75,000 TO $ 99,999 2.90% 4.70%
$ 50,000 TO $ 74,999 14.84% 13.45%
$ 35,000 TO $ 49,999 20.10% 16.13%
$ 25,000 TO $ 34,999 20.22% 17.28%
$ 15,000 TO $ 24,999 20.13% 21.18%
$ 5,000 TO $ 14,999 14.19% 18.12%
UNDER $ 5,000 3.69% 3.56%
1997 EST. AVERAGE HH INCOME $40,924 $42,286
1997 EST. MEDIAN HH INCOME $30,930 $29,133
1997 EST. PER CAPITA INCOME $18,365 $19,493
<PAGE>
Tue Nov 25, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP 80-02, HH 80-02, 114C 80-02)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6510
PREPARED FOR
CUSHMAN & WAKEFIELD, INC
2535 COUNTRY PLACE BLVD
NEW PORT RICHEY, FL COORD: 28:11.81 82:37.71
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- --------------------------------------------------------------------------------
POP_80: TOTAL 16,153 142,813
POP_90: TOTAL 24,485 234,948
POP_97: TOTAL (EST.) 29,239 269,180
POP_02: TOTAL (PROJ.) 34,278 301,411
HH_80: TOTAL 6,107 62,368
HH_90: TOTAL 10,256 103,114
HH_97: TOTAL (EST.) 12,995 122,497
HH 02: TOTAL (PROJ.) 15,310 137,306
INC_80: PER CAPITA (EST.) $ 7,571 $ 6,868
INC_90: PER CAPITA $14,322 $ 13,957
INC_97: PER CAPITA (EST. $18,365 $ 19,493
INC_02: PER CAPITA (PROJ $21,507 $ 23,949
HH_90_BY INCOME_89: MEDIAN $28,160 $ 24,455
HH_97_BY INCOME: MEDIAN $30,930 $ 29,133
HH_02_BY INCOME: MEDIAN $32,987 $ 32,567
HH_80_BY INCOME_79: AVERAGE $20,028 $ 15,728
HH_90_BY INCOME_89: AVERAGE $33,703 $ 31,488
HH_97_BY INCOME: AVERAGE $40,924 $ 42,286
HH 02 BY INCOME: AVERAGE $47,762 $ 51,926
<PAGE>
================================================================================
LEGAL DESCRIPTION
================================================================================
<PAGE>
LEGAL DESCRIPTION
- --------------------------------------------------------------------------------
Country Place
EXHIBIT "A" TO SCHEDULE "A"
PARCEL NO. N24-21577-l0 (Country Place)
Parcel 1:
Commencing at the Northeast corner of Section 30, Township 26 South, Range 17
East, Pasco County, Florida; thence S 0 deg. 16'17" W., along the East line of
said Section 30, 1322. 91 feet to P.O.B.; thence S. 0 deg. 16'17" W. 1785.82
feet to a point 250.00 feet North at right angles from the North right-of-way
line of S. R. 54; thence N. 71 deg. 57'42" W. parallel to the North right-of-way
line of S. R. 54. 900.03 feet; thence N. 18 deg. 02'18" E. 90.00 feet; thence N.
71 deg. 57'42" W. 300.00 feet; thence S. 18 deg. 02'l8" W. 340.00 feet to the
North right-of-way line of S. R. 54; thence N. 71 deg. 57' 42" W. along the
North right-of-way line of S. R. 54 a distance of 90.00 feet; thence N. 18 deg.
02' 18" B. 340.00 feet: thence N. 71 deg. 57'42" W. 300.00 feet; thence 5. 18
deg. 02' 18" W. 90.00 feet: thence N. 71 deg. 57'42" W. 760.00 feet to a point
of curve; thence along the arc of a curve to the right 193.88 feet; chord
bearing N. 65 deg. 23'44" U. 193.46 feet. radius 845.92 feet; central angle 13
deg. 07'56"; thence N. 0 deg. 16'17" E. 1022.43 feet to the North line of the
South 3/4 of Section 30, Township 26 South, Range 17 East; thence S. 88 deg.
56'06" E. along said line 2414.46 feet to P.O.B., Less that portion conveyed to
Pasco County by Deed recorded in 0. R. Book 1627, Page 840, Casco County
records:
TOGETHER WITH
A portion of Section 29, Township 26 South, Range 17 East, Pasco County,
Florida, being more fully described as follows:
For a Point of Reference, commence at the Northwest corner of said Section 29;
thence South 00 deg. 16'17" West, along the Westerly boundary line of said
Section 29, a distance of 1644.10 feet to the POINT OF BEGINNING; thence run
South 89 deg. 02'46" East, 135.00 feet; thence South 00 deg. 16'17 West, 1287.15
feet; thence North 89 deg. 02'46" West, 135.00 feet to a point on the Westerly
boundary line of said Section 29; thence North 00 deg. l6'17" East, along said
Westerly boundary line 1287.15 feet to the POINT OF BEGINNING.
PARCEL II:
Non-Exclusive Easement for the benefit of Parcel 1 as created by Reciprocal
Easement Agreement recorded September 14, 1984 in 0. R. Book 1362, Page 1456,
Pasco County, Florida, for the construction, installation and maintenance of
utility lines (other than drainage), to run over and across 10 foot strips on
either side of the 90 foot wide strip described as follows:
Commencinq at the Northeast corner of Section 30, Township 26 South, Range 17
East, Pasco County, Florida; thence run South 00 deg. 1617" West, 3108.73 feet
along the East boundary line of said Section 30; thence North 71 deg. 57'42"
West, 900.03 feet; thence North 18 deg. 02'18" East, 90.00 feet; thence North 71
deg. 57'42" West, 300.00 feet to the POINT OF BEGINNING: thence run South 18
deg. 02'18" West, 340.00 feet to the Northerly right-of-way line of State Road
No. 54 as now established; thence North 71 deg. 57'42" West, 90.00 feet along
said Northerly right-of-way line; thence North 18 deg. 02'18" East, 340.00 feet;
thence South 71 deg. 57'42" East, 90.00 feet to the POINT OF BEGINNING.
- --------------------------------------------------------------------------------
<PAGE>
LEGAL DESCRIPTION
- --------------------------------------------------------------------------------
EXHIBIT "A" TO SCHEDULE "A"
PARCEL III:
Non-exclusive easement for the benefit of Parcel 1 as created by Water Retention
Area Agreement recorded September 14, 1984 in 0. R. Book 1362, Page 1463, Pasco
County, Florida, for the purpose of drainage, over and across the land described
as follows:
A portion of Section 29, Township 26 South, Range 17 East, Pasco County,
Florida, being more fully described as follows:
For a Point of Reference, commence at the Northwest corner of said Section 29;
thence South 00 deg. 16'17" West, along the Westerly boundary of said Section
29, a distance of 1322.91 feet to the Northerly boundary line of the South 3/4
of said Section 29 and the POINT OF BEGINNING; thence run South 89 deg. 02'46"
East, along said Northerly boundary line, 135.00 feet; thence South 00 deg.
16'17 West, 321.19 feet; thence North 89 deg. 02' 46" West, 135.00 feet to a
point on the Westerly boundary line of said Section 29: thence North 00 deg.
l6'17" East, along said Westerly boundary line, 321.19 feet to the Point of
Beginning.
PARCEL IV:
Easement for the benefit of Parcel 1 as created by Drainage Easement Agreement
recorded February 1, 1989 in 0. R. Book 1779, Page 400, Pasco County, Florida,
for the purposes recited therein, on, under, within, over, across and through
the land described as follows:
A portion of Section 29, Township 26 South, Range 17 East, Pasco County,
Florida, being further described as follows: Commence at the Northwest corner of
said Section 29; thence run South 00 deg. l6'l7" West, 2931.25 feet along the
West boundary line of said Section 29 to the POINT OF BEGINNING; thence South 89
deg. 02'46" East, 775.00 feet; thence North 74 deg. 58'46" East, 90.00 feet;
thence South 15 deg. 01'14" East, 20.00 feet; thence South 74 deg. 58'46" West,
92.81 feet; thence North 89 deg. 02'46" West 777.57; thence North 00 deg. 16'17"
East, 20.00 feet along said West boundary line to the POINT OF BEGINNING.
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
QUALIFICATIONS OF APPRAISERS
================================================================================
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
JENNIFER L. ESTRELLA
Education
Master of Urban Planning, Economic Development Concentration
University of Illinois at Urbana-Champlaign, 1996
Bachelor of Business Administration, Finance Major
Loyola University Chicago, 1991
Real Estate Education
The following courses have been completed through the Real Estate Program at
the University of Illinois at Urbana-Champlaign:
Real Estate Financial Market
Urban Real Estate Valuation
Real Estate and Urban Land Economics
Current Position
Associate Appraiser, Cushman & Wakefield of Illinois, inc., Valuation Advisory
Services
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
MICHAEL J. SCHAEFFER
Real Estate Experience
Mr. Schaeffer has been active in the appraisal of real estate since 1983.
Appraisal experience includes the valuation of income-producing real estate in
the Chicago area as well as many major cities and small towns throughout the
Midwest. The types of properties appraised include office buildings, regional
malls, shopping centers, country clubs, apartment complexes, subsidized housing
units, industrial buildings, nursing homes, retirement communities, automotive
dealerships, department stores, vacant land, proposed income-producing
properties, and various special purpose properties. Mr. Schaeffer also has had
over 10 years of experience in new construction and renovation of commercial,
industrial, residential and specialized real estate properties.
Education
Bachelor of Arts, University of Cincinnati, Cincinnati, Ohio MBA Graduate Course
Work in Economics and Management, Xavier University, Cincinnati, Ohio
Real Estate Education
The following courses sponsored by the Appraisal Institute have been
successfully completed:
Real Estate Appraisal Principles 1A-1
Basic Valuation Procedures 1A-2
Standards of Professional Practice
Capitalization Theory and Techniques 1BA
Capitalization Theory and Techniques IBB
Advanced Applications 550
Report Writing & Valuation Analysis 540
Mr. Schaeffer has also attended numerous lectures and seminars sponsored by the
Appraisal Institute.
Mr. Schaeffer is currently a candidate for the MAI designation of the Appraisal
Institute, and has completed the educational and experience requirements for the
MAI designation.
Current Position
Director, Appraisal Services, Cushman & Wakefield, Inc., Chicago, Illinois
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
STANLEY R. DENNIS, JR., MAI
Real Estate Experience
Director, Manager, Cushman & Wakefield Valuation Advisory Services, Chicago,
Illinois. Division is responsible for the appraisal and consultation function of
Cushman & Wakefield, Inc., a national full service real estate organization,
1989.
Vice President, Manager, Cushman & Wakefield Appraisal Services, Portland,
Oregon, 1983.
Principal, Stanley R. Dennis & Associates, Portland, Oregon, 1982.
Education
Portland State University, Portland, Oregon
Bachelor of Science Degree, 1977, Finance and Real Estate
Appraisal Institute
Course I-A Fundamentals and Principles of Real Estate Appraisal
Course I-B Capitalization Theory and Techniques
Course II-I Case Studies in Real Estate Valuation
Course II-2 Valuation Analysis and Report Writing
Course II-3 Standards of Professional Practice
Course IV Litigation/Condemnation Valuation
Course VI Investment Analysis
Course VIII Residential Case Studies
Course X Market Analysis
Seminar Feasibility Analysis and Highest and Best Use
Seminar Discounted Cash Flow Analysis
Seminar Cash Equivalency
Seminar Subdivision Analysis
Seminar Rates, Ratios and Reasonableness
Professional Affiliations
American Institute of Real Estate Appraisers, Member (Designation #6754)
Building Owners and Managers Association (BOMA)
National Association of Corporate Real Estate Executives (NACORE)
<PAGE>
================================================================================
MARKET STUDY OF REAL PROPERTY
Pueblo Grande
999 Fortino Boulevard West
Pueblo, Pueblo County, Colorado
================================================================================
As of December 5, 1997
Prepared For:
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Prepared By:
Cushman & Wakefield of Illinois, Inc.
Valuation Advisory Services
455 North Cityfront Plaza Drive, Suite 2800
Chicago, Illinois 60611-5555
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
---------------------------
<PAGE>
[Letterhead of Cushman & Wakefield of Illinois, Inc.]
December 19, 1997
Mr. Edward J. Welch
Director
Merrill Lynch
World Financial Center
250 Vesey Street
North Tower, 26th Floor
New York, New York 10281
Re: Market Study of Real Property
Pueblo Grande
999 Fortino Boulevard West
Pueblo, Pueblo County, Colorado 81008
Dear Mr. Welch:
In fulfillment of our agreement as outlined in the Letter of Engagement,
Cushman & Wakefield of Illinois, Inc., is pleased to transmit our market study
and consulting report evaluating the above referenced real property.
As specified in the Letter of Engagement, our market study and consulting
report is qualified by certain assumptions, limiting conditions, certifications,
and definitions, which are set forth in the report.
This consulting report was prepared for the Client, and it is intended
only for the specified use of the Client. It may not be distributed to or relied
upon by other persons or entities without written permission of Cushman &
Wakefield, Inc.
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the above
referenced real property, as of the date of our property inspection. The
function of the report is to assist the client, in evaluating the property for
underwriting and rating purposes.
<PAGE>
Mr. Edward J. Welch - 2 - December 19, 1997
This market study and consulting report was prepared in conformity with
the requirements of the Code of Ethics and Standards of Professional Appraisal
Practice of the Appraisal Institute and the Uniform Standards of Professional
Practice (USPAP) adopted by the Appraisal Standards Board of the Appraisal
Foundation.
This letter is invalid if detached from the report, which contains the
text, exhibits, and the Addenda.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF ILLINOIS, INC.
/s/ Jody L. Garbisch
Jody L. Garbisch
Associate Appraiser
/s/ Michael J. Schaeffer
Michael J. Schaeffer
Director
/s/ Stanley R. Dennis, Jr.
Stanley R. Dennis, Jr., MAI
Director, Manager
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
---------------------------
<PAGE>
SUMMARY OF SALIENT FACTS
================================================================================
Property Name: Pueblo Grande
Location: 999 Fortino Boulevard West
Pueblo, Pueblo County, Colorado
Assessor's Parcel Number: Based on information provided by Pueblo County
Treasurer's Office, the subject property is
identified by parcel identification numbers
05-130-05-005 and 73-600-26-030.
Date of Inspection: The property was inspected December 5, 1997.
Ownership: The subject property is legally entitled to
Snowland Vistas, Inc., an Illinois corporation.
Land Area: Based on measurements taken from the property's
legal plat of survey, the subject property
contains approximately 32.94 acres of land area,
or 1,435,000 square feet.
Zoning: Based on information provided by the City of
Pueblo Zoning Department, the subject property is
zoned R-7, Mobile Home Park, and is a legal and
conforming use.
Improvements
Type: A manufactured housing community.
Year Built: The subject property was originally developed in
approximately 1971.
Size: The subject property consists of a 252-site
manufactured housing community, of which
approximately 235 sites are single-wide and 17
sties are double-wide.
Condition: At the time of inspection, the subject property
was in good condition.
Property Rating: Four Star manufactured home community.
Special Assumptions: 1. Information regarding the subject property,
including its physical characteristics, was
provided to us by the client and the on-site
manager, and is assumed to be accurate.
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
Summary of Salient Facts
================================================================================
2. The existence of potentially hazardous or toxic
materials, which may be located on or about the
property, was not considered in our evaluation.
The appraisers are not qualified to detect such
substances, and Cushman & Wakefield urges that an
expert in this field be employed to determine the
existence, if any, of hazardous materials located
on or about the site.
3. Our market and consulting report regarding the
subject assumes the subject property, as presently
improved, represents its highest and best use.
4. It is unknown to the appraiser if the subject
property complies with the Americans with
Disabilities Act (ADA). We recommend a qualified
specialist in the final determination regarding
any ADA compliance deficiencies that may be
present at the subject property.
5. Please refer to the complete list of
assumptions and limiting conditions included at
the end of this report.
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
TABLE OF CONTENTS
================================================================================
Page
PHOTOGRAPHS OF SUBJECT PROPERTY...............................................1
INTRODUCTION..................................................................4
Identification of Property..................................................4
Property Ownership and Recent History.......................................4
Purpose and Function of the Market Study and Consulting Assignment..........4
Scope of the Market Study and Consulting Assignment.........................4
Date of Property Inspection.................................................4
Definitions and Other Pertinent Terms.......................................4
REGIONAL ANALYSIS.............................................................8
NEIGHBORHOOD ANALYSIS........................................................10
MARKET ANALYSIS..............................................................12
National Overview..........................................................12
Competition................................................................19
Comparable Manufactured Housing Community Sales............................23
Demographic Trends.........................................................25
Expense Analysis...........................................................26
Market Supply and Demand...................................................26
Conclusion.................................................................26
PROPERTY DESCRIPTION.........................................................29
Site Description...........................................................29
Improvements Description...................................................29
REAL PROPERTY TAXES AND ASSESSMENTS..........................................30
ZONING.......................................................................30
CONCLUSION...................................................................31
ASSUMPTIONS AND LIMITING CONDITIONS..........................................32
CERTIFICATION................................................................34
ADDENDA......................................................................35
Pop-Fact Sheets
Legal Description
Qualifications of Appraisers
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
PHOTOGRAPHS OF SUBJECT PROPERTY
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[PHOTO OMITTED]
Front Entrance and Community Center of Subject Property
[PHOTO OMITTED]
Interior of Community Center
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<PAGE>
Photographs of Subject Property
================================================================================
[PHOTO OMITTED]
View of Playground
[PHOTO OMITTED]
Typical Interior View of the Subject Park
================================================================================
2
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<PAGE>
Photographs of Subject Property
================================================================================
[PHOTO OMITTED]
Typical Interior View of the Subject Park
[PHOTO OMITTED]
Typical Interior View of the Subject Park
================================================================================
3
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<PAGE>
INTRODUCTION
================================================================================
Identification of Property
The subject property consists of a 252-site manufactured housing
community, situated on approximately 32.94 acres of land area. Pueblo Grande is
located along the north side of Fortino Boulevard West, in the City of Pueblo,
Pueblo County, Colorado. The property's street address is 999 Fortino Boulevard
West. The property was constructed in 1971, and was 98.0 percent occupied at the
time of inspection.
Property Ownership and Recent History
The subject property is currently entitled to Snowland Vistas, Inc., an
Illinois corporation, and was originally developed in 1971.
Purpose and Function of the Market Study and Consulting Assignment
The purpose of this consulting report is to evaluate the location,
demographic, economic, market and property characteristics of the subject
property, as of the date of property inspection. The function of the consulting
report is to assist the client in evaluating the property for underwriting and
rating purposes.
Scope of the Market Study and Consulting Assignment
In the process of preparing this report, we inspected the property,
interviewed the on-site manager, conducted market research into asking rental
rates for comparable properties, conducted market investigations, and
ascertained sales prices of comparable properties. Additionally, we conducted
market research and evaluated demographic and economic trends; and, the market
position and rating of the subject property.
Date of Property Inspection
The property was inspected December 5, 1997.
Definitions and Other Pertinent Terms
Definitions of pertinent terms taken from the Dictionary of Real Estate
Appraisal, Third Edition (1993), published by the Appraisal Institute, is as
follows:
Market Rent
The rental income that a property would most probably command on the open
market; indicated by current rents paid and asked for comparable space as
of the date of the appraisal.
Evaluation
Evaluation is a study of the nature, quality, or utility of a parcel of
real estate or interest in, or aspects of, real property, in which a value
estimate is not necessarily required.
================================================================================
4
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
Introduction
================================================================================
Market Study
A macroeconomic analysis that examines the general market conditions of
supply, demand, and pricing or the demographics of demand for a specific
area or property type.
Legal Description
The subject property is located along the north side of Fortino Boulevard
West, just west of Interstate 25, in the City of Pueblo, Pueblo County,
Colorado. The street address of the subject property is 999 Fortino Boulevard
West, Pueblo, Colorado. The property is identified by parcel identification
numbers 05-130-05-005 and 73-600-26-030, according to Pueblo Treasurer's Office.
The subject property's legal description is presented in the Addenda of this
report, and reference is made thereto.
================================================================================
5
CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<PAGE>
LOCATION MAP
[MAP OMITTED]
<PAGE>
REGIONAL ANALYSIS
================================================================================
Location
The subject property is located along the north side of Fortino Boulevard
West, just west of Interstate 25, in the north side of the City of Pueblo.
Pueblo is located in Southern Colorado along the southern edge of the state's
major growth corridor. Historically a transportation junction, the city lies 110
miles south of Denver at the crossroads of Interstate 25 and U.S. Highway 50.
Population
According to the U.S. Bureau of Census, the population trends for the City
of Pueblo and Pueblo County is as follows:
- --------------------------------------------------------------------------------
POPULATION
- --------------------------------------------------------------------------------
Year Pueblo Pueblo County
- --------------------------------------------------------------------------------
1970 97,774 118,238
- --------------------------------------------------------------------------------
1980 101,686 125,972
- --------------------------------------------------------------------------------
1990 98,540 123,051
- --------------------------------------------------------------------------------
1997 102,319 131,217
- --------------------------------------------------------------------------------
From 1990 to 1997, the population for the city of Pueblo has increased
from approximately 98,540 to 102,319, which equates to 3.84 percent growth, or
0.54 percent growth compounded annually. The population for Pueblo County, for
the same seven-year period, has increased from approximately 123,051 to 131,217,
which equates to 6.64 percent growth, or 0.92 percent growth compounded,
annually.
Employment
Pueblo's unemployment rate has significantly dropped since the mid-1980s
and has remained steady around 5.0 to 6.0 percent for the last three years. The
Job Service of Colorado has tracked the civilian labor force unemployment for
the past few years, as shown below.
- --------------------------------------------------------------------------------
Civilian Labor Force
- --------------------------------------------------------------------------------
Total Total %
Year Employment Unemployment Unemployment
- --------------------------------------------------------------------------------
1990 48,654 3,517 6.7
- --------------------------------------------------------------------------------
1991 48,158 3,672 7.1
- --------------------------------------------------------------------------------
1992 47,521 4,591 8.8
- --------------------------------------------------------------------------------
1993 48,906 4,088 7.7
- --------------------------------------------------------------------------------
1994 51,652 3,185 5.8
- --------------------------------------------------------------------------------
1995 53,623 3,425 6.0
- --------------------------------------------------------------------------------
1996 54,734 3,418 5.9
- --------------------------------------------------------------------------------
1997 (Feb.) 57,310 2,830 4.7
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7
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<PAGE>
Regional Analysis
================================================================================
The major employers in the Pueblo Area are as follows:
- --------------------------------------------------------------------------------
Major Employers in the Pueblo Area
- --------------------------------------------------------------------------------
Company Number of Employees
- --------------------------------------------------------------------------------
School District 60 2,391
- --------------------------------------------------------------------------------
Matrixx Marketing, Inc. 1,900
- --------------------------------------------------------------------------------
Parkview Episcopal Medical 1,474
Center
- --------------------------------------------------------------------------------
St. Mary Corwin Regional 1,350
Medical Center
- --------------------------------------------------------------------------------
CF & I Steel, L.P. 1,273
- --------------------------------------------------------------------------------
Colorado Institute of Mental 1,250
Health
- --------------------------------------------------------------------------------
Trane Company 900
- --------------------------------------------------------------------------------
Pueblo County 875
- --------------------------------------------------------------------------------
School District 70 769
- --------------------------------------------------------------------------------
City of Pueblo 692
- --------------------------------------------------------------------------------
Households/Income
Household formation in Pueblo County has displayed an increase of 4.56
percent over the past four years from 48,300 households to its current status of
approximately 50,500 households. Based upon the foregoing, it appears that
Pueblo County qualifies as a steady growing market where modest, sustained
increases in population and household formation are anticipated over the
foreseeable future.
The income characteristics for Pueblo County is considerably below those
witnessed by the state of Colorado as a whole. The current median household
income level for Pueblo County is $24,137 versus $32,947 for the state of
Colorado.
Summary
Based upon the foregoing, it appears that Pueblo County should witness
modest gains in population over the coming years, and income levels are expected
to keep pace. Overall, the subject's market is expected to continue its trend of
economic stability, with its steady decline in unemployment rates. The
continuation of the Pueblo economic stability should ensure a favorable
environment for real estate development and investment over the long term.
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<PAGE>
NEIGHBORHOOD MAP
[MAP OMITTED]
<PAGE>
NEIGHBORHOOD ANALYSIS
================================================================================
Location
The subject property is located along the north side of Fortino Boulevard
West, just west of Interstate 25, in the north section of Pueblo. The subject's
neighborhood is bounded by Eagleridge Boulevard to the north, Interstate 25 to
the east, Highway 50 to the south and West Drive to the west.
Access
Access to the subject site is from Fortino Boulevard West, just west of
Interstate 25. The primary access routes in the neighborhood consist of Highway
50 and Interstate 25. Highway 50 is an east/west commercial arterial, located
just south of the subject site, and connects with Interstate 25. Interstate 25
is a north/south highway, bisecting the state of Colorado. At the north end of
the subject neighborhood is Eagleridge Boulevard, which also enjoys an
interchange with Interstate 25.
Neighborhood Characteristics
The subject neighborhood is a fast growing area, with new commercial and
residential developments occurring around the subject property. Single-family
residential developments are located to the north and west of the subject off of
Fortino Boulevard West. While commercial, primarily retail, developments are
located along Highway 50 to the south of the subject, as well as to the west of
the subject along Commercial Drive. Pueblo Mall, located at the southeast corner
of Interstate 25 and Highway 50, along with Northgate Shopping Center, located
at the southwest corner of Interstate 25 and Highway 50 have acted as a catalyst
in bringing in additional retail developments to the area. Some of the retail
uses include: Eagle Hardware and Garden, Albertoson's Grocery Store, Sam's, Home
Depot, Rex Appliances. A large theater, several gas stations, hotels and fast
food restaurants are also located within the subject's immediate vicinity.
Hotels within the area include: Motel 6, Super 8, Pueblo Motor Inn and Holiday
Inn. Several fast food restaurants include: Subway, Hardee's, McDonald's,
Arby's, Fazoli's and Burger King.
Planned Improvements/Demolition
We are not aware of any manufactured housing communities expected to be
developed in the near future in the subject neighborhood that might compete with
the subject. Similarly, we are not aware of any known planned demolitions for
the neighborhood.
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<PAGE>
Regional Analysis
================================================================================
Conclusion
In summary, the subject property is situated in an area well suited for
manufactured housing development, which benefits from the rapidly growing area,
along with the accessibility to Highway 50 and Interstate 25. Real estate values
are anticipated to increase at a steady pace. The economy in the area is
anticipated to be good, with unemployment steadily decreasing and population
anticipated to increase.
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MARKET ANALYSIS
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National Overview
Reportedly, the largest property owners of manufactured housing
communities in the United States are: ROC Communities, headquartered in
Colorado; MHC, Inc., headquartered in Illinois; Ellenburg Capital, headquartered
in Oregon; Lautrec Ltd., headquartered in Michigan; Clayton Homes, headquartered
in Tennessee; Clayton Williams and Sherwood, headquartered in California;
Chateau Properties, Sun Communities and UNIPRO, headquartered in Michigan.
The following represents the top ten manufactured housing community firms,
as reported by GFA Management, as of 1997.
<TABLE>
<CAPTION>
=========================================================================================
1997 Firm Name State No. of Sites No. of Communities
Rank Owned/Managed Owned/Managed
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Sun Communities Michigan 30,295/0 84/0
- -----------------------------------------------------------------------------------------
2 ROC Communities Colorado 22,441/7,167 77/36
- -----------------------------------------------------------------------------------------
3 Manufactured Home Communities Illinois 27,349/838 69/3
- -----------------------------------------------------------------------------------------
4 Ellenburg Capital Florida 25,173/0 63/0
- -----------------------------------------------------------------------------------------
5 Lautrec Ltd. Michigan 22,652/0 58/0
- -----------------------------------------------------------------------------------------
6 Chateau Properties Michigan 20,003/0 47/0
- -----------------------------------------------------------------------------------------
7 Clayton Homes Tennessee 18,000/0 66/0
- -----------------------------------------------------------------------------------------
8 Clayton, Williams and Sherwood California 16,946/0 44/0
- -----------------------------------------------------------------------------------------
9 UNIPROP Michigan 14,931/0 40/0
- -----------------------------------------------------------------------------------------
10 The Bloch Organization Michigan 14,379/0 37/0
=========================================================================================
</TABLE>
According to the U.S. Census Bureau, more than 8,521,000 people were
living in manufactured housing communities as of 1990 compared to 3,838,678 in
1980. This represents an increase in manufactured housing community living of
approximately 122.0 percent over the last ten years. Over the last ten years,
there has been a steady increase in manufactured housing community development
across the country. Among the demographic factors which account for the increase
in manufactured housing community living are: decreasing household size, a
growing demand for smaller housing, as well as an alternative to the increasing
cost of housing. Nationally, the largest percentage of manufactured housing
communities are located in California, Michigan, Colorado, Florida, New York,
Minnesota, Indiana, Arizona, Ohio, and Wisconsin.
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Market Analysis
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The manufactured home industry has dramatically changed over the last 20
years. Manufactured homes are now designed and constructed to accommodate
spacious and attractive living requirements. Today, approximately one out of
sixteen families live in manufactured housing units. The manufactured housing
market share has been growing steadily over the last 10 years. In 1990, 6.7
percent of Americans lived in manufactured housing units, up from 2.9 percent
compared to 1970, according to the U.S. Census Bureau, which represents 12.0 to
14.0 percent of all new housing built since the mid-1980's, according to the
Manufactured Housing Institute in Arlington, Virginia.
In 1990, the average cost of a manufactured housing unit was $27,800
compared to $149,000 for a new house (including land), according to the
Manufactured Housing Institute. This reflects a 28.0 percent increase in the
cost of manufactured housing since 1980 versus a 49.0 percent increase in
conventional housing. Industry experts estimate that a single-family home
selling for $150,000 would require an annual income of $52,671. To purchase a
$27,800 manufactured housing unit, only a $19,984 income level would be
required.
At Fleetwood Enterprises, the nation's largest manufacturer of
manufactured housing units, units may be purchased for up to $100,000, which
would include a three-bedroom, two-bath unit of 2,100 square feet, with vaulted
ceilings.
In 1990, approximately 10.0 percent of manufactured home owners lived in
units worth approximately $40,000, up from 4.0 percent compared to 1981,
according to a study conducted by Foremost Insurance Company in Grand Rapids,
Michigan. Also, according to the study, approximately 21.0 percent of the
manufactured housing households are occupied by people' 65 years of age or
older, slightly lower than the age group for conventional homes, as reported by
Foremost Insurance.
The demand for good quality institutional grade manufactured housing
communities has substantially increased over the last ten years. Manufactured
housing communities provide an affordable alternative to the increasing cost of
housing. Also, manufactured housing communities provide an alternative form of
living for the elderly and retirees, especially for those living on fixed
incomes.
Acquisitions of manufactured housing communities during 1993 and 1994 were
clearly dominated by Real Estate Investment Trusts. During 1994 and 1995
Manufactured Home Communities (MHC) and ROC communities lead the acquisition of
manufactured housing communities nationally. During 1996, Sun Communities
captured the lead and, together
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Market Analysis
================================================================================
with ROC and MHC dominate the Real Estate Investment Trust market.
The following chart represents the largest Real Estate Investment Trusts,
from 1991 to 1996, as reported by GFA Management
================================================================================
HOME SITE GROWTH, DEVELOPMENT AMONG THE LARGEST
REAL ESTATE INVESTMENT TRUST (REITS)
- --------------------------------------------------------------------------------
Year ROC MHC Chateau Sun United Total Annual
Growth
- --------------------------------------------------------------------------------
1996 29,608 28,187 20,003 30,295 5,234 113,327 17.0%
- --------------------------------------------------------------------------------
1995 27,910 26,237 19,594 18,000 4,850 96,591 9.0%
- --------------------------------------------------------------------------------
1994 26,231 28,407 15,689 13,500 4,623 88,450 37.8%
- --------------------------------------------------------------------------------
1993 20,142 14,700 15,261 9,036 5,050 64,189 17.8%
- --------------------------------------------------------------------------------
1992 18,745 12,873 10,032 7,600 5,200 54,450 N/A
- --------------------------------------------------------------------------------
1991 9,030 13,079 9,759 N/R N/R N/A N/A
- --------------------------------------------------------------------------------
N/R = No report N/A = Not applicable
- --------------------------------------------------------------------------------
NOTE: The 113,327 sites counted for the top five REITs in 1996 make up 20
percent of the total sites surveyed in the 1997 Allen Report. These rental sites
are located in 339 communities, accounting for about 1 percent of some 50,000
existing manufactured housing communities nationwide. The community counts for
the five major REITs are: ROC (113), MHC (72), Chateau (47), Sun (84) and United
(23). The proportion of communities owned by each of the REITs compared to the
others is: ROC (33%), MHC (21%), Chateau (14%), Sun (25%) and United (7%).
================================================================================
Manufactured Home Communities (MHC) is expected to continue an aggressive
acquisition campaign through 1997 and beyond. As of September 1997, the MHC REIT
had a market cap of $632.0 million, and continues to pursue the acquisition of
manufactured home communities. Aside from the ELL-CAP $300.0 million
transaction, in September 1997 Manufactured Home Communities, Inc. completed a
$107.0 million purchase of 18 manufactured housing communities and two related
commercial properties from partnerships affiliated with Mobileparks West. The
communities, with 3,505 sites, were purchased with about $3.0 million
manufactured home operating units, $16.0 million in cash and $20.0 million of
installment notes and assumed debt. The communities have an average monthly
rental of $349.00. The communities are located in California, Utah, Oregon,
Washington and Nevada. MHC may be the first manufactured home community REIT to
reach $1.0 billion.
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Market Analysis
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The MHC REIT continues to perform and expand, and as of September 1997 was
trading at $25.625, with a current yield of 5.2 percent. The top traded REITs,
are presented as follows.
================================================================================
REIT MARKET UPDATE
- --------------------------------------------------------------------------------
Company Price Current 52 Week 52 Week Annual 12 Mth
Symbol (9/19/97) Yield High Low Dividend Tot Rtn
- --------------------------------------------------------------------------------
CPJ $29.688 5.8% $31.125 $22.250 1.72 26.6%
- --------------------------------------------------------------------------------
MHC $25.625 5.2% $26.428 $18.875 1.32 30.7%
- --------------------------------------------------------------------------------
SUI $37.428 5.0% $ 38.00 $27.750 1.88 31.8%
- --------------------------------------------------------------------------------
UMH $11.625 6.0% $13.625 $10.875 0.70 -1.7%
- --------------------------------------------------------------------------------
Total return figures obtained through Standard & Poors and are for the period
through Sept 1997.
================================================================================
The Southwest and Northwest Regions of the nation are the preferred
locations regarding recent and future manufactured housing community
acquisitions. However, investors seeking moderate, but consistent growth
expectations, are still looking at the midwest region. Also, southern portions
of Florida are still considered a prime area for investors seeking good quality
manufactured housing communities, with good up-side potential. What was once a
stagnant market, the northeast region is now being considered for future
acquisitions.
According to a recent study prepared by Merrill Lynch & Company, ownership
in the manufactured housing community industry is highly fragmented. The top 150
owner-operators account for less than 5.0 percent of the total industry, whereas
a host of "mom-and-pop" private companies account for the other 95.0 percent.
This unglamorous niche industry is ripe for consolidation, and an infusion of
professional management expertise is likely to yield significant economies of
scale. The four REIT's specializing in manufactured housing communities are
already among the top ten owner-operators, and are well positioned to facilitate
and hasten the industry's consolidation to the likely benefit of their
stockholders.
Manufactured homes are the fastest growing component of the nation's
housing inventory, due to their affordability, good quality design and safety
standards. According to the Merrill Lynch & Company Manufactured Housing
Community Industry Report, factory-built homes appeal especially to senior
citizens and to households with limited economic needs, two segments of the
population that are likely to grow rapidly in coming years.
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Market Analysis
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Consistent returns in manufactured housing community investments have been
the mainstay of the industry. For this reason, as well as the amount of
acquisitions seen by Real Estate Investment Trusts (REITs) from 1991 to 1996,
the availability of good quality manufactured housing communities has been
substantially reduced compared to the 1980's. Good quality manufactured housing
communities still command premium prices, thus driving down overall
capitalization rates.
Cushman & Wakefield's Valuation Advisory Services has tracked sale
transactions of manufactured housing communities since 1985. Overall
capitalization rates have consistently been within the 8.75 to 10.00 percent
range for communities located in moderate to increasing growth markets, and as
low as near 8.0 percent for those communities located in growing markets that
poses significant upside potential. Overall capitalization rates are clearly
affected and are differentiated among the properties relative to rent levels,
age, quality, condition, location, amenities, demographic characteristics,
resident profile, as well as the quality of management.
Manufactured housing communities fall within, and are categorized by their
overall appearance, age, and amenities, but more importantly the strength of the
local market. The various categories of manufactured housing communities,
according to the Woodall Directory, can be ranked as 1 to 5 Star Parks. These
rankings are defined as follows:
One Star Park
The most important consideration for a one star park is overall
appearance. If it is not a decent place to live, it will not be listed in
Woodall's Directory. The following are general requirements:
o Fair overall appearance;
o Patios on most lots. May be concrete, asphalt, wood, or some
suitable material;
o Grass, rock or shell to cover ground;
o Streets fair to good. May be dirt, asphalt or gravel in reasonable
condition;
o Restrooms clean, if any;
o Adequate laundry or laundromat nearby;
o If fences allowed, must be neat;
o Mail service;
o Homes may be old models, but show evidence of care; and,
o Manager available some hours of each day.
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Market Analysis
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Two Star Park
In addition to the requirements for a one star park, a two star park will
have the following:
o Landscaping - some lawns and shrubs;
o Streets in good condition. Must be dust free of crushed rock, gravel
or shell minimum;
o Neat storage;
o Well equipped laundry or laundromat nearby;
o 200 volt connections available;
o If children accepted, park should have play area;
o Park free of clutter, such as old cars and other abandoned
equipment; and,
o Well maintained and managed.
Three Star Park
What a three star park does it does well, but not as uniformly as higher
rated parks. Many three star parks were once higher rated, but original
construction does not allow for today's 10-foot, 12-foot, and double-wides
or the 55-foot and 60-foot lengths. If children are allowed, there should
be adequate play area. However, the disarray caused by children may at
times be the determining factor that keeps a three star park at that level
when it otherwise could be rated higher. In addition to the requirements
for one and two star parks, a three star park must have the following:
o Attractive entrance;
o All homes must be in good condition;
o Awnings and cabana rooms on some homes in southern areas;
o Some spaces for large mobile homes;
o Paved or hard surfaced streets;
o Off-street parking or streets wide enough for safe on-street
parking;
o Good lawns or substitute throughout, shade trees, some shrubs where
climate permits;
o Concrete patios or the equivalent on all lots;
o All lots neat and attractive;
o All park buildings in good repair; and,
o Good management.
Four Star Park
Four star parks are luxury parks. In addition to the requirements for one,
two and three star parks, a four star park must have the following:
o Good landscaping;
o Most homes skirted with metal skirts, concrete block, ornamental
wood or stone;
o Paved streets, edged or curbed.
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Market Analysis
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o Uncrowded lots;
o Underground utilities if permitted by local conditions and
authorities;
o Most tanks, if present, concealed;
o Any hedges or fences must be attractive and uniform;
o Awnings, cabanas, or porches on most homes in southern areas.
(Excepting double-wide units.);
o Most lots to accommodate large mobile homes;
o Where row parking of homes exists, all must be lined up uniformly;
o Community hall and/or swimming pool and/or recreation programs. If a
park is four star in all but this requirement, the fourth star will
be printed as an open star indicating a four star park without
park-centered recreation; and,
o Excellent management.
Five Star Park
Five star parks are the finest. They should be nearly impossible to
improve. In addition to the requirements for one, two, three, and four
star parks, a five star park must have the following:
o Well planned and laid out spacious appearance;
o Good location in regard to accessibility and desirable neighborhood.
In some locations, park should be enclosed by high hedges or
ornamental fence;
o Wide paved streets in perfect condition. Curbs or lawns edged to
streets, sidewalks, street lights, street signs;
o Homes set back from street;
o Exceptionally attractive entrance and park sign;
o Patios at least 8 x 30 feet. (Excepting double-wide units.);
o Paved off-street parking such as carports or planned parking;
o All homes skirted;
o All hitches concealed. Any existing tanks concealed;
o Recreation, some or all of the following: swimming pool (excepting
areas with long, cold winters), shuffleboards, horseshoe pitching,
golf course, hobby shop, hobby classes, games, potlucks, dances or
natural recreational facilities;
o Beautifully equipped recreation hall with kitchen. Room for
community gatherings, tiled restrooms, etc.;
o Uniform storage sheds or central storage facilities;
o All late model homes in excellent condition;
o At least 60 percent occupancy in order to judge quality of residents
which indicates park's ability to maintain a five star rating
between inspections;
o All empty lots grassed, graveled or otherwise well maintained;
o If pets or children allowed, there must be a place for them to run
and play without cluttering the streets and yards. Most five star
parks are for adults only; and,
o Superior management interested in comfort of residents and
maintenance of park.
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Market Analysis
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The demand for good quality institutional grade manufactured housing
communities is anticipated to increase throughout the 1990's, since manufactured
housing communities provide an alternative form of living for the elderly and
retirees, especially for those living on fixed income. Manufactured home
shipments continue to be strong. Shipments rose 20.0 percent in 1992 and 1994,
and 12.0 percent in 1995. The market for good quality manufactured housing
communities is expected to be strong, with yield and capitalization rates and
prices expected to continue to be competitive, with the REITs leading the way.
Competition
We have surveyed four manufactured housing communities located within the
subject's primary market, including the subject property, containing a total of
957 sites. The combined occupancy rate of the four manufactured housing
communities, including the subject property, is approximately 98.0 percent.
Excluding the subject property in our survey, the combined occupancy rate is
also approximately 98.0 percent, based on 705 sites.
The name and location of the subject property's primary competition, as
well as the number of sites, occupancy levels, amenities offered, monthly rental
rates and services provided in the monthly rental rate, are presented on the
following facing page, along with a map which identifies the location of each
competing community.
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<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
SUMMARY OF COMPETING MANUFACTURED HOUSING COMMUNITIES
- ------------------------------------------------------------------------------------------------------------------------------------
Number Age
Of Sites --------- 3-Year
--------- Condition Services Date Of Average
Comp. Name Occupancy --------- Monthly Provided Last Rental Annual Rental
No. Location Level Amenities Park Rating(1) Rent in Rent Increase Increase
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R-1 Meadowbrook 388 Clubhouse 1979 $195.00/Mo. None December, 1997 $8.00/Mo.
33550 E. Highway 96 --- Pool ---- To
Vineland, Colorado 95% Basketball Good $210.00/Mo.
Playground ----
Laundry 4*
Storage
- ------------------------------------------------------------------------------------------------------------------------------------
R-2 Stagecoach 156 None 1974 $212.00/Mo. Water January, 1997 $20.00/Mo.
1901 Constitution --- ---- To Sewer
Pueblo, Colorado 100% Average $215.00/Mo. Refuse
-------
3*
- ------------------------------------------------------------------------------------------------------------------------------------
R-3 Oasis 161 Clubhouse 1964 $225.00/Mo. Water June, 1997 $14.00/Mo.
2221 S. Prairie Avenue --- Shuffleboard ---- To Sewer
Pueblo, Colorado 100% Average $230.00/Mo. Refuse
-------
3*-4*
- ------------------------------------------------------------------------------------------------------------------------------------
Subject Pueblo Grande 252 Clubhouse 1971 $225.00/Mo. Water January, 1997 $15.00/Mo.
999 Fortino Blvd. West --- Pool ---- Sewer
Pueblo, CO 98% Billiard Room Good Refuse
Playground ----
Basketball 4*
Laundry
Storage
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Ratings from One Star to Five Star Parks are defined in the National Overview section of this report.
====================================================================================================================================
</TABLE>
<PAGE>
COMPETING MANUFACTURED HOUSING MAP
[MAP OMITTED]
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<PAGE>
Market Analysis
================================================================================
Rental rates of manufactured housing communities located within the
subject's primary market range from $195.00 to $230.00 per site, on a monthly
basis. The subject property is currently quoting a monthly rental rate within
the market range, or at $225.00 per site. The last rental rate increase at the
subject property was as of January, 1997, of $18.00 per month.
The enclosed comparable rentals are considered the most competitive to the
subject property regarding amenities offered, condition, location and overall
ranking.
Comparable R-1, Meadowbrook, is located at 33550 E. Highway 96, in
Vineland, Colorado. This comparable property is a family residential
community, containing 388 sites, and is approximately 95.0 percent
occupied. Meadowbrook was developed in 1979, and is in overall good
condition. Over the last three years, the annual rental rate increased
approximately $8.00 per month. Monthly rental rates range from $195.00 to
$210.00, with no services included in monthly rental payment. Amenities
include a clubhouse, two pools, two playgrounds, basketball court, laundry
facility and recreational vehicle storage.
Comparable R-2, Stagecoach, is located at 1901 Constitution, in Pueblo,
Colorado. This comparable property is a family residential community,
containing 156 sites, and is 100.0 percent occupied. Stagecoach was
developed in 1974, and is in overall average condition. Over the last
three years, the annual rental rate increased approximately $20.00 per
month. Monthly rental rates range from $212.00 to $215.00, with water,
sewer and refuse service included in monthly rental payment. No amenities
are provided in the park.
Comparable R-3, Oasis, is located at 2221 S. Prairie Avenue, in Pueblo,
Colorado. This comparable property is a 55-year-old and older residential
community, containing 161 sites, and is in overall average condition. Over
the last three years, the annual rental rate increased approximately
$14.00 per month. Monthly rental rates range from $225.00 to $230.00, with
water, sewer and refuse service included in monthly rental payment.
Amenities include a clubhouse and shuffleboard.
In our opinion, and based on conversations with the on-site manager,
property R-1 competes most favorably with the subject property, with monthly
rental rates ranging from $195.00 to $210.00 per site. The subject property is
currently quoting a monthly rental rate of $225.00 per site, which is within the
range of the rental rates of our comparable competing properties. However, no
services are offered in the rental rate of R-1, compared to the subject. The
subject property competes most effectively with its primary competitors
regarding amenities, condition and current rent structure.
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Market Analysis
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Comparable Manufactured Housing Community Sales
A search of the subject's market revealed six recent sales of manufactured
housing communities located in the Denver Metropolitan Area. The following is a
brief discussion of each of the manufactured housing sales located within the
subject's market. These sales are summarized on the following facing page.
Comparable Sale I-1, Pine Lakes, is located at 10201 Riverdale Road, in
Thornton, Colorado. This property contains 760 sites, situated on 183.67
acres of land area. The property was developed in 1972, and was in overall
good condition at the time of sale. Amenities include two clubhouses, two
pools, recreation room, tennis court, basketball court, and a playground.
The property was approximately 90.0 percent occupied at the time of sale.
The property was purchased for $12,500,000 as a combined transaction with
sale I-2, which equates to $16,447 per site,
Comparable Sale I-2, Redwood Estate II, is located at 9595 Pecos Street,
in Thornton, Colorado. This property contains 752 sites, situated on
128.22 acres of land area. Amenities include a clubhouse, pool, recreation
room, playground and recreational vehicle storage. The property was
approximately 93.0 percent occupied at the time of sale. The property was
purchased for $12,500,000 as a combined transaction with sale I-1, which
equates to $16,622 per site.
Comparable Sale I-3, Canyon Ridge, is located at 5150 Airport Road, in
Colorado Springs, Colorado. This property contains 250 sites, situated on
31.36 acres of land area. Canyon Ridge was developed in 1972, and was in
good condition at the time of sale. Amenities include a clubhouse, pool,
recreation room and laundry facility. The property was approximately 99.0
percent occupied at the time of sale. The property was purchased for
$4,200,000, which equates to $16,800 per site.
Comparable Sale I-4, Cottonwood Village, is located at 11990 S. Boulder
Road, in Layfayette, Colorado. This property contains 241 sites, situated
on 19.36 acres of land area. Cottonwood Village was developed in 1972, and
was in overall good condition at the time of sale. Amenities include a
clubhouse, pool, recreation room, playground and laundry facility. The
property was 100.0 percent occupied at the time of sale. The property was
purchased for $4,800,000, which equates to $19,917 per site.
Comparable Sale I-5, Canterbury Park, is located at 3020 S. Powers
Boulevard, in Colorado Springs, Colorado. This property contains 496
sites, situated on 61.73 acres of land area. Canterbury Park was developed
in 1985, and was in overall good condition at the time of sale. Amenities
include a clubhouse, pool and recreational vehicle storage. The property
was 100.0 percent occupied at the time of sale. The property was purchased
for $9,300,000, which equates to $18,750 per site.
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<PAGE>
<TABLE>
<CAPTION>
===============================================================================================================================
SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- -------------------------------------------------------------------------------------------------------------------------------
$EGI/Site
Sales Price -------------
Per Site $Expense/Site
Sales Date Land Area Density -------- EGIM -------------
Comp. Name ---------- --------- ------- Occupancy ---- Expense Ratio
No. Location Sales Price No. Sites Condition At Sale $NOI/Site OAR % Of EGI
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
I-1 Pine Lakes 7/96 183.67 4.14 $16,447 $1,563 N/A N/A
10201 Riverdale Road -------------- ------ ---- ------- ---
Thornton, Colorado $12,500,000(1) 760 Good 90% 9.50%
- -------------------------------------------------------------------------------------------------------------------------------
I-2 Redwood Estate II 7/96 128.22 5.86 $16,622 $1,579 N/A N/A
9595 Pecos Street ------------- ------ ---- ------- ---
Thornton, Colorado $12,500,000(1) 752 Good 93% 9.50%
- -------------------------------------------------------------------------------------------------------------------------------
I-3 Canyon Ridge 7/96 31.36 7.97 $16,800 $1,512 N/A N/A
5150 Airport Road ---------- ----- ---- ------- ---
Colorado Springs, CO $4,200,000 250 Good 99% 9.00%
- -------------------------------------------------------------------------------------------------------------------------------
I-4 Cottonwood Village 9/95 19.36 12.45 $19,917 $1,591 6.45x $3,089
11990 S. Boulder Road ---------- ----- ----- ------- ----- ------
Lafayette, Colorado $4,800,000 241 Good 100% 7.99% $1,498
------
48.50%
- -------------------------------------------------------------------------------------------------------------------------------
I-5 Canterbury Park 7/95 61.73 8.03 $18,750 $2,037 6.91x $2,714
3020 S. Powers Blvd. ---------- ----- ----- ------- ----- ------
Colorado Springs, CO $9,300,000 496 Good 100% 10.87% $677
----
24.95%
- -------------------------------------------------------------------------------------------------------------------------------
I-6 Woodland Hills 3/94 57.0 7.63 $18,391 $1,885 5.56x $3,310
1500 West Thornton ---------- ----- ----- ------- ----- ------
Thornton, Colorado $8,000,000 435 Good 97% 10.25% $1,425
------
43.05%
- -------------------------------------------------------------------------------------------------------------------------------
Subject Pueblo Grande - - - 32.94 7.65 - - - $1,666 N/A $2,672
999 Fortino Blvd. ----- ----- ------
West 252 Good $1,007
Pueblo, CO ------
37.69%
- -------------------------------------------------------------------------------------------------------------------------------
(1) Sale I-1 and I-2 were purchased as a combined transaction.
===============================================================================================================================
</TABLE>
================================================================================
SUMMARY OF MANUFACTURED HOUSING COMMUNITY SALES
- --------------------------------------------------------------------------------
Comp. Name Comparability to
No. Location to the Subject Comments
- --------------------------------------------------------------------------------
I-1 Pine Lakes Similar Good condition;
10201 Riverdale Road Amenities include two
Thornton, Colorado clubhouses, two
pools, recreation
room, tennis,
basketball and
playground.
- --------------------------------------------------------------------------------
I-2 Redwood Estate II Similar Good condition;
9595 Pecos Street Amenities include a
Thornton, Colorado clubhouse, pool,
recreation room,
playground and RV
storage.
- --------------------------------------------------------------------------------
I-3 Canyon Ridge Inferior Developed in 1972;
5150 Airport Road Good condition;
Colorado Springs, CO Amenities include a
clubhouse, pool,
recreation room and
laundry facility.
- --------------------------------------------------------------------------------
I-4 Cottonwood Village Inferior Developed in 1972;
11990 S. Boulder Road Good condition;
Lafayette, Colorado Amenities include a
clubhouse, pool,
recreation room,
playground and
laundry facility.
- --------------------------------------------------------------------------------
I-5 Canterbury Park Similar Developed in 1985;
3020 S. Powers Blvd. Good condition;
Colorado Springs, CO Amenities include a
clubhouse, pool and
RV storage.
- --------------------------------------------------------------------------------
I-6 Woodland Hills Similar Developed in 1970;
1500 West Thornton Good condition;
Thornton, Colorado Amenities include a
clubhouse, pool,
playground and
barbecue pavilion.
- --------------------------------------------------------------------------------
Subject Pueblo Grande Subject Property Developed in 1971;
999 Fortino Blvd. Good condition;
West Amenities include a
Pueblo, CO clubhouse, pool,
billiard room,
playground,
basketball court,
laundry facility and
RV storage.
- --------------------------------------------------------------------------------
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<PAGE>
Market Analysis
================================================================================
Comparable Sale I-6, Woodland Hills, is located at 1500 West Thornton, in
Thornton, Colorado. This property contains 435 sites, situated on 57.0
acres of land area. Woodland Hills was developed in 1970, and was in
overall good condition at the time of sale. Amenities include a clubhouse,
pool, playground and barbecue pavilion. The property was 97.0 percent
occupied at the time of sale. The property was purchased for $8,000,000,
which equates to $18,391 per site.
It should be noted that comparability does not imply an identical or exact
duplicate, but rather the possession of a similar utility and affected by
similar supply and demand forces. Also, relative to the subject property,
differences include: time or date of the transactions; location, which
encompasses differences in accessibility; site characteristics, including
differences in size, topography, access, exposure and development capacities;
and improvement characteristics, which include differences in age, quality,
condition, size and amenities.
Demographic Trends
Based on information provided by National Decision Systems (NDS), the
populations within the subject's primary 5-mile and secondary 10-mile market
areas, as of 1997, are 76,413 and 123,345, respectively. The populations of the
subject's primary and secondary market areas are projected to increase to 78,355
and 125,374, respectively, by the year 2002.
According to NDS, the total number of households within the subject's
primary and secondary market areas, are 29,246 and 47,817, respectively, for
1997. The number of households within the subject's primary 5-mile and secondary
10-mile market areas are projected to increase to 29,455 and 49,029,
respectively, by the year 2002.
The average household income levels within the subject's primary and
secondary market areas, for 1997, are $33,018 and $33,606, respectively, and are
expected to increase to $40,371 and $39,916, respectively, by the year 2002. The
median household income levels within the subject's primary and secondary market
areas, for 1997, are $23,123 and $24,789, respectively, and are expected to
increase to $25,624 and $27,238, respectively, by the year 2002. Per capita
income within the subject's primary and secondary market areas, for 1997, are
$12,527 and $12,840, respectively, and are expected to increase to $15,000 and
$15,463, respectively, by the year 2002.
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Market Analysis
================================================================================
Based on the above levels, the demographics of the subject's primary
market area appear to indicate a positive growth trend, based on information
provided by NDS. For additional demographic information, please refer to the NDS
summary report in the Addenda of this report.
Expense Analysis
Expenses exhibited by manufactured housing communities nationally are
typically 35.0 to 45.0 percent of effective gross income. However, expense
ratios of manufactured housing communities located in the southeast and
southwest regions of the nation are typically lower by comparison, due to lower
real estate taxes and common area maintenance charges.
As presented in the Summary of Manufactured Housing Communities Sales,
operating expense ratios of competing parks range from 24.95 to 48.50 percent of
effective gross income levels, and $677 to $1,498 on a per site basis. The
subject property is currently reporting expenses, for the 12-month trailing
period of 1997, at 37.69 percent of effective gross income and $1,007 on a per
site basis. The operating expenses of the subject property are within the range
of comparable properties on both a percentage of effective gross income and on a
per site basis.
Market Supply and Demand
There are a total of three competing manufactured housing communities
located within the subject's market, which total 705 sites, with a corresponding
average occupancy rate of 98.0 percent. No specific absorption statistics were
available. The subject property, based on conversations with management, has
historically had occupancy rates consistent with competing parks, and is
currently 98.0 percent occupied. We believe the current occupancy rate of the
subject property is stabilized, and has similar occupancy rates of competing
parks presently presented. Based on the subject's current occupancy rate and
occupancy rates at competing parks, demand appears to be strong, with steady
rental rate increases expected.
Conclusion
Historically, the subject's primary market has sustained occupancy levels
of 95.0 to 100 percent. Rental rates of similar manufactured housing communities
located within the subject's primary market generally range from $195.00 to
$230.00 per site, on a monthly basis. The subject property is currently quoting,
and is currently achieving (based on the most recent rent roll provided), a
monthly rental rate within the range of competing parks, or at $225.00 per site.
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Market Analysis
================================================================================
Based on our research, steady increases in rental rates are anticipated,
based on actual historical performance of competing parks and historical
increases seen at the subject property. Sales transactions of manufactured
housing communities located within the subject's region range from $16,447 to
$19,917 per site, with corresponding overall rates ranging from 7.99 to 10.87
percent. In our opinion, the subject property competes favorably with its
competition regarding amenities, condition, rent structure and overall market
rating.
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<PAGE>
SITE PLAN
[GRAPHIC OMITTED]
<PAGE>
PROPERTY DESCRIPTION
================================================================================
Site Description
The subject site is located along the north side Fortino Boulevard West,
just west of Interstate 25, in Pueblo, Pueblo County, Colorado. The subject site
is irregular in shape and contains approximately 32.94 acres, or 1,435,000
square feet of land area. topographically, the site is generally level and at
street grade.
Primary access to the subject site is available from Fortino Boulevard
West. According to Flood Insurance Rate Map, Pueblo County, Colorado, Community
Panel Number 085077-0003C, effective date September 29, 1986, Pueblo Grande is
located in Zone C, which does not lie in the 500-year flood plain.
The streets within the park have two-lanes, with concrete curbs. Overall,
the subject site is typical of the area and is functionally well suited for its
current use.
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.
Improvements Description
The subject property was originally developed in 1971. The subject
improvements consist of a 252-site manufactured housing community, with a
community center, swimming pool, billiard room, playground, basketball court,
laundry facility and recreational vehicle storage. Of the 252 sites,
approximately 235 sites are single-wide and 17 sites are double-wide.
The community center consists of a manager's office, restroom facilities,
open-space available for resident use, billiard room and laundry facility. The
swimming pool, basketball court and playground are located adjacent to the
community center.
Off-street parking is available for each resident. Site improvements
within the park include: paved streets, street lighting and signage. Overall,
the site improvements appeared to be in good condition at the time of
inspection.
Pueblo Grande is a functional manufactured housing community with primary
ingress and egress along Fortino Boulevard West. Overall, the subject community
appears to be well maintained and is in good condition. Pueblo Grande is a
functional manufactured housing
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Property Description
================================================================================
community and competes favorably with other existing manufactured housing
communities in the area in terms of appearance and amenities. The subject
property would fit the profile of a Four Star Park, as defined in the National
Overview section of this report.
Real Property Taxes and Assessments
Assessed value of commercial property in Pueblo County is assessed at 29.0
percent of the Assessor's opinion of market value. The subject property is
identified by parcel identification numbers 05-130-05-005 and 73-600-26-030.
The total amount of real estate taxes for 1996 payable in 1997 for the
subject property amounts to $12,614.50. The total amount of real estate taxes
for 1996 payable in 1997 equates to approximately $50.45 per site.
Zoning
According to the City of Pueblo zoning officials, the subject property is
currently zoned PUD, Planned Unit Development, which is a legal and conforming
use.
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CONCLUSION
================================================================================
Conclusion
o The subject property, Pueblo Grande, is a functional manufactured
housing community, which competes favorably in relation to its
competition;
o Comparable manufactured housing communities located within the
subject's market range in monthly rental rates per site from $195.00
to $230.00;
o The subject property is currently quoting, and is currently
achieving (based on the most recent rent roll provided) a monthly
rental rate at $225.00 site, which is within the range of competing
parks;
o Sale transactions of manufactured housings located within the
subject's region range in unit sales prices per site from $16,447 to
$19,917, with corresponding overall rates ranging from 7.99 to 10.87
percent;
o Operating expenses are within industry standards for a park located
in the mountain region of the country;
o The subject park appears to be operating at economic levels based on
our review of historical and budgeted 1998 income and expenses;
o The demographic characteristics of the area appear to be positive;
o The population profile of the subject property is 23.0 percent
adult, 58.0 percent retired adults and 19.0 percent families.
o The current occupancy rate at the subject property of 98.0 percent
is evident by a strong local market and demand;
o No significant manufactured housing communities are expected to be
developed in the near future;
o In our opinion, based on Woodall's criteria, the subject property is
a Four Star Park, and the reader's attention is directed to the
corresponding definition and criteria of a Four Star Park, presented
in the National Overview section of this report; and,
o Based on the subject's location, demographic, economic, market and
physical characteristics, we believe Pueblo Grande will continue to
be a viable manufactured housing community in the foreseeable
future, and is well positioned in the marketplace.
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ASSUMPTIONS AND LIMITING CONDITIONS
================================================================================
"Report" means the consulting report to which these Assumptions and Limiting
Conditions are annexed.
"Property" means the subject of the Report.
"C&W" means Cushman & Wakefield, Inc. or its subsidiary which issued the Report.
"Appraiser(s)" means the employee(s) of C&W who prepared and signed the Report.
This report is made subject to the following assumptions and limiting
conditions:
1. No responsibility is assumed for the legal description or for any matters
which are legal in nature. 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 Report or upon which the Report 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 Appraisers nor C&W shall be responsible for the
accuracy or completeness of such information, including the correctness of
estimates, opinions, dimensions, sketches, exhibits, and other factual
matters.
3. The information is effective as of the date stated in the Report. Changes
since that date in external and market factors or in the property itself
can significantly affect our analysis.
4. The report is to be used in whole and not in part. No part of the Report
shall be used in conjunction with any other report. Possession of the
Report, or a copy thereof, does not carry with it the right of
publication. Publication of the Report or any portion thereof without the
prior written consent of C&W is prohibited. Except as may be otherwise
expressly stated in the letter of engagement to prepare the Report, C&W
does not permit use of the Report by any person other than the party to
whom it is addressed or for purposes other than those for which it was
prepared. If written permission is given by C&W to use the Report, the
Report must be used in its entirety and only with proper written
qualification as approved by C&W. No part of the Report or the identity of
the Appraiser shall be conveyed to the public through advertising, public
relations, news, sales, or other media or used in any material without
C&W's prior written consent. Reference to the Appraisal Institute or to
the MAI designation is prohibited.
5. The Appraiser shall not be required to give testimony in any court or
administrative proceedings relating to the Property or the Report.
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Assumptions and Limiting Conditions
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6. The Report 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 Report; 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 Report is based.
7. The physical condition of the improvements considered by the Report is
based on visual inspection by the Appraiser or other person identified in
the Report. C&W assumes no responsibility for the soundness of structural
members nor for the condition of mechanical equipment, plumbing, or
electrical components.
8. Unless otherwise stated in the Report, the existence of potentially
hazardous or toxic materials which may have been used in the construction
or maintenance or operation of the improvements or may be located at or
about the Property was not considered in the Report. These materials (such
as formaldehyde foam insulation, asbestos insulation, various soil
contaminants, and other potentially hazardous materials) may affect the
value of the Property. The Appraisers are not qualified to detect such
substances, and C&W urges that an expert in this field be employed to
determine the economic impact of these matters, if any, on the property in
the Report.
9. Unless otherwise stated in the Report, compliance with the requirements of
the Americans With Disabilities Act of 1990 (ADA) has not been considered
in the Report. Failure to comply with the requirements of the ADA may
negatively affect the value of the property. C&W recommends that an expert
in this field be employed.
10. If the Report is submitted to a lender or investor with the prior approval
of C&W, such party should consider the Report as one factor, together with
its independent investment considerations and underwriting criteria, in
its overall investment decision.
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CERTIFICATION
================================================================================
We certify that, to the best of our knowledge and belief:
1. Jody L. Garbisch inspected the property, and Michael J. Schaeffer and
Stanley R. Dennis, Jr., MAI, have reviewed and approved the report, but
did not inspect 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 on an action or event (such as the
approval of a loan) resulting from the analyses, opinions, or conclusions
in, or the use of, this report.
6. 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 Ethics and Standards of Professional Practice of the Appraisal
Institute.
7. No one provided significant professional assistance to the persons signing
this 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. As of the date of this report, Stanley R. Dennis, Jr., MAI, has completed
the requirements of the continuing education program of the Appraisal
Institute.
/s/ Michael J. Schaeffer /s/ Jody L. Garbisch /s/ Stanley R. Dennis, Jr.
Michael J. Schaeffer Jody L. Garbisch Stanley R. Dennis, Jr., MAI
Director Associate Appraiser Director, Manager
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<PAGE>
ADDENDA
================================================================================
POP-FACT SHEETS
LEGAL DESCRIPTION
QUALIFICATIONS OF APPRAISERS
================================================================================
35
<PAGE>
================================================================================
POP-FACT SHEETS
================================================================================
<PAGE>
Tue Nov 25, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP FACTS: SUMMARY REPORT)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6510
PREPARED FOR
CUSHMAN & WAKEFIELD, INC
PUEBLO GRANDA
PUEBLO, CO COORD: 38:18.81 104:37.23
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- --------------------------------------------------------------------------------
POPULATION
2002 PROJECTION 78,355 125,374
1997 ESTIMATE 76,413 123,345
1990 CENSUS 71,463 115,600
1980 CENSUS 74,656 118,227
GROWTH 1980 - 1990 -4.28% -2.22%
HOUSEHOLDS
2002 PROJECTION 29,455 49,029
1997 ESTIMATE 29,246 47,817
1990 CENSUS 28,141 44,346
1980 CENSUS 28,042 42,498
GROWTH 1980 - 1990 0.35% 4.35%
1997 ESTIMATED POPULATION BY RACE 76,413 123,345
WHITE 81.38% 82.02%
BLACK 1.68% 1.53%
ASIAN & PACIFIC ISLANDER 0.98% 0.79%
OTHER RACES 15.96% 15.66%
1997 ESTIMATED POPULATION 76,413 123,345
HISPANIC ORIGIN 38.66% 37.25%
OCCUPIED UNITS 28,141 44,346
OWNER OCCUPIED 63.27% 67.27%
RENTER OCCUPIED 36.73% 32.73%
1990 AVERAGE PERSON PER HH 2.46 2.54
1997 ESTIMATED HH BY INCOME 29,246 47,817
$150,000+ 1.36% 1.08%
$100,000 TO $149,999 1.49% 1.70%
$ 75,000 TO $ 99,999 2.85% 2.87%
$ 50,000 TO $ 74,999 11.32% 12.27%
$ 35,000 TO $ 49,999 13.72% 15.29%
$ 25,000 TO $ 34,999 15.51% 16.38%
$ 15,000 TO $ 24,999 19.96% 19.39%
$ 5,000 TO $ 14,999 24.56% 22.81%
UNDER $ 5,000 9.22% 8.20%
1997 EST. AVERAGE HH INCOME $ 33,018 $ 33,606
1997 EST. MEDIAN HH INCOME $ 23,123 $ 24,789
1997 EST. PER CAPITA INCOME $ 12,527 $ 12,840
<PAGE>
Tue Nov 25, 1997 Page 1
CUSTOM SUMMARY REPORT
(POP 80-02, NH 80-02, INC 80-02)
BY EQUIFAX NATIONAL DECISION SYSTEMS 800-866-6510
PREPARED FOR
CUSHMAN & WAKEFIELD, INC
PUEBLO GRANDA
PUEBLO, CO COORD: 38:18.81 104:37.23
- --------------------------------------------------------------------------------
5.00 MILE 10.00 MILE
DESCRIPTION RADIUS RADIUS
- --------------------------------------------------------------------------------
POP_80: TOTAL 74,656 118,227
POP 90: TOTAL 71,463 115,600
POP_97: TOTAL (EST.) 76,413 123,345
POP_02: TOTAL (PROJ.) 78,355 125,374
HH_80: TOTAL 28,042 42,498
HH_90: TOTAL 28,141 44,346
HH_97: TOTAL (EST.) 29,246 47,817
HH_02: TOTAL (PROJ.) 29,455 49,029
INC_80: PER CAPITA (EST.) $ 6,677 $ 6,857
INC 90: PER CAPITA $ 10,085 $ 10,283
INC_97: PER CAPITA (EST. $ 12,527 $ 12,840
INC_02: PER CAPITA (PROJ $ 15,000 $ 15,463
HH_90_BY INCOME_89: MEDIAN $ 19,743 $ 21,596
HH_97_BY INCOME: MEDIAN $ 23,123 $ 24,789
HH_02_BY INCOME: MEDIAN $ 25,624 $ 27,238
HH_80_BY INCOME_79: AVERAGE $ 17,776 $ 19,076
HH_90_BY INCOME_89: AVERAGE $ 25,147 $ 26,422
HH_97_BY INCOME: AVERAGE $ 33,018 $ 33,606
HH 02 BY INCOME: AVERAGE $ 40,371 $ 39,916
<PAGE>
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LEGAL DESCRIPTION
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<PAGE>
LEGAL DESCRIPTION
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LEGAL DESCRIPTION:
LOT 1, BLOCK 5, COLLEGE ROAD SHOPPING CENTER SUBDIVISION according to the plat
thereof recorded in Book 1912 at Page 844, Pueblo County, Colorado.
TRACT LOCATED IN SECTION 13, TOWNSHIP 20 SOUTH,
RANGE 65 WEST, 6th P.M.,
PUEBLO COUNTY, COLORADO
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<PAGE>
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QUALIFICATIONS OF APPRAISERS
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<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
JODY L. GARBISCH
Education
Bachelor of Science Degree in Finance, concentration in Real Estate, from the
College of Commerce and Business Administration at the University of Illinois,
Urbana-Champaign, Illinois, 1997.
Real Estate Education
The following courses have been completed through the Real Estate Program at the
University of Illinois at Urbana-Champaign:
Urban Real Estate Valuation
Urban Economics
Real Estate Financial Markets
Real Estate Investments
Real Estate Law
Real Estate Fundamentals
Current Position
Associate Appraiser, Cushman & Wakefield of Illinois, Inc., Valuation Advisory
Services.
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
MICHAEL J. SCHAEFFER
Real Estate Experience
Mr. Schaeffer has been active in the appraisal of real estate since 1983.
Appraisal experience includes the valuation of income-producing real estate in
the Chicago area as well as many major cities and small towns throughout the
Midwest. The types of properties appraised include office buildings, regional
malls, shopping centers, country clubs, apartment complexes, subsidized housing
units, industrial buildings, nursing homes, retirement communities, automotive
dealerships, department stores, vacant land, proposed income-producing
properties, and various special purpose properties. Mr. Schaeffer also has had
over 10 years of experience in new construction and renovation of commercial,
industrial, residential and specialized real estate properties.
Education
Bachelor of Arts, University of Cincinnati, Cincinnati, Ohio MBA Graduate Course
Work in Economics and Management, Xavier University, Cincinnati, Ohio
Real Estate Education
The following courses sponsored by the Appraisal Institute have been
successfully completed:
Real Estate Appraisal Principles 1A-1
Basic Valuation Procedures 1A-2
Standards of Professional Practice
Capitalization Theory and Techniques 1BA
Capitalization Theory and Techniques IBB
Advanced Applications 550
Report Writing & Valuation Analysis 540
Mr. Schaeffer has also attended numerous lectures and seminars sponsored by the
Appraisal Institute.
Mr. Schaeffer is currently a candidate for the MAI designation of the Appraisal
Institute, and has completed the educational and experience requirements for the
MAI designation.
Current Position
Director, Appraisal Services, Cushman & Wakefield, Inc., Chicago, Illinois
<PAGE>
STATEMENT OF QUALIFICATIONS
================================================================================
STANLEY R. DENNIS, JR., MAI
Real Estate Experience
Director, Manager, Cushman & Wakefield Valuation Advisory Services, Chicago,
Illinois. Division is responsible for the appraisal and consultation function of
Cushman & Wakefield, Inc., a national full service real estate organization,
1989.
Vice President, Manager, Cushman & Wakefield Appraisal Services, Portland,
Oregon, 1983.
Principal, Stanley R. Dennis & Associates, Portland, Oregon, 1982.
Education
Portland State University, Portland, Oregon
Bachelor of Science Degree, 1977, Finance and Real Estate
Appraisal Institute
Course I-A Fundamentals and Principles of Real Estate Appraisal
Course I-B Capitalization Theory and Techniques
Course II-I Case Studies in Real Estate Valuation
Course II-2 Valuation Analysis and Report Writing
Course II-3 Standards of Professional Practice
Course IV Litigation/Condemnation Valuation
Course VI Investment Analysis
Course VIII Residential Case Studies
Course X Market Analysis
Seminar Feasibility Analysis and Highest and Best Use
Seminar Discounted Cash Flow Analysis
Seminar Cash Equivalency
Seminar Subdivision Analysis
Seminar Rates, Ratios and Reasonableness
Professional Affiliations
American Institute of Real Estate Appraisers, Member (Designation #6754)
Building Owners and Managers Association (BOMA)
National Association of Corporate Real Estate Executives (NACORE)
<PAGE>
[LOGO] Merrill Lynch
GREENWICH NATWEST PNC Capital Markets
Mortgage Security New Issue Term Sheet September 23, 1998
- --------------------------------------------------------------------------------
$2,558,779,000 (Approximate)
Commercial Mortgage Acceptance Corp.
Commercial Mortgage Pass-Through Certificates, Series 1998-C2
Total Pool Size = $2,891,276,720 (512 loans / 546 properties)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Expected Initial % of
Rating by Certificate Initial Pool Credit
Class S&P/DCR Balance (1) Balance Support Description
- ----- --------- ----------- ------- ------- -----------
Senior Certificates
<S> <C> <C> <C> <C> <C>
Class A-1 AAA/AAA $515,016,000 17.8% 30.00% Fixed Rate
Class A-2 AAA/AAA $837,749,000 29.0% 30.00% Fixed Rate
Class A-3 AAA/AAA $671,128,000 23.2% 30.00% Fixed Rate
Class X AAAr/AAA $2,891,276,720 (3) (3) N/A Variable Rate I/O
Subordinate Certificates
Class B AA/AA $144,564,000 5.00% 25.00% Net WAC
Class C A/A $173,477,000 6.00% 19.00% Net WAC
Class D BBB/BBB $173,476,000 6.00% 13.00% Net WAC
Class E BBB-/BBB- $ 43,369,000 1.50% 11.50% Net WAC
Class F (6) (6) $122,880,000 4.25% 7.25% Fixed Rate
Class G (6) (6) $ 21,684,000 0.75% 6.50% Fixed Rate
Class H (6) (6) $ 36,141,000 1.25% 5.25% Fixed Rate
Class J (6) (6) $ 65,054,000 2.25% 3.00% Fixed Rate
Class K (6) (6) $ 21,684,000 0.75% 2.25% Fixed Rate
Class L (6) (6) $ 21,685,000 0.75% 1.50% Fixed Rate
Class M (6) (6) $ 43,369,720 1.50% 0.00% Fixed Rate
<CAPTION>
- ------------------------------------------------------------------------
Weighted
Pass- Average Cash Flow
Through Life or Principal
Class Rate(4) (years)(2) Window(2)
- ----- ------- ---------- ----------
Senior Certificates
<S> <C> <C> <C>
Class A-1 5.80% 5.0 10/98 - 03/06
Class A-2 6.03% 9.2 03/06 - 03/08
Class A-3 6.04% 9.7 03/08 - 08/08
Class X (4) N/A N/A
Subordinate Certificates
Class B (5) 9.9 08/08 - 08/08
Class C (5) 9.9 08/08 - 08/08
Class D (5) 10.0 08/08 - 11/09
Class E (5) 11.3 11/09 - 06/10
Class F (6) 5.44% 13.5 06/10 - 05/13
Class G (6) 5.44% 14.7 05/13 - 07/13
Class H (6) 5.44% 14.9 07/13 - 08/13
Class J (6) 5.44% 15.4 08/13 - 08/15
Class K (6) 5.44% 17.8 08/15 - 05/17
Class L (6) 5.44% 19.2 05/17 - 03/18
Class M (6) 5.44% 20.8 03/18 - 08/28
</TABLE>
- ----------
(1) In each case, subject to a permitted variance of plus or minus 5%.
(2) The weighted average life (expressed in years) and the period (expressed in
months following the Closing Date and commencing with the month of the
first Distribution Date) during which distributions of principal would be
received (the "Principal Window").
(3) The Class X Certificates will not have a principal balance nor will they
entitle the holders thereof to receive distributions of principal, but will
entitle such holders to receive payments of interest equal to the aggregate
of the interest accrued on the Notional Amount of each of its Components.
As of any Distribution Date, each Component will have a Notional Amount
equal to the Certificate Balance of the Class of Sequential Pay
Certificates with the same Class designation immediately prior to such
Distribution Date.
(4) On each Distribution Date, the Class X Certificates will receive payments
of interest equal to the aggregate of the interest accrued on the
Notational Amount of each of its Components. Each Component will accrue
interest at its applicable Strip Rate (as set forth below) on its related
Notional Amount. The Strip Rate applicable to the Class A-1, Class A-2 and
Class A-3 Components for each Distribution Date will equal the Weighted
Average Net Mortgage Rate for such Distribution Date minus 5.80%, 6.03%,
and 6.04%, respectively (but not less than zero); the Strip Rate applicable
to the Class B, Class C, Class D, and Class E Components for each
Distribution Date will equal 0.97%, 0.78%, 0.34% and 0%, respectively; and
the Strip Rate applicable to the Class F, Class G, Class H, Class J, Class
K, Class L and Class M Components for each Distribution Date will equal the
Weighted Average Net Mortgage Rate for such Distribution Date minus 5.44%
(but not less than zero).
(5) The Pass-Through Rates for the Class B, Class C, Class D, and Class E,
Certificates will equal the Weighted Average Net Mortgage Rate minus 0.97%,
0.78%, 0.34%, and 0%, respectively.
(6) Not publicly offered.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[LOGO] Merrill Lynch Prospective investors are advised to read carefully,
and should rely solely on, the final prospectus and
(212) 449-3860 prospectus supplement (the "Final Prospectus")
relating to the Offered Certificates in making their
GREENWICH NATWEST investment decision. This Annex E does not include
all relevant information relating to the Offered
(203) 625-6160 Securities, particularly with respect to the risks
and special considerations associated with an
PNC Capital Markets investment in the Offered Securities. Any
information contained herein will be more fully
(412) 762-9047 described in, and will be fully superseded by, the
descriptions of the collateral and structure in the
Final Prospectus. Any information herein should not
be viewed as projections, forecasts, predictions or
opinions with respect to value.
- --------------------------------------------------------------------------------
E-1
<PAGE>
[LOGO] Merrill Lynch
GREENWICH NATWEST PNC Capital Markets
Mortgage Security New Issue Term Sheet September 23, 1998
- --------------------------------------------------------------------------------
$2,558,779,000 (Approximate)
Commercial Mortgage Acceptance Corp.
Commercial Mortgage Pass-Through Certificates, Series 1998-C2
Total Pool Size = $2,891,276,720 (512 loans / 546 properties)
KEY FEATURES:
o Pass-Through Structure: Senior/subordinated, sequential pay pass-through
bonds
o Lead Manager: Merrill Lynch & Co. ("Merrill Lynch")
o Co-Manager: Greenwich NatWest Limited ("GNL")
o Underwriters: Merrill Lynch & Co. and Greenwich NatWest Limited (together
the "Underwriters")
o Depositor: Commercial Mortgage Acceptance Corp., a wholly owned subsidiary
of Midland Loan Services, Inc.
o Mortgage Loan Sellers: Merrill Lynch Mortgage Capital, Inc. ("MLMCI")
(69.0%), Greenwich Capital Financial Products, Inc. ("GCFP") (17.4%), and
Midland Loan Services, Inc. ("Midland") (13.7%)
o Master Servicer: Midland Loan Services, Inc., a wholly owned subsidiary of
PNC Bank, N.A.
o Special Servicer: Midland Loan Services, Inc., a wholly owned subsidiary of
PNC Bank, N.A.
o Trustee: Norwest Bank Minnesota, National Association
o Interest Accrual Period: The calendar month preceding each Distribution
Date
o Distribution Date: The 15th day of the month, but not less than 4 business
days after the determination date
o Determination Date: The 10th day of the month, or if such 10th day is not a
business day, the next succeeding business day
o Delivery: The Depository Trust Company ("DTC") through Cede & Co. in the
United States, and CEDEL or Euroclear in Europe
o ERISA: Only Class A-1, Class A-2, Class A-3, and Class X are ERISA eligible
subject to certain conditions for eligibility
o SMMEA: None of the Offered Securities are SMMEA eligible
o Tax Treatment: REMIC
o Optional Termination: 1% clean up call
E-2
<PAGE>
[LOGO] Merrill Lynch
GREENWICH NATWEST PNC Capital Markets
Mortgage Security New Issue Term Sheet September 23, 1998
- --------------------------------------------------------------------------------
$2,558,779,000 (Approximate)
Commercial Mortgage Acceptance Corp.
Commercial Mortgage Pass-Through Certificates, Series 1998-C2
Total Pool Size = $2,891,276,720 (512 loans / 546 properties)
OVERVIEW: o The transaction is collateralized by 512 multifamily and
commercial loans, with an aggregate pool balance of
approximately $2,891,276,720 secured by properties located
throughout 41 states, the District of Columbia and the U.S.
Virgin Islands.
o Merrill Lynch Commercial and Multifamily Conduit Program
contributed 228 of the mortgage loans, or 69.0% of the total
pool balance. Greenwich contributed 165 loans, or 17.4% of
the pool balance, and Midland contributed 119 loans, or
13.7% of the pool balance.
o Approximately, 69% of the loans were originated in 1998.
o Except where otherwise indicated, percentages (%) represent
principal amount of loan or loans compared to the Initial
Pool Balance.
- --------------------------------------------------------------------------------
LOAN INFORMATION
Total Conduit Balance: $2.89 billion (512 loans / 546 properties)
Avg./Max Balance: $ 5.65 million / $ 273.1 million
Loan Types: All fixed rate; 58% balloons, 5% fully
amortizing, 36% ARD
Gross WAC(1): 7.206%
Net WAC(1): 7.097%
Collateral Age: 4.59 months
Wtg. Avg. RTM(2): 127 months
Wtg. Avg. Rem. Amort.: 300 months
Wtg. Avg. DSCR: 1.45x
Wtg. Avg. Cut-Off LTV: 71.66%
Call Protection: All of the loans are currently locked out or
have yield maintenance
Cross Collateralization: 24 loans representing 5.22% of the pool are
both cross-collateralized and cross
defaulted
Borrower Concentration: None greater than 9.45% of the pool
(1) WAC = Weighted Average Mortgage Rate (Calculated on a 30/360) (2) RTM =
Remaining Term to Maturity
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROPERTY TYPE DESCRIPTION
Wtg.
# of % of Avg.
Type Props. Pool DSCR
- ----------------------------------------------------------------------
Multifamily: 217 30.02% 1.34x
Office: 58 22.94 1.54
Retail: 115 17.12 1.36
Hospitality: 32 10.28 1.70
MH Parks: 44 9.89 1.54
Industrial: 33 4.48 1.38
Mixed Use: 15 2.25 1.37
Living/Health Care: 8 1.10 1.66
CTL: 9 0.92 NAP
Self Storage: 14 0.87 1.49
Parking Garage: 1 0.14 1.50x
- ----------------------------------------------------------------------
Tot/Wtg. Avg.: 546 100.00% 1.45x
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GEOGRAPHIC Distribution
(Total of 41 States,
the District of Columbia
and the U.S. Virgin Islands)
# of % of
State Properties Pool
- --------------------------------------------------------------------------------
California 94 14.19%
New York 28 11.31
Texas 66 8.02
Illinois 6 7.83
New Jersey 14 6.15
Pennsylvania 20 6.04
Florida 34 6.00
Other 284 40.46
- --------------------------------------------------------------------------------
Totals 546 100.00%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Cut-off Date Balances
Balance Range # of Loans % of Cumulative % Wtg. Avg.
(mm) Pool of Pool Cut-Off LTV
---------------------------------------------------------------------------
$0.168- 0.99 68 1.48% 1.48% 65.80%
1.00 - 1.99 131 6.82 8.31 69.27
2.00 - 2.99 105 9.17 17.48 70.68
3.00 - 3.99 59 7.00 24.48 71.63
4.00 - 4.99 35 5.38 29.86 73.38
5.00 - 5.99 26 4.99 34.85 73.11
6.00 - 6.99 16 3.57 38.42 73.14
7.00 - 7.99 12 3.14 41.56 74.36
8.00 - 8.99 14 4.14 45.70 72.02
9.00 - 9.99 8 2.57 48.28 73.10
10.00 - 14.99 12 5.00 53.27 76.84
15.00 - 19.99 8 4.63 57.90 74.45
20.00 - 24.99 3 2.41 60.31 67.00
25.00 - 29.99 5 4.70 65.01 75.08
30.00 - 34.99 3 3.39 68.40 72.53
40.00 - 69.99 4 7.49 75.89 77.05
70.00 - 273.13 3 24.11 100.00 68.05
---------------------------------------------------------------------------
Totals 512 100.00% 100.00% 71.66%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Debt Service Coverage Ratios
DSCR # of % of Cumulative Wtg. Avg.
Range Loans Pool % of Pool Cut-Off LTV
------------------------------------------------------------------------------
CTL Loans 9 0.92% 0.92% NAP
1.10 - 1.19x 3 0.19 1.11 81.99
1.20 - 1.29 129 30.22 31.32 75.86
1.30 - 1.39 165 22.86 54.19 73.21
1.40 - 1.49 92 10.44 64.63 70.48
1.50 - 1.59 50 14.62 79.25 72.24
1.60 - 1.69 26 2.88 91.58 68.19
1.70 - 1.79 18 1.58 93.15 64.68
1.80 - 1.89 9 15.44 99.14 63.59
1.90 - 1.99 3 0.28 99.43 66.13
2.00 - 2.49 6 0.52 99.95 50.98
2.50 - 2.99 1 0.01 99.96 31.02
3.00 - 3.28 1 0.04 100.00 24.93
------------------------------------------------------------------------------
Totals 512 100.00% 100.00% 71.66%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Cut-off Date LTV Ratios
# of % of Cumulative
LTV Range Loans Pool % of Pool
- --------------------------------------------------------------------
CTL Loans 9 0.92% 0.92%
0.01 - 50.00% 19 1.22 2.14
50.01 - 60.00 43 4.78 6.92
60.01 - 70.00 118 28.75 35.67
70.01 - 80.00 314 60.96 96.63
80.01 - 86.10 9 3.37 100.00
- --------------------------------------------------------------------
Totals 512 100.00% 100.00%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Original Terms
Term # of Loans % of Pool
- ---------------------------------------------------------------
5 Year Balloon 6 0.64%
6 to 9 Year Balloon 14 2.17
6 to 9 Year ARD 2 5.79
10 Year Balloon 305 45.09
10 Year ARD 36 28.53
11 to 14 Year Balloon 12 2.50
11 to 14 Year ARD 1 0.45
15 year Balloon 44 6.08
15 Year ARD 4 0.48
16 to 20 Year Balloon 16 1.81
16 to 20 Year ARD 5 1.10
Fully Amortizing 67 5.35
- ---------------------------------------------------------------
Totals 512 100.00%
- --------------------------------------------------------------------------------
E-3
<PAGE>
[LOGO] Merrill Lynch
GREENWICH NATWEST PNC Capital Markets
Mortgage Security New Issue Term Sheet September 23, 1998
- --------------------------------------------------------------------------------
$2,558,779,000 (Approximate)
Commercial Mortgage Acceptance Corp.
Commercial Mortgage Pass-Through Certificates, Series 1998-C2
Total Pool Size = $2,891,276,720 (512 loans / 546 properties)
- --------------------------------------------------------------------------------
Loan Characteristics by Property Type
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------------------------------
Weighted Averages
------------------------------------
Average
Agg. Cut-Off Cut-Off Cut-Off Cut-Off
Date % of Date Max. Date Date
Balance # of Pool Balance Balance DSCR LTV Repayment
Property Type (MM) Props. Balance (MM) (MM) (A) (A) LTV
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MULTIFAMILY
Multifamily $780.41 200 26.99% $3.90 $ 31.23 1.34x 75.60% 62.69%
Multifamily/Retail 36.63 14 1.27 2.62 10.75 1.46 75.30 64.30
Multifamily/Retail 45.86 1 1.59 45.86 45.86 1.27 68.04 58.60
/Office
Section 42 4.92 2 0.17 2.46 3.08 1.20 85.27 66.05
---- --- ----- ------ ------- ---- ----- -----
Subtotal 867.82 217 30.02 4.00 45.86 1.34 75.25 62.56
OFFICE 663.26 58 22.94 11.44 273.13 1.54 69.12 59.11
RETAIL
Anchored 327.23 48 11.32 6.82 33.73 1.32 73.38 55.32
Unanchored 167.81 67 5.80 2.50 9.49 1.43 69.99 55.99
------ -- ---- ---- ---- ---- ----- -----
Subtotal 495.04 115 17.12 4.30 33.73 1.36 72.23 55.54
HOSPITALITY
Full Service 246.32 10 8.52 24.63 159.01 1.74 62.80 47.62
Limited Service 50.80 22 1.76 2.31 4.87 1.49 68.10 30.10
--------- --- ------ ----- ------- ---- ----- -----
Subtotal 297.12 32 10.28 9.29 159.01 1.70 63.70 44.62
MOBILE HOME PARK 285.88 44 9.89 6.50 19.65 1.54 74.26 72.56
INDUSTRIAL 129.59 33 4.48 3.93 25.50 1.38 73.89 53.81
MIXED USE
Office/Industrial 40.74 5 1.41 8.15 26.93 1.30 75.26 62.49
Office/Retail 20.42 9 0.71 2.27 3.62 1.50 65.03 40.85
Retail/Self Storage 3.97 1 0.14 3.97 3.97 1.51 69.09 55.56
--------- --- ------ ----- ------- ---- ----- -----
Subtotal 65.13 15 2.25 4.34 26.93 1.37 71.67 55.29
ADULT LIVING FACILITY/
HEALTH CARE 31.69 8 1.10 3.96 8.28 1.66 66.43 41.42
CREDIT LEASE LOANS 26.55 9 0.92 2.95 10.39 NAP NAP NAP
SELF STORAGE 25.20 14 0.87 1.80 3.21 1.49 65.12 34.22
PARKING GARAGE 3.99 1 0.14 3.99 3.99 1.50 62.38 50.47
====================================================================================================================================
TOTAL/WTG. AVG. $2,891.28 546 100.00% $5.30 $273.13 1.45x 71.66% 58.63%
====================================================================================================================================
<CAPTION>
------------------------------------------------------
Weighted Averages
------------------------------------------------------
Loan per sq.
Average Occu- ft., unit, bed,
Property pancy key, pad or room
Property Type Size % (B) (C)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
MULTIFAMILY
Multifamily 212 96% 39,825
Multifamily/Retail 205 95 46,072
Multifamily/Retail 717 94 63,956
/Office
Section 42 90 90 29,379
-- -- ------
Subtotal 238 96 41,305
OFFICE 996,851 98 130
RETAIL
Anchored 190,666 97 89
Unanchored 46,290 95 92
------ -- --
Subtotal 141,725 96 90
HOSPITALITY
Full Service 872 NAP (D) 102,842
Limited Service 99 NAP (D) 28,437
------- -- ------
Subtotal 740 NAP (D) 90,120
MOBILE HOME PARK 392 98 26,173
INDUSTRIAL 208,529 99 58
MIXED USE
Office/Industrial 309,593 99 61
Office/Retail 30,431 94 107
Retail/Self Storage 57,311 96 69
------- -- ------
Subtotal 206,684 97 76
ADULT LIVING FACILITY/
HEALTH CARE 186 94 30,934
CREDIT LEASE LOANS 61,111 100 134
SELF STORAGE 684 88 3,202
PARKING GARAGE 251,850 98 16
===============================================================================
TOTAL/WTG. AVG. 268,049 97% 24,664
===============================================================================
</TABLE>
(A) The Cut-Off Date DSCR and Cut-Off Date LTV ratio information shown above do
not reflect the nine Credit Lease Loans, representing 0.9% of the Initial
Pool Balance, which typically have debt service coverage ratios equal to or
less than 1.00x and loan to value ratios in excess of 79%.
(B) Weighted average of the occupancy percentage for the corresponding property
type.
(C) Average Property Size refers to total leasable square feet with respect to
retail, office and industrial properties, number of units with respect to
multifamily properties, number of pads with respect to manufactured housing
communities, number of guest rooms with respect to each hospitality
property, number of square feet with respect to self-storage facilities,
and number of beds with respect to health care facilities.
(D) NAP = Not Applicable
- --------------------------------------------------------------------------------
E-4
<PAGE>
[LOGO] Merrill Lynch
GREENWICH NATWEST PNC Capital Markets
Mortgage Security New Issue Term Sheet September 23, 1998
- --------------------------------------------------------------------------------
$2,558,779,000 (Approximate)
Commercial Mortgage Acceptance Corp.
Commercial Mortgage Pass-Through Certificates, Series 1998-C2
Total Pool Size = $2,891,276,720 (512 loans / 546 properties)
PREPAYMENT o From the total loan pool, 93.97% of the loans have a lock
out period, and 35.45% subject to yield maintenance charges,
after the lock out period ends.
PROTECTION: o Yield maintenance charges are generally calculated at
flat-to-treasuries.
TABLE 1
Prepayment Restriction Categories
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Aggregate
Number of Cut-Off Date % of Initial
Mortgage Balance Pool
Prepayment Restriction (A) Loans (mm) Balance
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
LO/DEF (B) 121 $1,654.73 57.23%
LO, then PP 28 37.04 1.28
LO, then YM 275 988.03 34.17
LO, then YM, then PP 12 37.05 1.28
YM Only 23 51.40 1.78
YM, then PP 53 123.03 4.26
- -------------------------------------------------------------------------------------
TOTAL/WTG. AVGS. 512 $2,891.28 100.00%
- -------------------------------------------------------------------------------------
<CAPTION>
Weighted Averages
--------------------------------------------------------------------------
Remaining Remaining LO/DEF
Term to Term (mos.) / % of Wtg. # of Months of Open
ARD/Maturity Avg. Stated Rem. Term of Prepayment Prior to
Prepayment Restriction (A) (mos.) Lockout ARD/Maturity (mos.)
- -----------------------------------------------------------------------------------------------------------
LO/DEF (B) 123 118 96.43% 4
LO, then PP 185 102 54.96 6
LO, then YM 131 58 44.71 7
LO, then YM, then PP 146 51 34.90 11
YM Only 114 0 0.00 8
YM, then PP 126 0 0.00 13
- -----------------------------------------------------------------------------------------------------------
TOTAL/WTG. AVGS. 127 90 70.87% 6
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Weighted Average Term to End of Lock Out / Defeasance Term (for all loans): 90
months.
Weighted Average Number of Months Loans are Open to Prepayment Prior to
ARD/Maturity: 6 months.
(A) LO=Lock Out, DEF=Defeasance, YM=Yield Maintenance, PP=Percentage Premium.
(B) Two of such mortgage loans, or 0.06% of the inital pool balance, are not
defeasance loans.
- --------------------------------------------------------------------------------
ALLOCATION OF Prepayment premiums will be allocated among the Class A-1,
PREPAYMENT A-2, A-3, B, C, D, E, F, G and X Regular Certificates as
PREMIUMS: follows:
o Any yield maintenance charges and percentage prepayment
premiums will be allocated among the Class A-1, A-2,
A-3, B, C, D, E, F, G and X Certificates based upon a
formula which is based, in part, on the relationship
between the Pass-Through Rate of such Class(es)
currently receiving principal, the mortgage rate of the
loan that has prepaid, and current interest rates.
================================================================================
% of Prepayment Premium (Pass-Through Rate - Discount Rate)
= ------------------------------------
Allocated to Non-X Certificates (Mortgage Rate - Discount Rate)
================================================================================
o Any penalties not allocated to non-X certificates will
be allocated to Class X.
o In general, this formula provides for an increase in
the allocation of prepayment premiums to the Sequential
Pay Certificates as interest rates decrease and a
decrease in the allocation to such classes as interest
rates rise.
The "Discount Rate" applicable to any Class of Certificates
will be equal to the yield (when compounded monthly) plus a
spread, if applicable, on the non-callable U.S. Treasury
issue (primary issue) with a maturity date closest to the
maturity date for the prepaid Mortgage Loan as reported in
The Wall Street Journal on the date of such prepayment. In
the event that there are two such U.S. Treasury issues (a)
with the same coupon, the issue with the lower yield will be
utilized, and (b) with maturity dates equally close to the
maturity date for the prepaid Mortgage Loan, the issue with
the earliest maturity date will be utilized.
E-5
<PAGE>
[LOGO] Merrill Lynch
GREENWICH NATWEST PNC Capital Markets
Mortgage Security New Issue Term Sheet September 23, 1998
- --------------------------------------------------------------------------------
$2,558,779,000 (Approximate)
Commercial Mortgage Acceptance Corp.
Commercial Mortgage Pass-Through Certificates, Series 1998-C2
Total Pool Size = $2,891,276,720 (512 loans / 546 properties)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Prepayment Lock-Out /Premium Analysis
- ------------------------------------------------------------------------------------------------------------------------------------
Percentage of Mortgage Pool by Prepayment Restriction Assuming No Prepayment
-------------------------------------------------------------------------------------------------------
Current 12 Mo. 24 Mo. 36 Mo. 48 Mo. 60 Mo. 72 Mo. 84 Mo.
Prepayment September September September September September September September September
Restriction 1998 1999 2000 2001 2002 2003 2004 2005
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Locked Out 94.0% 93.8% 93.1% 91.0% 83.6% 64.0% 63.6% 62.2%
Yield Maintenance 6.0 6.2 6.9 8.5 15.8 35.0 34.8 34.6
- ------------------------------------------------------------------------------------------------------------------------------------
Percentage Premium
5.00% and greater 0.0 0.0 0.0 0.0 0.2 0.5 0.0 0.3
4.00 to 4.99 0.0 0.0 0.0 0.1 0.0 0.2 0.5 0.0
3.00 to 3.99 0.0 0.0 0.0 0.0 0.1 0.0 0.2 2.2
2.00 to 2.99 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.2
1.00 to 1.99 0.0 0.0 0.0 0.4 0.2 0.1 0.1 0.4
Open 0.0 0.0 0.0 0.0 0.2 0.1 0.8 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
Totals 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Mortgage Pool Balance ($mm) $2,891.3 $2,859.8 $2,826.4 $2,789.8 $2,740.8 $2,691.0 $2,641.8 $2,398.2
% of Initial Pool Balance 100.0% 98.9% 97.8% 96.5% 94.8% 93.1% 91.4% 82.9%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Prepayment Lock-Out/Premium Analysis
- ------------------------------------------------------------------------------------------------------------------------------------
Percentage Of Mortgage Pool by Prepayment Restriction Assuming No Prepayment
-------------------------------------------------------------------------------------------------------
96 Mo. 108 Mo. 120 Mo. 132 Mo. 144 Mo. 156 Mo. 168 Mo. 180 Mo.
Prepayment September September September September September September September September
Restriction 2006 2007 2008 2009 2010 2011 2012 2013
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Locked Out 61.4% 40.5% 53.0% 45.0% 53.0% 51.7% 47.2% 28.8%
Yield Maintenance 33.7 23.9 34.4 35.4 36.6 37.8 35.3 51.4
- ------------------------------------------------------------------------------------------------------------------------------------
Percentage Premium
5.00% and greater 0.6 0.1 6.3 0.0 0.0 0.0 0.0 10.4
4.00 to 4.99 0.0 0.2 0.1 6.5 0.0 0.0 0.0 0.0
3.00 to 3.99 0.1 0.0 1.2 0.1 7.7 0.0 0.0 0.0
2.00 to 2.99 1.9 0.0 0.0 1.3 0.1 7.8 0.0 0.0
1.00 to 1.99 0.6 0.5 0.4 0.4 2.0 0.5 6.0 2.8
Open 1.8 34.8 4.5 11.3 0.7 2.2 11.4 6.6
- ------------------------------------------------------------------------------------------------------------------------------------
Totals 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Mortgage Pool Balance ($mm) $2,351.7 $2,259.2 $404.8 $379.1 $307.1 $287.6 $266.1 $117.0
% of Initial Pool Balance 81.3% 78.1% 14.0% 13.1% 10.6% 9.9% 9.2% 4.0%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
E-6
<PAGE>
[LOGO] Merrill Lynch
GREENWICH NATWEST PNC Capital Markets
Mortgage Security New Issue Term Sheet September 23, 1998
- --------------------------------------------------------------------------------
$2,558,779,000 (Approximate)
Commercial Mortgage Acceptance Corp.
Commercial Mortgage Pass-Through Certificates, Series 1998-C2
Total Pool Size = $2,891,276,720 (512 loans / 546 properties)
SPECIAL SERVICER/LOAN The initial Special Servicer will be Midland Loan
MODIFICATIONS: Services, Inc. The Special Servicer will be
responsible for performing certain servicing
functions with respect to Mortgage Loans that, in
general, are in default or as to which default is
reasonably foreseeable, and for the management of
REO Properties. The Controlling Class of Sequential
Pay Certificates will have the right, subject to
certain conditions, to replace the Special Servicer
and to select a representative from whom the Special
Servicer will seek advice and approval and take
directions under certain circumstances. The Special
Servicer will be permitted to extend the date on
which any Balloon Payment is scheduled to be due.
REMOVAL OF THE SPECIAL
SERVICER/CONTROLLING
CLASS REPRESENTATIVE:
The Pooling and Servicing Agreement permits (subject
to certain conditions) the Controlling Class of
Sequential Pay Certificates to replace the Special
Servicer. The "Controlling Class of Sequential Pay
Certificates" is the Class of Sequential Pay
Certificates that has the latest alphabetical Class
designation, and that has a Certificate Balance that
is greater than 20% of its initial Certificate
Balance (or if no Class of Sequential Pay
Certificates has a Certificate Balance that is
greater than 20% of its initial Certificate Balance,
the Class of Sequential Pay Certificates with the
latest alphabetical Class designation). The Class
A-1, Class A-2 and Class A-3 Certificates will be
treated as one Class for determining the Controlling
Class of Sequential Pay Certificates.
E-7
<PAGE>
[LOGO] Merrill Lynch
GREENWICH NATWEST PNC Capital Markets
Mortgage Security New Issue Term Sheet September 23, 1998
- --------------------------------------------------------------------------------
$2,558,779,000 (Approximate)
Commercial Mortgage Acceptance Corp.
Commercial Mortgage Pass-Through Certificates, Series 1998-C2
Total Pool Size = $2,891,276,720 (512 loans / 546 properties)
APPRAISAL REDUCTION: Upon the earliest of the date (each such date, a
"Required Appraisal Date") that (1) any Mortgage
Loan is one hundred twenty (120) days delinquent in
respect of any Periodic Payment, (2) any REO
Property is acquired on behalf of the Trust Fund,
(3) any Mortgage Loan has been modified by the
Special Servicer to reduce the amount of any
Periodic Payment, other than a Balloon Payment, (4)
is sixty days after a receiver is appointed and
continues in such capacity in respect of a Mortgaged
Property securing any Mortgage Loan, (5) is sixty
days after a borrower with respect to any Mortgage
Loan has become subject to any bankruptcy proceeding
or (6) is the third anniversary of the date on which
an extension of the scheduled maturity date of a
Mortgage Loan becames effective as a result of a
modification of such Mortgage Loan by the Special
Servicer, which extension does not change the amount
of Periodic Payments on the Mortgage Loan (each such
Mortgage Loan, including any REO Loan, a "Required
Appraisal Loan"), the Special Servicer will use its
best efforts to promptly obtain (within 60 days of
the applicable Required Appraisal Date; provided,
however, that with respect to any event described in
clause (1) above, the Special Servicer will be
required to receive such appraisal within such 120
period) (i) an appraisal of the related Mortgaged
Property prepared in accordance with 12 CFR 225.62
and conducted in accordance with the standards of
the Appraisal Institute by a Qualified Appraiser,
unless such an appraisal had been previously
obtained within the prior twelve months, or (ii)
with respect to any Mortgage Loan with an
outstanding principal balance equal to or less than
$1,500,000, an internal property valuation performed
by the Special Servicer at its discretion in
accordance with the servicing standard.
The Appraisal Reduction Amount for any Required
Appraisal Loan will equal the excess, if any, of (a)
the sum of, without duplication, as of the
Determination Date immediately succeeding the date
on which the appraisal is obtained, (i) the Stated
Principal Balance of such Required Appraisal Loan,
(ii) to the extent not previously advanced by or on
behalf of the Master Servicer or the Trustee, all
unpaid interest on the Required Appraisal Loan
through the most recent Due Date prior to such
Determination Date at a per annum rate equal to the
related Net Mortgage Rate, (iii) all accrued but
unpaid Servicing Fees and any Additional Trust Fund
Expenses in respect of such Required Appraisal Loan,
(iv) all related unreimbursed Advances, plus
interest thereon, made by or on behalf of the Master
Servicer, the Special Servicer and the Trustee with
respect to such Required Appraisal Loan and (v) all
currently due and unpaid real estate taxes and
assessments, insurance premiums, and if applicable,
ground rents in respect of the related Mortgaged
Property (net of any amount escrowed therefor), over
(b) an amount equal to 90% of the appraised value
(net of any prior liens) of the related Mortgaged
Property as determined by such appraisal.
E-8
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
E-9
<PAGE>
CMAC 1998-C2 Multifamily Schedule
<TABLE>
<CAPTION>
Control Cut-Off
Number Property Name State County Date Balance Elevator
====================================================================================================================================
<S> <C> <C> <C> <C>
MLMI-011 11982 E. Walnut Street CA Los Angeles 328,715.52 No
MLMI-031 17 Cleveland Place MA Essex 1,256,497.23 No
MLMI-024 1705 7th Street CA Riverside 168,506.70 No
MLMI-114 174-176 Second Avenue NY New York 2,390,614.78 No
MLMI-115 188 Second Avenue NY New York 3,087,877.40 No
MLMI-176 234 Park Avenue NJ Hudson 1,198,696.00 No
MLMI-101 2770-2780 Kingsbridge Terrace NY New York 1,911,814.31 Yes
MLMI-102 2785 Sedgwick Avenue NY New York 1,274,542.90 Yes
MLMI-018 565-573 Catalina CA Orange 249,150.02 No
MLMI-100 686 Rosewood Street & 3251-3265 White Plains Rd. NY New York 1,155,054.46 No
MLMI-020 983 Charles Avenue GA Fulton 269,082.02 No
MLMI-079 Alief Square Apartments TX Harris 2,729,736.81 No
MLMI-122 Amherst Apartments TX Harris 2,987,037.36 No
MLMI-047 Beaconsfield Apartments NH Hillsborough 1,187,705.43 No
MLMI-151 Broadwater Apartments FL Miami-Dade 16,051,331.81 No
MLMI-028 Caglifly Apartments MN Wright 822,819.32 No
MLMI-040 Camelot Apartments CA San Diego 2,614,976.49 No
MLMI-149 Canyon Cove Apartments UT Weber 5,633,454.04 Yes
MLMI-076 Chelsea Village Apartments PA Lancaster 4,967,713.05 No
MLMI-041 City Promenade Apartments CA Orange 5,160,797.77 No
MLMI-161 Colonial Gardens Apartments MA Berkshire 4,250,750.37 No
MLMI-093 Doral Plaza IL Cook 45,856,749.20 Yes
MLMI-163 Eastwood Terrace Apts. MI Washtenaw 2,624,191.88 No
MLMI-099 Edgewood Village TX Denton 13,355,065.85 No
MLMI-111 Emerson Court CT Hartford 1,048,867.00 No
MLMI-089 Fielder Crossing TX Tarrant 3,423,113.53 No
MLMI-088 Forest Creek Apartments TX Tarrant 1,740,182.59 No
MLMI-105 Hidden Vale Apartments WA Pierce 3,594,917.20 No
MLMI-042 Hillsborough Village Apartments CA San Bernardino 5,995,498.00 Yes
MLMI-179 Huntington Green Apartments TX Harris 5,986,001.39 No
MLMI-159 Lamplighter Apartments MA Berkshire 1,568,575.60 No
MLMI-169 Lawnfair Apartments OH Summit 1,992,458.22 No
MLMI-164 Little Creek Apartments MI Wayne 1,393,391.87 No
MLMI-069 Mariner's Cove NJ Bergen 8,473,603.29 No
MLMI-081 McCallum Highlands I TX Collin 8,445,640.82 No
MLMI-086 McCallum Highlands II TX Collin 2,681,773.98 No
MLMI-055 Meadowbriar Apartments TX Tarrant 2,481,836.61 No
MLMI-165 Millport Apartments NH Rockingham 3,273,396.68 Yes
MLMI-048 MK-141 Avenue A NY New York 1,272,458.13 No
MLMI-051 MK-153 Avenue A NY New York 673,654.30 No
MLMI-050 MK-153 First Avenue NY New York 558,883.57 No
MLMI-052 MK-413 East 9th Street NY New York 678,644.33 No
MLMI-049 MK-Lido Beach Apartments NY Nassau 1,097,807.01 No
MLMI-034 Morrowfield Apartments PA Alleghany 6,092,189.56 Yes
MLMI-095 Oak Park - Oak Green Apartments MA Plymouth 6,553,142.65 Yes
MLMI-057 Oak Park Apartments TX Dallas 1,869,253.40 No
MLMI-124 Park City Square Apartments CA Los Angeles 9,193,564.05 Yes
MLMI-110 Poet's Row Apartments CO Denver 3,189,242.85 No
MLMI-097 Richmond Oaks Apartments TX Bowie 2,225,696.98 No
MLMI-137 Riverwood Apartments OR Josephine 4,514,919.16 No
MLMI-141 Riverwood Apartments SC Charleston 1,994,458.60 No
MLMI-162 Riviera Apartments MA Hampden 3,135,164.36 No
MLMI-096 Royal Oaks Apartments NH Strafford 2,993,721.08 No
MLMI-129 Savannah Apartments FL Sarasota 3,187,486.36 No
MLMI-084 Sheffield Village Apartments TX Tarrant 2,282,997.55 No
MLMI-123 Southwicke Apartments WA King 2,558,279.00 No
MLMI-098 Sunset Oaks Apartments TX Denton 11,443,424.54 No
MLMI-080 The Bentley TX Dallas 7,912,488.10 Yes
MLMI-070 The Missions at Vista Primera NM Santa Fe 7,663,404.49 No
MLMI-112 The Packard CT Hartford 2,397,409.00 Yes
MLMI-094 Three Rivers Apartments IN Allen 8,458,898.27 Yes
MLMI-066 Union Place Apartments CT Hartford 1,690,132.83 Yes
MLMI-160 University Park Apartments MA Hampden 4,541,816.02 No
MLMI-035 Venetian Bridges CA San Joaquin 10,749,828.07 No
MLMI-082 Versailles/Marrakesh Apartments TX Dallas 3,179,693.35 No
MLMI-059 Walnut Villas Apartments TX Hunt 1,750,372.69 No
MLMI-113 Westwood Apts CT Hartford 5,943,478.00 Yes
MLMI-017 Williams, Charles CA Orange 476,982.02 No
MLMI-136 Willow Woods Apartments NC Guilford 2,293,387.54 No
MLMI-021 Karen West Apartments NV Clark 971,848.34 No
MLMI-148 Woodstock Apartments TX Tarrant 1,196,744.13 No
GCM-002 The Biltmore Apartments TX Dallas 5,056,972.03 No
GCM-003 Manitou Townhomes VA York 2,290,622.79 No
GCM-005 Park Meadows Apartments CO El Paso 1,955,891.92 No
GCM-006 Wilshire West & Knights Lake Apartments OK Oklahoma 6,645,306.10 No
GCM-006a Wilshire West Apartments OK Oklahoma No
GCM-006b Knights Lake Apartments OK Oklahoma No
GCM-012 Quail Ridge Apartments OK Oklahoma 10,203,469.83 No
GCM-013 Kickingbird Hills Apartments OK Oklahoma 3,230,992.77 No
GCM-022 Bayview Apartments WA Katsap 2,371,055.34 No
GCM-023 McDonald Place Apartments WA Spokane 1,753,703.80 No
<CAPTION>
No. Studios
------------------------------------------------------------
Control Utilities Wtg. Avg
Number Tenant Pays # units rent/month highest rent
====================================================================================================================
<S> <C> <C> <C> <C>
MLMI-011 Electricity/Gas 14 $492 $492
MLMI-031 Electricity/Gas 32 $602 $602
MLMI-024 Electricity/Gas
MLMI-114 Electricity/Gas
MLMI-115 Electricity/Gas
MLMI-176 Electricity
MLMI-101 Electricity/Gas 12 $457 $457
MLMI-102 Electricity/Gas 1 $436 $436
MLMI-018 Electricity/Gas 2 $655 $655
MLMI-100 Electricity/Gas 5 $456 $456
MLMI-020 Electricity/Gas 9 $657 $661
MLMI-079 Electricity
MLMI-122 Electricity
MLMI-047 None 24 $323 $390
MLMI-151 Electricity/Water/Sewer
MLMI-028 Electricity/Gas
MLMI-040 Electricity/Gas
MLMI-149 Electricity/Gas
MLMI-076 All Utilities
MLMI-041 Electricity/Gas
MLMI-161 None
MLMI-093 Electricity 80 $1,047 $1,047
MLMI-163 Gas heat/Hot Water/Electricity
MLMI-099 Electricity
MLMI-111 Electricity/Cable
MLMI-089 Electricity
MLMI-088 Electricity
MLMI-105 Electricity/Gas
MLMI-042 Electricity
MLMI-179 Electricity
MLMI-159 Electric/Heat/Hot water 1 $446 $446
MLMI-169 Heat/Water/Sewer
MLMI-164 Electricity/Gas
MLMI-069 All utilities
MLMI-081 Electricity
MLMI-086 Electricity
MLMI-055 Electricity
MLMI-165 Electricity 4 $744 $744
MLMI-048 Electricity 16 $773 $837
MLMI-051 Electricity
MLMI-050 Electricity
MLMI-052 Electricity 16 $589 $950
MLMI-049 Electricity 6 $738 $875
MLMI-034 Electricity/Cable 56 $425 $425
MLMI-095 Electricity 13 $780 $780
MLMI-057 Electricity 3 $365 $365
MLMI-124 Electricity/Gas
MLMI-110 Electricity 118 $362 $362
MLMI-097 Electricity
MLMI-137 Electricity & Gas
MLMI-141 Electricity
MLMI-162 Electricity
MLMI-096 Electricity 5 $450 $469
MLMI-129 Electricity
MLMI-084 Electricity
MLMI-123 Electricity 22 $518 $518
MLMI-098 Electricity
MLMI-080 None 43 $1,145 $1,295
MLMI-070 Electricity
MLMI-112 Electricity/Cable
MLMI-094 Electricity 148 $341 $341
MLMI-066 Electricity 39 $506 $506
MLMI-160 Electricity
MLMI-035 Electricity/Gas 87 $461 $475
MLMI-082 Electricity 2 $420 $420
MLMI-059 Electricity
MLMI-113 Electricity/Gas/Cable
MLMI-017 Electricity/Gas
MLMI-136 Electricity
MLMI-021 Electricity/Gas 43 $422 $550
MLMI-148 Electricity
GCM-002 all utilities
GCM-003 Electric/Gas/Heat/AC/Hot Water
GCM-005 all utilities
GCM-006 See below
GCM-006a unknown
GCM-006b all utilities
GCM-012 all utilities
GCM-013 Electric
GCM-022 Electric/Gas/Heat/AC/Hot Water
GCM-023 none
</TABLE>
E-10
<PAGE>
CMAC 1998-C2 Multifamily Schedule
<TABLE>
<CAPTION>
No. 1 Bedrooms No. 2 Bedrooms No. 3 Bedrooms
- --------------------------------------------- ------------------------------------- ----------------------------------------
Wtg. Avg Wtg. Avg Wtg. Avg
# units rent/month highest rent # units rent/month highest rent # units rent/month highest rent
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12 $350 $350
13 $762 $1,550 7 $1,227 $2,600
10 $1,188 $2,400 10 $1,511 $2,650
20 $945 $945
36 $485 $485 12 $629 $629 12 $721 $721
26 $478 $478 21 $646 $646 1 $939 $939
2 $838 $838 1 $900 $900
18 $474 $474 6 $695 $695
72 $340 $340 152 $387 $411 16 $502 $502
42 $400 $400 99 $484 $495 70 $576 $650
22 $428 $475 26 $488 $542 3 $570 $598
336 $663 $739 88 $831 $841
8 $421 $421 28 $500 $509
23 $519 $519 49 $635 $635 3 $748 $748
73 $520 $549 119 $508 $513
72 $437 $437 88 $519 $523 78 $619 $707
22 $711 $711 80 $822 $822
74 $562 $562 74 $639 $639 8 $695 $695
237 $1,147 $1,229 233 $1,687 $1,867
48 $528 $528 36 $631 $631
152 $705 $794 84 $890 $944 24 $1,112 $1,112
33 $689 $732
55 $563 $650 64 $677 $860
122 $323 $375 28 $525 $525
56 $448 $455 86 $533 $545
99 $516 $516 97 $621 $621
224 $461 $528 40 $567 $573
85 $511 $514
30 $485 $485 42 $542 $680
30 $692 $692
44 $2,731 $3,209
257 $497 $512 20 $739 $739
84 $510 $523
102 $424 $445 98 $538 $550
26 $901 $901 33 $862 $862 1 $875 $875
8 $685 $685
20 $551 $551
8 $732 $1,243
2 $830 $885 1 $1,800 $1,800
13 $875 $1,100 7 $1,175 $1,300
92 $630 $630 8 $700 $700
168 $693 $1,226 101 $689 $701
42 $375 $375 57 $487 $490 1 $650 $650
102 $1,074 $1,074 30 $1,484 $1,484
64 $465 $465 1 $480 $480
48 $407 $407 72 $468 $468
12 $445 $445 128 $501 $535 10 $550 $550
24 $490 $525 48 $520 $550 16 $610 $635
56 $535 $535 66 $675 $675
50 $527 $532 52 $628 $642 18 $758 $760
40 $622 $622 41 $733 $733
126 $310 $310 64 $406 $420 5 $580 $580
26 $550 $550 24 $674 $680
160 $547 $565 140 $686 $750 20 $995 $1,055
63 $1,637 $1,850 11 $2,250 $2,250
84 $550 $550 124 $635 $635
54 $633 $633 3 $776 $776
116 $443 $443 71 $605 $605 20 $672 $754
28 $649 $649 2 $797 $797
16 $564 $578 126 $637 $641 10 $569 $569
86 $481 $481 177 $618 $779 4 $1,000 $1,000
40 $659 $680 35 $823 $835
36 $370 $380 67 $479 $495 11 $570 $570
88 $604 $604 112 $722 $875
1 $1,050 $1,050 1 $1,300 $1,300
20 $415 $425 80 $460 $470 12 $575 $585
88 $308 $315 52 $438 $530
94 $605 $615 20 $753 $755 23 $985 $985
65 $625 $625 12 $735 $735
60 $548 $560
223 273 4
68 $310 $310 92 $395 $395
368 $336 $350 260 $428 $500
140 $364 $375 40 $475 $475
56 $445 $460 41 $546 $570 14 $644 $660
40 $592 $605 4 $685 $685
<CAPTION>
No. 4 Bedrooms Other
- --------------------------------------- ---------------------------------------------------------
Wtg. Avg Wtg. Avg
# units rent/month highest rent # units rent/month highest rent Type
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 $1,000 $1,000 5 bedrooms
1 $820 $820 6 bedrooms
17 $981 $981
</TABLE>
E-11
<PAGE>
CMAC 1998-C2 Multifamily Schedule
<TABLE>
<CAPTION>
Control Cut-Off
Number Property Name State County Date Balance Elevator
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
GCM-025 Lone Oak Apartments MN Wright 1,184,756.16 No
GCM-027 The Ridge Apartments VA Roanoke 1,978,842.78 No
GCM-029 The Treehouse Apartments TX Dallas 2,741,562.94 No
GCM-032 Regency Park Apartments OK Comanche 2,349,186.10 No
GCM-035 Hillcrest Apartments TX Bell 637,113.78 No
GCM-036 Creekside Apartments OR Columbia 1,927,421.08 No
GCM-038 Solon Place TX Ellis 2,721,760.45 No
GCM-039 Amber Park Apartments OR Marion 1,439,731.48 No
GCM-041 Westview Gardens Apartments OH Franklin 4,178,415.55 No
GCM-042 Quail Run Apartments OK Oklahoma 4,272,584.70 No
GCM-043 Stonebrook Apartments OK Oklahoma 7,154,095.31 No
GCM-050 Lakepointe Aprtments OR Lincoln 2,857,598.78 No
GCM-052 Sungate Apartments MO Clay 1,192,548.33 No
GCM-058 Carseka Apartments CA Los Angeles 1,512,403.79 No
GCM-059 Cochran Apartments CA Los Angeles 1,935,461.67 No
GCM-066 Berry Hill Apartments OR Clackamas 1,610,333.48 No
GCM-069 Wau-Lin-Cree Apartments MO Platte 5,963,102.81 No
GCM-071 Silver Creek Apartment OK Tulsa 6,461,898.01 No
GCM-072 Fox Run Apartments KS Sedgwick 5,766,079.41 No
GCM-075 Olde Orchard Park Condominiums VT Chittenden 7,953,320.55 No
GCM-076 Bonita Glen Apartments CA San Diego 13,121,730.64 No
GCM-077 Cambridge in the Groves Apartments TX Jefferson 990,391.21 No
GCM-078 Regency Square Apartments FL Hillsborough 1,619,259.31 No
GCM-079 Raintree Apartments CA Hillsborough 5,959,997.93 No
GCM-080 Union Square Apartments UT Provo 4,670,157.75 No
GCM-081 Regency Palms Apartments FL Hillsborough 1,209,727.25 No
GCM-082 Mainstream Apartments TX Harris 4,471,817.29 No
GCM-083 Sunset Gardens Apartments CA Los Angeles 9,534,994.20 No
GCM-084 English Garden Apartments KS Johnson 3,281,084.36 No
GCM-085 The Willows Apartments CA Kern 4,427,134.17 No
GCM-087 Carriage House Apartments CA Santa Clara 3,392,916.07 No
GCM-088 Stierlin Arms Apartments CA Santa Clara 3,134,218.66 No
GCM-089 Houser Glen Apartments CA Stanislous 2,141,292.15 No
GCM-091 Grandview Apartments FL Lake 2,270,927.59 No
GCM-092 Clairridge Estates Apartments MI Macomb 7,271,743.65 No
GCM-094 Bayview Apartments CA San Mateo 1,993,201.16 Yes
GCM-096 Walnut Lane Apartments PA Philadelphia 1,886,643.74 No
GCM-098 Willow Brook Apartments UT Salt Lake 3,315,810.60 No
GCM-099 Casa Blanca Apartments CA Alameda 2,464,009.63 No
GCM-100 Alameda Park Apartments CA Alameda 2,139,797.84 No
GCM-101 New Brighton Place Apartments CA Alameda 2,853,063.78 No
GCM-103 Bear Creek Apartments TX Bexar 2,392,077.39 No
GCM-111 Fairway Gardens Apartments FL Martin 2,943,224.40 No
GCM-113 Rockwood Gardens Apartments OR Multnomah 5,390,820.07 No
GCM-114 Seranado Fountain Apartments CA Orange 4,697,096.87 No
GCM-115 Sierra Condo Apartments CA Sacramento 2,248,550.25 No
GCM-124 Lynnwood Garden Village Apartments WA Snohomish 3,139,963.21 No
GCM-125 The Timbers Apartments WA Thurston 3,444,277.18 No
GCM-127 Oaks of Kingsbridge Apartments LA E Baton Rouge Parish 5,291,492.98 No
GCM-130 Casitas de Las Cruces Apartments NM Dona Ana 1,444,968.88 No
GCM-133 Woodcrest Apartments UT Dairs 647,624.83 No
GCM-136 Federal Terrace Apartments CO Denver 1,269,954.73 No
GCM-138 Huntington Apartments NE Sarpy 873,132.13 No
GCM-142 Cliveden Apartments PA Philadelphia 862,716.33 Yes
GCM-146 Westwood Apartments CT Hartford 373,409.46 Yes
GCM-148 Tall Pines Apartments CO La Plata 1,048,256.70 No
GCM-149 846-848 Prospect Place NY Kings 244,320.51 No
GCM-150 732 St. Marks Avenue NY Kings 279,223.44 No
GCM-153 Radio Plaza Apartments MI Oakland 509,108.08 No
GCM-165 Villa Del Sol Apartments AZ Maricopa 6,192,152.81 No
GCM-174 280 Collins Street CT Hartford 599,198.35 Yes
GCM-177 Mockingbird Apartments TX Randall 348,276.92 No
GCM-178 Tramore Castle Apartments MO St. Louis 997,156.96 Yes
GCM-182 Jefferson Street Aprtments VA Fairfax 514,130.00 No
GCM-183 Church Street Apartments VA Fairfax 464,214.47 No
GCM-184 Patrick Street Apartments VA Fairfax 489,170.18 No
GCM-191 Compass Pointe Apartments OK Tulsa 1,034,112.68 No
GCM-198 The Greens of Carrollwood FL Hillsborough 5,021,905.58 No
GCM-201 Galveston Apartments AZ Maricopa 919,783.65 No
GCM-155 248 State Street NY Albany 528,638.92 Yes
GCM-172 1111 First Avenue NY New York 398,896.25 No
WMFG181 Towne Oaks NJ Somerset 3,347,236.50 No
WMFG1 Pebble Hill FL Leon 3,886,668.75 No
WMFG9 Rock Creek UT Washington 1,845,462.13 No
WMFG3 Spring Street CA Los Angeles 1,693,713.00 Yes
WMFG2 Binford Lofts CA Los Angeles 2,988,226.00 Yes
WMFG16 1223 20th Street CA Los Angeles 1,796,309.63 Yes
WMFG15 1239 20th Street CA Los Angeles 1,990,910.00 Yes
WMFG6 Montego Palms AZ Maricopa 3,715,191.50 No
WMFG4 Chelsea Village NJ Atlantic 6,826,164.00 No
WMFG011 Mariposa CA Ventura 2,393,886.25 No
<CAPTION>
No. Studios
------------------------------------------------------------
Control Utilities Wtg. Avg
Number Tenant Pays # units rent/month highest rent
====================================================================================================================
<S> <C> <C> <C> <C>
GCM-025 Electric
GCM-027 Electric
GCM-029 Electric/Gas
GCM-032 Electric
GCM-035 Electric
GCM-036 Electric
GCM-038 Electric
GCM-039 Electric
GCM-041 none
GCM-042 Electric
GCM-043 Electric
GCM-050 Electric
GCM-052 none
GCM-058 Electric 21 $550 $550
GCM-059 none 31 $595 $610
GCM-066 Electric
GCM-069 Electric 21 $420 $420
GCM-071 Electric
GCM-072 none 64 $295 $295
GCM-075 none
GCM-076 Electric/Water/Sewer/AC 25 $525 $525
GCM-077 Electric/Gas/Heat/Water/Sewer/AC/Hot Water
GCM-078 Electric 16 $280
GCM-079 Electric/Gas/Heat/Water/Sewer/AC/Hot Water
GCM-080 Electric
GCM-081 Electric/Gas/Heat/AC 12 $280 $280
GCM-082 Electric
GCM-083 Electric
GCM-084 Electric
GCM-085 Electric/Gas
GCM-087 none
GCM-088 none 24 $875 $895
GCM-089 Electric
GCM-091 Electric/Gas/Heat/AC/Hot Water
GCM-092 none
GCM-094 none
GCM-096 Electric 42 $350 $370
GCM-098 Electric/Gas
GCM-099 Electric 10 $660 $665
GCM-100 Electric/Gas
GCM-101 Electric/Gas
GCM-103 Electric/Gas/Heat/AC 44 $355 $415
GCM-111 Electric
GCM-113 Electric/Gas/Heat/Hot Water
GCM-114 Electric/Gas
GCM-115 none
GCM-124 Electric
GCM-125 none
GCM-127 Electric
GCM-130 Electric
GCM-133 Electric/Gas/Heat/AC
GCM-136 all utilities
GCM-138 Electric/Gas
GCM-142 none 9 $409 $450
GCM-146 Electric/Gas/Water/Sewer
GCM-148 Electric
GCM-149 Electric
GCM-150 Electric
GCM-153 Electric/Gas/Water/Sewer
GCM-165 Electric
GCM-174 Electric 2 $400 $400
GCM-177 all utilities
GCM-178 Electric/Gas 19 $392 $395
GCM-182 none
GCM-183 Electric/Gas/Heat/AC/Hot Water
GCM-184 Electric/Gas/Heat/AC/Hot Water
GCM-191 Electric
GCM-198 all utilities
GCM-201 Water/Sewer 5 $334 $334
GCM-155 none
GCM-172 Gas 12 $863 $1,071
WMFG181 electricity
WMFG1 water, sewer, trash removal, electricity
WMFG9 heat, electricity
WMFG3 electricity, heat
WMFG2 electricity
WMFG16 electricity, heat
WMFG15 electricity, heat
WMFG6 none
WMFG4 electricity
WMFG011 electricity, heat, hot water
</TABLE>
E-12
<PAGE>
CMAC 1998-C2 Multifamily Schedule
<TABLE>
<CAPTION>
No. 1 Bedrooms No. 2 Bedrooms No. 3 Bedrooms
- --------------------------------------------- ------------------------------------- ----------------------------------------
Wtg. Avg Wtg. Avg Wtg. Avg
# units rent/month highest rent # units rent/month highest rent # units rent/month highest rent
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
22 $440 $440 26 $535 $570 6 $585 $585
54 $382 $419 66 $454 $479
48 $460 $460 80 $549 $555 32 $695 $695
42 $295 $295 86 $365 $365 64 $395 $395
8 $375 $390 42 $425 $450
5 $575 $575 30 $675 $675 10 $785 $795
24 $475 $475 80 $625 $625 16 $725 $725
4 $450 $450 32 $550 $550 4 $685 $685
48 $411 $415 122 $518 $585 26 $575 $575
160 $388 $415 48 $490 $490
248 $398 $479 112 $529 $535
96 $534 $575
72 $456 $495
33 $709 $725
32 $720 $735
9 $491 $495 22 $610 $650 12 $718 $718
100 $500 $500 160 $570 $615 5 $730 $730
240 $344 $354 80 $473 $480
208 $335 $335 64 $430 $430
30 $703 $750 110 $788 $875 10 $950 $950
198 $611 $735 71 $793 $805
66 $368 $375 31 $490 $600 1 $550 $550
40 $340 48 $438 $438 16 $600
42 $695 94 $775 $775
131 $503 $510 8 $558 $610
64 $330 $340 13 $420 $425
208 $395 $405 70 $473 $510 47 $546 $565
91 $649 $685 89 $768 $820 20 $902 $935
80 $695 $745
8 $395 $450 32 $430 $494
34 $975 $995 12 $1,300 $1,300
25 $1,050 $1,075
76 $450 $485
24 $380 $380 110 $446 $446 8 $544 $544
88 $495 $520 145 $575 $590
76 $735 $825
113 $435 $445 1 $600 $600
78 $591 $628
24 $850 $850 20 $993 $1,200
36 $644 $650 28 $751 $760
17 $779 $795 29 $875 $965 14 $975 $975
80 $423 $495 24 $550 $645
80 $615 $625
68 $445 $500 104 $600 $625 8 $775 $815
86 $670 $700 20 $860 $900
86 $502 $520
17 $559 $559 79 $654 $699
70 $399 $419 104 $499 $539
104 $263 $435 215 $487 $495 24 $550 $565
16 $346 $355 48 $400 $410 12 $443 $455
16 $569 $580
69 $400 $425
6 $350 $480 18 $425 $600
24 $418 $525 7 $621 $625
32 $475 $475
4 $566 $575 22 $575 $585 1 $625 $625
10 $438 $482 10 $571 $675
13 $559 $650 8 $464 $600
17 $493 $514 3 $616 $622
72 $395 $400 248 $470 $560
18 $450 $450 34 $637 $650
16 $290 $290 8 $400 $400 8 $438 $438
43 $430 $430 4 $550 $550 38 $700 $700
2 $700 $750 7 $971 $1,075
8 $725 $750 2 $963 $975
8 $952 $1,025
54 $325 $350 32 $375 $450
65 $1,034 $1,350 4 $1,383 $1,400
20 $389 $389 17 $447 $447
21 $425 $450 8 $541 $550
2 $545 $1,091
58 $648 $650 38 $767 $825 1 $850 $850
72 $590 $600 32 $760 $760
15 $379 $379 44 $453 $453
3 $900 $900 3 $1,200 $1,200 12 $1,400 $1,400
6 $900 $900 17 $1,200 $1,200
56 $858 $858 58 $750 $750
90 $395 $395 135 $540 $540 36 $735 $735
23 $591 $591 29 $730 $730
<CAPTION>
No. 4 Bedrooms Other
- --------------------------------------- ---------------------------------------------------------
Wtg. Avg Wtg. Avg
# units rent/month highest rent # units rent/month highest rent Type
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
8 $490 $490
24 $1,210 $1,400 Lofts
36 $1,865 $2,790 Lofts
</TABLE>
E-13
<PAGE>
CMAC 1998-C2 Multifamily Schedule
<TABLE>
<CAPTION>
Control Cut-Off
Number Property Name State County Date Balance Elevator
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
WMFG57 DeVille Southwest Apartments MO Cole 5,596,551.50 No
WMFG56 57 Off Memorial TX Harris 2,220,481.25 No
WMFG58 Garden Center Apartments CO Boulder 1,049,343.50 No
WMFG124 Applewood Crest Apartments CO Jefferson 1,822,859.50 No
WMFG61 Summit East Plaza MO Jackson 2,896,431.25 No
WMFG23 Lenox Court MD Prince George 3,977,644.00 No
WMFG24 Sutton Walk MD Prince George 7,697,828.50 No
WMFG17 Andrews Manor MD Prince George 15,224,018.00 No
WMFG18 Brittany VA Arlington 26,734,838.00 Yes
WMFG19 Crestleigh MD Prince George 18,926,240.00 No
WMFG54 Wild Pines of Naples FL Collier 2,498,495.50 No
WMFG62 Village Park Apartments FL Dade 6,840,194.50 Yes
WMFG38 Oak Alley LA Jefferson Parish 2,796,498.50 No
WMFG63 Westland Gardens Apartments FL Dade 3,179,231.25 No
WMFG92 Bay Landing CA Contra Costa 31,229,864.00 No
WMFG93 Connemara WA King 18,737,918.00 No
WMFG70 Parkview WA Bento 3,078,110.50 No
WMFG97 Marine Gardens NJ Monmouth 1,039,231.13 No
WMFG185 Riverbirch Apartments NC Mecklenberg 8,800,000.00 No
WMFG60 Townlake Apartments TX Webb 2,893,130.50 No
Mid145 Patrician Apartments AZ Maricopa 2,082,631.48 No
Mid001 Hampton Ridge IL Winnebago 10,250,232.19 No
Mid002 Hampton Courtyard IL Winnebago 2,282,239.52 No
Mid006 Terrace Pond ME Cumberland 4,229,138.64 No
Mid011 Ashley Park Apartments OK Oklahoma 3,826,777.88 No
Mid012 Northtowne Manor Apartments NY Monroe 1,239,749.28 No
Mid016 Pinewood Townhomes TN Shelby 1,145,316.97 No
Mid018 180 Mountain Avenue/95 Clifton MA Middlesex 1,795,258.66 No
Mid018 180 Mountain Avenue/95 Clifton MA Middlesex 1,795,258.66 No
Mid020 Apple Creek Apartments OK Tulsa 2,289,874.37 No
Mid023 Stone Henge Apartments TX Tarrant 1,236,969.47 No
Mid024 Brownsville Apartments TX Cameron 1,295,804.17 No
Mid025 Westborough Arms Apartments KS Sedgewick 982,731.80 No
Mid030 Quail Creek Apartments KS Douglas 2,295,642.47 No
Mid034 The Lewiston Apartments OK Tulsa 6,024,500.43 No
Mid036 Country Side Apartments CT Hartford 1,588,850.23 Yes
Mid037 Summerstone Duplexes OK Tulsa 4,082,359.67 No
Mid038 Sandpiper Village Apartments CA Solano 9,230,674.08 No
Mid047 El Parque Apartments CO El Paso 348,821.25 No
Mid059 Farr Court Apartments WA Spokane 2,448,450.29 No
Mid146 Woodland Hills Duplexes OK Tulsa 1,698,949.93 No
Mid061 Reservoir Manor Apartments CT New Haven 1,642,720.59 No
Mid063 Windflower Park & Walnut Creek Apartments IA Jasper 2,748,259.66 No
Mid063 Windflower Park & Walnut Creek Apartments IA Warren 2,748,259.66 No
Mid066 Three Fountains Apartments FL Osceola 3,253,458.18 No
Mid067 Parkway Apartments NV Elko 3,707,414.13 No
Mid068 South Park Apartments LA Parish 2,797,119.12 No
Mid069 Magnolia Garden Apartments LA Parish 1,548,405.22 No
Mid070 Greenwell Plaza Apartments LA Parish 1,248,713.89 No
Mid072 Lindenshire Residences, LP TX Dallas 3,395,722.60 No
Mid076 Greens of Bedford/ Bedford Park Apartments OK Tulsa 12,165,637.54 No
Mid078 Royal Arms Apartments OK Tulsa 2,094,085.15 No
Mid167 Timbercrest Apartments NE Sarpy 1,900,002.12 No
Mid083 Cambridge Apartments TX Smith 1,677,886.46 No
Mid084 Saddlebrook Apartment Homes TX Gregg 3,455,647.10 No
Mid085 Sunridge Apartments TX Nacogdoches 5,073,609.04 No
Mid088 Oxford Hall Apartments ID Ada 4,390,800.62 No
Mid090 The Links Apartments AZ Maricopa 8,611,497.57 No
Mid092 Pinnacle Woods Apartments FL Lee 1,846,273.91 No
Mid104 Remington Park Apartments KS Sedgwick 4,994,269.43 No
Mid106 Kings Crossing Apartments KS Sedgwick 3,891,638.54 No
Mid107 Georgetown Court Aparments KS Sedgwick 2,554,511.45 No
Mid108 Fall View Apartments CT New Haven 2,267,352.73 Yes
Mid109 Harbor Lights Apartments PA Bucks 1,521,859.14 No
Mid116 Burns Hill Apartment NH Hillsborough 1,594,734.55 No
Mid127 Barrymore Apartments PA Philadelphia 996,850.46 No
Mid132 The Woods Apartments ND Cass 1,597,387.57 No
Mid140 Bay View Summit Apartments CA San Diego 15,989,349.64 No
<CAPTION>
Control Utilities
Number Tenant Pays
==================================================================================================================
<S> <C>
WMFG57 none
WMFG56 electricity, hot water
WMFG58 gas, hot water, electricity
WMFG124 electricity, hot water
WMFG61 elctricity, gas
WMFG23 heat, electricity
WMFG24 heat, electricity
WMFG17 gas, hot water, heat, electricity
WMFG18 gas, hot water, heat, electricity
WMFG19 none
WMFG54 electricity, heating, hot water, gas, sewage, trash
WMFG62 heat, hot water, electricity, gas
WMFG38 gas, electricity
WMFG63 heat, hot water, electricity, gas
WMFG92 older tenants - electricity / new tenants - water, sewer, trash, electricity
WMFG93 water, sewer, trash removal, electricity
WMFG70 heating, electricity
WMFG97 electricity, gas
WMFG185 heating, hot water, gas, electricity
WMFG60 electricity
Mid145 Separately metered
Mid001 Separately metered
Mid002 Separately metered
Mid006 Separately Metered
Mid011 Separately Metered
Mid012 Separately Metered
Mid016 Separately Metered
Mid018 Master Metered
Mid018 Seperately metered
Mid020 Gas & Electric
Mid023 Gas & Electricity
Mid024 Separately Metered
Mid025 Electric & Gas
Mid030 Separately Metered
Mid034 Gas & Electric
Mid036 Electric and Gas
Mid037 Utilities
Mid038 Gas & Electric
Mid047 Unit 6 pays utilities
Mid059 Separately metered
Mid146 Gas & Electric
Mid061 Separately Metered
Mid063 Separately Metered
Mid063 Separately Metered
Mid066 Separately metered
Mid067 Separately metered
Mid068 None
Mid069 Gas, Electric
Mid070 Electricity
Mid072 Electricity
Mid076 Gas & Electric
Mid078 Electric
Mid167 Electric & Cable
Mid083 Separately Metered
Mid084 Separately Metered
Mid085 Separately Metered
Mid088 Separately Metered
Mid090 Separately metered
Mid092 Electric
Mid104 Seperatley metered
Mid106 Gas & Electric
Mid107 Separately Metered
Mid108 Electric
Mid109 Separately Metered
Mid116 Electric
Mid127 Electric
Mid132 Separately Metered
Mid140 Separately Metered
<CAPTION>
No. Studios
-----------------------------------------------------
Control Wtg. Avg
Number # units rent/month highest rent
============================================================================================
<S> <C> <C> <C>
WMFG57
WMFG56
WMFG58
WMFG124
WMFG61
WMFG23 1 $435 $435
WMFG24 7 $555 $555
WMFG17 16 $550 $550
WMFG18
WMFG19
WMFG54
WMFG62
WMFG38
WMFG63
WMFG92 54 $908 $930
WMFG93
WMFG70 12 $300 $300
WMFG97
WMFG185
WMFG60
Mid145
Mid001
Mid002
Mid006
Mid011
Mid012
Mid016
Mid018 6 $580 $625
Mid018
Mid020
Mid023
Mid024
Mid025
Mid030 3 $378 $383
Mid034
Mid036
Mid037
Mid038
Mid047
Mid059
Mid146
Mid061
Mid063
Mid063
Mid066
Mid067
Mid068 16 $414 $519
Mid069
Mid070
Mid072
Mid076
Mid078
Mid167
Mid083
Mid084
Mid085 24 $350 $350
Mid088
Mid090 13 $453 $463
Mid092
Mid104 11 $294 $300
Mid106
Mid107
Mid108
Mid109
Mid116 2 $445 $450
Mid127 7 $472 $475
Mid132
Mid140
======================================================
Totals / Wtg. Averages 1,330 $520 $1,295
</TABLE>
E-14
<PAGE>
CMAC 1998-C2 Multifamily Schedule
<TABLE>
<CAPTION>
No. 1 Bedrooms No. 2 Bedrooms No. 3 Bedrooms
- --------------------------------------------- ------------------------------------- ----------------------------------------
Wtg. Avg Wtg. Avg Wtg. Avg
# units rent/month highest rent # units rent/month highest rent # units rent/month highest rent
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
139 $301 $340 201 $352 $575 22 $513 $625
69 $568 $581 23 $731 $772
32 $542 $550 6 $665 $665
14 $495 $495 24 $613 $613 4 $800 $800
37 $437 $475 113 $495 $495
33 $665 $665 55 $740 $740
29 $645 $645 120 $705 $705 28 $1,124 $1,124
102 $650 $650 272 $690 $690 24 $825 $825
156 $853 $853 252 $1,009 $1,009
102 $773 $773 236 $892 $892 51 $1,020 $1,020
96 $460 $525
10 $485 $485 190 $623 $635 1 $685 $685
24 $395 $395 100 $458 $495 24 $550 $550
37 $450 $450 63 $530 $550
252 $1,070 $1,175 54 $1,313 $1,485
50 $863 $870 110 $979 $1,020 106 $1,165 $1,245
28 $325 $325 40 $400 $400 29 $500 $500
4 $710 $770 20 $750 $775
87 $700 $750 89 $720 $740 34 $840 $930
60 $458 $475 48 $575 $575
32 $376 $376 96 $477 $490 0
21 $536 $550 231 $599 $622
1 $475 $475 43 $806 $824
5 $550 $550 112 $625 $645
32 $283 $283 144 $445 $500 16 $536 $625
31 $574 $574 19 $591 $591
12 $409 $455 46 $479 $515
6 $733 $750 12 $846 $925
7 $650 $650 14 $741 $800
64 $319 $379 60 $419 $470
21 $345 $380 49 $430 $525 4 $546 $575
88 $383 $385 56 $450 $450 8 $468 $515
72 $522 $635 24 $661 $665
12 $432 $450 37 $589 $670 43 $662 $950
104 $382 $439 160 $481 $539 8 $673 $679
27 $527 $527 48 $665 $625
92 $461 $480 80 $535 $619
94 $652 $725 116 $817 $890
4 $683 $695 4 $1,000 $1,300 0
25 $475 $500 47 $555 $575
2 $850 $870 32 $975 $975
53 $580 $615
48 $472 $475
5 $428 $430 40 $471 $480 15 $526 $565
48 $399 $399 144 $468 $485
0 75 $633 $675 25 $695 $695
19 $441 $489 32 $492 $549 48 $580 $650
36 $359 $369 83 $398 $419
28 $354 $359 76 $398 $429
8 $1,331 $1,450 15 $1,742 $1,950 6 $1,588 $1,650
136 $436 $479 232 $543 $579 16 $668 $689
56 $375 $410 44 $478 $555
45 $403 $415 43 $457 $475
21 $571 $675 27 $633 $795
192 $373 $475 72 $478 $975
96 $398 $410 80 $571 $585 8 $725 $725
86 $414 $429 107 $472 $505 7 $590 $601
98 $564 $610 96 $669 $730
44 $474 $495 16 $575 $585
110 $330 $360 132 $412 $450
76 $336 $360 93 $425 $450 24 $558 $575
92 $433 $470
61 $536 $575 11 $629 $960
36 $575 $580 24 $663 $690
23 $503 $529 31 $590 $629
21 $675 $675
12 $430 $430 17 $580 $590 16 $690 $690
157 $623 $700 167 $775 $800
===================================== ================================= ===================================
12,151 $514 $2,400 13,803 $612 $2,964 1,870 $64,263 $1,800
<CAPTION>
No. 4 Bedrooms Other
- --------------------------------------- ---------------------------------------------------------
Wtg. Avg Wtg. Avg
# units rent/month highest rent # units rent/month highest rent Type
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
11 $717 $749
============================== =====================================
36 $2,188 $981 62 $4,895 $2,790
</TABLE>
E-15
<PAGE>
COMMERCIAL MORTGAGE ACCEPTANCE CORP.
DEPOSITOR
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
Commercial Mortgage Acceptance Corp. (the "Depositor") from time to time
will offer Commercial Mortgage Pass-Through Certificates (the "Offered
Certificates") in "Series" by means of this Prospectus and a separate Prospectus
Supplement for each Series. The Offered Certificates, together with any other
Commercial Mortgage Pass-Through Certificates of such Series, are collectively
referred to herein as the "Certificates." The Certificates of each Series will
evidence beneficial ownership interests in a trust fund (the "Trust Fund") to be
established by the Depositor. The Certificates of a Series may be divided into
two or more "Classes", which may have different interest rates and which may
receive principal payments in differing proportions and at different times.
In addition, rights of the holders of certain Classes to receive principal
and interest may be subordinated to those of other Classes. Each Trust Fund will
consist of a pool (the "Mortgage Pool") of one or more mortgage loans secured by
first or junior liens on fee simple or leasehold interests in commercial real
estate properties, multifamily residential properties and/or mixed-use
properties and related property and interests, conveyed to such Trust Fund by
the Depositor, and other assets, including any Credit Enhancement described in
the related Prospectus Supplement. See "DESCRIPTION OF THE
CERTIFICATES--General" herein. The percentage of any mixed-use property used for
commercial purposes will be set forth in the Prospectus Supplement. Multifamily
properties (consisting of apartments, congregate care facilities and/or mobile
home parks), general commercial properties (consisting of retail properties,
including shopping centers, office buildings, mini-warehouses, warehouses,
industrial properties and/or other similar types of properties) and hotels will
represent security for a material concentration of the Mortgage Loans in any
Trust Fund, based on principal balance at the time such Trust Fund is formed.
See "DESCRIPTION OF THE MORTGAGE POOL" in the Prospectus Supplement. If so
specified in the related Prospectus Supplement, the Mortgage Pool may also
include installment contracts for the sale of such types of properties. Such
mortgage loans and installment contracts are hereinafter referred to as the
"Mortgage Loans." The Mortgage Loans will have fixed or adjustable interest
rates. Some Mortgage Loans will fully amortize over their remaining terms to
maturity and others will provide for balloon payments at maturity. The Mortgage
Loans will provide for recourse against only the Mortgaged Properties or provide
for recourse against the other assets of the obligors thereunder. The Mortgage
Loans will be newly originated or seasoned, and will be acquired by the
Depositor either directly or through one or more affiliates. The Mortgage Loans
may be originated by affiliated entities, including Midland Loan Services, Inc.
and/or unaffiliated entities. See "RISK FACTORS." Information regarding each
Series of Certificates, including interest and principal payment provisions for
each Class, as well as information regarding the size, composition and other
characteristics of the Mortgage Pool relating to such Series, will be furnished
in the related Prospectus Supplement. The Mortgage Loans will be master serviced
by Midland Loan Services, Inc.
The Depositor, as specified in the related Prospectus Supplement, may elect
to treat all or a specified portion of the collateral securing any Series of
Certificates as a "real estate mortgage investment conduit" (a "REMIC"), or an
election may be made to treat the arrangement by which a Series of Certificates
is issued as a REMIC. If such election is made, each Class of Certificates of a
Series will be either Regular Certificates or Residual Certificates, as
specified in the related Prospectus Supplement. If no such election is made, the
Trust Fund, as specified in the related Prospectus Supplement, will be
classified as a grantor trust for federal income tax purposes. See "MATERIAL
FEDERAL INCOME TAX CONSEQUENCES" herein.
With respect to each Series, all of the Offered Certificates will be rated
in one of the four highest ratings categories by one or more nationally
recognized statistical rating organizations. There will have been no public
market for the Certificates of any Series prior to the offering thereof. No
assurance can be given that such a secondary market will develop as a result of
such offering or, if it does develop, that it will continue. The Depositor does
not intend to make an application to list any Series of Certificates on a
national securities exchange or quote any Series of Certificates in an automated
quotation system of a registered securities association.
The Certificates do not represent an obligation of or an interest in the
Depositor or any affiliate thereof. Unless so specified in the related
Prospectus Supplement, neither the Certificates nor the Mortgage Loans are
insured or guaranteed by any governmental agency or instrumentality or by any
other person or entity. See "RISK FACTORS."
-----------------
PROSPECTIVE INVESTORS SHOULD CONSIDER THE MATERIAL RISKS DISCUSSED HEREIN
UNDER "RISK FACTORS" AT PAGE 6 AND SUCH INFORMATION AS MAY BE SET FORTH UNDER
THE CAPTION "RISK FACTORS" IN THE RELATED PROSPECTUS SUPPLEMENT BEFORE
PURCHASING ANY OF THE OFFERED CERTIFICATES.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Offers of the Certificates may be made through one or more different
methods, including offerings through underwriters, as more fully described under
"PLAN OF DISTRIBUTION" herein and in the related Prospectus Supplement. Certain
offerings of the Certificates, as specified in the related Prospectus
Supplement, may be made in one or more transactions exempt from the registration
requirements of the Securities Act of 1933, as amended. Such offerings are not
being made pursuant to the Registration Statement of which this Prospectus forms
a part.
Retain this Prospectus for future reference. This Prospectus may not be
used to consummate sales of the Certificates offered hereby unless accompanied
by a Prospectus Supplement.
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 9, 1998.
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to each Series of Certificates will,
among other things, set forth with respect to such Series of Certificates: (i)
the identity of each Class within such Series; (ii) the initial aggregate
principal amount, the interest rate (the "Pass-Through Rate") (or the method for
determining it) and the authorized denominations of each Class of Certificates
of such Series; (iii) certain information concerning the Mortgage Loans relating
to such Series, including the principal amount, type and characteristics of such
Mortgage Loans on the date of issue of such Series of Certificates; (iv) the
circumstances, if any, under which the Certificates of such Series are subject
to redemption prior to maturity; (v) the final scheduled distribution date of
each Class of Certificates of such Series; (vi) the method used to calculate the
aggregate amount of principal available and required to be applied to the
Certificates of such Series on each Distribution Date; (vii) the order of the
application of principal and interest payments to each Class of Certificates of
such Series and the allocation of principal to be so applied; (viii) the extent
of subordination of any Subordinate Certificates; (ix) the principal amount of
each Class of Certificates of such Series that would be outstanding on specified
Distribution Dates, if the Mortgage Loans relating to such Series were prepaid
at various assumed rates; (x) the Distribution Dates for each Class of
Certificates of such Series; (xi) relevant financial information with respect to
the mortgagor(s) and the Mortgaged Properties underlying the Mortgage Loans
relating to such Series, if applicable; (xii) information with respect to the
terms of the Subordinate Certificates or Residual Certificates, if any, of such
Series; (xiii) additional information with respect to the Credit Enhancement, if
any, relating to such Series; (xiv) additional information with respect to the
plan of distribution of such Series; and (xv) whether the Certificates of such
Series will be registered in the name of the nominee of The Depository Trust
Company or another depository.
ADDITIONAL INFORMATION
This Prospectus contains, and the Prospectus Supplement for each Series of
Certificates will contain, a summary of the material terms of the documents
referred to herein and therein, but neither contains nor will contain all of the
information set forth in the Registration Statement (the "Registration
Statement") of which this Prospectus and the related Prospectus Supplement is a
part. For further information, reference is made to such Registration Statement
and the exhibits thereto which the Depositor has filed with the Securities and
Exchange Commission (the "Commission"), under the Securities Act of 1933, as
amended (the "1933 Act"). Statements contained in this Prospectus and any
Prospectus Supplement as to the contents of any contract or other document
referred to are summaries and in each instance reference is made to the copy of
the contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. Copies of the Registration Statement may be obtained from the
Commission, upon payment of the prescribed charges, or may be examined free of
charge at the Commission's offices. Reports and other information filed with the
Commission can be inspected and copied at prescribed rates at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Regional Offices of the Commission at Seven
World Trade Center, 13th Floor, New York, New York 10048; and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of the Agreement pursuant to which a Series of Certificates is issued
will be provided to each person to whom a Prospectus and the related Prospectus
Supplement are delivered, upon written or oral request directed to: Commercial
Mortgage Acceptance Corp., 201 West 10th Street, 6th Floor, Kansas City,
Missouri 64105, Attention: Clarence Krantz, telephone number (816) 435-5000. The
Commission maintains an Internet Web site that contains reports, proxy
information statements and other information regarding registrants that file
electronically with the Commission. The address of such Internet Web site is
http://www.sec.gov.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
With respect to the Trust Fund for each Series, there are incorporated
herein by reference all documents and reports filed or caused to be filed by the
Depositor with respect to such Trust Fund pursuant to Section 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act"),
after the date of this Prospectus and prior to the termination of the offering
of the Offered Certificates evidencing an interest in such Trust Fund. The
Depositor will provide or cause to be provided without charge to each person to
whom this Prospectus is delivered in connection with the offering of one or more
Classes of Certificates, upon request, a copy of any or all such documents or
reports incorporated herein by reference, in each case to the extent such
documents or reports relate to one or more
2
<PAGE>
of such Classes of such Certificates, other than the exhibits to such documents
(unless such exhibits are specifically incorporated by reference in such
documents). The Depositor has determined that its financial statements are not
material to the offering of any of the Offered Certificates. See "FINANCIAL
INFORMATION." Requests to the Depositor should be directed to: Commercial
Mortgage Acceptance Corp., 210 West 10th Street, 6th Floor, Kansas City,
Missouri 64105, Attention: Clarence Krantz, telephone number (816) 435-5000.
REPORTS
In connection with each distribution and annually, Certificateholders will
be furnished with statements containing information with respect to principal
and interest payments and the related Trust Fund, as described herein and in the
applicable Prospectus Supplement for such Series. Any financial information
contained in such reports most likely will not have been examined or reported
upon by an independent public accountant. See "DESCRIPTION OF THE
CERTIFICATES--Reports to Certificateholders." The Master Servicer for each
Series will furnish periodic statements setting forth certain specified
information relating to the Mortgage Loans to the related Trustee, and, in
addition, annually will furnish such Trustee with a statement from a firm of
independent public accountants with respect to the examination of certain
documents and records relating to the servicing of the Mortgage Loans in the
related Trust Fund. See "SERVICING OF THE MORTGAGE LOANS--Evidence of
Compliance." Copies of the monthly and annual statements provided by the Master
Servicer to the Trustee will be furnished to Certificateholders of each Series
upon request addressed to the Trustee for the related Trust Fund.
The Depositor intends to apply for relief from the reporting requirements
of Sections 13, 15(d) and 16(a) of the 1934 Act. In lieu of filing the periodic
reports required by those sections, the Master Servicer, on behalf of the
related Trust Fund, will file with the Commission on Form 8-K the monthly
reports and information set forth in the related Prospectus Supplement. See "THE
POOLING AND SERVICING AGREEMENT--Reports to Certificateholders; Available
Information" in the related Prospectus Supplement. The Depositor does not intend
to file periodic reports under the 1934 Act with respect to the related Trust
Fund for any Series of Certificates following the completion of the reporting
period required by Rule 15d-1 under the 1934 Act.
3
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT ......................................................................... 2
ADDITIONAL INFORMATION ........................................................................ 2
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE ............................................. 2
REPORTS ....................................................................................... 3
SUMMARY OF PROSPECTUS ......................................................................... 7
RISK FACTORS .................................................................................. 12
Limited Liquidity; Lack of Market for Resale ................................................ 12
Limited Assets as Security for Investment in Certificates; No Personal Liability ............ 12
Effects of Prepayments on Average Life of Certificates and Yields ........................... 12
Risks Associated with Lending on Income Producing Properties ................................ 13
Risks Particular to Hotel Properties ........................................................ 14
Potential Conflicts of Interest ............................................................. 15
Certain Tax Considerations of Variable Rate Certificates .................................... 15
Limited Nature of Credit Ratings ............................................................ 15
Potential Inability to Verify Underwriting Standards ........................................ 16
Nonrecourse Mortgage Loans; Limited Recovery ................................................ 16
Inclusion of Delinquent Mortgage Loans May Adversely Affect Yields .......................... 16
Junior Mortgage Loans ....................................................................... 16
Balloon Payments ............................................................................ 17
Extensions and Modifications of Defaulted Mortgage Loans; Additional Servicing Fees ......... 17
Risks Related to the Mortgagor's Form of Entity and Sophistication .......................... 17
Credit Enhancement Limitations .............................................................. 17
Risks to Subordinated Certificateholders; Lower Payment Priority ............................ 18
Taxable Income in Excess of Distributions Received .......................................... 18
Due-on-Sale Clauses and Assignments of Leases and Rents ..................................... 18
Environmental Risks ......................................................................... 19
Certain Federal Tax Considerations Regarding Residual Certificates .......................... 19
ERISA Considerations ........................................................................ 20
Special Hazard Losses ....................................................................... 20
Control; Decisions by Certificateholders .................................................... 20
Book-Entry Registration ..................................................................... 20
THE DEPOSITOR ................................................................................. 21
THE MASTER SERVICER ........................................................................... 21
USE OF PROCEEDS ............................................................................... 21
DESCRIPTION OF THE CERTIFICATES ............................................................... 21
General ..................................................................................... 22
Distributions on Certificates ............................................................... 23
Accounts .................................................................................... 23
Amendment ................................................................................... 25
Termination ................................................................................. 25
Reports to Certificateholders ............................................................... 26
The Trustee ................................................................................. 26
THE MORTGAGE POOLS ............................................................................ 26
General ..................................................................................... 26
Assignment of Mortgage Loans ................................................................ 28
Mortgage Underwriting Standards and Procedures .............................................. 28
Representations and Warranties .............................................................. 29
SERVICING OF THE MORTGAGE LOANS ............................................................... 30
General ..................................................................................... 30
Collections and Other Servicing Procedures .................................................. 31
Insurance ................................................................................... 31
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Fidelity Bonds and Errors and Omissions Insurance ........................................... 32
Servicing Compensation and Payment of Expenses .............................................. 33
Advances .................................................................................... 33
Modifications, Waivers and Amendments ....................................................... 33
Evidence of Compliance ...................................................................... 33
Certain Matters With Respect to the Master Servicer, the Special Servicer,
the Trustee and the Depositor .............................................................. 34
Events of Default ........................................................................... 35
Rights Upon Event of Default ................................................................ 36
CREDIT ENHANCEMENT ............................................................................ 36
General ..................................................................................... 36
Subordinate Certificates .................................................................... 37
Reserve Funds ............................................................................... 38
Cross-Support Features ...................................................................... 38
Certificate Guarantee Insurance ............................................................. 38
Limited Guarantee ........................................................................... 39
Letter of Credit ............................................................................ 39
Pool Insurance Policies; Special Hazard Insurance Policies .................................. 39
Surety Bonds ................................................................................ 39
Fraud Coverage .............................................................................. 39
Mortgagor Bankruptcy Bond ................................................................... 39
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS ................................................... 40
General ..................................................................................... 40
Types of Mortgage Instruments ............................................................... 40
Personalty .................................................................................. 40
Installment Contracts ....................................................................... 41
Junior Mortgages; Rights of Senior Mortgagees or Beneficiaries .............................. 41
Foreclosure ................................................................................. 42
Environmental Risks ......................................................................... 48
Enforceability of Certain Provisions ........................................................ 50
Soldiers' and Sailors' Relief Act ........................................................... 52
Applicability of Usury Laws ................................................................. 52
Alternative Mortgage Instruments ............................................................ 52
Leases and Rents ............................................................................ 53
Secondary Financing; Due-on-Encumbrance Provisions .......................................... 53
Certain Laws and Regulations ................................................................ 54
Type of Mortgaged Property .................................................................. 54
Criminal Forfeitures ........................................................................ 54
Americans With Disabilities Act ............................................................. 55
MATERIAL FEDERAL INCOME TAX CONSEQUENCES ...................................................... 55
General ..................................................................................... 55
FEDERAL INCOME TAX CONSEQUENCES FOR REMIC CERTIFICATES ........................................ 56
General ..................................................................................... 56
Qualification as a REMIC .................................................................... 56
Taxation of REMIC Regular Certificates ...................................................... 58
Taxation of the REMIC ....................................................................... 64
Taxation of Holders of Residual Certificates ................................................ 66
Reporting Requirements and Backup Withholding ............................................... 70
Tax Treatment of Foreign Investors .......................................................... 70
Administrative Matters ...................................................................... 71
FEDERAL INCOME TAX CONSEQUENCES FOR CERTIFICATES AS TO WHICH NO
REMIC ELECTION IS MADE ....................................................................... 72
Tax Status as a Grantor Trust ............................................................... 72
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Tax Status of Certificates .................................................................. 73
Pass-Through Certificates ................................................................... 73
Stripped Certificates ....................................................................... 74
Sale of Certificates ........................................................................ 75
Reporting Requirements and Backup Withholding ............................................... 76
Treatment of Foreign Investors .............................................................. 76
STATE TAX CONSIDERATIONS ...................................................................... 77
ERISA CONSIDERATIONS .......................................................................... 77
Prohibited Transactions ..................................................................... 77
Unrelated Business Taxable Income-Residual Interests ........................................ 78
LEGAL INVESTMENT .............................................................................. 79
PLAN OF DISTRIBUTION .......................................................................... 79
LEGAL MATTERS ................................................................................. 80
FINANCIAL INFORMATION ......................................................................... 80
RATINGS ....................................................................................... 80
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SUMMARY OF PROSPECTUS
The following summary of certain pertinent information is qualified in its
entirety by reference to the more detailed information appearing elsewhere in
this Prospectus and by reference to the information with respect to each Series
of Certificates contained in the Prospectus Supplement to be prepared and
delivered in connection with the offering of such Series. An Index
of Definitions is included at the end of this Prospectus.
TITLE OF CERTIFICATES ........Commercial Mortgage Pass-Through Certificates,
issuable in Series Certificates (the
"Certificates").
DEPOSITOR ....................Commercial Mortgage Acceptance Corp., a
wholly-owned subsidiary of Midland Loan
Services, Inc. See "THE DEPOSITOR."
MASTER SERVICER ..............Midland Loan Services, Inc., a wholly-owned
subsidiary of PNC Bank, National Association.
See "SERVICING OF THE MORTGAGE LOANS--General."
SPECIAL SERVICER .............The special servicer (the "Special Servicer"), if
any, for each Series of Certificates, which may
be an affiliate of the Depositor, will be named,
or the circumstances in accordance with which a
Special Servicer will be appointed, will be
described in the related Prospectus Supplement.
See "SERVICING OF THE MORTGAGE LOANS--General."
TRUSTEE ......................The trustee (the "Trustee") for each Series of
Certificates will be named in the related
Prospectus Supplement. See "DESCRIPTION OF THE
CERTIFICATES--The Trustee."
THE TRUST FUND ...............Each Series of Certificates will represent in the
aggregate the entire beneficial ownership
interest in a Trust Fund consisting primarily of
the following:
A. MORTGAGE POOL .............The primary assets of each Trust Fund will consist
of a pool of mortgage loans (the "Mortgage
Pool") secured by first or junior mortgages,
deeds of trust or similar security instruments
(each, a "Mortgage") on, or installment
contracts ("Installment Contracts") for the
sale of, fee simple or leasehold interests in
commercial real estate property, multifamily
residential property and/or mixed-use property,
and related property and interests (each such
interest or property, as the case may be, a
"Mortgaged Property"). Multifamily properties
(consisting of apartments, congregate care
facilities and/or mobile home parks), general
commercial properties (consisting of retail
properties, including shopping centers, office
buildings, mini-warehouses, warehouses,
industrial properties and/or other similar types
of properties) and hotels will represent
security for a material concentration of the
Mortgage Loans in any Trust Fund, based on
principal balance at the time such Trust Fund is
formed. Each such mortgage loan or Installment
Contract is herein referred to as a "Mortgage
Loan." The Mortgage Loans will not be guaranteed
or insured by the Depositor or any of its
affiliates. The Prospectus Supplement will
indicate whether the Mortgage Loans will be
guaranteed or insured by any governmental agency
or instrumentality or other
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person. The Mortgage Loans will have the
additional characteristics described under "THE
MORTGAGE POOLS" herein and "DESCRIPTION OF THE
MORTGAGE POOL" in the related Prospectus
Supplement. All Mortgage Loans will have been
purchased by the Depositor on or before the date
of initial issuance of the related Series of
Certificates.
All Mortgage Loans will be of one or more of the
following types: Mortgage Loans with fixed
interest rates; Mortgage Loans with adjustable
interest rates; Mortgage Loans whose principal
balances fully amortize over their remaining
terms to maturity; Mortgage Loans whose
principal balances do not fully amortize, but
instead provide for a substantial principal
payment at the stated maturity of the loan;
Mortgage Loans that provide for recourse against
only the Mortgaged Properties; and Mortgage
Loans that provide for recourse against the
other assets of the related mortgagors. Certain
Mortgage Loans may provide that scheduled
interest and principal payments thereon are
applied first to interest accrued from the last
date to which interest has been paid to the date
such payment is received and the balance thereof
is applied to principal, and other Mortgage
Loans may provide for payment of interest in
advance rather than in arrears. Each Mortgage
Loan may contain prohibitions on prepayment or
require payment of a premium or a yield
maintenance penalty in connection with a
prepayment, in each case as described in the
related Prospectus Supplement. The Mortgage
Loans may provide for payments of principal,
interest or both, on due dates that occur
monthly, quarterly, semi-annually or at such
other interval as is specified in the related
Prospectus Supplement. See "DESCRIPTION OF THE
MORTGAGE POOL" in the related Prospectus
Supplement.
The Depositor will not originate any Mortgage
Loan, unless provided in the Prospectus
Supplement; however, some or all of the Mortgage
Loans may be originated by affiliates of the
Depositor.
B. ACCOUNTS ..................The Master Servicer generally will be required to
establish and maintain one or more accounts (the
"Collection Account") in the name of the
Trustee on behalf of the Certificateholders into
which the Master Servicer will, to the extent
described herein and in the related Prospectus
Supplement, deposit all payments and collections
received or advanced with respect to the
Mortgage Loans. The Trustee generally will be
required to establish an account (the
"Distribution Account") into which the Master
Servicer will deposit amounts held in the
Collection Account from which distributions of
principal and interest will be made. Such
distributions will be made to the
Certificateholders in the manner described in
the related Prospectus Supplement. Funds held in
the Collection Account and Distribution Account
may be invested in certain short-term,
investment grade obligations.
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C. CREDIT ENHANCEMENT ........If so provided in the related Prospectus
Supplement, protection against certain defaults
and losses with respect to one or more Classes
of Certificates of a Series or the related
Mortgage Loans ("Credit Enhancement"). Credit
Enhancement may be in the form of a letter of
credit, the subordination of one or more Classes
of the Certificates of such Series, the
establishment of one or more reserve funds,
surety bonds, certificate guarantee insurance,
limited guarantees, or another type of credit
support, or a combination thereof. It is
unlikely that Credit Enhancement will protect
against all risks of loss or guarantee repayment
of the entire principal balance of the
Certificates and interest thereon. The amount
and types of coverage, the identification of the
entity providing the coverage (if applicable)
and related information with respect to each
type of Credit Enhancement, if any, will be
described in the applicable Prospectus
Supplement for a Series of Certificates. See
"RISK FACTORS--Credit Enhancement Limitations"
and "CREDIT ENHANCEMENT--General."
DESCRIPTION OF
CERTIFICATES ...............The Certificates of each Series will be issued
pursuant to a Pooling and Servicing Agreement
(the "Agreement") and will represent in the
aggregate the entire beneficial ownership
interest in the related Trust Fund. If so
specified in the applicable Prospectus
Supplement, Certificates of a given Series may
be issued in several Classes, which may pay
interest at different rates, may represent
different allocations of the right to receive
principal and interest payments, and certain of
which may be subordinated to other Classes in
the event of shortfalls in available cash flow
from the underlying Mortgage Loans.
Alternatively, or in addition, Classes may be
structured to receive principal payments in
sequence. Each Class in a group of sequential
pay Classes would be entitled to be paid in full
before the next Class in the group is entitled
to receive any principal payments. A Class of
Certificates may also provide for payments of
principal only or interest only or for
disproportionate payments of principal and
interest. Each Series of Certificates (including
any Class or Classes of Certificates of such
Series not offered hereby) will represent in the
aggregate the entire beneficial ownership
interest in the Trust Fund. See "PROSPECTUS
SUPPLEMENT" for a listing of additional
characteristics of the Certificates that will be
included in the Prospectus Supplement for each
Series.
The Certificates will not be guaranteed or insured
by the Depositor or any of its affiliates.
Unless so specified in the related Prospectus
Supplement, neither the Certificates nor the
Mortgage Loans are insured or guaranteed by any
governmental agency or instrumentality or by any
other person or entity. See "RISK
FACTORS--Limited Assets as Security for
Investment in Certificates; No Personal
Liability" and "DESCRIPTION OF THE
CERTIFICATES."
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DISTRIBUTIONS ON
CERTIFICATES ................Distributions of principal and interest on the
Certificates of each Series will be made to the
registered holders thereof on the day (the
"Distribution Date") specified in the related
Prospectus Supplement, beginning in the period
specified in the related Prospectus Supplement
following the establishment of the related Trust
Fund.
With respect to each Series of Certificates on
each Distribution Date, the Trustee (or such
other paying agent as may be identified in the
applicable Prospectus Supplement) will
distribute to the Certificateholders the amounts
described in the related Prospectus Supplement
that are due to be paid on such Distribution
Date. In general, such amounts will include
previously undistributed payments of principal
(including principal prepayments, if any) and
interest on the Mortgage Loans received by the
Master Servicer or the Special Servicer, if any,
after a date specified in the related Prospectus
Supplement (the "Cut-off Date") and prior to the
day preceding each Distribution Date specified
in the related Prospectus Supplement.
ADVANCES .....................With respect to each Series of Certificates, the
related Prospectus Supplement will set forth the
obligations of the Master Servicer and the
Special Servicer, if any, as part of their
servicing responsibilities, to make certain
advances with respect to delinquent payments on
the Mortgage Loans, payments of taxes,
assessments, insurance premiums and other
required payments. See "SERVICING OF THE
MORTGAGE LOANS--Advances."
TERMINATION ..................The obligations of the parties to the Agreement
for each Series will terminate upon: (i) the
purchase of all of the assets of the related
Trust Fund, as described in the related
Prospectus Supplement; (ii) the later of (a) the
distribution to Certificateholders of that
Series of final payment with respect to the last
outstanding Mortgage Loan or (b) the disposition
of all property acquired upon foreclosure or
deed-in-lieu of foreclosure with respect to the
last outstanding Mortgage Loan and the
remittance to the Certificateholders of all
funds due under the Agreement; (iii) the sale of
the assets of the related Trust Fund after the
principal amounts of all Certificates have been
reduced to zero under circumstances set forth in
the Agreement; or (iv) mutual consent of the
parties and all Certificateholders. With respect
to each Series, the Trustee will give or cause
to be given written notice of termination of the
Agreement to each Certificateholder and, unless
otherwise specified in the applicable Prospectus
Supplement, the final distribution under the
Agreement will be made only upon surrender and
cancellation of the related Certificates at an
office or agency specified in the notice of
termination. See "DESCRIPTION OF THE
CERTIFICATES--Termination."
RISK FACTORS .................There are material risks associated with an
investment in the Certificates. See "RISK
FACTORS."
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LISTING OF CERTIFICATES ......The Depositor does not currently intend to make an
application to list any Series of Certificates
on a national securities exchange or quote any
Series of Certificates in the automated
quotation system of a registered securities
association. See "RISK FACTORS--Limited
Liquidity; Lack of Market for Resale."
MATERIAL FEDERAL INCOME
TAX CONSEQUENCES ............The Certificates of each Series will constitute
either (i) "Regular Interests" ("Regular
Certificates") and "Residual Interests"
("Residual Certificates") in a Trust Fund
treated as a REMIC under Sections 860A through
860G of the Internal Revenue Code of 1986 (the
"Code"), or (ii) interests in a Trust Fund
treated as a grantor trust under applicable
provisionsof the Code. For the treatment of
Regular Certificates,Residual Certificates or
grantor trust certificates under the Code, see
"MATERIAL FEDERAL INCOME TAX CONSEQUENCES"
herein and in the related Prospectus Supplement.
The information contained in these sections is
supported by the opinion of Morrison & Hecker
L.L.P., counsel to the Depositor. Potential
purchasers of Certificates, however, are advised
to consult their own tax advisers regarding the
purchase of Certificates.
ERISA CONSIDERATIONS .........A fiduciary of an employee benefit plan and
certain other retirement plans and arrangements
that is subject to the Employee Retirement
Income Security Act of 1974, as amended
("ERISA"), or Section 4975 of the Code (each, a
"Plan") should carefully review with its legal
advisors whether the purchase or holding of
Senior Certificates may give rise to a
transaction that is prohibited or is not
otherwise permissible either under ERISA or
Section 4975 of the Code. Subordinate
Certificates may not be purchased by or
transferred to a Plan. See "ERISA
CONSIDERATIONS" herein and in the related
Prospectus Supplement.
LEGAL INVESTMENT .............The related Prospectus Supplement will indicate
whether the Offered Certificates will constitute
"mortgage related securities" for purposes of
the Secondary Mortgage Market Enhancement Act of
1984. Accordingly, investors whose investment
authority is subject to legal restrictions
should consult their own legal advisors to
determine whether and to what extent the
Certificates constitute legal investments for
them. See "LEGAL INVESTMENT" herein and in the
related Prospectus Supplement.
RATING .......................At the date of issuance, as to each Series, each
Class of Offered Certificates will be rated not
lower than investment grade by one or more
nationally recognized statistical rating
agencies (each, a "Rating Agency"). See "RATING"
herein and "RATINGS" in the related Prospectus
Supplement.
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RISK FACTORS
Investors should consider, in connection with the purchase of Offered
Certificates, among other things, the following factors and certain other
factors as may be set forth in "RISK FACTORS" in the related Prospectus
Supplement.
LIMITED LIQUIDITY; LACK OF MARKET FOR RESALE
There can be no assurance that a secondary market for the Certificates of
any Series will develop or, if it does develop, that it will provide holders
with liquidity of investment or will continue while Certificates of such Series
remain outstanding. The Depositor does not currently intend to make an
application to list any Series of Certificates on a national securities exchange
or quote any Series of Certificates on an automated quotation system of a
Registered Securities Association. The market value of Certificates will
fluctuate with changes in prevailing rates of interest. Consequently, any sale
of Certificates by a holder in any secondary market that may develop may be at a
discount from 100% of their original principal balance or from their purchase
price. Furthermore, secondary market purchasers may look only hereto, to the
related Prospectus Supplement and to the reports to Certificateholders delivered
pursuant to the Agreement as described herein under the heading "DESCRIPTION OF
THE CERTIFICATES--Reports to Certificateholders" and "SERVICING OF THE MORTGAGE
LOANS--Evidence of Compliance" for information concerning the Certificates.
Certificateholders will have only those redemption rights and the Certificates
will be subject to early retirement only under the circumstances described
herein or in the related Prospectus Supplement. See "DESCRIPTION OF THE
CERTIFICATES--Termination."
LIMITED ASSETS AS SECURITY FOR INVESTMENT IN CERTIFICATES; NO PERSONAL LIABILITY
A Series of Certificates will have a claim against or security interest in
the Trust Funds for another Series only if so specified in the related
Prospectus Supplement. If the related Prospectus Supplement does not specify
that a Series of Certificates will have a claim against or security interest in
the Trust Funds for another Series and the related Trust Fund is insufficient to
make payments on such Certificates, no other assets will be available for
payment of the deficiency. Additionally, certain amounts remaining in certain
funds or accounts, including the Distribution Account, the Collection Account
and any accounts maintained as Credit Enhancement, may be withdrawn under
certain conditions, as described in the related Prospectus Supplement. In the
event of such withdrawal, such amounts will not be available for future payment
of principal of or interest on the Certificates. If so provided in the
Prospectus Supplement for a Series of Certificates consisting of one or more
Classes of Subordinate Certificates, on any Distribution Date in respect of
which losses or shortfalls in collections on the Mortgaged Properties have been
realized, the amount of such losses or shortfalls will be borne first by one or
more Classes of the Subordinate Certificates, and, thereafter, by the remaining
Classes of Certificates in the priority and manner and subject to the
limitations specified in such Prospectus Supplement.
In general, neither the Depositor, nor any partner, director, officer,
employee or agent of the Depositor, will be liable to the related Trust Fund or
the Certificateholders for any action taken, or for refraining from the taking
of any action in good faith pursuant to the Agreement. As a result, if the
assets of the related Trust Fund are depleted, the Certificateholders will not
be able to recover any amounts from such persons, provided the applicable
standard of care has been met.
EFFECTS OF PREPAYMENTS ON AVERAGE LIFE OF CERTIFICATES AND YIELDS
Prepayments on the Mortgage Loans in any Trust Fund generally will result
in a faster rate of principal payments on one or more Classes of the related
Certificates than if payments on such Mortgage Loans were made as scheduled.
Thus, the prepayment experience on the Mortgage Loans may affect the average
life of each Class of related Certificates. The rate of principal payments on
pools of mortgage loans varies between pools and from time to time is influenced
by a variety of economic, demographic, geographic, social, tax, legal and other
factors, as well as Acts of God. Accordingly, there can be no assurance as to
the rate of prepayment on the Mortgage Loans in any Trust Fund or that the rate
of payments will conform to any model described in any Prospectus Supplement. If
prevailing interest rates fall significantly below the applicable rates borne by
the Mortgage Loans included in a Trust Fund, principal prepayments are likely to
be higher than if prevailing rates remain at or above the rates borne by those
Mortgage Loans. As a result, the actual maturity of any Class of Certificates
could occur significantly earlier than expected.
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<PAGE>
Alternatively, the actual maturity of any Class of Certificates could occur
significantly later than expected as a result of prepayment premiums or the
existence of defaults on the Mortgage Loans, particularly at or near their
maturity dates. In addition, the Master Servicer or the Special Servicer, if
any, may have the option under the Agreement for such Series to extend the
maturity of the Mortgage Loans following a default in the payment of a balloon
payment, which would also have the effect of extending the average life of each
Class of related Certificates. A Series of Certificates may include one or more
Classes of Certificates with priorities of payment over other Classes of
Certificates, including Classes of Offered Certificates, and, as a result,
yields on such Series may be more sensitive to prepayments on the Mortgage Loans
in the related Trust Fund. A Series of Certificates may include one or more
Classes offered at a significant premium or discount. Yields on such Classes of
Certificates will be sensitive, andin some cases extremely sensitive, to
prepayments on Mortgage Loans. With respect to interest only or
disproportionately interest weighted Classes purchased at a premium, such
Classes may not return their purchase prices under rapid repayment scenarios.
See "YIELD AND MATURITY CONSIDERATIONS" in the related Prospectus Supplement.
When considering the effects of prepayments on the average life and yield
of a Certificate, an investor should also consider provisions of the related
Agreement that permit the optional early termination of the Class of
Certificates to which such Certificate belongs. If so specified in the related
Prospectus Supplement, a Series of Certificates may be subject to optional early
termination through the repurchase of the Mortgage Properties in the related
Trust Fund by the party or parties specified therein, under the circumstances
and in the manner set forth therein. See "DESCRIPTION OF THE
CERTIFICATES--Termination."
RISKS ASSOCIATED WITH LENDING ON INCOME PRODUCING PROPERTIES
Mortgage loans made with respect to multifamily or commercial properties
may entail risks of delinquency and foreclosure, and risks of loss in the event
thereof, that are greater than similar risks associated with single-family
properties. For example, the ability of a mortgagor to repay a loan secured by
an income-producing property typically is dependent primarily upon the
successful operation of such property rather than any independent income or
assets of the mortgagor; thus, the value of an income-producing property is
directly related to the net operating income derived from such property. In
contrast, the ability of a mortgagor to repay a single-family loan typically is
dependent primarily upon the mortgagor's household income, rather than the
capacity of the property to produce income; thus, other than in geographical
areas where employment is dependent upon a particular employer or an industry,
the mortgagor's income tends not to reflect directly the value of such property.
A decline in the net operating income of an income-producing property will
likely affect both the performance of the related loan as well as the
liquidation value of such property, whereas a decline in the income of a
mortgagor on a single-family property will likely affect the performance of the
related loan but may not affect the liquidation value of such property.
Further, the concentration of default, foreclosure and loss risks for
Mortgage Loans in a particular Trust Fund or the related Mortgaged Properties
will generally be greater than for pools of single-family loans both because the
Mortgage Loans in a Trust Fund will generally consist of a smaller number of
loans than would a single-familypool of comparable aggregate unpaid principal
balance and because of the higher principal balance of individual Mortgage
Loans.
The performance of a mortgage loan secured by an income-producing property
leased by the mortgagor to tenants as well as the liquidation value of such
property may be dependent upon the businesses operated by such tenants in
connection with such property, the creditworthiness of such tenants or both; the
risks associated with such loans may be offset by the number of tenants or, if
applicable, a diversity of types of businesses operated by such tenants. A
number of the Mortgage Loans may be secured by liens on owner-occupied Mortgaged
Properties or on Mortgaged Properties leased to a single tenant. Accordingly, a
decline in the financial condition of the borrower or single tenant, as
applicable, may have a disproportionately greater effect on the net operating
income from such Mortgaged Properties than would be the case with respect to
Mortgaged Properties with multiple tenants. Furthermore, the value of any
mortgaged property may be adversely affected by risks generally incident to
interests in real property, including changes in general or local economic
conditions and/or specific industry segments; declines in real estate values;
declines in rental or occupancy rates; increases in interest rates, real estate
tax rates and other operating expenses; changes in governmental rules,
regulations and fiscal policies, including environmental legislation; natural
disasters; and other factors beyond the control of the Master Servicer or the
Special Servicer,if any.
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Additional risk may be presented by the type and use of a particular
mortgaged property. For instance, mortgaged properties that operate as
hospitals, nursing homes or convalescent homes may present special risks to
mortgagees due to the significant governmental regulation of the ownership,
operation, maintenance, control and financing of health care institutions.
Mortgages encumbering mortgaged properties that are owned by the mortgagor under
a condominium form of ownership are subject to the declaration, by-laws and
other rules and regulations of the condominium association. Hotel and motel
properties are often operated pursuant to franchise, management or operating
agreements that may be terminable by the franchiser or operator. Moreover, the
transferability of a hotel's operating, liquor and other licenses upon a
transfer of the hotel, whether through purchase or foreclosure, is subject to
local law requirements. In addition, mortgaged properties that are multifamily
residential properties or cooperatively owned multifamily properties may be
subject to rent control laws, which could impact the future cash flows of such
properties. Any such risks will be more fully described in the related
Prospectus Supplement under the captions "RISK FACTORS" and "DESCRIPTION OF THE
MORTGAGE POOL."
If applicable, certain legal aspects of the Mortgage Loans for a Series of
Certificates may be described in the related Prospectus Supplement. See also
"CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS."
RISKS PARTICULAR TO HOTEL PROPERTIES
The Mortgaged Properties securing the Mortgage Loans for any Trust Fund
will contain a material concentration of hotel properties. Hotel properties may
involve different types of hotels, including full service hotels, limited
service hotels, hotels associated with national franchise chains, hotels
associated with regional franchise chains and hotels that are not affiliated
with any franchise chain but may have their own brand identity.
These Mortgaged Properties will be subject to operating risks common to the
hotel industry. These risks include, among other things, competition from other
hotels, increases in operating costs (which increases may not necessarily be
offset by increased room rates), dependence on business and commercial travelers
and tourism, increases in energy costs and other expenses of travel, strikes,
relocation of highways and the construction of additional highways. A hotel's
location, quality and franchise affiliation can also affect its economic
performance. Adverse economic conditions, either local, regional or national,
may limit the amount that can be charged for a room and may result in a
reduction in occupancy levels. In addition, as hotel revenues are primarily
generated by room occupancy and such occupancy is usually for short periods of
time, hotel revenues may be more sensitive to general economic conditions and
competition than other income producing properties. This daily mark-to-market
also accentuates the highs and lows of economic cycles. Additionally, the
revenues of certain hotels, particularly those located in regions whose economy
depends upon tourism, may be highly seasonal in nature, and this seasonality can
be expected to cause periodic fluctuations in room and other revenues, occupancy
levels, room rates and operating expenses. Since limited service hotels are
relatively quick and inexpensive to construct and may quickly reflect a positive
value, an over-building of such hotels could occur in any given region, which
would likely adversely affect occupancy and daily room rates.
To meet competition in the industry and to maintain economic values,
continuing expenditures must be made for modernizing, refurbishing and
maintaining existing facilities prior to the expiration of their anticipated
useful lives. As a result of relatively high operating costs due to more
frequent improvements and renovations than other types of income producing
properties, relatively small decreases in hotel revenues can cause significant
stress on a hotel's cash flow.
The viability of any hotel property that is a franchise of a national or
regional hotel chain depends in part on the continued existence and financial
strength of the franchisor, the public perception of such hotel chain and the
duration of the franchise licensing agreement. The continuation of the franchise
is subject to specified operating standards and other terms and conditions. The
franchisor periodically inspects its licensed properties to confirm adherence to
its operating standards. The failure of a hotel to maintain such standards or
adhere to such other terms and conditions could result in the loss or
cancellation of the franchise licenses. It is possible that the franchisor could
condition the continuation of a franchise license on the completion of capital
improvements or the making of certain capital expenditures that the related
borrower determines are too expensive or are otherwise unwarranted in light of
general economic conditions or the operating results or prospects of the
affected hotels. In that event, the related borrower may elect to allow the
franchise license to lapse. In any case, if the franchise is terminated, the
related borrower may seek to obtain a suitable replacement franchise or to
operate such hotel property independent of a franchise license.
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The loss of a franchise license could have a material adverse effect upon the
operations or the underlying value of the hotel covered by the franchise because
of the loss of associated name recognition, marketing support and decentralized
reservation systems provided by the franchisor.
Because of the expertise and knowledge required to run hotel operations,
foreclosure and a change in ownership (and consequently of management) may have
an especially adverse effect on the perception of the public and the industry
(including franchisors) concerning the quality of a hotel's operations. In the
event of a foreclosure on a hotel property, it is unlikely that the Trustee, the
Master Servicer (or Special Servicer, if applicable) or the purchaser of such
hotel property may be entitled to the rights under any operating, liquor and
other licenses for such hotel property, and such party would be required to
apply in its own right for such licenses. There can be no assurance that new
licenses could be obtained or that they could be obtained promptly. The
transferability of franchise license agreements may be restricted and, in the
event of a foreclosure on any such hotel property, the consent of the franchisor
for the continued use the franchise license by the hotel property would be
required. Conversely, a lender may be unable to remove a franchisor that it
desires to replace following a foreclosure.
POTENTIAL CONFLICTS OF INTEREST
The Special Servicer, if any, for a Series of Certificates, will have
considerable latitude in determiningwhether to liquidate or modify defaulted
Mortgage Loans. See "SERVICING OF THE MORTGAGE LOANS--Modifications, Waivers and
Amendments". If the Special Servicer or anyone else who purchases Mortgage Loans
and has the power to appoint the Special Servicer, investors in the Offered
Certificates should consider that, although the Special Servicer will be
obligated to act in accordance with the terms of the related Agreement and will
be governed by the servicing standards described herein, it may have interests
when dealing with defaulted Mortgage Loans that are in conflict with those of
holders of the Offered Certificates.
CERTAIN TAX CONSIDERATIONS OF VARIABLE RATE CERTIFICATES
There are certain tax matters as to which counsel to the Depositor is
unable to opine at the time of the issuance of the Prospectus due to uncertainty
in the law. Specifically, the treatment of Interest Weighted Certificates and
variable rate regular Certificates are subject to unsettled law which creates
uncertainty as to the exact method of income accrual which should control. The
REMIC will accrue income using a method which is consistent with certain
regulations; however, there can be no assurance that such method would be
controlling if the IRS were to assert a different method for accruing income.
See "MATERIAL FEDERAL INCOME TAX CONSEQUENCES--Federal Income Tax Consequences
For REMIC Certificates--Taxation of REMIC Regular Certificates--Interest
Weighted Certificates" and "--Taxation of REMIC Regular Certificates--Variable
Rate Regular Certificates."
LIMITED NATURE OF CREDIT RATINGS
Any rating assigned by a Rating Agency to a Class of Certificates will
reflect only its assessment of the likelihood that holders of such Certificates
will receive payments to which such Certificateholders are entitled under the
related Agreement. Such rating will not constitute an assessment of the
likelihood that principal prepayments on the related Mortgage Loans will be
made, the degree to which the rate of such prepayments might differ from that
originally anticipated or the likelihood of early optional termination of the
related Trust Fund. Furthermore, such rating will not address the possibility
that prepayment of the related Mortgage Loans at a higher or lower rate than
anticipated by an investor may cause such investor to experience a lower than
anticipated yield or that an investor that purchases a Certificate at a
significant premium, or a Certificate that is entitled to disproportionately
low, nominal or no principal distributions, might fail to recoup its initial
investment under certain prepayment scenarios. Each Prospectus Supplement will
identify any payment to which holders of Offered Certificates of the related
Series are entitled that is not covered by the applicable rating. See "--Credit
Enhancement Limitations."
The amount, type and nature of Credit Enhancement, if any, provided with
respect to a Series of Certificates will be determined on the basis of criteria
established by each Rating Agency rating Classes of the Certificates of such
Series. Those criteria are sometimes based upon an actuarial analysis of the
behavior of mortgage loans in a larger group. However, there can be no assurance
that the historical data supporting any such actuarial analysis will accurately
reflect future experience, or that the data derived from a large pool of
mortgage loans will accurately predict the delinquency, foreclosure of loss
experience of any particular pool of Mortgage Loans. In other cases, such
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criteria may be based upon determinations of the values of the Mortgaged
Properties that provide security for the Mortgage Loans. However, no assurance
can be given that those values will not decline in the future. If the commercial
or multifamily residential real estate markets should experience an overall
decline in property values such that the outstanding principal balances of the
Mortgage Loans in a particular Trust Fund and any secondary financing on the
related Mortgaged Properties become equal to a greater than the value of the
Mortgaged Properties, the rates of delinquencies, foreclosures and losses could
be higher than those now generally experienced by institutional lenders. In
addition, adverse economic conditions (which may or may not affect real property
values) may affect the timely payment by mortgagors of scheduled payments of
principal and interest on the Mortgage Loans and, accordingly, the rates of
delinquencies, foreclosures and losses with respect to any Trust Fund. To the
extent that such losses are not covered by Credit Enhancement, such losses may
be borne, at least in part, by the holders of one or more Classes of
Certificates of the related Series. See "RATING".
POTENTIAL INABILITY TO VERIFY UNDERWRITING STANDARDS
The Mortgage Loans included in a Trust Fund may be originated by entities
affiliated with the Depositor or by unaffiliated entities. Unaffiliated
originators may use underwriting criteria that are different from that used by
affiliates of the Depositor. The Prospectus Supplement relating to each Series
will, to the extent verifiable, specify the originator or originators relating
to the Mortgage Loans, which may include, among others, commercial banks,
savings and loan associations, other financial institutions, mortgage banks,
credit companies, insurance companies, real estate developers or other HUD
approved lenders, and the underwriting criteria to the extent available in
connection with originating the Mortgage Loans. In certain cases, the Depositor
may not be able to verify the underwriting standards used to originate a
Mortgage Loan (e.g., if the Mortgage Loans being purchased from a Seller were
acquired by the Seller in the open market or were originated over a long period
of time pursuant to varying underwriting standards which cannot now be
confirmed). In general, the Depositor will not engage in the reunderwriting of
Mortgage Loans that it acquires. Instead, the Depositor will rely on the
representations and warranties made by the Seller, and the Seller's obligation
to repurchase a Mortgage Loan in the event that a representation or warranty was
not true when made.
NONRECOURSE MORTGAGE LOANS; LIMITED RECOVERY
It is anticipated that a substantial portion of the Mortgage Loans included
in any Trust Fund will be nonrecourse loans or loans for which recourse may be
restricted or unenforceable. As to such Mortgage Loans, in the event of
mortgagor default, recourse may be had only against the specific multifamily or
commercial property and such other assets, if any, as have been pledged to
secure the Mortgage Loan. With respect to those Mortgage Loans that provide for
recourse against the mortgagor and its assets generally, there can be no
assurance that such recourse will ensure a recovery in respect of a defaulted
Mortgage Loan greater than the liquidation value of the related Mortgaged
Property.
INCLUSION OF DELINQUENT MORTGAGE LOANS MAY ADVERSELY AFFECT YIELDS
If so provided in the related Prospectus Supplement, the Trust Fund for a
particular Series of Certificates may include Mortgage Loans that are past due.
If so specified in the related Prospectus Supplement, the servicing of such
Mortgage Loans will be performed by a Special Servicer. Credit Enhancement, if
provided with respect to a particular Series of Certificates, may not cover all
losses related to such delinquent Mortgage Loans, and investors should consider
the risk that the inclusion of such Mortgage Loans in the Trust Fund may
adversely affect the rate of defaults and prepayments on Mortgaged Properties
and the yield on the Certificates of such Series. Up to 20% of the Mortgage
Loans by aggregate principal balance may be delinquent as of the Cut-off Date.
JUNIOR MORTGAGE LOANS
Certain of the Mortgage Loans may be junior mortgage loans. The primary
risk to holders of mortgage loans secured by junior liens is the possibility
that a foreclosure of a related senior lien would extinguish the junior lien and
that adequate funds will not be received in connection with such foreclosure to
pay the debt held by the holder of such junior mortgage loan after satisfaction
of all related senior liens. See "CERTAIN LEGAL ASPECTS OF THE MORTGAGE
LOANS--Junior Mortgages; Rights of Senior Mortgagees or Beneficiaries" and
"--Foreclosure" for a discussion of additional risks to holders of mortgage
loans secured by junior liens.
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BALLOON PAYMENTS
Certain of the Mortgage Loans as of the Cut-off Date may not be fully
amortizing over their terms to maturity and, thus, will require substantial
principal payments (i.e., balloon payments) at their stated maturity. Mortgage
loans with balloon payments involve a greater degree of risk because the ability
of a mortgagor to make a balloon payment typically will depend upon its ability
either to refinance the loan or to sell the related mortgaged property in a
timely manner. The ability of a mortgagor to accomplish either of these goals
will be affected by a number of factors, including the level of available
mortgage rates at the time of sale or refinancing, the mortgagor's equity in the
related mortgaged property, the financial condition and operating history of the
mortgagor and the related mortgaged property, tax laws, rent control laws (with
respect to certain multifamily properties and mobile home parks), reimbursement
rates (with respect to certain hospitals, nursing homes and congregate care
facilities), renewability of operating licenses, prevailing general economic
conditions and the availability of credit for commercial or multifamily, as the
case may be, real properties generally. Neither the Depositor or any affiliate
will be required to refinance any Mortgage Loan.
EXTENSIONS AND MODIFICATIONS OF DEFAULTED MORTGAGE LOANS; ADDITIONAL
SERVICING FEES
In order to maximize recoveries on defaulted Mortgage Loans, a Master
Servicer or Special Servicer, if any, will be permitted (within the parameters
specified in the related Prospectus Supplement) to extend and modify Mortgage
Loans that are in default or as to which a payment default is reasonably
foreseeable, including in particular with respect to balloon payments. In
addition, a Master Servicer or a Special Servicer, if any, may receive workout
fees, management fees, liquidation fees or other similar fees based on receipts
from or proceeds of such Mortgage Loans. Although a Master Servicer or Special
Servicer, if any, generally will be required to determine that any such
extension or modification is reasonably likely to produce a greater recovery
amount than liquidation, there can be no assurance that such flexibility with
respect to extensions or modifications or payment of a workout fee will increase
the amount of receipts from or proceeds of Mortgage Loans that are in default or
as to which a payment default is reasonably foreseeable.
RISKS RELATED TO THE MORTGAGOR'S FORM OF ENTITY AND SOPHISTICATION
Mortgage loans made to partnerships, corporations or other entities may
entail risks of loss from delinquency and foreclosure that are greater than
those of mortgage loans made to individuals. For example, an entity, as opposed
to an individual, may be more inclined to seek legal protection from its
creditors, such as a mortgagee, under the bankruptcy laws. Unlike individuals
involved in bankruptcies, various types of entities generally do not have
personal assets and creditworthiness at stake. The bankruptcy of a mortgagor may
impair the ability of the mortgagee to enforce its rights and remedies under the
related mortgage. See "CERTAIN LEGAL ASPECTS OF THE MORTGAGE
LOANS--Foreclosure--Bankruptcy Laws." The mortgagor's sophistication may
increase the likelihood of protracted litigation or bankruptcy in default
situations. The more sophisticated a mortgagor is, the more likely it will be
aware of its rights, remedies and defenses against its mortgagee and the more
likely it will have the resources to make effective use of all of its rights,
remedies and defenses.
CREDIT ENHANCEMENT LIMITATIONS
The Prospectus Supplement for a Series of Certificates will describe any
Credit Enhancement in the related Trust Fund, which may include letters of
credit, insurance policies, surety bonds, limited guarantees, reserve funds or
other types of credit support, or combinations thereof. Use of Credit
Enhancement will be subject to the conditions and limitations described herein
and in the related Prospectus Supplement and is not expected to cover all
potential losses or risks or guarantee repayment of the entire principal balance
of the Certificates and interest thereon.
A Series of Certificates may include one or more Classes of Subordinate
Certificates (which may include Offered Certificates), if so provided in the
related Prospectus Supplement. Although subordination is intended to reduce the
risk to holders of Senior Certificates of delinquent distributions or ultimate
losses, the amount of subordination will be limited and may decline or be
reduced to zero under certain circumstances. In addition, if principal payments
on one or more Classes of Certificates of a Series are made in a specified order
of priority, any limits with respect to the aggregate amount of claims under any
related Credit Enhancement may be exhausted before
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the principal of the lower priority Classes of Certificates of such Series has
been repaid. As a result, the impact of significant losses and shortfalls on the
Mortgaged Properties may fall primarily upon those Classes of Certificates
having a lower priority of payment. Moreover, if a form of Credit Enhancement
covers more than one Series of Certificates, holders of Certificates of one
Series will be subject to the risk that such Credit Enhancement will be
exhausted by the claims of the holders of Certificates of one or more other
Series.
The amount, type and nature of Credit Enhancement, if any, established with
respect to a Series of Certificates will be determined on the basis of criteria
established by each Rating Agency rating Classes of the Certificates of such
Series. Such criteria are sometimes based upon an actuarial analysis of the
behavior of mortgage loans in a larger group. Such analysis is often the basis
upon which each Rating Agency determines the amount of Credit Enhancement
required with respect to each such Class. There can be no assurance that the
historical data supporting any such actuarial analysis will accurately reflect
future experience nor any assurance that the data derived from a large pool of
mortgage loans accurately predicts the delinquency, foreclosure or loss
experience of any particular pool of Mortgage Loans. No assurance can be given
with respect to any Mortgage Loan that the appraised value of the related
Mortgaged Property has remained or will remain at its level as of the
origination date of such Mortgage Loan. Moreover, there is no assurance that
appreciation of real estate values generally will limit loss experiences on
commercial or multifamily properties. If the commercial or multifamily
residential real estate markets should experience an overall decline in property
values such that the outstanding principal balances of the Mortgage Loans in a
particular Trust Fund and any secondary financing on the related Mortgaged
Properties become equal to or greater than the value of the Mortgaged
Properties, the rates of delinquencies, foreclosures and losses could be higher
than those now generally experienced by institutional lenders for similar
mortgage loans. In addition, adverse economic conditions (which may or may not
affect real property values) may affect the timely payment by mortgagors of
scheduled payments of principal and interest on the Mortgage Loans and,
accordingly, the rates of delinquencies, foreclosures and losses with respect to
any Trust Fund. To the extent that such losses are not covered by Credit
Enhancement, such losses will be borne, at least in part, by the holders of one
or more Classes of the Certificates of the related Series. See "--Limited Nature
of Credit Ratings," "DESCRIPTION OF THE CERTIFICATES" and "CREDIT ENHANCEMENT."
RISKS TO SUBORDINATED CERTIFICATEHOLDERS; LOWER PAYMENT PRIORITY
If so provided in the related Prospectus Supplement, a Series of
Certificates may include one or more Classes of Subordinate Certificates (which
may include Offered Certificates). If losses or shortfalls in collections on
Mortgaged Properties are realized, the amount of such losses or shortfalls will
be borne first by one or more Classes of the Subordinate Certificates. The
remaining amount of such losses or shortfalls, if any, will be borne by the
remaining Classes of Certificates in the priority and subject to the limitations
specified in such Prospectus Supplement. In addition to the foregoing, any
Credit Enhancement, if applicable, may be used by the Certificates of a higher
priority of payment before the principal of the lower priority Classes of
Certificates of such Series has been repaid. Therefore, the impact of
significant losses and shortfalls on the mortgaged properties may fall primarily
upon those Classes of Certificates with a lower payment priority.
TAXABLE INCOME IN EXCESS OF DISTRIBUTIONS RECEIVED
A holder of a certificate in a Class of Subordinate Certificates could be
allocated taxable income attributableto accruals of interest and original issue
discount in excess of cash distributed to such holder if mortgage loanswere in
default giving rise to delays in distributions. See "MATERIAL FEDERAL INCOME TAX
CONSEQUENCES--Federal Income Tax Consequences For REMIC Certificates--Taxation
of REMIC Regular Certificates--Subordinate Certificates--Effects of Defaults,
Delinquencies and Losses" herein.
DUE-ON-SALE CLAUSES AND ASSIGNMENTS OF LEASES AND RENTS
Mortgages may contain a due-on-sale clause, which permits the mortgagee to
accelerate the maturity of the mortgage loan if the mortgagor sells, transfers
or conveys the related mortgaged property or its interest in the mortgaged
property. Mortgages may also include a debt-acceleration clause, which permits
the mortgagee to accelerate the debt upon a monetary or non-monetary default of
the mortgagor. Such clauses are generally enforceable subject to certain
exceptions. The courts of all states will enforce clauses providing for
acceleration in the
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event of a material payment default. The equity courts of any state, however,
may refuse the foreclosure of a mortgage or deed of trust when an acceleration
of the indebtedness would be inequitable or unjust or the circumstances would
render the acceleration unconscionable.
The related Prospectus Supplement will describe whether and to what extent
the Mortgage Loans will be secured by an assignment of leases and rents pursuant
to which the mortgagor typically assigns its right, title and interest as
landlord under the leases on the related Mortgaged Property and the income
derived therefrom to the mortgagee as further security for the related Mortgage
Loan, while retaining a license to collect rents for so long as there is no
default. In the event the mortgagor defaults, the license terminates and the
mortgagee is entitled to collect rents. Such assignments are typically not
perfected as security interests prior to the mortgagee's taking possession of
the related mortgaged property and/or appointment of a receiver. Some state laws
may require that the mortgagee take possession of the mortgaged property and
obtain a judicial appointment of a receiver before becoming entitled to collect
the rents. In addition, if bankruptcy or similar proceedings are commenced by or
in respect of the mortgagor, the mortgagee's ability to collect the rents may be
adversely affected. See "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS--Leases and
Rents."
ENVIRONMENTAL RISKS
Real property pledged as security for a mortgage loan may be subject to
certain environmental risks. Under the laws of certain states, contamination of
a property may give rise to a lien on the property to assure the costs of
cleanup. In several states, such a lien has priority over the lien of an
existing mortgage against such property. In addition, under the laws of some
states and under the federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980 ("CERCLA"), a mortgagee may be liable as an "owner" or
"operator" for costs of addressing releases or threatened releases of hazardous
substances that require remedy at a property, if agents or employees of the
mortgagee have become sufficiently involved in the operations of the mortgagor,
regardless of whether the environmental damage or threat was caused by a prior
owner. A mortgagee also risks such liability on foreclosure of the mortgage.
Each Agreement will generally provide that the Master Servicer or the Special
Servicer, if any, acting on behalf of the Trust Fund, may not acquire title to a
Mortgaged Property securing a Mortgage Loan or take over its operation unless
the Master Servicer or Special Servicer, as applicable, has previously
determined, based upon a report prepared by a person who regularly conducts
environmental audits, that: (i) the Mortgaged Property is in compliance with
applicable environmental laws, and there are no circumstances present at the
Mortgaged Property relating to the use, management or disposal of any hazardous
substances, hazardous materials, wastes or petroleum based materials for which
investigation, testing, monitoring, containment, clean-up or remediation could
be required under any federal, state or local law or regulation; or (ii) if the
Mortgaged Property is not so in compliance or such circumstances are so present,
then it would be in the best economic interest of the Trust Fund to acquire
title to the Mortgaged Property and further to take such actions as would be
necessary and appropriate to effect such compliance and/or respond to such
circumstances, which may include obtaining an environmental insurance policy.
The related Prospectus Supplement may impose additional restrictions on the
ability of the Master Servicer or the Special Servicer, if any, to take any of
the foregoing actions. See "CERTAIN LEGAL ASPECTS OF THE MORTGAGE
LOANS--Environmental Risks."
CERTAIN FEDERAL TAX CONSIDERATIONS REGARDING RESIDUAL CERTIFICATES
Holders of Residual Certificates will be required to report on their
federal income tax returns as ordinary income their pro rata share of the
taxable income of the REMIC, regardless of the amount or timing of their receipt
of cash payments, as described in "MATERIAL FEDERAL INCOME TAX
CONSEQUENCES--Federal Income Tax Consequences For REMIC Certificates--Taxation
of Holders of Residual Certificates." Accordingly, under certain circumstances,
holders of Offered Certificates that constitute Residual Certificates may have
taxable income and tax liabilities arising from such investment during a taxable
year in excess of the cash received during such period. The requirement that
holders of Residual Certificates report their pro rata share of the taxable
income and net loss of the REMIC will continue until the Certificate balances of
all Classes of Certificates of the related Series have been reduced to zero,
even though holders of Residual Certificates have received full payment of their
stated interest and principal. A portion (or, in certain circumstances, all) of
such Certificateholder's share of the REMIC taxable income may be treated as
"excess inclusion" income to such holder that (i) generally, will not be subject
to offset by losses from other activities, (ii) for a tax-exempt holder, will be
treated as unrelated business taxable income and (iii) for a
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foreign holder, will not qualify for exemption from withholding tax. Individual
holders of Residual Certificates may be limited in their ability to deduct
servicing fees and other expenses of the REMIC. In addition, Residual
Certificates are subject to certain restrictions on transfer. In particular, the
transfer of a Residual Interest to certain "Disqualified Organizations" is
prohibited. If transfer occurs in violation of such prohibition, a tax is
imposed on the transfer. In addition, the transfer of a "noneconomic residuary
interest" by a Residual Certificateholder will be disregarded under certain
circumstances with the transferor remaining liable for any taxable income
derived from the Residual Interest by the transferee Residual Certificateholder.
See "MATERIAL FEDERAL INCOME TAX CONSEQUENCES--Federal Income Tax Consequences
For REMIC Certificates--Taxation of Holders of Residual
Certificates--Restrictions on Ownership and Transfer of Residual Certificates."
Because of the special tax treatment of Residual Certificates, the taxable
income arising in a given year on Residual Certificates will not be equal to the
taxable income associated with investment in a corporate bond or stripped
instrument having similar cash flow characteristics and pre-tax yield.
Therefore, the after-tax yield on the Residual Certificates may be significantly
less than that of a corporate bond or stripped instrument having similar cash
flow characteristics.
ERISA CONSIDERATIONS
Generally, ERISA applies to investments made by employee benefit plans and
transactions involving the assets of such plans. Due to the complexity of
regulations that govern such plans, prospective investors that are subject to
ERISA are urged to consult their own counsel regarding consequences under ERISA
of acquisition, ownership and disposition of the Offered Certificates of any
Series. See "ERISA CONSIDERATIONS."
SPECIAL HAZARD LOSSES
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer and Special Servicer, if any, for any Trust Fund will each be required
to use its best efforts in accordance with the servicing standard to cause the
borrower on each Mortgage Loan serviced by it to maintain such insurance
coverage in respect of the related Mortgaged Property as is required under the
related Mortgage, including hazard insurance; provided that, as and to the
extent described herein and in the related Prospectus Supplement, each of the
Master Servicer and the Special Servicer, if any, may satisfy its obligation to
cause hazard insurance to be maintained with respect to any Mortgaged Property
through the acquisition of a blanket policy or master force placed policy. In
general, the standard form of fire and extended coverage policy covers physical
damage to or destruction of the improvements of the property by fire, lightning,
explosion, smoke, windstorm and hail, and riot, strike and civil commotion,
subject to the conditions and exclusions specified in each policy. Although the
policies covering the Mortgaged Properties will be underwritten by different
insurers under different state laws in accordance with different applicable
state forms, and therefore will not contain identical terms and conditions, most
such policies typically do not cover any physical damage resulting from war,
revolution, governmental actions, floods and other water-related causes, earth
movement (including earthquakes, landslides and mudflows), wet or dry rot,
vermin, domestic animals and other kinds of risks not specified in the preceding
sentence. Unless the related Mortgage specifically requires the mortgagor to
insure against physical damage arising from such causes, then, to the extent any
consequent losses are not covered by Credit Enhancement, such losses may be
borne, at least in part, by the holders of one or more Classes of Certificates
of the related Series. See "SERVICING OF THE MORTGAGE LOANS--Insurance."
CONTROL; DECISIONS BY CERTIFICATEHOLDERS
Under certain circumstances, the consent or approval of the holders of a
specified percentage of the aggregate Certificate balance of all outstanding
Certificates of a Series or a similar means of allocating decision-making under
the related Agreement, which will be specified in the related Prospectus
Supplement ("Voting Rights", will be required to direct, and will be sufficient
to bind all Certificateholders of such Series to, certain actions, including
amending the related Agreement in certain circumstances. See "SERVICING OF THE
MORTGAGE LOANS--Events of Default," "--Rights Upon Event of Default" and
"DESCRIPTION OF THE CERTIFICATES--Amendment."
BOOK-ENTRY REGISTRATION
The related Prospectus Supplement may provide that one or more Classes of
the Certificates initially will be represented by one or more certificates
registered in the name of the nominee for The Depository Trust Company, and
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will not be registered in the names of the Certificateholders or their nominees.
Because of this, unless and until definitive certificates are issued, beneficial
owners of the Certificates of such Class or Classes will not be recognized by
the Trustee as "Certificateholders" (as that term is to be used in the related
Agreement). Hence, until such time as definitive certificates are issued, the
beneficial owners will be able to exercise the rights of Certificateholders only
indirectly through The Depository Trust Company and its participating
organizations. See "DESCRIPTION OF THE CERTIFICATES--General."
THE DEPOSITOR
Commercial Mortgage Acceptance Corp. was incorporated in the State of
Missouri on September 17, 1996. The Depositor is a wholly owned, limited purpose
finance subsidiary of Midland Loan Services, Inc. The principal executive
offices of the Depositor are located at 210 West 10th Street, 6th Floor, Kansas
City, Missouri 64105. Its telephone number is (816) 435-5000.
The Depositor will have no servicing obligations or responsibilities with
respect to any Series of Certificates, Mortgage Pool or Trust Fund. The
Depositor does not have, nor is it expected in the future to have, any
significant assets.
The Depositor was organized, among other things, for the purposes of
establishing trusts, selling beneficial interests therein and acquiring and
selling mortgage assets to such trusts. Neither the Depositor, its parent nor
any of the Depositor's affiliates will insure or guarantee distributions on the
Certificates of any Series.
The assets of the Trust Funds will be acquired by the Depositor directly or
through one or more affiliates.
THE MASTER SERVICER
Midland Loan Services, L.P., was organized under the laws of the State of
Missouri in 1992 as a limited partnership. On April 3, 1998, substantially all
of the assets of Midland Loan Services, L.P., were acquired by Midland Loan
Services, Inc. ("Midland"), a newly formed, wholly-owned subsidiary of PNC Bank,
National Association. Midland is a real estate financial services company which
provides loan servicing and asset management for large pools of commercial and
multifamily real estate assets and which originates commercial real estate
loans. Midland's address is 210 West 10th Street, 6th Floor, Kansas City,
Missouri 64105.
The size of the loan portfolio which the Master Servicer was servicing as
of the end of the most recent calendar quarter will be set forth in each
Prospectus Supplement. The delinquency experience of the Master Servicer (and
for periods prior to April 3, 1998, of the Master Servicer's predecessor in
interest) as of the end of its three most recent fiscal years and the most
recent calendar quarter for which such information is available on the portfolio
of loans relating to commercial mortgage pass-through certificates master
serviced by it will be summarized in each Prospectus Supplement. There can be no
assurance that such experience will be representative of the results that may be
experienced with respect to any particular Mortgage Pool.
USE OF PROCEEDS
The Depositor will apply all or substantially all of the net proceeds from
the sale of each Series of Offered Certificates to purchase the Mortgage Loans
relating to such Series, to repay any indebtedness that has been incurred to
obtain funds to acquire Mortgage Loans, to obtain Credit Enhancement, if any,
for the Series and to pay costs of structuring, issuing and underwriting the
Certificates. The maturity and interest rate of such indebtedness, if any, will
be set forth in "USE OF PROCEEDS" in the related Prospectus Supplement.
DESCRIPTION OF THE CERTIFICATES*
The Certificates of each Series will be issued pursuant to a separate
Pooling and Servicing Agreement (the "Agreement") to be entered into among the
Depositor, the Master Servicer, the Special Servicer, if any, and the Trustee
for that Series and any other parties described in the applicable Prospectus
Supplement, substantially in the
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form filed as an exhibit to the Registration Statement of which this Prospectus
is a part or in such other form as may be described in the applicable Prospectus
Supplement. The following summaries describe the material provisions expected to
be common to each Series and the Agreement with respect to the underlying Trust
Fund. However, the Prospectus Supplement for each Series will describe more
fully the Certificates and the provisions of the related Agreement, which may be
different from the summaries set forth below.
At the time of issuance, the Offered Certificates of each Series will be
rated "investment grade," typically one of the four highest generic rating
categories, by at least one nationally recognized statistical rating
organization. Each of such rating organizations specified in the applicable
Prospectus Supplement as rating the Offered Certificates of the related Series
is hereinafter referred to as a "Rating Agency." A security rating is not a
recommendation to buy, sell or hold securities and may be subject to revision or
withdrawal at any time by the assigning Rating Agency.
GENERAL
The Certificates of each Series will be issued in registered or book-entry
form and will represent beneficial ownership interests in the trust fund (the
"Trust Fund") created pursuant to the Agreement for such Series. The Trust Fund
for each Series will primarily comprise, to the extent provided in the
Agreement: (i) the Mortgage Loans conveyed to the Trustee pursuant to the
Agreement; (ii) all payments on or collections in respect of the Mortgage Loans
due after the Cut-off Date; (iii) any Mortgaged Property acquired on behalf of
the Trust Fund through foreclosure or deed-in-lien of foreclosure (upon
acquisition, any "REO Property"); (iv) all revenue received in respect of REO
Property; (v) insurance policies with respect to such Mortgage Loans; (vi) any
assignments of leases, rents and profits, security agreements and pledges; (vii)
any indemnities or guaranties given as additional security for such Mortgage
Loans; (viii) the Trustee's right, title and interest in and to any reserve or
escrow accounts established pursuant to any of the Mortgage Loan documents
(each, a "Reserve Account"); (ix) the Collection Account; (x) the Distribution
Account and the REO Account; (xi) any environmental indemnity agreements
relating to such Mortgaged Properties; (xii) the rights and remedies under each
related Mortgage Loan Purchase and Sale Agreement; and (xiii) the proceeds of
any of the foregoing (excluding interest earned on deposits in any Reserve
Account, to the extent such interest belongs to the related mortgagor). In
addition, the Trust Fund for a Series may include various forms of Credit
Enhancement. See "CREDIT ENHANCEMENT." Such other assets will be described more
fully in the related Prospectus Supplement.
If so specified in the applicable Prospectus Supplement, Certificates of a
given Series may be issued in several Classes, which may pay interest at
different rates, may represent different allocations of the right to receive
principal and interest payments, and certain of which may be subordinated to
other Classes in the event of shortfalls in available cash flow from the
underlying Mortgage Loans. Alternatively, or in addition, Classes may be
structured to receive principal payments in sequence. Each Class in a group of
sequential pay Classes would be entitled to be paid in full before the next
Class in the group is entitled to receive any principal payments. A Class of
Certificates may also provide for payments of principal only or interest only or
for disproportionate payments of principal and interest. Subordinate
Certificates of a given Series of Certificates may be offered in the same
Prospectus Supplement as the Senior Certificates of such Series or may be
offered in a separate offering document. Each Class of Certificates of a Series
will be issued in the minimum denominations specified in the related Prospectus
Supplement.
The Prospectus Supplement for any Series including Classes similar to any
of those described above will contain a complete description of their material
characteristics and risk factors, including, as applicable, (i) mortgage
principal prepayment effects on the weighted average lives of Classes; (ii) the
risk that interest only, or disproportionately interest weighted, Classes
purchased at a premium may not return their purchase prices under rapid
prepayment scenarios; and (iii) the degree to which an investor's yield is
sensitive to principal prepayments.
The Offered Certificates of each Series will be freely transferable and
exchangeable at the office specified in the related Agreement and Prospectus
Supplement; provided, however, that certain Classes of Certificates may be
subject to transfer restrictions described in the related Prospectus Supplement.
If specified in the related Prospectus
- --------------
* Whenever in this Prospectus the terms "Certificates," "Trust Fund" and
"Mortgage Pool" are used, such terms will be deemed to apply unless the
context indicates otherwise, to a specific Series of Certificates, the
Trust Fund underlying the related Series and the related Mortgage Pool.
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Supplement, the Certificates may be transferable only on the books of The
Depository Trust Company or another depository identified in such Prospectus
Supplement.
DISTRIBUTIONS ON CERTIFICATES
Distributions of principal and interest on the Certificates of each Series
will be made to the registered holders thereof ("Certificateholders") by the
Trustee (or such other paying agent as may be identified in the related
Prospectus Supplement) on the day (the "Distribution Date") specified in the
related Prospectus Supplement, beginning in the period specified in the related
Prospectus Supplement following the establishment of the related Trust Fund.
Distributions for each Series will be made by check mailed to the address of the
person entitled thereto as it appears on the certificate register for such
Series maintained by the Trustee or by wire transfer if so specified in the
related Prospectus Supplement. The final distribution in retirement of the
Certificates of each Series will be made only upon presentation and surrender of
the Certificates at the office or agency specified in the notice to the
Certificateholders of such final distribution. In addition, the Prospectus
Supplement relating to each Series will set forth the applicable due period,
prepayment period, record date, Cut-off Date and determination date in respect
of each Series of Certificates.
With respect to each Series of Certificates on each Distribution Date, the
Trustee (or such other paying agent as may be identified in the applicable
Prospectus Supplement) will distribute to the Certificateholders the amounts
described in the related Prospectus Supplement that are due to be paid on such
Distribution Date. In general, such amounts will include previously
undistributed payments of principal (including principal prepayments, if any)
and interest on the Mortgage Loans received by the Master Servicer or the
Special Servicer, if any, after a date specified in the related Prospectus
Supplement (the "Cut-off Date") and prior to the day preceding each Distribution
Date specified in the related Prospectus Supplement.
ACCOUNTS
It is expected that the Agreement for each Series of Certificates will
provide that the Trustee establish an account (the "Distribution Account") into
which the Master Servicer will deposit amounts held in the Collection Account
from which Certificateholder distributions will be made with respect to a given
Distribution Date. On each Distribution Date, the Trustee will apply amounts on
deposit in the Distribution Account generally to make distributions of interest
and principal to the Certificateholders in the manner and in the amounts
described in the related Prospectus Supplement.
It is also expected that the Agreement for each Series of Certificates will
provide that the Master Servicer establish and maintain one or more accounts
(the "Collection Account") in the name of the Trustee for the benefit of
Certificateholders. The Master Servicer will generally be required to deposit
into the Collection Account all amounts received on or in respect of the
Mortgage Loans. The Master Servicer will be entitled to make certain withdrawals
from the Collection Account to, among other things: (i) remit certain amounts
for the related Distribution Date into the Distribution Account; (ii) pay
Property Protection Expenses, taxes, assessments and insurance premiums and
certain third-party expenses in accordance with the Agreement; (iii) pay accrued
and unpaid servicing fees and other servicing compensation to the Master
Servicer and the Special Servicer, if any; and (iv) reimburse the Master
Servicer, the Special Servicer, if any, the Trustee and the Depositor for
certain expenses and provide indemnification to the Depositor, the Master
Servicer and the Special Servicer, if any, as described in the Agreement.
"Property Protection Expenses" comprise certain costs and expenses incurred in
connection with defaulted Mortgage Loans, acquiring title to, or management of,
REO Property or the sale of defaulted Mortgage Loans or REO Properties, as more
fully described in the related Agreement. The applicable Prospectus Supplement
may provide for additional circumstances in which the Master Servicer will be
entitled to make withdrawals from the Collection Account.
The amount at any time credited to the Collection Account or the
Distribution Account may be invested in Permitted Investments that are payable
on demand or in general mature or are subject to withdrawal or redemption on or
before the business day preceding the next succeeding Master Servicer Remittance
Date, in the case of the Collection Account, or the business day preceding the
next succeeding Distribution Date, in the case of the Distribution Account. The
Master Servicer will be required to remit amounts on deposit in the Collection
Account that are required for distribution to Certificateholders to the
Distribution Account on or before the business day preceding the related
Distribution Date (the "Master Servicer Remittance Date"). The income from the
investment of
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funds in the Collection Account and the Distribution Account in Permitted
Investments will constitute additional servicing compensation for the Master
Servicer, and the risk of loss of funds in the Collection Account and the
Distribution Account resulting from such investments will be borne by the Master
Servicer. The amount of each such loss will be required to be deposited by the
Master Servicer in the Collection Account or the Distribution Account, as the
case may be, promptly as realized.
It is expected that the Agreement for each Series of Certificates will
provide that an account (the "REO Account") will be established and maintained
in order to be used in connection with REO Properties and, if specified in the
related Prospectus Supplement, certain other Mortgaged Properties. To the extent
set forth in the Agreement, certain withdrawals from the REO Account will be
made to, among other things, (i) make remittances to the Collection Account as
required by the Agreement; (ii) pay taxes, assessments, insurance premiums,
other amounts necessary for the proper operation, management and maintenance of
the REO Properties and such other Mortgaged Properties and certain third-party
expenses in accordance with the Agreement; and (iii) provide for the
reimbursement of certain expenses in respect of the REO Properties and such
other Mortgaged Properties.
The amount at any time credited to the REO Account may be invested in
Permitted Investments that are payable on demand or mature, or are subject to
withdrawal or redemption, on or before the business day preceding the day on
which such amounts are required to be remitted to the Master Servicer for
deposit in the Collection Account. The income from the investment of funds in
the REO Account in Permitted Investments will be for the benefit of the Master
Servicer, or the Special Servicer, if applicable, and the risk of loss of funds
in the REO Account resulting from such investments will be borne by the Master
Servicer, or the Special Servicer, if applicable.
"Permitted Investments" will generally consist of one or more of the
following, unless the Rating Agencies rating Certificates of a Series require
other or additional investments:
(i) direct obligations of, or obligations guaranteed as to full and
timely payment of principal and interest by, the United States or any
agency or instrumentality thereof, provided that such obligations are
backed by the full faith and credit of the United States of America;
(ii) direct obligations of the Federal Home Loan Mortgage Corporation
("FHLMC") (debt obligations only), the Federal National Mortgage
Association ("Fannie Mae") (debt obligations only), the Federal Farm Credit
System (consolidated systemwide bonds and notes only), the Federal Home
Loan Banks (consolidated debt obligations only), the Student Loan Marketing
Association (debt obligations only), the Financing Corp. (consolidated debt
obligations only) and the Resolution Funding Corp. (debt obligations only);
(iii) federal funds, time deposits in, or certificates of deposit of,
or bankers' acceptances, or repurchase obligations, all having maturities
of not more than 365 days, issued by any bank or trust company, savings and
loan association or savings bank, depositing institution or trust company
having the highest short-term rating available from each Rating Agency
rating the Certificates of a Series;
(iv) commercial paper having a maturity of 365 days or less (including
both non-interest-bearing discount obligations and interest-bearing
obligations payable on demand or on a specified date not more than one year
after the date of issuance thereof and demand notes that constitute
vehicles for investment in commercial paper) that is rated by each Rating
Agency rating the Certificates of a Series in its highest short-term
unsecured rating category;
(v) shares of taxable money market funds or mutual funds that seek to
maintain a constant net asset value and have been rated by each Rating
Agency rating the Certificates of a Series as Permitted Investments with
respect to this definition;
(vi) if previously confirmed in writing to the Trustee, any other
demand, money market or time deposit, or any other obligation, security or
investment, as may be acceptable to each Rating Agency rating the
Certificates of a Series as a permitted investment of funds backing
securities having ratings equivalent to each such Rating Agency's highest
initial rating of the Certificates; and
(vii) such other obligations as are acceptable as Permitted
Investments to each Rating Agency rating the Certificates of a Series;
provided, however, that (a) if Standard and Poor's Rating Service, a division of
the McGraw-Hill Companies, Inc. ("S&P") is a Rating Agency for such Series, none
of such obligations or securities listed above may have an "r" highlighter
affixed to its rating if rated by S&P; (b) except with respect to units of money
market funds pursuant to
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clause (v) above, each such obligation or security will have a fixed dollar
amount of principal due at maturity which cannot vary or change; and (c) except
with respect to units of money market funds pursuant to clause (v) above, if any
such obligation or security provides for a variable rate of interest, interest
will be tied to a single interest rate index plus a single fixed spread (if any)
and move proportionately with that index; and provided, further, that such
instrument continues to qualify as a "cash flow investment" pursuant to Code
Section 860G(a)(6) earning a passive return in the nature of interest and that
no instrument or security will be a Permitted Investment if (i) such instrument
or security evidences a right to receive only interest payments or (ii) the
right to receive principal and interest payments derived from the underlying
investment provides a yield to maturity in excess of 120% of the yield to
maturity at par of such underlying investment as of the date of its acquisition.
AMENDMENT
Generally, the Agreement for each Series will provide that it may be
amended from time to time by the parties thereto, without the consent of any of
the Certificateholders, (i) to cure any ambiguity, (ii) to correct or supplement
any provisions therein that may be inconsistent with any other provisions
therein or this Prospectus or the related Prospectus Supplement, (iii) to amend
any provision thereof to the extent necessary or desirable to maintain the
rating or ratings assigned to each of the Classes of Certificates by each Rating
Agency or (iv) to make any other provisions with respect to matters or questions
arising under the Agreement that will not (a) be inconsistent with the
provisions of the Agreement or this Prospectus or the related Prospectus
Supplement, (b) result in the downgrading, withdrawal or qualification of the
rating or ratings then assigned to any outstanding Class of Certificates and (c)
adversely affect in any material respect the interests of any Certificateholder.
Each Agreement will also provide that it may be amended from time to time
by the parties thereto with the consent of the holders of each of the Classes of
Regular Certificates representing not less than a percentage specified in the
related Agreement of all Classes of Certificates affected by the amendment for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of the Agreement or of modifying in any manner the rights
of the Certificateholders; provided, however, that no such amendment shall: (i)
reduce in any manner the amount of, or delay the timing of, payments received on
Mortgage Loans that are required to be distributed on any Certificate without
the consent of each affected Certificateholder; (ii) change the percentage of
Certificates the holders of which are required to consent to any action or
inaction under the Agreement, without the consent of the holders of all
Certificates then outstanding; or (iii) alter the obligations of the Master
Servicer or the Trustee, without the consent of the holders of all Certificates
representing all of the Voting Rights of the Class or Classes affected thereby
(unless such amendment is permitted pursuant to the preceding paragraph) to make
an advance.
Further, the Agreement for each Series may provide that the parties
thereto, at any time and from time to time, without the consent of the
Certificateholders, may amend the Agreement to modify, eliminate or add to any
of its provisions to such extent as shall be necessary to maintain the
qualification of any REMIC related to such Series or to prevent the imposition
of any additional material state or local taxes, at all times that any of the
Certificates are outstanding, provided, however, that such action, as evidenced
by an opinion of counsel (paid for as an expense of the Trust Fund), is
necessary or helpful to maintain such qualification or to prevent the imposition
of any such taxes, and would not adversely affect in any material respect the
interest of any Certificateholder.
The related Prospectus Supplement will specify the method for allocating
Voting Rights among holders of Certificates of a Class.
The Agreement relating to each Series may provide that no amendment to such
Agreement will be made unless there has been delivered in accordance with such
Agreement an opinion of counsel to the effect that such amendment will not cause
such Series to fail to qualify as a REMIC at any time that any of the
Certificates are outstanding.
The Prospectus Supplement for a Series may describe other or different
provisions concerning the amendment of the related Agreement required by the
Rating Agencies rating the Certificates of such Series.
TERMINATION
The obligations of the parties to the Agreement for each Series will
terminate upon: (i) the purchase of all of the assets of the related Trust Fund,
as described in the related Prospectus Supplement; (ii) the later of (a) the
distribution
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to Certificateholders of that Series of final payment with respect to the last
outstanding Mortgage Loan or (b) the disposition of all property acquired upon
foreclosure or deed-in-lieu of foreclosure with respect to the last outstanding
Mortgage Loan and the remittance to the Certificateholders of all funds due
under the Agreement; (iii) the sale of the assets of the related Trust Fund
after the principal amounts of all Certificates have been reduced to zero under
circumstances set forth in the Agreement; or (iv) mutual consent of the parties
and all Certificateholders. With respect to each Series, the Trustee will give
or cause to be given written notice of termination of the Agreement to each
Certificateholder and the final distribution under the Agreement will be made
only upon surrender and cancellation of the related Certificates at an office or
agency specified in the notice of termination.
REPORTS TO CERTIFICATEHOLDERS
Concurrently with each distribution for each Series, the Trustee (or such
other paying agent as may be identified in the applicable Prospectus Supplement)
will forward to each Certificateholder a statement setting forth such
information relating to such distribution as is specified in the Agreement and
described in the applicable Prospectus Supplement.
THE TRUSTEE
The Depositor will select a bank or trust company to act as trustee (the
"Trustee") under the Agreement for each Series and the Trustee will be
identified, and its obligations under that Agreement will be described, in the
applicable Prospectus Supplement. The Rating Agencies rating Certificates of a
Series may require the appointment of a fiscal agent to guarantee certain
obligations of the Trustee. Such fiscal agent will be a party to the Agreement.
In such event, the fiscal agent will be identified, and its obligations under
the Agreement will be described, in the applicable Prospectus Supplement. See
"SERVICING OF THE MORTGAGE LOANS--Certain Matters with Respect to the Master
Servicer, the Special Servicer, the Trustee and the Depositor."
THE MORTGAGE POOLS
GENERAL
Each Mortgage Pool will consist of mortgage loans secured by first or
junior mortgages, deeds of trust or similar security instruments (each, a
"Mortgage") on, or installment contracts ("Installment Contracts") for the sale
of, fee simple or leasehold interests in commercial real estate property,
multifamily residential property, and/or mixed-use property, and related
property and interests (each such interest or property, as the case may be, a
"Mortgaged Property"). Multifamily properties (consisting of apartments,
congregate care facilities and/or mobile home parks), general commercial
properties (consisting of retail properties, including shopping centers, office
buildings, mini-warehouses, warehouses, industrial properties and/or other
similar types of properties) and hotels will represent security for a material
concentration of the Mortgage Loans in any Trust Fund, based on principal
balance at the time such Trust Fund is formed. See "CERTAIN LEGAL ASPECTS OF THE
MORTGAGE LOANS--General," "--Types of Mortgage Instruments," "--Installment
Contracts" and "--Junior Mortgages; Rights of Senior Mortgagees or
Beneficiaries" for more detailed information regarding the characteristics of
such types of mortgage loans. A Mortgage Pool will not include securities of the
type listed in the definition of Permitted Investments. Each such mortgage loan
or Installment Contract is herein referred to as a "Mortgage Loan."
All Mortgage Loans will be of one or more of the following types:
1. Mortgage Loans with fixed interest rates;
2. Mortgage Loans with adjustable interest rates;
3. Mortgage Loans whose principal balances fully amortize over their
remaining terms to maturity;
4. Mortgage Loans whose principal balances do not fully amortize, but
instead provide for a substantial principal payment at the stated maturity
of the loan;
5. Mortgage Loans that provide for recourse against only the Mortgaged
Properties; and
6. Mortgage Loans that provide for recourse against the other assets
of the related mortgagors.
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Certain Mortgage Loans ("Simple Interest Loans") may provide that scheduled
interest and principal payments thereon are applied first to interest accrued
from the last date on which interest has been paid to the date such payment is
received and the balance thereof is applied to principal, and other Mortgage
Loans may provide for payment of interest in advance rather than in arrears.
Mortgage Loans may also be secured by one or more assignments of leases and
rents, management agreements or operating agreements relating to the Mortgaged
Property and in some cases by certain letters of credit, cash collateral
deposits, personal guarantees or combinations thereof. Pursuant to an assignment
of leases and rents, the obligor on the related promissory note, bond, mortgage
consolidation agreement, installment contract or other similar instrument (each,
a "Note") assigns its right, title and interest as landlord under each lease and
the income derived therefrom to the related mortgagee, while retaining a license
to collect the rents for so long as there is no default. If the obligor
defaults, the license terminates and the related mortgagee is entitled to
collect the rents from tenants to be applied to the monetary obligations of the
obligor. State law may limit or restrict the enforcement of the assignment of
leases and rents by a mortgagee until the mortgagee takes possession of the
related mortgaged property and/or a receiver is appointed. See "CERTAIN LEGAL
ASPECTS OF THE MORTGAGE LOANS--Leases and Rents."
If so specified in the related Prospectus Supplement, a Trust Fund may
include a number of Mortgage Loans with a single obligor or related obligors
thereunder. In the event that the Mortgage Pool securing Certificates for any
Series includes a Mortgage Loan or a group of Mortgage Loans of a single obligor
or group of affiliated obligors representing 10% or more of the principal amount
of such Certificates, the Prospectus Supplement will contain information,
including financial information, regarding the credit quality of the obligors.
The Mortgage Loans will be newly originated or seasoned, and will be acquired by
the Depositor either directly or through one or more affiliates.
Unless otherwise specified in the Prospectus Supplement for a Series, the
Mortgage Loans will not be insured or guaranteed by the United States, any
governmental agency, any private mortgage insurer or any other person or entity.
The Prospectus Supplement relating to each Series will, to the extent
verifiable, specify the originator or originators relating to the Mortgage
Loans, which may include, among others, commercial banks, savings and loan
associations, other financial institutions, mortgage banks, credit companies,
insurance companies, real estate developers or other HUD approved lenders, and
the underwriting criteria to the extent available in connection with originating
the Mortgage Loans. See "RISK FACTORS--Potential Inability to Verify
Underwriting Standards" herein. The criteria applied by the Depositor in
selecting the Mortgage Loans to be included in a Mortgage Pool will vary from
Series to Series. The Prospectus Supplement relating to each Series also will
provide specific information regarding the characteristics of the Mortgage
Loans, as of the Cut-off Date, including, among other things: (i) the aggregate
principal balance of the Mortgage Loans; (ii) the types of properties securing
the Mortgage Loans and the aggregate principal balance of the Mortgage Loans
secured by each type of property; (iii) the interest rate or range of interest
rates of the Mortgage Loans; (iv) the origination dates and the original and,
with respect to seasoned Mortgage Loans, remaining terms to stated maturity of
the Mortgage Loans; (v) the loan-to-value ratios at origination and, with
respect to seasoned Mortgage Loans, current loan balance-to-original value
ratios of the Mortgage Loans; (vi) the geographic distribution of the Mortgaged
Properties underlying the Mortgage Loans; (vii) the minimum interest rates,
margins, adjustment caps, adjustment frequencies, indices and other similar
information applicable to adjustable rate Mortgage Loans; (viii) the debt
service coverage ratios relating to the Mortgage Loans; and (ix) payment
delinquencies, if any, relating to the Mortgage Loans. The applicable Prospectus
Supplement will also specify any materially inadequate, incomplete or obsolete
documentation relating to the Mortgage Loans and other characteristics of the
Mortgage Loans relating to each Series. If specified in the applicable
Prospectus Supplement, the Depositor may segregate the Mortgage Loans in a
Mortgage Pool into separate "Mortgage Loan Groups" (as described in the related
Prospectus Supplement) as part of the structure of the payments of principal and
interest on the Certificates of a Series. In such case, the Depositor will
disclose the above-specified information by Mortgage Loan Group.
The Depositor will file a current report on Form 8-K (the "Form 8-K") with
the Commission within 15 days after the initial issuance of each Series of
Certificates (each, a "Closing Date"), as specified in the related Prospectus
Supplement, which will set forth information with respect to the Mortgage Loans
included in the Trust Fund for a Series as of the related Closing Date. The Form
8-K will be available to the Certificateholders of the related Series promptly
after its filing.
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ASSIGNMENT OF MORTGAGE LOANS
At the time of issuance of the Certificates of each Series, the Depositor
will cause the Mortgage Loans to be assigned to the Trustee, together with all
scheduled payments of interest and principal due after the Cut-off Date (whether
received) and all payments of interest and principal received by the Depositor
or the Master Servicer on or with respect to the Mortgage Loans after the
Cut-off Date (other than payments of principal and interest due on or prior to
the Cut-off Date). The Trustee, concurrently with such assignment, will execute
and deliver Certificates evidencing the beneficial ownership interests in the
related Trust Fund to the Depositor in exchange for the Mortgage Loans. Each
Mortgage Loan will be identified in a schedule appearing as an exhibit to the
Agreement for the related Series (the "Mortgage Loan Schedule"). The Mortgage
Loan Schedule will include, among other things, as to each Mortgage Loan,
information as to its outstanding principal balance as of the close of business
on the Cut-off Date, as well as information respecting the interest rate, the
scheduled monthly (or other periodic) payment of principal and interest as of
the Cut-off Date, the maturity date of each Note and the address of each
property securing the Note.
In addition, the Depositor will, as to each Mortgage Loan, deliver to the
Trustee: (i) the Note, endorsed to the order of the Trustee without recourse;
(ii) the Mortgage and an executed assignment thereof in favor of the Trustee or
otherwise as required by the Agreement; (iii) any assumption, modification or
substitution agreements relating to the Mortgage Loan; (iv) a mortgagee's title
insurance policy (or owner's policy in the case of an Installment Contract),
together with its endorsements, or an attorney's opinion of title issued as of
the date of origination of the Mortgage Loan; (v) if the security agreement
and/or assignment of leases, rents and profits is separate from the Mortgage, an
executed assignment of such security agreement and/or re-assignment of such
assignment of leases, rents and profits to the Trustee; and (vi) such other
documents as may be described in the Agreement (such documents collectively, the
"Mortgage Loan File"). Unless otherwise expressly permitted by the Agreement,
all documents included in the Mortgage Loan File are to be original executed
documents, provided, however, that in instances in which the original recorded
Mortgage, mortgage assignment or any document necessary to assign the
Depositor's interest in Installment Contracts to the Trustee, as described in
the Agreement, has been retained by the applicable jurisdiction or has not yet
been returned from recordation, the Depositor may deliver a photocopy thereof
certified to be the true and complete copy of the original thereof submitted for
recording.
The Trustee will hold the Mortgage Loan File for each Mortgage Loan in
trust for the benefit of all Certificateholders. Pursuant to the Agreement, the
Trustee is obligated to review the Mortgage Loan File for each Mortgage Loan
within a specified number of days after the execution and delivery of the
Agreement. If any document in the Mortgage Loan File is found to be defective in
any material respect, the Trustee will promptly notify the Depositor, the Master
Servicer and the Seller.
MORTGAGE UNDERWRITING STANDARDS AND PROCEDURES
The underwriting procedures and standards for Mortgage Loans included in a
Mortgage Pool will be specified in the related Prospectus Supplement to the
extent such procedures and standards are known or available. Such Mortgage Loans
may be originated by an affiliate of the Depositor or third parties in
contemplation of the transactions contemplated by this Prospectus and the
related Prospectus Supplement or may have been originated by third-parties and
acquired by the Depositor directly or through its affiliates in negotiated
transactions.
The originator of a Mortgage Loan generally will have applied underwriting
procedures intended to evaluate, among other things, the income derived from the
Mortgaged Property, the capabilities of the management of the project, including
a review of management's past performance record, its management reporting and
control procedures (to determine its ability to recognize and respond to
problems) and its accounting procedures to determine cash management ability,
the obligor's credit standing and repayment ability and the value and adequacy
of the Mortgaged Property as collateral. With respect to certain Mortgage Loans,
the Depositor may be unable to verify the underwriting standards and procedures
used by a particular originator, in which case, such fact will be disclosed in
the related Prospectus Supplement. Mortgage Loans insured by the Federal Housing
Administration ("FHA"), a division of the United States Department of Housing
and Urban Development ("HUD"), will have been originated by mortgage lenders
that were at the time of origination approved by HUD as FHA mortgagees in the
ordinary course of their real estate lending activities and will comply with the
underwriting policies of FHA. In general, the Depositor will not engage in the
reunderwriting of Mortgage Loans that it acquires. Instead, the Depositor will
rely on the representations and warranties made by the Seller, and the Seller's
obligation to repurchase a Mortgage Loan in the
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event that a representation or warranty was not true when made. See "RISK
FACTORS--Potential Inability to Verify Underwriting Standards."
If so specified in the related Prospectus Supplement, the adequacy of a
Mortgaged Property as security for repayment will generally have been determined
by appraisal by appraisers selected in accordance with preestablished guidelines
for appraisers established by or acceptable to the loan originator. In general,
originators of commercial and multifamily mortgage loans require each mortgaged
property to be appraised by an independent appraiser in accordance with MAI
Standards. Furthermore, if so specified in the related Prospectus Supplement,
the appraiser must have personally inspected the property and verified that it
was in good condition and that construction, if new, has been completed.
Generally, the appraisal will have been based upon a cash flow analysis and/or a
market data analysis of recent sales of comparable properties and, when deemed
applicable, a replacement cost analysis based on the current cost of
constructing or purchasing a similar property.
No assurance can be given that values of the Mortgaged Properties have
remained or will remain at their levels on the dates of origination of the
related Mortgage Loans. Further, there is no assurance that appreciation of real
estate values generally will limit loss experiences on commercial properties or
multifamily residential properties. If the commercial real estate market should
experience an overall decline in property values such that the outstanding
balances of the Mortgage Loans and any additional financing on the Mortgaged
Properties in a particular Mortgage Pool become equal to or greater than the
value of the Mortgaged Properties, the actual rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced in
the mortgage lending industry. To the extent that such losses are not covered by
the methods of Credit Enhancement or the insurance policies described herein
and/or in the related Prospectus Supplement, the ability of the Trust Fund to
pay principal of and interest on the Certificates may be adversely affected.
Even if credit support covers all losses resulting from defaults and
foreclosure, the effect of defaults and foreclosures may be to increase
prepayment experience on the Mortgage Loans, thus shortening weighted average
life and affecting yield to maturity.
REPRESENTATIONS AND WARRANTIES
The seller of a Mortgage Loan to the Depositor (the "Seller"), which may be
an affiliate of the Depositor, will have made representations and warranties in
respect of the Mortgage Loans sold by such Seller to the Depositor. Such
representations and warranties will generally include, among other things: (i)
with respect to each Mortgaged Property, that title insurance (or if not yet
issued, a pro forma or specimen policy or a "marked-up" commitment for title
insurance furnished by the related title insurance company for purposes of
closing) and any required hazard insurance was effective at the origination of
each Mortgage Loan, and that each policy (or pro forma or specimen policy or
"marked-up" commitment for title insurance) remained in effect on the date of
purchase of the Mortgage Loan from the Seller; (ii) that the Seller was the sole
owner and holder of such Mortgage Loan and had full right and authority to sell
and assign such Mortgage Loan; (iii) with respect to each Mortgaged Property,
that each Mortgage constituted a valid first lien on the Mortgaged Property
(subject only to permissible title insurance exceptions); (iv) that there were
no delinquent tax or assessment liens against the Mortgaged Property; and (v)
that no scheduled payment of principal and interest under any Mortgage Loan was
30 days or more past due as of the related Cut-off Date. The Prospectus
Supplement for a Series will identify each Seller and specify the
representations and warranties being made by the Seller.
All of the representations and warranties of a Seller in respect of a
Mortgage Loan generally will have been made as of the date on which such Seller
sold the Mortgage Loan to the Depositor. The related Prospectus Supplement will
indicate if a different date is applicable. A substantial period of time may
have elapsed between such date and the date of the initial issuance of the
Series of Certificates evidencing an interest in such Mortgage Loan. Since the
representations and warranties of the Seller do not address events that may
occur following the sale of a Mortgage Loan by the Seller, the repurchase
obligation of the Seller described below will not arise if, on or after the date
of the sale of a Mortgage Loan by the Seller to the Depositor, the relevant
event occurs that would have given rise to such an obligation. However, the
Depositor will not include any Mortgage Loan in the Trust Fund for any Series of
Certificates if anything has come to the Depositor's attention that would cause
it to believe that the representations and warranties of the Seller will not be
accurate and complete in all material respects in respect of such Mortgage Loan
as of the date of sale of the Mortgage Loans or such other date specified in the
applicable Prospectus Supplement. If so specified in the related Prospectus
Supplement, the Depositor will make certain representations and warranties for
the benefit of Certificateholders of a Series in respect of a Mortgage Loan that
relate to the period commencing on the date of sale of such Mortgage Loan to the
Depositor.
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Upon the discovery of the breach of any representation or warranty made by
the Seller in respect of a Mortgage Loan that materially and adversely affects
the interests of the Certificateholders of the related Series, if the Seller
cannot cure such breach within 85 days following discovery of the breach or the
Seller's receipt of notice of such breach, such Seller generally will be
obligated to substitute a similar replacement mortgage loan for such Mortgage
Loan, if so provided in the related Prospectus Supplement, or repurchase such
Mortgage Loan at a purchase price equal to 100% of the unpaid principal balance
thereof at the date of repurchase, plus (a) unpaid accrued interest at the
applicable rate (in the absence of a default) to, but not including, the date of
repurchase, (b) the amount of any unreimbursed advances made with respect to
Property Protection Expenses, (c) interest on all advances made with respect to
such Mortgage Loan at the rate specified in the related Agreement, (d) the
amount of any unpaid servicing compensation (other than servicing fees) and
Trust Fund expenses allocable to such Mortgage Loan, and (e) the amount of any
expenses reasonably incurred by the Master Servicer, the Special Servicer, if
any, or the Trustee in respect of such repurchase obligation. The Master
Servicer will be required to enforce such obligation of the Seller for the
benefit of the Trustee and the Certificateholders in accordance with servicing
standards for the applicable Agreement. This repurchase obligation, and
substitution obligation, if applicable, will generally constitute the sole
remedy or remedies available to the Trustee for the benefit of the
Certificateholders of such Series for a breach of a representation or warranty
by a Seller, and the Depositor and the Master Servicer will have no liability to
the Trust Fund for any such breach. The applicable Prospectus Supplement will
indicate whether any additional remedies will be available to the Trustee or the
Certificateholders. No assurance can be given that a Seller will carry out its
repurchase obligation with respect to the Mortgage Loans.
If specified in the related Prospectus Supplement, the Seller may deliver
to the Trustee, within a specified number of days following the issuance of a
Series of Certificates, Mortgage Loans in substitution for any one or more of
the Mortgage Loans initially included in the Trust Fund (i) which do not conform
in one or more respects to the description thereof contained in the related
Prospectus Supplement, (ii) as to which a breach of a representation or warranty
is discovered, which breach materially and adversely affects the interests of
the Certificateholders, or (iii) as to which a document in the related Mortgage
Loan File is defective in any material respect. The related Prospectus
Supplement will describe any required characteristics of any such substituted
Mortgage Loans.
SERVICING OF THE MORTGAGE LOANS
GENERAL
The servicer of the Mortgage Loans (the "Master Servicer") will be Midland
Loan Services, Inc., the parent of the Depositor and a wholly-owned subsidiary
of PNC Bank, National Association. The Prospectus Supplement for the related
Series will set forth certain information concerning the Master Servicer. The
Master Servicer will be responsible for servicing the Mortgage Loans pursuant to
the Agreement for the related Series. The Master Servicer's collection
procedures will be described under "THE POOLING AND SERVICING
AGREEMENT--Servicing of the Mortgage Loans; Collection of Payments" and
"--Collection Activities" in the related Prospectus Supplement. To the extent so
specified in the related Prospectus Supplement, one or more Special Servicers
may be a party to the related Agreement or may be appointed by holders of
certain Classes of Certificates representing a certain percentage specified in
the related Agreement of such Class or Classes of Certificates or by another
specified party. Certain information with respect to the Special Servicer will
be set forth in such Prospectus Supplement. A Special Servicer for any Series of
Certificates may be the Master Servicer or an affiliate of the Depositor or the
Master Servicer and may hold, or be affiliated with the holder of, Subordinate
Certificates of such Series. A Special Servicer may be entitled to any of the
rights, and subject to any of the obligations, described herein in respect of a
Master Servicer. In general, a Special Servicer's duties will relate to
defaulted Mortgage Loans or those Mortgage Loans that otherwise require special
servicing ("Specially Serviced Mortgage Loans"), including instituting
foreclosures and negotiating work-outs and will also include asset management
activities with respect to any REO Property. The related Prospectus Supplement
will describe the rights, obligations and compensation of any Special Servicer
for a particular Series of Certificates. The Master Servicer or Special Servicer
generally may subcontract the servicing of all or a portion of the Mortgage
Loans to one or more sub-servicers provided certain conditions are met. Such
sub-servicer may be an affiliate of the Depositor and may have other business
relationships with the Depositor and its affiliates.
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COLLECTIONS AND OTHER SERVICING PROCEDURES
The Master Servicer and the Special Servicer, if any, will make reasonable
efforts to collect all payments called for under the Mortgage Loans and will,
consistent with the related Agreement, follow such collection procedures as it
deems necessary or desirable. Consistent with the above and unless otherwise
specified in the related Prospectus Supplement, the Master Servicer or the
Special Servicer, if applicable, may, in its discretion, waive any late payment
charge or penalty fees in connection with a late payment of a Mortgage Loan and,
if so specified in the related Prospectus Supplement, may extend the due dates
for payments due on a Note.
It is expected that the Agreement for each Series will provide that the
Master Servicer establish and maintain one or more escrow accounts (each, an
"Escrow Account") in which the Master Servicer will be required to deposit
amounts received from each mortgagor, if required by the terms of the related
Mortgage Loan documents, for the payment of taxes, assessments, certain mortgage
and hazard insurance premiums and other comparable items ("Escrow Payments").
The Special Servicer, if any, will be required to remit amounts received for
such purposes on Mortgage Loans serviced by it to the Master Servicer for
deposit into the Escrow Account, and will be entitled to direct the Master
Servicer to make withdrawals from the Escrow Account as may be required for
servicing of such Mortgage Loans. Withdrawals from the Escrow Account generally
may be made (i) to effect timely payment of taxes, assessments, mortgage and
hazard insurance premiums and other comparable items, (ii) to transfer funds to
the Collection Account to reimburse the Master Servicer or the Trustee, as
applicable, for any advance with interest thereon relating to Escrow Payments,
(iii) to restore or repair the Mortgaged Properties, (iv) to clear and terminate
such account, (v) to pay interest to mortgagors on balances in the Escrow
Account, if required by the terms of the related Mortgage Loan documents or by
applicable law and (vi) to remove amounts not required to be deposited therein.
The related Prospectus Supplement may provide for other permitted withdrawals
from the Escrow Account. The Master Servicer will be entitled to all income on
the funds in the Escrow Account invested in Permitted Investments not required
to be paid to mortgagors by the terms of the related Mortgage Loan documents or
by applicable law. The Master Servicer will be responsible for the
administration of the Escrow Account.
INSURANCE
The Agreement for each Series will require that the Master Servicer use its
best efforts to cause each mortgagor to maintain insurance in accordance with
the related Mortgage Loan documents, which generally will include a standard
fire and hazard insurance policy with extended coverage. To the extent required
by the related Mortgage Loan, the coverage of each such standard hazard
insurance policy will be in an amount that is at least equal to the lesser of
(i) the full replacement cost of the improvements and equipment securing such
Mortgage Loan or (ii) the outstanding principal balance owing on such Mortgage
Loan or such amount as is necessary to prevent any reduction in such policy by
reason of the application of co-insurance and to prevent the Trustee thereunder
from being deemed to be a co-insurer, in each case with a replacement cost
rider. The Master Servicer will also use its reasonable efforts to cause each
mortgagor to maintain (i) insurance providing coverage against 12 months of rent
interruptions and (ii) such other insurance as provided in the related Mortgage
Loan. Subject to the requirements for modification, waiver or amendment of a
Mortgage Loan (See "--Modifications, Waivers and Amendments"), the Master
Servicer may in its reasonable discretion consistent with the servicing standard
set forth in the related Agreement waive the requirement of a Mortgage Loan that
the related mortgagor maintain earthquake insurance on the related Mortgaged
Property. If a Mortgaged Property is located at the time of origination of the
related Mortgage Loan in a federally designated special flood hazard area, the
Master Servicer will also use its best efforts to cause the related mortgagor to
maintain flood insurance in an amount equal to the lesser of the unpaid
principal balance of the related Mortgage Loan and the maximum amount obtainable
with respect to the Mortgage Loan. The related Agreement will provide that the
Master Servicer will be required to maintain the foregoing insurance if the
related mortgagor fails to maintain such insurance to the extent such insurance
is available at commercially reasonable rates and to the extent the Trustee, as
mortgagee, has an insurable interest. The cost of any such insurance maintained
by the Master Servicer will be advanced by the Master Servicer. The Master
Servicer or the Special Servicer, if any, will cause to be maintained fire and
hazard insurance with extended coverage on each REO Property in an amount that
is at least equal to the full replacement cost of the improvements and
equipment. The cost of any such insurance with respect to an REO Property will
be payable out of amounts on deposit in the related REO Account or will be
advanced by the Master Servicer. The Special Servicer will maintain flood
insurance providing substantially the same coverage as described above on any
REO Property that was located in a federally designated special flood hazard
area at the time the related
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mortgage loan was originated. The Special Servicer will maintain with respect to
each REO Property (i) public liability insurance, (ii) loss of rent endorsements
and (iii) such other insurance as provided in the related Mortgage Loan. Any
such insurance that is required to be maintained with respect to any REO
Property will only be so required to the extent such insurance is available at
commercially reasonable rates. The related Agreement will provide that the
Master Servicer or Special Servicer, as applicable, may satisfy its obligation
to cause hazard insurance policies to be maintained by maintaining a master
force placed insurance policy insuring against losses on the Mortgage Loans or
REO Properties, as the case may be. The incremental cost of such insurance
allocable to any particular Mortgage Loan or REO Property, if not borne by the
related mortgagor, will be advanced by the Master Servicer. Alternatively, the
Master Servicer or Special Servicer, as applicable, may satisfy its obligation
by maintaining, at its expense, a blanket policy (i.e., not a master force
placed policy) insuring against losses on the Mortgage Loans or REO Properties,
as the case may be. If such a blanket or master force placed policy contains a
deductible clause, the Master Servicer or the Special Servicer, as applicable,
will be obligated to deposit in the Collection Account all sums that would have
been deposited therein but for such clause to the extent any such deductible
exceeds the deductible limitation that pertained to the related Mortgage Loan,
or in the absence of any such deductible limitation, the deductible limitation
that is consistent with the servicing standard under the related Agreement.
In general, the standard form of fire and hazard extended coverage
insurance policy will cover physical damage to, or destruction of, the
improvements on the Mortgaged Property caused by fire, lightning, explosion,
smoke, windstorm, hail, riot, strike and civil commotion, subject to the
conditions and exclusions particularized in each policy. Since the standard
hazard insurance policies relating to the Mortgage Loans will be underwritten by
different insurers and will cover Mortgaged Properties located in various
states, such policies will not contain identical terms and conditions. The most
significant terms thereof, however, generally will be determined by state law
and conditions. Most such policies typically will not cover any physical damage
resulting from war, revolution, governmental actions, floods and other
water-related causes, earth movement (including earthquakes, landslides and
mudflows), nuclear reaction, wet or dry rot, vermin, rodents, insects or
domestic animals, theft and, in certain cases, vandalism. The foregoing list is
merely indicative of certain kinds of uninsured risks and is not intended to be
all-inclusive. Any losses incurred with respect to Mortgage Loans due to
uninsured risks (including earthquakes, mudflows and floods) or insufficient
hazard insurance proceeds could affect distributions to the Certificateholders.
The standard hazard insurance policies covering Mortgaged Properties
securing Mortgage Loans typically will contain a "coinsurance" clause which, in
effect, will require the insured at all times to carry insurance of a specified
percentage (generally 80% to 90%) of the full replacement value of the
dwellings, structures and other improvements on the Mortgaged Property in order
to recover the full amount of any partial loss. If the insured's coverage falls
below this specified percentage, such clause will provide that the insurer's
liability in the event of partial loss will not exceed the greater of (i) the
actual cash value (the replacement cost less physical depreciation) of the
structures and other improvements damaged or destroyed and (ii) such proportion
of the loss, without deduction for depreciation, as the amount of insurance
carried bears to the specified percentage of the full replacement cost of such
dwellings, structures and other improvements.
The Prospectus Supplement may describe other provisions concerning the
insurance policies required to be maintained under the related Agreement.
Unless otherwise specified in the applicable Prospectus Supplement, no pool
insurance policy, special hazard insurance policy, bankruptcy bond, repurchase
bond or guarantee insurance will be maintained with respect to the Mortgage
Loans nor will any Mortgage Loan be subject to FHA insurance.
The FHA is responsible for administering various federal programs,
including mortgage insurance, authorized under the National Housing Act of 1934,
as amended, and the United States Housing Act of 1937, as amended. To the extent
specified in the related Prospectus Supplement, all or a portion of the Mortgage
Loans may be insured by the FHA. The Master Servicer will be required to take
such steps as are reasonably necessary to keep such insurance in full force and
effect.
FIDELITY BONDS AND ERRORS AND OMISSIONS INSURANCE
The Agreement for each Series will generally require that the Master
Servicer and the Special Servicer, if applicable, obtain and maintain in effect
a fidelity bond or similar form of insurance coverage (which may provide
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blanket coverage) or any combination thereof insuring against loss occasioned by
fraud, theft or other intentional misconduct of the officers and employees of
the Master Servicer and the Special Servicer, if applicable. The related
Agreement will allow the Master Servicer and the Special Servicer, if
applicable, to self-insure against loss occasioned by the errors and omissions
of the officers and employees of the Master Servicer and the Special Servicer,
if applicable, so long as certain criteria set forth in the Agreement are met.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Master Servicer's principal compensation for its activities under the
Agreement for each Series will come from the payment to it or retention by it,
with respect to each Mortgage Loan, of a "Servicing Fee" (as defined in the
related Prospectus Supplement). The exact amount and calculation of such
Servicing Fee will be established in the Prospectus Supplement and Agreement for
the related Series. Since the aggregate unpaid principal balance of the Mortgage
Loans will generally decline over time, the Master Servicer's servicing
compensation will ordinarily decrease as the Mortgage Loans amortize.
In addition, the Agreement for a Series may provide that the Master
Servicer is entitled to receive, as additional compensation, (i) Prepayment
Premiums, late fees and certain other fees collected from mortgagors and (ii)
any interest or other income earned on funds deposited in the Collection Account
and Distribution Account (as described under "DESCRIPTION OF THE
CERTIFICATES--Accounts") and, except to the extent such income is required to be
paid to the related mortgagors, the Escrow Account.
The Master Servicer will generally pay the fees of the Trustee.
The amount and calculation of the fee for the servicing of Specially
Serviced Mortgage Loans (the "Special Servicing Fee") will be described in the
Prospectus Supplement and the Agreement for the related Series.
In addition to the compensation described above, the Master Servicer and
the Special Servicer, if applicable, (or any other party specified in the
applicable Prospectus Supplement) may retain, or be entitled to the
reimbursement of, such other amounts and expenses as are described in the
applicable Prospectus Supplement.
ADVANCES
The applicable Prospectus Supplement will set forth the obligations, if
any, of the Master Servicer and the Special Servicer, if applicable, to make any
advances with respect to delinquent payments on Mortgage Loans, payments of
taxes, assessments, insurance premiums and Property Protection Expenses or
otherwise. Any such advances will be made in the form and manner described in
the Prospectus Supplement and Agreement for the related Series. In general, the
Master Servicer or the Special Servicer, if any, will be entitled to
reimbursement for any advance equal to the amount of such advance, plus interest
thereon at the rate specified in the related Agreement, from (i) any collections
on or in respect of the particular Mortgage Loan or REO Property with respect to
which each such advance was made or (ii) upon determining that such advance is
not recoverable in the manner described in the preceding clause, from any other
amounts from time to time on deposit in the Collection Account, which amounts
may include funds that would otherwise be applied to the reduction of the
principal balance of the Certificates for such Series. The monthly statements to
Certificateholders will disclose the amount of any advances made during the
prior month. See "THE POOLING AND SERVICING AGREEMENT--Advances" in the related
Prospectus Supplement.
MODIFICATIONS, WAIVERS AND AMENDMENTS
The Agreement for each Series will provide the Master Servicer or the
Special Servicer, if any, with the discretion to modify, waive or amend certain
of the terms of any Mortgage Loan without the consent of the Trustee or any
Certificateholder subject to certain conditions set forth therein, including the
condition that such modification, waiver or amendment will not result in such
Mortgage Loan ceasing to be a "qualified mortgage" under the REMIC Regulations.
EVIDENCE OF COMPLIANCE
The Agreement for each Series will generally provide that on or before a
specified date in each year, with the first such date being a specified number
of months after the Cut-off Date, there will be furnished to the related Trustee
a
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statement of a firm of independent certified public accountants to the effect
that such firm has examined certain documents and records relating to the
servicing of the Mortgage Loans under the related Agreement or the servicing of
mortgage loans similar to the Mortgage Loans under substantially similar
agreements for the preceding twelve (12) months and that the assertion of
management of the Master Servicer or Special Servicer, as applicable, that it
maintained an effective internal control system over the servicing of such
mortgage loans is fairly stated in all material respects, based upon established
criteria, which statement meets the standards applicable to accountant's reports
intended for general distribution. The Prospectus Supplement may provide that
additional reports of independent certified public accountants relating to the
servicing of mortgage loans may be required to be delivered to the Trustee.
In addition, the Agreement for each Series will generally provide that the
Master Servicer and the Special Servicer, if any, will each deliver to the
Trustee, the Depositor and each Rating Agency, annually on or before a date
specified in the Agreement, a statement signed by an officer of the Master
Servicer or the Special Servicer, as applicable, to the effect that, based on a
review of its activities during the preceding calendar year, to the best of such
officer's knowledge, the Master Servicer or the Special Servicer, as applicable,
has fulfilled in all material respects its obligations under the Agreement
throughout such year or, if there has been a default in the fulfillment of any
such obligation, specifying each default known to such officer.
CERTAINMATTERS WITH RESPECT TO THE MASTER SERVICER, THE SPECIAL SERVICER, THE
TRUSTEE AND THE DEPOSITOR
The Agreement for each Series will also provide that none of the Depositor,
the Master Servicer, the Special Servicer, if any, or any director, officer,
employee or agent of the Depositor, the Master Servicer or the Special Servicer,
if any, will be under any liability to the Trust Fund or the Certificateholders
for any action taken, or for refraining from the taking of any action, in good
faith pursuant to the Agreement, or for errors in judgment; provided, however,
that neither the Depositor, the Master Servicer, the Special Servicer, if any,
nor any such person will be protected against any liability for a breach of any
representations or warranties under the Agreement or that would otherwise be
imposed by reason of willful misfeasance, misrepresentations, bad faith, fraud
or negligence or, in the case of the Master Servicer or Special Servicer, if
any, a breach of the servicing standards set forth in the Agreement in the
performance of its duties or by reason of negligent disregard of its obligations
and duties thereunder. The Agreement will further provide that the Depositor,
the Master Servicer, the Special Servicer, if any, and any director, officer,
employee or agent of the Depositor, the Master Servicer, the Special Servicer,
if any, will be entitled to indemnification by the Trust Fund for any loss,
liability or expense incurred in connection with any legal action relating to
the Agreement or the Certificates, other than any loss, liability or expense
incurred by reason of its respective willful misfeasance, misrepresentation, bad
faith, fraud or negligence or, in the case of the Master Servicer or the Special
Servicer, if any, a breach of the servicing standard set forth in the Agreement
in the performance of duties thereunder or by reason of negligent disregard of
its respective obligations and duties thereunder. Any loss resulting from such
indemnification will reduce amounts distributable to Certificateholders. The
Prospectus Supplement will specify any variations to the foregoing required by
the Rating Agencies rating Certificatesof a Series.
In addition, the Agreement will generally provide that none of the
Depositor, the Master Servicer or the Special Servicer, if any, will be under
any obligation to appear in, prosecute or defend any legal action unless such
action is related to its duties under the Agreement and which in its opinion
does not involve it in any expense or liability. The Master Servicer or the
Special Servicer, if any, may, however, in its discretion undertake any such
action that is related to its respective obligations under the related Agreement
and that it may deem necessary or desirable with respect to the Agreement and
the rights and duties of the parties thereto and the interests of the holders of
Certificates thereunder. In such event, the legal expenses and costs of such
action and any liability resulting therefrom (except any liability related to
the Master Servicer's or the Special Servicer's, if any, obligations to service
the Mortgage Loans in accordance with the servicing standard under the
Agreement) will be expenses, costs and liabilities of the Trust Fund, and the
Master Servicer or Special Servicer, if applicable, will be entitled to be
reimbursed therefor and to charge the Collection Account.
Any person into which the Master Servicer or the Special Servicer, if any,
may be merged or consolidated, or any person resulting from any merger or
consolidation to which the Master Servicer or the Special Servicer, if any, is a
party, or any person succeeding to the business of the Master Servicer or the
Special Servicer, if any, will be the successor of the Master Servicer or the
Special Servicer, as applicable, under the Agreement, and will be deemed to have
assumed all of the liabilities and obligations of the Master Servicer or the
Special Servicer, as applicable, under
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the Agreement, if each of the Rating Agencies has confirmed in writing that such
merger or consolidation or succession will not result in a downgrading,
withdrawal or qualification of the rating then assigned by such Rating Agency to
any Class of the Certificates. The related Prospectus Supplement will describe
any additional restrictions on such a merger or consolidation.
Generally, and in addition to the transactions permitted pursuant to the
preceding paragraph, the Master Servicer or the Special Servicer, if any, may
assign its rights and delegate its duties and obligations under the Agreement in
connection with the sale or transfer of a substantial portion of its mortgage
servicing or asset management portfolio; provided that certain conditions are
met, including the written consent of the Trustee and written confirmation by
each of the Rating Agencies that such assignment and delegation by the Master
Servicer or the Special Servicer, as applicable, will not, in and of itself,
result in a downgrading, withdrawal or qualification of the rating then assigned
by such Rating Agency to any Class of Certificates. The related Prospectus
Supplement will describe any additional restrictions on such assignment.
The Agreement will also provide that the Master Servicer or the Special
Servicer, if any, may not otherwise resign from its obligations and duties as
Master Servicer or Special Servicer thereunder, except upon the determination
that performance of its duties is no longer permissible under applicable law and
provided that such determination is evidenced by an opinion of counsel delivered
to the Trustee. No such resignation or removal may become effective until the
Trustee or a successor Master Servicer or Special Servicer, as the case may be,
has assumed the obligations of the Master Servicer or the Special Servicer, as
applicable, under the Agreement.
The Trustee under each Agreement will be named in the applicable Prospectus
Supplement. The commercial bank or trust company serving as Trustee may have
normal banking relationships with the Depositor, the Master Servicer, the
Special Servicer, if any, and/or any of their respective affiliates.
The Trustee may resign from its obligations under the Agreement at any
time, in which event a successor Trustee will be appointed. In addition, the
Depositor may remove the Trustee if the Trustee ceases to be eligible to act as
Trustee under the Agreement or if the Trustee becomes insolvent, at which time
the Depositor will become obligated to appoint a successor Trustee. The Trustee
may also be removed at any time by the holders of Certificates evidencing the
percentage of Voting Rights specified in the applicable Prospectus Supplement.
Any resignation and removal of the Trustee, and the appointment of a successor
Trustee, will not become effective until acceptance of such appointment by the
successor Trustee.
The Depositor is not obligated to monitor or supervise the performance of
the Master Servicer, Special Servicer, if any, or the Trustee under the
Agreement.
EVENTS OF DEFAULT
Events of default with respect to the Master Servicer or the Special
Servicer, if any, as applicable (each, an "Event of Default") under the
Agreement for each Series will consist of, in summary form, (i) any failure by
the Master Servicer or the Special Servicer, if any, to remit to the Collection
Account or any failure by the Master Servicer to remit to the Trustee for
deposit into the Distribution Account any amount required to be so remitted
pursuant to the Agreement; (ii) any failure by the Master Servicer or Special
Servicer, as applicable, duly to observe or perform in any material respect any
of its other covenants or agreements or the breach of its representations or
warranties (which breach materially and adversely affects the interests of the
Certificateholders, the Trustee, the Master Servicer or the Special Servicer, if
any, with respect to any Mortgage Loan) under the Agreement, which in each case
continues unremedied for 30 days after the giving of written notice of such
failure to the Master Servicer or the Special Servicer, as applicable, by the
Depositor or the Trustee, or to the Master Servicer or Special Servicer, if any,
the Depositor and the Trustee by the holders of Certificates evidencing Voting
Rights of at least 25% of any affected Class; (iii) confirmation in writing by
any of the Rating Agencies that the then current rating assigned to any Class of
Certificates would be withdrawn, downgraded or qualified unless the Master
Servicer or Special Servicer, as applicable, is removed; (iv) certain events of
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings and certain actions by, on behalf of or against the Master
Servicer or Special Servicer, as applicable, indicating its insolvency or
inability to pay its obligations; or (v) any failure by the Master Servicer or
the Special Servicer, as applicable, to make a required advance. The related
Prospectus Supplement may provide for other Events of Default to the extent
required by the Rating Agencies rating Certificates of a Series.
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RIGHTS UPON EVENT OF DEFAULT
As long as an Event of Default remains unremedied, the Trustee may, and at
the written direction of the holders of Certificates entitled to 25% of the
aggregate Voting Rights of all Certificates will, terminate all of the rights
and obligations of the Master Servicer or Special Servicer, as the case may be.
Notwithstanding the foregoing, upon any termination of the Master Servicer or
the Special Servicer, as applicable, under the Agreement the Master Servicer or
the Special Servicer, as applicable, will continue to be entitled to receive all
accrued and unpaid servicing compensation through the date of termination plus,
in the case of the Master Servicer, all advances and interest thereon as
provided in the Agreement. The Agreement for the applicable Series may specify
that the SpecialServicer is entitled under certain circumstances to continue to
receive workout fees and other similar fees after itis terminated.
The holders of Certificates evidencing not less than 66 2/3% of the
aggregate Voting Rights of the Certificates may, on behalf of all holders of
Certificates, waive any default by the Master Servicer or Special Servicer, if
any, in the performance of its obligations under the Agreement and its
consequences, except a default in making any required deposits to (including
advances) or payments from the Collection Account or the Distribution Account or
in remitting payments as received, in each case in accordance with the
Agreement. Upon any such waiver of a past default, such default will cease to
exist, and any Event of Default arising therefrom will be deemed to have been
remedied for every purpose of the Agreement. No such waiver will extend to any
subsequent or other default or impair any right consequent thereon.
On and after the date of termination, the Trustee will succeed to all
authority and power of the Master Servicer or the Special Servicer, as
applicable, under the Agreement and will be entitled to similar compensation
arrangements to which the Master Servicer or the Special Servicer, as
applicable, would have been entitled. If the Trustee is unwilling or unable so
to act, or if the holders of Certificates evidencing a majority of the aggregate
Voting Rights so request or if the Trustee is not rated in one of its two
highest long-term unsecured debt rating categories by each of the Rating
Agencies rating the Certificates of such Series, the Trustee must appoint, or
petition a court of competent jurisdiction for the appointment of, an
established mortgage loan servicing institution, the appointment of which will
not result in the downgrading, withdrawal or qualification of the rating or
ratings then assigned to any Class of Certificates as evidenced in writing by
each Rating Agency rating the Certificates of such Series, to act as successor
to the Master Servicer or the Special Servicer, as applicable, under the
Agreement. Pending such appointment, the Trustee will be obligated to act in
such capacity. The Trustee and any such successor may agree upon the servicing
compensation to be paid, which in no event may be greater than the compensation
payable to the Master Servicer or the Special Servicer, as the case may be,
under the Agreement.
No Certificateholder will have any right under the Agreement to institute
any proceeding with respect to the Agreement or the Mortgage Loans, unless, with
respect to the Agreement, such holder previously shall have given to the Trustee
a written notice of a default under the Agreement and of the continuance
thereof, and unless also the holders of Certificates representing a majority of
the aggregate Voting Rights allocated to each affected Class have made written
request of the Trustee to institute such proceeding in its own name as Trustee
under the Agreement and have offered to the Trustee such reasonable indemnity as
it may require against the costs, expenses and liabilities to be incurred
therein or thereby, and the Trustee, for 30 days after its receipt of such
notice, request and offer of indemnity, has neglected or refused to institute
such proceeding.
The Trustee will have no obligation to institute, conduct or defend any
litigation under the Agreement or in relation thereto at the request, order or
direction of any of the holders of Certificates, unless such holders of
Certificates have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which may be incurred therein or
thereby.
CREDIT ENHANCEMENT
GENERAL
If specified in the related Prospectus Supplement for any Series, credit
enhancement may be provided with respect to one or more Classes thereof or the
related Mortgage Loans ("Credit Enhancement"). Credit Enhancement may be in the
form of a letter of credit, the subordination of one or more Classes of the
Certificates of such Series, the
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establishment of one or more reserve funds, surety bonds, certificate guarantee
insurance, the use of cross-support features, limited guarantees or another
method of Credit Enhancement described in the related Prospectus Supplement, or
any combination of the foregoing.
It is unlikely that Credit Enhancement will provide protection against all
risks of loss or guarantee repayment of the entire principal balance of the
Certificates and interest thereon. If losses occur that exceed the amount
covered by Credit Enhancement or that are not covered by Credit Enhancement,
Certificateholders will bear their allocable share of deficiencies. See "RISK
FACTORS--Credit Enhancement Limitations."
If Credit Enhancement is provided with respect to a Series, or the related
Mortgage Loans, the applicable Prospectus Supplement will include a description
of (a) the amount payable under such Credit Enhancement, (b) any conditions to
payment thereunder not otherwise described herein, (c) the conditions (if any)
under which the amount payable under such Credit Enhancement may be reduced and
under which such Credit Enhancement may be terminated or replaced and (d) the
material provisions of any agreement relating to such Credit Enhancement.
Additionally, the applicable Prospectus Supplement will set forth certain
information with respect to the issuer of any third-party Credit Enhancement,
including (i) a brief description of its principal business activities, (ii) its
principal place of business, the jurisdiction of organization and the
jurisdictions under which it is chartered or licensed to do business, (iii) if
applicable, the identity of regulatory agencies that exercise primary
jurisdiction over the conduct of its business and (iv) its total assets and its
stockholders' or policyholders' surplus, if applicable, as of the date specified
in such Prospectus Supplement. If the holders of any Certificates of any Series
will be materially dependent upon the issuer of any third party Credit
Enhancement for timely payment of interest and/or principal on their
Certificates, the Depositor will file a current report on Form 8-K within 15
days after the initial issuance of such Certificates, which will include any
material information regarding such issuer, including audited financial
statements to the extent required.
SUBORDINATE CERTIFICATES
If so specified in the related Prospectus Supplement, one or more Classes
of a Series may be Subordinate Certificates. If so specified in the related
Prospectus Supplement, the rights of the holders of subordinate Certificates
(the "Subordinate Certificates") to receive distributions of principal and
interest from the Distribution Account on any Distribution Date will be
subordinated to such rights of the holders of senior Certificates (the "Senior
Certificates") to the extent specified in the related Prospectus Supplement. In
addition, subordination may be effected by the allocation of losses first to
Subordinate Certificates in reduction of the principal balance of such
Certificates until the principal balance thereof is reduced to zero before any
losses are allocated to Senior Certificates. The Agreement may require a trustee
that is not the Trustee to be appointed to act on behalf of holders of
Subordinate Certificates.
A Series may include one or more Classes of Subordinate Certificates
entitled to receive cash flows remaining after distributions are made to all
other Classes designated as being senior thereto. Such right to receive payments
will effectively be subordinate to the rights of holders of such senior
designated Classes of Certificates. A Series may also include one or more
Classes of Subordinate Certificates that will be allocated losses prior to any
losses being allocated to Classes of Subordinate Certificates designated as
being senior thereto. If so specified in the related Prospectus Supplement, the
subordination of a Class may apply only in the event of (or may be limited to)
certain types of losses not covered by insurance policies or other Credit
Enhancement, such as losses arising from damage to property securing a Mortgage
Loan not covered by standard hazard insurance policies.
The related Prospectus Supplement will describe any such subordination in
greater detail and set forth information concerning, among other things, to the
extent applicable, (i) the amount of subordination of a Class or Classes of
Subordinate Certificates in a Series, (ii) the circumstances in which such
subordination will be applicable, (iii) the manner, if any, in which the amount
of subordination will decrease over time, (iv) the manner of funding any related
reserve fund, (v) the conditions under which amounts in any applicable reserve
fund will be used to make distributions to holders of Senior Certificates and/or
to holders of Subordinate Certificates or be released from the applicable Trust
Fund and (vi) if one or more Classes of Subordinate Certificates of a Series are
Offered Certificates, the sensitivity of distributions on such Certificates
based on certain prepayment assumptions. See "RISK FACTORS--Risks to
Subordinated Certificateholders; Lower Payment Priority" herein.
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RESERVE FUNDS
If specified in the related Prospectus Supplement, one or more reserve
funds (each, a "Reserve Fund") may be established with respect to one or more
Classes of the Certificates of a Series, in which cash, a letter of credit,
Permitted Investments or a combination thereof, in the amounts, if any, so
specified in the related Prospectus Supplement will be deposited. Such Reserve
Funds may also be funded over time by depositing therein a specified amount of
the distributions received on the applicable Mortgage Loans if specified in the
related Prospectus Supplement. The Depositor may pledge the Reserve Funds to a
separate collateral agent specified in the related Prospectus Supplement.
Amounts on deposit in any Reserve Fund for one or more Classes of
Certificates of a Series will be applied by the Trustee for the purposes, in the
manner, and to the extent specified in the related Prospectus Supplement. A
Reserve Fund may be provided to increase the likelihood of timely payments of
principal of and interest on the Certificates, if required as a condition to the
rating of such Series by any Rating Agency. If so specified in the related
Prospectus Supplement, Reserve Funds may be established to provide limited
protection, in an amount satisfactory to a Rating Agency, against certain types
of losses not covered by insurance policies or other Credit Enhancement. Reserve
Funds may also be established for other purposes and in such amounts as will be
specified in the related Prospectus Supplement. Following each Distribution Date
amounts in any Reserve Fund in excess of any amount required to be maintained
therein may be released from the Reserve Fund under the conditions and to the
extent specified in the related Prospectus Supplement and will not be available
for further application by the Trustee.
Moneys deposited in any Reserve Fund generally will be permitted to be
invested in Permitted Investments. Generally, any reinvestment income or other
gain from such investments will be credited to the related Reserve Fund for such
Series, and any loss resulting from such investments will be charged to such
Reserve Fund. If specified in the related Prospectus Supplement, such income or
other gain may be payable to the Master Servicer as additional servicing
compensation, and any loss resulting from such investment will be borne by the
Master Servicer. The Reserve Fund, if any, for a Series will be a part of the
Trust Fund only if the related Prospectus Supplement so specifies. If the
Reserve Fund is not a part of the Trust Fund, the right of the Trustee to make
draws on the Reserve Fund will be an asset of the Trust Fund.
Additional information concerning any Reserve Fund will be set forth in the
related Prospectus Supplement, including the initial balance of such Reserve
Fund, the balance required to be maintained in the Reserve Fund, the manner in
which such required balance will decrease over time, the manner of funding such
Reserve Fund, the purpose for which funds in the Reserve Fund may be applied to
make distributions to Certificateholders and use of investment earnings, if any,
from the Reserve Fund.
CROSS-SUPPORT FEATURES
If the Mortgage Pool for a Series is divided into separate Mortgage Loan
Groups, each securing a separate Class or Classes of a Series, Credit
Enhancement may be provided by a cross-support feature that requires that
distributions be made on Senior Certificates secured by one Mortgage Loan Group
prior to distributions on Subordinate Certificates secured by another Mortgage
Loan Group within the Trust Fund. The related Prospectus Supplementfor a Series
that includes a cross-support feature will describe the manner and conditions
for applying such cross-support feature.
CERTIFICATE GUARANTEE INSURANCE
If so specified in the related Prospectus Supplement, certificate guarantee
insurance, if any, with respect to a Series of Certificates will be provided by
one or more insurance companies. Such certificate guarantee insurance will
guarantee, with respect to one or more Classes of Certificates of the applicable
Series, timely distributions of interest and full distributions of principal on
the basis of a schedule of principal distributions set forth in or determined in
the manner specified in the related Prospectus Supplement. If so specified in
the related Prospectus Supplement, the certificate guarantee insurance will also
guarantee against any payment made to a Certificateholder that is subsequently
recovered as a "voidable preference" payment under the Bankruptcy Code. A copy
of the certificate guarantee insurance for a Series, if any, will be filed with
the Commission as an exhibit to the Form 8-K to be filed with the Commission
within 15 days of issuance of the Certificates of the applicable Series.
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LIMITED GUARANTEE
If so specified in the Prospectus Supplement with respect to a Series of
Certificates, Credit Enhancement may be provided in the form of a limited
guarantee issued by a guarantor named therein.
LETTER OF CREDIT
Alternative Credit Enhancement with respect to one or more Classes of
Certificates of a Series of Certificates may be provided by the issuance of a
letter of credit by the bank or financial institution specified in the
applicable Prospectus Supplement. The coverage, amount and frequency of any
reduction in coverage provided by a letter of credit issued with respect to one
or more Classes of Certificates of a Series will be set forth in the Prospectus
Supplement relating to such Series.
POOL INSURANCE POLICIES; SPECIAL HAZARD INSURANCE POLICIES
If so specified in the Prospectus Supplement relating to a Series of
Certificates, the Depositor will obtain a pool insurance policy for the Mortgage
Loans in the related Trust Fund. The pool insurance policy will cover any loss
(subject to the limitations described in a related Prospectus Supplement) by
reason of default to the extent a related Mortgage Loan is not covered by any
primary mortgage insurance policy. The amount and terms of any such coverage
will be set forth in the Prospectus Supplement.
If so specified in the applicable Prospectus Supplement, for each Series of
Certificates as to which a pool insurance policy is provided, the Depositor will
also obtain a special hazard insurance policy for the related Trust Fund in the
amount set forth in such Prospectus Supplement. The special hazard insurance
policy will, subject to the limitations described in the applicable Prospectus
Supplement, protect against loss by reason of damage to Mortgaged Properties
caused by certain hazards not insured against under the standard form of hazard
insurance policy for the respective states in which the Mortgaged Properties are
located. The amount and terms of any such coverage will be set forth in the
Prospectus Supplement.
SURETY BONDS
If so specified in the Prospectus Supplement relating to a Series of
Certificates, Credit Enhancement with respect to one or more Classes of
Certificates of a Series may be provided by the issuance of a surety bond issued
by a financial guarantee insurance company specified in the applicable
Prospectus Supplement. The coverage, amount and frequency or any reduction in
coverage provided by a surety bond will be set forth in the Prospectus
Supplement relating to such Series.
FRAUD COVERAGE
If so specified in the applicable Prospectus Supplement, losses resulting
from fraud, dishonesty or misrepresentation in connection with the origination
or sale of the Mortgage Loans may be covered to a limited extent by (i)
representations and warranties to the effect that no such fraud, dishonesty or
misrepresentation had occurred, (ii) a Reserve Fund, (iii) a letter of credit or
(iv) some other method. The amount and terms of any such coverage will be set
forth in the Prospectus Supplement.
MORTGAGOR BANKRUPTCY BOND
If so specified in the applicable Prospectus Supplement, losses resulting
from a bankruptcy proceeding relating to a mortgagor or obligor affecting the
Mortgage Loans in a Trust Fund with respect to a Series of Certificates will be
covered under a mortgagor bankruptcy bond (or any other instrument that will not
result in a withdrawal, downgrading or qualification of the rating of the
Certificates of a Series by any of the Rating Agencies that rated any
Certificates of such Series). Any mortgagor bankruptcy bond or such other
instrument will provide for coverage in an amount and with such terms meeting
the criteria of the Rating Agencies rating any Certificates of the related
Series, which amount and terms will be set forth in the related Prospectus
Supplement.
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CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
The following discussion contains a general summary of the material legal
aspects of mortgage loans. Because many of the legal aspects of mortgage loans
are governed by applicable state laws (which may vary substantially), the
following summaries do not purport to be complete, to reflect the laws of any
particular state, to reflect all the laws applicable to any particular Mortgage
Loan or to encompass the laws of all states in which the properties securing the
Mortgage Loans are situated. The summaries are qualified in their entirety by
reference to the applicable federal and state laws governing the Mortgage Loans.
GENERAL
All of the Mortgage Loans are loans evidenced by a note or bond that is
secured by a lien and security interest in property created under related
security instruments, which may be mortgages, deeds of trust or deeds to secure
debt, depending upon the prevailing practice and law in the state in which the
Mortgaged Property is located. As used herein, unless the context otherwise
requires, the term "mortgage" includes mortgages, deeds of trust and deeds to
secure debt. Any of the foregoing mortgages will create a lien upon, or grant a
title interest in, the mortgaged property, the priority of which will depend on
the terms of the mortgage, the existence of any separate contractual
arrangements with others holding interests in the mortgaged property, the order
of recordation of the mortgage in the appropriate public recording office and
the actual or constructive knowledge of the mortgagee as to any unrecorded
liens, leases or other interests affecting the mortgaged property. Mortgages
typically do not possess priority over governmental claims for real estate
taxes, assessments and, in some states, for reimbursement of remediation costs
of certain environmental conditions. See "--Environmental Risks" below. In
addition, the Code provides priority to certain tax liens over the lien of the
mortgage. The mortgagor is generally responsible for maintaining the property in
good condition and for paying real estate taxes, assessments and hazard
insurance premiums associated with the property.
TYPES OF MORTGAGE INSTRUMENTS
A mortgage either creates a lien against or constitutes a conveyance of an
interest in real property between two parties -- a mortgagor (the borrower and
usually the owner of the subject property) and a mortgagee (the lender). A deed
of trust is a three-party instrument, wherein a trustor (the equivalent of a
mortgagor), grants the property to a trustee, in trust with a power of sale, for
the benefit of a beneficiary (the lender) as security for the payment of the
secured indebtedness. A deed to secure debt is a two party instrument wherein
the grantor (the equivalent of a mortgagor) conveys title to, as opposed to
merely creating a lien upon, the subject property to the grantee (the lender)
until such time as the underlying debt is repaid, generally with a power of sale
as security for the indebtedness evidenced by the related note. In a case where
the borrower is a land trust, there would be an additional party because legal
title to the property is held by a land trustee under a land trust agreement for
the benefit of the borrower. At origination of a mortgage loan involving a land
trust, the borrower may execute a separate undertaking to make payments on the
mortgage note. In no event is the land trustee personally liable for the
mortgage note obligation. As used herein, unless the context otherwise requires,
the term "mortgagor" includes a mortgagor under a mortgage, a trustor under a
deed of trust and a grantor under a deed to secure debt, and the term
"mortgagee" includes a mortgagee under a mortgage, a beneficiary under a deed of
trust and a grantee under a deed to secure debt. The mortgagee's authority under
a mortgage, the trustee's authority under a deed of trust and the grantee's
authority under a deed to secure debt are governed by the express provisions of
the mortgage, the law of the state in which the real property is located,
certain federal laws and, in some cases, in deed of trust transactions, the
directions of the beneficiary. The Mortgage Loans (other than Installment
Contracts) will consist of loans secured by mortgages.
The real property covered by a mortgage is most often the fee estate in
land and improvements. However, a mortgage may encumber other interests in real
property such as a tenant's interest in a lease of land, leasehold improvements
or both, and the leasehold estate created by such lease. A mortgage covering an
interest in real property other than the fee estate requires special provisions
in the instrument creating such interest, in the mortgage or in a separate
agreement with the landlord or other party to such instrument, to protect the
mortgagee against termination of such interest before the mortgage is paid.
PERSONALTY
Certain types of mortgaged properties, such as nursing homes, hotels,
motels and industrial plants, are likely to derive a significant part of their
value from personal property that does not constitute "fixtures" under
applicable
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state real property law, and hence, would not be subject to the lien of a
mortgage. Such property is generally pledged or assigned as security to the
mortgagee under the Uniform Commercial Code ("UCC"). In order to perfect its
security interest therein, the mortgagee generally must file UCC financing
statements and, to maintain perfection of such security interest, file
continuation statements generally every five years. In certain cases, Mortgage
Loans secured in part by personal property may be included in a Trust Fund even
if the security interest in such personal property was not perfected or the
requisite UCC filings were allowed to lapse.
INSTALLMENT CONTRACTS
The Mortgage Loans may also consist of Installment Contracts (also
sometimes called contracts for deed). Under an Installment Contract, the seller
(referred to in this section as the "mortgagee") retains legal title to the
property and enters into an agreement with the purchaser (referred to in this
section as the "mortgagor") for the payment of the purchase price, plus
interest, over the term of such Installment Contract. Only after full
performance by the mortgagor of the Installment Contract is the mortgagee
obligated to convey title to the property to the mortgagor. As with mortgage or
deed of trust financing, during the effective period of the Installment
Contract, the mortgagor is generally responsible for maintaining the property in
good condition and for paying real estate taxes, assessments and hazard
insurance premiums associated with the property.
The method of enforcing the rights of the mortgagee under an Installment
Contract varies on a state-by-state basis depending upon the extent to which
state courts are willing or able to enforce the Installment Contract strictly
according to its terms. The terms of Installment Contracts generally provide
that upon a default by the mortgagor, the mortgagor loses his or her right to
occupy the property, the entire indebtedness is accelerated and the mortgagor's
equitable interest in the property is forfeited. The mortgagee in such a
situation does not have to foreclose in order to obtain title to the property,
although in some cases both a quiet title action to clear title to the property
(if the mortgagor has recorded notice of the Installment Contract) and an
ejectment action to recover possession may be necessary. In a few states,
particularly in cases of a default during the early years of an Installment
Contract, ejectment of the mortgagor and a forfeiture of his or her interest in
the property will be permitted. However, in most states, laws (analogous to
mortgage laws) have been enacted to protect mortgagors under Installment
Contracts from the harsh consequences of forfeiture. These laws may require the
mortgagee to pursue a judicial or nonjudicial foreclosure with respect to the
property, give the mortgagor a notice of default and some grace period during
which the Installment Contract may be reinstated upon full payment of the
default amount. Additionally, the mortgagor may have a post-foreclosure
statutory redemption right, and, in some states, a mortgagor with a significant
equity investment in the property may be permitted to share in the proceeds of
any sale of the property after the indebtedness is repaid or may otherwise be
entitled to a prohibition of the enforcement of the forfeiture clause.
JUNIOR MORTGAGES; RIGHTS OF SENIOR MORTGAGEES OR BENEFICIARIES
Some of the Mortgage Loans may be secured by junior mortgages that are
subordinate to senior mortgages held by other lenders or institutional
investors. In such cases, the rights of the Trust Fund (and therefore the
Certificateholders), as mortgagee under a junior mortgage, will be subordinate
to those of the mortgagee under the senior mortgage, including the prior rights
of the senior mortgagee to: (i) receive rents, hazard insurance proceeds and
condemnation proceeds; and (ii) cause the property securing the Mortgage Loan to
be sold upon the occurrence of a default under the senior mortgage, thereby
extinguishing the lien of the junior mortgage, unless the Master Servicer or
Special Servicer, if applicable, either asserts such subordinate interest in the
related property in the foreclosure of the senior mortgage or satisfies the
defaulted senior loan. As discussed more fully below, in many states a junior
mortgagee may satisfy a defaulted senior loan in full, or may cure such default
and bring the senior loan current, in either event adding the amounts expended
to the balance due on the junior loan. Absent a provision in the senior mortgage
or the existence of a recorded request for notice in compliance with applicable
state law (if any), no notice of default is typically required to be given to
the junior mortgagee.
The form of the mortgage used by many institutional lenders confers on the
mortgagee the right both to receive all proceeds collected under any hazard
insurance policy and all awards made in connection with any condemnation
proceedings, and to apply such proceeds and awards to any indebtedness secured
by such mortgage in such order as the mortgagee may determine. Thus, in the
event improvements on the property are damaged or destroyed by fire or other
casualty, or in the event the property (or any part thereof) is taken by
condemnation, the mortgagee under the
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senior mortgage will have the prior right to collect any applicable insurance
proceeds and condemnation awards and to apply the same to the indebtedness
secured by the senior mortgage. However, the laws of certain states may provide
that, unless the security of the mortgagee has been impaired, the mortgagor must
be allowed to use any applicable insurance proceeds or partial condemnation
awards to restore the property.
The form of mortgage used by many institutional lenders also typically
contains a "future advance" clause that provides that additional amounts
advanced to or on behalf of the mortgagor by the mortgagee are to be secured by
the mortgage. Such a clause is valid under the laws of most states. In some
states, however, the priority of any advance made under the clause depends upon
whether the advance was an "obligatory" or "optional" advance. If the mortgagee
is obligated to advance the additional amounts, the advance may be entitled to
receive the same priority as amounts initially made under the mortgage,
notwithstanding that other junior mortgages or other liens may have encumbered
the property between the date of recording of the senior mortgage and the date
of the future advance, and that the mortgagee had actual knowledge of such
intervening junior mortgages or other liens at the time of the advance. If the
mortgagee is not obligated to advance the additional amounts and has actual
knowledge of any such intervening junior mortgages or other liens, the advance
may be subordinate to such intervening junior mortgages or other liens. In many
other states, all advances under a "future advance" clause are given the same
priority as amounts initially made under the mortgage so long as such advances
do not exceed a specified "credit limit" amount stated in the recorded mortgage.
Another provision typically found in the form of the mortgage used by many
institutional lenders obligates the mortgagor: (i) to pay all taxes and
assessments affecting the property prior to delinquency; (ii) to pay, when due,
all other encumbrances, charges and liens affecting the property that may be
prior to the lien of the mortgage; (iii) to provide and maintain hazard
insurance on the property; (iv) to maintain and repair the property and not to
commit or permit any waste thereof; and (v) to appear in and defend any action
or proceeding purporting to affect the property or the rights of the mortgagee
under the mortgage. Upon a failure of the mortgagor to perform any of these
obligations, the mortgage typically provides the mortgagee the option to perform
the obligation itself, with the mortgagor agreeing to reimburse the mortgagee
for any sums expended by the mortgagee in connection therewith. All sums so
expended by the mortgagee also typically become part of the indebtedness secured
by the mortgage. The form of mortgage used by many institutional lenders also
typically requires the mortgagor to obtain the consent of the mortgagee as to
all actions affecting the mortgaged property, including, without limitation, all
leasing activities (including new leases and termination or modification of
existing leases), any alterations, modifications or improvements to the
buildings and other improvements forming a part of the mortgaged property and
all property management activities affecting the mortgaged property (including
new management or leasing agreements or any termination or modification of
existing management or leasing agreements). Tenants will often refuse to execute
a lease unless the mortgagee executes a written agreement with the tenant not to
disturb the tenant's possession of its premises in the event of a foreclosure. A
senior mortgagee may refuse to consent to matters approved by a junior mortgagee
with the result that the value of the security for the junior mortgage is
diminished. For example, a senior mortgagee may decide not to approve a lease or
refuse to grant to a tenant such a non-disturbance agreement. If, as a result,
the lease is not executed, the value of the mortgaged property may be
diminished.
FORECLOSURE
Foreclosure is a legal procedure that allows the mortgagee to recover its
mortgage debt by enforcing its rights and available legal remedies under the
mortgage. If the mortgagor defaults in payment or performance of its obligations
under the note or mortgage and, by reason thereof, the indebtedness has been
accelerated, the mortgagee has the right to institute foreclosure proceedings to
sell the mortgaged property at public auction to satisfy the indebtedness.
Foreclosure procedures with respect to the enforcement of a mortgage vary from
state to state. Although there are other foreclosure procedures available in
some states that are either infrequently used or available only in certain
limited circumstances, the two primary methods of foreclosing a mortgage are
judicial foreclosure and non-judicial foreclosure pursuant to a power of sale
granted in the mortgage. In either case, the actual foreclosure of the mortgage
will be accomplished pursuant to a public sale of the mortgaged property by a
designated official or by the trustee under a deed of trust. The purchaser at
any such sale acquires only the estate or interest in the mortgaged property
encumbered by the mortgage. For example, if the mortgage only encumbered a
tenant's leasehold interest in the property, such purchaser will only acquire
such leasehold interest, subject to the tenant's obligations under the lease to
pay rent and perform other covenants contained therein.
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Judicial Foreclosure. A judicial foreclosure of a mortgage is a judicial
action conducted in a court having jurisdiction over a Mortgaged Property
initiated by the service of legal pleadings upon all necessary parties having an
interest in the real property. Delays in completion of foreclosure may
occasionally result from difficulties in locating the necessary parties to the
action. As a judicial foreclosure is a lawsuit, it is subject to all of
procedures, delays and expenses attendant to litigation, sometimes requiring up
to several years to complete if contested. At the completion of a judicial
foreclosure, if the mortgagee prevails, the court ordinarily issues a judgment
of foreclosure and appoints a referee or other designated official to conduct a
public sale of the property. Such sales are made in accordance with procedures
that vary from state to state. If the mortgage covered the tenant's interest in
a lease and leasehold estate, the purchaser will acquire such tenant's interest
subject to the tenant's obligations under the lease to pay rent and perform
other covenants contained therein.
Non-Judicial Foreclosure. In the majority of cases, foreclosure of a deed
of trust (and in some instances, other types of mortgage instruments) is
accomplished by a non-judicial trustee's sale pursuant to a provision in the
deed of trust that authorizes the trustee, generally following a request from
the beneficiary, to sell the mortgaged property at public sale upon any default
by the mortgagor under the terms of the note or deed of trust. In addition to
the specific contractual requirements set forth in the deed of trust, a
non-judicial trustee's sale is also typically subject to any applicable judicial
or statutory requirements imposed in the state where the mortgaged property is
located. The specific requirements that must be satisfied by a trustee prior to
the trustee's sale vary from state to state. Examples of the varied requirements
imposed by certain states are: (i) that notices of both the mortgagor's default
and the mortgagee's acceleration of the debt be provided to the mortgagor; (ii)
that the trustee record a notice of default and a notice of sale and send a copy
of such notice to the mortgagor, any other person having an interest in the real
property, including any junior lienholders, any person who has recorded a
request for a copy of a notice of default and notice of sale, any successor in
interest to the mortgagor and to certain other persons; (iii) that the
mortgagor, or any other person having a junior encumbrance on the real estate,
may, during a reinstatement period, cure the default by paying the entire amount
in arrears, plus, in certain states, certain allowed costs and expenses incurred
by the mortgagee in connection with the default; and (iv) the method
(publication, posting, recording, etc.), timing, content, location and other
particulars as to any required public notices of the trustee's sale. A notice of
sale must be posted in a public place and, in most states, published for a
specified period of time in one or more newspapers. The mortgagor or junior
lienholder may then have the right, during a reinstatement period required in
some states, to cure the default by paying the entire actual amount in arrears
(without regard to the acceleration of the indebtedness), plus the lender's
costs and expenses (in some states, limited to reasonable costs and expenses)
incurred in enforcing the obligation. Generally, state law controls the amount
of foreclosure expenses and costs, including attorneys' fees which may be
recovered by a mortgagee. In other states, the mortgagor or the junior
lienholder is not provided a period to reinstate the loan, but has only the
right to pay off the entire debt to prevent the foreclosure sale. Foreclosure of
a deed to secure debt is also generally accomplished by a non-judicial sale
similar to that required by a deed of trust, except that the mortgagee or its
agent, rather than a trustee, is typically empowered to perform the sale in
accordance with the terms of the deed to secure debt and applicable law.
Limitations on Mortgagee's Rights. In case of foreclosure under a mortgage
or a deed of trust, the sale by the referee or other designated official or the
trustee is often a public sale. Because of the difficulty a potential buyer at
any foreclosure sale might have in determining the exact status of title to the
mortgaged property, the potential existence of redemption rights (see "--Rights
of Redemption" below) and because the physical condition and financial
performance of the mortgaged property may have deteriorated during the
foreclosure proceedings and/or for a variety of other reasons, a third party may
be unwilling to purchase the property at the foreclosure sale. Some states
require that the mortgagee disclose all known facts materially affecting the
value of the mortgaged property to potential bidders at a trustee's sale. Such
disclosure may have an adverse affect on the trustee's ability to sell the
mortgaged property or the sale price thereof. Potential buyers may be reluctant
to purchase property at a foreclosure sale as a result of the 1980 decision of
the United States Court of Appeals for the Fifth Circuit in Durrett v.
Washington National Insurance Company and other decisions that have followed its
reasoning. The court in Durrett held that even a non-collusive, regularly
conducted foreclosure sale was a fraudulent transfer under the federal
Bankruptcy Code, as amended from time to time (11 U.S.C.) (the "Bankruptcy
Code"), and, therefore, could be rescinded in favor of the bankrupt's estate,
if: (i) the foreclosure sale was held while the debtor was insolvent and not
more than one year prior to the filing of the bankruptcy petition; and (ii) the
price paid for the foreclosed property did not represent "fair consideration"
("reasonably equivalent value" under the Bankruptcy Code). Although the
reasoning and result of Durrett in respect of the Bankruptcy Code was rejected
by the United States Supreme Court in May 1994, the case
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could nonetheless be persuasive to a court applying a state fraudulent
conveyance law that has provisions similar to those construed in Durrett.
Furthermore, a bankruptcy trustee or debtor in possession could possibly avoid a
foreclosure sale by electing to proceed under state fraudulent conveyance law,
and the period of time for which a foreclosure sale could be subject to
avoidance under such law is often greater than one year. For these reasons, it
is common for the mortgagee to purchase the property from the trustee, referee
or other designated official for an amount equal to the outstanding principal
amount of the secured indebtedness, together with accrued and unpaid interest
and the expenses of foreclosure, in which event, if the amount bid by the
mortgagee equals the full amount of such debt, interest and expenses, the
secured debt would be extinguished, or for a lesser amount in order to preserve
its right to seek a deficiency judgment if such is available under state law and
under the terms of the Mortgage Loan documents. Thereafter, the mortgagee
assumes the burdens of ownership and management of the property (frequently,
through the employment of a third party management company), including third
party liability, paying operating expenses and real estate taxes and making
repairs, until a sale of the property to a third party can be arranged. The
costs of operating and maintaining commercial property may be significant and
may be greater than the income derived from that property. The costs of
management and operation of those mortgaged properties that are hotels, motels
or nursing or convalescent homes or hospitals may be particularly significant,
because of the expertise, knowledge and, with respect to nursing or convalescent
homes or hospitals, regulatory compliance required to run such operations and
the effect that foreclosure and a change in ownership may have on the public's
and the industry's (including franchisors') perception of the quality of such
operations. The mortgagee will commonly obtain the services of a real estate
broker and pay the broker's commission in connection with the sale of the
property. Depending upon market conditions, the ultimate proceeds of the sale of
the property may not equal the mortgagee's investment in the property. Moreover,
a mortgagee commonly incurs substantial legal fees and court costs in acquiring
a mortgaged property through contested foreclosure and/or bankruptcy
proceedings. In addition, a mortgagee may be responsible under federal or state
law for the cost of cleaning up a mortgaged property that is environmentally
contaminated. See "--Environmental Risks" below. There may also be state
transfer taxes due and payable upon obtaining such properties at foreclosure and
such taxes could be substantial. As a result, a mortgagee could realize an
overall loss on a mortgage loan even if the related mortgaged property is sold
at foreclosure or resold after it is acquired through foreclosure for an amount
equal to the full outstanding principal amount of the mortgage loan, plus
accrued interest.
The holder of a junior mortgage that forecloses on a mortgaged property
does so subject to senior mortgages and any other prior liens, and may be
obliged to keep senior mortgage loans current in order to avoid foreclosure of
its interest in the property. In addition, if the foreclosure of a junior
mortgage triggers the enforcement of a "due-on-sale" clause contained in a
senior mortgage, the junior mortgagee could be required to pay the full amount
of the senior mortgage indebtedness or face foreclosure.
Courts may also apply general equitable principles in connection with
foreclosure proceedings to limit a mortgagee's remedies. These equitable
principles are generally designed to relieve the mortgagor from the legal effect
of his defaults under the loan documents to the extent such effect is determined
to be harsh or unfair. Examples of judicial remedies that have been fashioned
include requiring mortgagees to undertake affirmative and expensive actions to
determine the causes of the mortgagor's default and the likelihood that the
mortgagor will be able to reinstate the loan, requiring the mortgagees to
reinstate loans or recast payment schedules in order to accommodate mortgagors
who are suffering from temporary financial disability, and limiting the rights
of mortgagees to foreclose if the default under the mortgage instrument is not
monetary, such as the mortgagor's failing to maintain the property adequately or
executing a second mortgage affecting the property. Finally, some courts have
been faced with the issue of whether federal or state constitutional provisions
reflecting due process concerns for adequate notice require that mortgagors
under deeds of trust or mortgages receive notices in addition to the statutorily
prescribed minimum. For the most part, these cases have upheld the notice
provisions as being reasonable or have found that the sale by a trustee under a
deed of trust, or under a mortgage having a power of sale, does not involve
sufficient state action to afford constitutional protections to the mortgagor.
In addition, some states may have statutory protection such as theright of the
borrower to reinstate mortgage loans after commencement of foreclosure
proceedings but prior to a foreclosure sale.
Under the REMIC Regulations and the related Agreement, the Master Servicer
or Special Servicer, if any, may be permitted (and in some cases may be
required) to hire an independent contractor to operate any REO Property. The
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costs of such operation may be significantly greater than the costs of direct
operation by the Master Servicer or Special Servicer, if any. See "SERVICING OF
THE MORTGAGE LOANS--Collections and Other Servicing Procedures."
Rights of Redemption. The purposes of a foreclosure are to enable the
mortgagee to realize upon its security and to bar the mortgagor, and all persons
who have an interest in the property that is subordinate to the mortgage being
foreclosed, from any exercise of their "equity of redemption." The doctrine of
equity of redemption provides that, until the property covered by a mortgage has
been sold in accordance with a properly conducted foreclosure sale, those having
an interest that is subordinate to that of the foreclosing mortgagee may redeem
the property by paying the entire debt with interest. In addition, in some
states, when a foreclosure action has been commenced, the redeeming party must
pay certain costs of such action. Those having an equity of redemption must
generally be made parties and joined in the foreclosure proceeding in order for
their equity of redemption to be cut off and terminated. Equity of redemption is
generally a common-law (non-statutory) right that only exists prior to
completion of the foreclosure sale, is not waivable by the mortgagor and must be
exercised prior to foreclosure sale.
In contrast to the doctrine of equity of redemption, in some states, the
mortgagor and foreclosed junior lienors are given a statutory period after the
completion of a foreclosure in which to redeem the property from the foreclosure
sale by payment of a redemption price. Some states require the payment of the
entire principal balance of the loan, accrued interest and expenses of
foreclosure, others require the payment of the foreclosure sale price, while
other states require the payment of only a portion of the sums due. The effect
of a statutory right of redemption is to diminish the ability of the mortgagee
to sell the foreclosed property. The exercise of a statutory right of redemption
may defeat the title of any purchaser at a foreclosure sale or any purchaser
from the mortgagee subsequent to a foreclosure sale. Consequently, the practical
effect of the redemption right is often to force the mortgagee to retain the
property and pay the expenses of ownership until the redemption period has run.
Whether the mortgagee has any rights to recover these expenses from a mortgagor
who redeems the property depends on the applicable state statute. Certain states
permit a mortgagee to invalidate an attempted exercise of a statutory redemption
right by waiving its right to any deficiency judgment. In some states, there is
no right to redeem property after a trustee's sale under a deed of trust.
Under the REMIC Regulations currently in effect, property acquired by
foreclosure generally must not be held for more than three years following the
year in which the property is acquired. With respect to a Series of Certificates
for which an election is made to qualify the Trust Fund or a part thereof as a
REMIC, the Agreement will permit foreclosed property to be held for more than
three years if the Trustee receives (i) an extension from the IRS or(ii) an
opinion of counsel to the effect that holding such property for such period is
permissible under theREMIC Regulations.
Mortgagors under Installment Contracts generally do not have the benefits
of redemption periods such as those that exist in the same jurisdiction for
mortgage loans. If redemption statutes do exist under state laws for Installment
Contracts, the redemption period may be shorter than for mortgages.
Anti-Deficiency Legislation. Some of the Mortgage Loans will be nonrecourse
loans as to which, in the event of default by a mortgagor, recourse may be had
only against the specific property pledged to secure the related Mortgage Loan
and not against the mortgagor's other assets. Even if a mortgage by its terms
provides for recourse against the mortgagor, certain states have imposed
prohibitions against or limitations upon such recourse. For example, some state
statutes limit the right of the mortgagee to obtain a deficiency judgment
against the mortgagor following foreclosure or sale under a deed of trust. A
deficiency judgment is a personal judgment against the former mortgagor equal in
most cases to the difference between the net amount realized upon the public
sale of the real property and the amount due to the mortgagee. Other statutes
require the mortgagee to exhaust the security afforded under a mortgage by
foreclosure in an attempt to satisfy the full debt before bringing a personal
action against the mortgagor. In certain states, the mortgagee has the option of
bringing a personal action against the mortgagor on the debt without first
exhausting its security; however, in some of these states, a mortgagee choosing
to pursue such an action may be deemed to have elected its remedy and may be
precluded from exercising any remedies with respect to the security.
Consequently, the practical effect of the election requirement, when applicable,
is that mortgagees will usually proceed first against the security rather than
bringing personal action against the mortgagor. Other statutory provisions limit
any deficiency judgment against the former mortgagor following a judicial sale
to the excess of the outstanding debt over the fair market value of the property
at the time of the public sale. The purpose of these statutes is generally to
prevent a mortgagee from obtaining a large deficiency judgment against the
former mortgagor as a result of low bids, or the absence of bids, at the
judicial sale.
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Cross-Collateralization. Certain of the Mortgage Loans may be secured by
more than one mortgage covering properties located in more than one state.
Because of various state laws governing foreclosure or the exercise of a power
of sale and because, in general, foreclosure actions are brought in state court
and the courts of one state cannot exercise jurisdiction over property in
another state, it may be necessary upon a default under such a loan to foreclose
on the related mortgages in a particular order rather than simultaneously in
order to ensure that the lien of the mortgages is not impaired or released.
Leasehold Risks. Certain of the Mortgage Loans may be secured by a mortgage
encumbering the mortgagor's leasehold interest under a ground lease. Leasehold
mortgages are subject to certain risks not associated with mortgages encumbering
a fee ownership interest in the mortgaged property. The most significant of
these risks is that the ground lease creating the leasehold estate could
terminate, thereby depriving the leasehold mortgagee of its security. The ground
lease may terminate if, among other reasons, the ground lessee breaches or
defaults in its obligations under the ground lease or there is a bankruptcy of
the ground lessee or the ground lessor. Examples of protective provisions that
may be included in the related ground lease, or a separate agreement between the
ground lessee, the ground lessor and the mortgagee, in order to minimize such
risk are the right of the mortgagee to receive notices from the ground lessor of
any defaults by the mortgagor; the right to cure such defaults, with adequate
cure periods; if a default is not susceptible of cure by the mortgagee, the
right to acquire the leasehold estate through foreclosure or otherwise prior to
any termination of the ground lease; the ability of the ground lease to be
assigned to and by the mortgagee or a purchaser at a foreclosure sale and for a
release of the assigning ground lessee's liabilities thereunder; the right of
the mortgagee to enter into a ground lease with the ground lessor on the same
terms and conditions as the old ground lease in the event of a termination
thereof; and provisions for disposition of any insurance proceeds or
condemnation awards payable upon a casualty to, or condemnation of, the
mortgaged property. In addition to the foregoing protections, the leasehold
mortgage may prohibit the ground lessee from treating the ground lease as
terminated in the event of the ground lessor's bankruptcy and rejection of the
ground lease by the trustee for the debtor-ground lessor, and may assign to the
mortgagee the debtor-ground lessee's right to reject a lease pursuant to Section
365 of the Bankruptcy Code, although the enforceability of such assignment has
not been established. An additional manner in which to obtain protection against
the termination of the ground lease is to have the ground lessor enter into a
mortgage encumbering the fee estate in addition to the mortgage encumbering the
leasehold interest under the ground lease. Additional protection is afforded to
the mortgagee, because if the ground lease is terminated, the mortgagee may
nonetheless possess rights contained in the fee mortgage. Without the
protections described in this paragraph, a leasehold mortgagee may be more
likely to lose the collateral securing its leasehold mortgage. No assurance can
be given that any or all of the above described provisions will be obtained in
connection with any particular Mortgage Loan.
Bankruptcy Laws. Mortgagors often file bankruptcy to delay or prevent
exercise of remedies under loan documents. Numerous statutory and common law
provisions, including the Bankruptcy Code and state laws affording relief to
debtors, may interfere with and delay the ability of a mortgagee to obtain
payment of the loan, to realize upon collateral and/or to enforce a deficiency
judgment. For example, under the Bankruptcy Code virtually all actions
(including foreclosure actions and deficiency judgment proceedings) related to
the "bankrupt" borrower are automatically stayed upon the filing of the
bankruptcy petition and often no interest or principal payments are made during
the course of the bankruptcy proceeding (although "adequate protection" payments
for anticipated diminution, if any, in the value of the mortgaged property may
be made). The delay and consequences thereof caused by such automatic stay can
be significant. A particular mortgagor may become subject to the Bankruptcy Code
either by a voluntary or involuntary petition with respect to such mortgagor or,
by virtue of the doctrine of "substantive consolidation" by an affiliate of such
mortgagor becoming a debtor under the Bankruptcy Code. Additionally, the filing
of a petition in bankruptcy by or on behalf of a junior lienor or junior
mortgagee may stay the senior mortgagee from taking action to foreclose out such
junior lien.
Under the Bankruptcy Code, provided certain substantive and procedural
safeguards for the mortgagee are met, the amount and terms of a mortgage or deed
of trust secured by property of the debtor may be modified under certain
circumstances. The outstanding amount of the loan secured by the real property
may be reduced to the then current value of the property (with a corresponding
partial reduction of the amount of the mortgagee's security interest), thus
leaving the mortgagee a general unsecured creditor for the difference between
such value and the outstanding balance of the loan. Other modifications may
include the reduction in the amount of each scheduled payment, which reduction
may result from a reduction in the rate of interest and/or the alteration of the
repayment schedule (with or without
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affecting the unpaid principal balance of the loan) and/or an extension (or
acceleration) of the final maturity date. Some bankruptcy courts have approved
plans, based on the particular facts of the reorganization case before them,
that effected the curing of a mortgage loan default by paying arrearages over a
number of years. A bankruptcy court may also permit a debtor to de-accelerate a
secured loan and to reinstate the loan even though the mortgagee had accelerated
such loan and final judgment of foreclosure had been entered in state court
(provided no sale of the property had yet occurred) prior to the filing of the
debtor's petition, even if the full amount due under the original loan is never
repaid. Other types of significant modifications to the terms of the mortgage
may be acceptable to the bankruptcy court, often depending on the particular
facts and circumstances of the specific case.
Federal bankruptcy law may also interfere with or affect the ability of a
mortgagee to enforce an assignment of rents and leases or a security interest in
hotel or nursing home revenues related to the mortgaged property. In connection
with a bankruptcy proceeding involving a mortgagor, Section 362 of the
Bankruptcy Code automatically stays any attempts by the mortgagee to enforce any
such assignment or security interest. The legal proceedings necessary to resolve
such a situation can be time-consuming and may result in significant delays in
the receipt of the rents or hotel or nursing home revenues. Rents or hotel or
nursing home revenues may also be lost (i) if the assignment or security
interest is not fully documented or perfected under state law prior to
commencement of the bankruptcy proceeding; (ii) to the extent such rents or
hotel or nursing home revenues are used by the mortgagor to maintain the
mortgaged property or for other court authorized expenses; (iii) to the extent
other collateral may be substituted therefor; and (iv) if the bankruptcy court
determines that it is necessary or appropriate "based on the equitiesof the
case."
To the extent a mortgagor's ability to make payment on a mortgage loan is
dependent on payments under a lease of the related property, such ability may be
impaired by the commencement of a bankruptcy proceeding relating to the lessee
under such lease. Under the Bankruptcy Code, the filing of a petition in
bankruptcy by or on behalf of a lessee results in an automatic stay barring the
commencement or continuation of any state court proceeding for past due rent,
for accelerated rent, for damages or for a summary eviction order with respect
to a default under the lease that occurred prior to the filing of the lessee's
petition.
In addition, the Bankruptcy Code generally provides that a bankruptcy
trustee or debtor in possession may, subject to approval of the bankruptcy
court, either (i) assume the lease and retain it or assign it to a third party
or (ii) reject the lease. If the lease is assumed, the bankruptcy trustee or
debtor in possession (or assignee, if applicable) must cure any defaults under
the lease, compensate the lessor for its losses and provide the lessor with
"adequate assurance" of future performance. Such remedies may be insufficient,
however, as the lessor may be forced to continue under the lease with a lessee
that is a poor credit risk or an unfamiliar tenant if the lease was assigned,
and any assurances provided to the lessor may, in fact, be inadequate.
Furthermore, there may be a significant period of time between the date that a
lessee files a bankruptcy petition and the date that the lease is assumed or
rejected. Although the lessee is obligated to make all lease payments currently
with respect to the post-petition period, there is a risk that such payments
will not be made due to the lessee's poor financial condition. If the lease is
rejected, the lessor will be treated as an unsecured creditor with respect to
its claim for damages for termination of the lease, and the lessormust relet the
mortgaged property before the flow of lease payments will recommence. In
addition, pursuant to Section 502(b)(6) of the Bankruptcy Code, a lessor's
damages for lease rejection are limited.
In a bankruptcy or similar proceeding, action may be taken seeking the
recovery, as a preferential transfer, of certain payments made by the mortgagor
under the related Mortgage Loan to the Trust Fund. Payments on long-term debt
may be protected from recovery as preferences if they are payments in the
ordinary course of business made on debts incurred in the ordinary course of
business. Whether any particular payment would be protected depends upon the
facts specific to a particular transaction. If a Mortgage Loan includes any
guaranty, and the guaranty waives any rights of subrogation or contribution,
then certain payments by the mortgagor to the Trust Fund also may be avoided and
recovered as fraudulent conveyances.
A trustee in bankruptcy or a debtor in possession or various creditors who
extend credit after a case is filed, in some cases, may be entitled to collect
costs and expenses in preserving or selling the mortgaged property ahead of
payment to the mortgagee. In certain circumstances, a trustee in bankruptcy or
debtor in possession may have the power to grant liens senior to or pari passu
with the lien of a mortgage, and analogous state statutes and general principles
of equity may also provide a mortgagor with means to halt a foreclosure
proceeding or sale and enforce a restructuring of a mortgage loan on terms a
mortgagee would not otherwise accept.
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A trustee in bankruptcy or a debtor in possession, in some cases, also may
be entitled to subordinate the lien created by the mortgage loan to other liens
or the claims of general unsecured creditors. Generally, this requires proof of
"unequitable conduct" by the mortgagee. However, various courts have expanded
the grounds for equitable subordination to apply to various non-pecuniary claims
for such items as penalties and fines. A court may find that any prepayment
charge, various late payment charges and other claims by mortgagees may be
subject to equitable subordination on these grounds.
A trustee in bankruptcy or a debtor in possession, in some cases, also may
be entitled to avoid all or part of any claim or lien by the mortgagee if and to
the extent a judgment creditor, or a bona fide purchaser of real estate, could
have done so outside of bankruptcy. Generally, this involves some defect in the
language, execution or recording of the mortgage loan documents.
ENVIRONMENTAL RISKS
Real property pledged as security to a mortgagee may be subject to
environmental risks arising from the presence of hazardous or toxic substances
on, under, adjacent to, or in such property. The environmental condition of
mortgaged properties may be affected by the actions and operations of tenants
and occupants of such properties. Of particular concern may be those mortgaged
properties that are, or have been, the site of manufacturing, industrial or
disposal activity or have been built with or contain asbestos-containing
material or other indoor pollutants. In addition, current and future
environmental laws, ordinances or regulations, including new requirements
developed by federal agencies pursuant to the mandates of the Clean Air Act
Amendments of 1990, may impose additional compliance obligations on business
operations that can be met only by significant capital expenditures.
A mortgagee may be exposed to risks related to environmental conditions
such as the following: (i) a diminution in the value of a mortgaged property;
(ii) the potential that the mortgagor may default on a mortgage loan due to the
mortgagor's inability to pay high remediation costs or difficulty in bringing
its operations into compliance with environmental laws; (iii) in certain
circumstances as more fully described below, liability for clean-up costs or
other remedial actions, which liability could exceed the value of such mortgaged
property or the unpaid balance of the related mortgage loan; or (iv) the
inability to sell the related Mortgage Loan in the secondary market or lease the
property to potential tenants. In certain circumstances, a mortgagee may choose
not to foreclose on contaminated property rather than risk incurring liability
for remedial actions.
In addition, a mortgagee may be obligated to disclose environmental
conditions on a property to government entities and/or to prospective buyers
(including prospective buyers at a foreclosure sale or following foreclosure).
Such disclosure may decrease the amount that prospective buyers are willing to
pay for the affected property, sometimes substantially, and thereby decrease the
ability of the mortgagee to recoup its investment in a loanupon foreclosure.
In certain states, transfers of some types of properties are conditioned
upon cleanup of contamination prior to transfer. In these cases, a mortgagee
that becomes the owner of a property through foreclosure, deed in lieu of
foreclosure or otherwise, may be required to clean up the contamination before
selling or otherwise transferringthe property.
Under federal and certain states' laws, the owner's failure to perform
remedial actions required under environmental laws may in certain circumstances
give rise to a lien on the mortgaged property to ensure the reimbursement of
remedial costs incurred by federal and state regulatory agencies. In several
states such lien has priority over the lien of an existing mortgage against such
property. Since the costs of remedial action could be substantial, the value of
a mortgaged property as collateral for a mortgage loan could be adversely
affected by the existence of an environmental condition giving rise to a lien.
Under certain circumstances, it is possible that environmental cleanup
costs, or the obligation to take remedial actions, can be imposed on a mortgagee
such as the Trust Fund with respect to each Series. Under the laws of some
states and under the federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("CERCLA"), strict liability may be
imposed on present and past "owners" and "operators" of contaminated real
property for the costs of clean-up. Excluded from CERCLA's definition of "owner"
or "operator", however, is a person "who without participating in the management
of the facility, holds indicia of ownership primarily to protect his security
interest." This is known as the "secured creditor exemption." Judicial
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decisions interpreting the secured creditor exemption had varied widely, and one
decision, United States v. Fleet Factors Corp., 901 F.2d 1550 (11th Cir. 1990),
cert. denied, 498 U.S. 1046 (1991), had indicated that a lender's mere power to
affect and influence a borrower's operations might be sufficient to lead to
liability on the part of the lender. However, on September 30, 1996, the Asset
Conservation, Lender Liability, and Deposit Insurance Protection Act of 1996
(the "Lender Liability Act") became law. The Lender Liability Act clarifies the
secured creditor exemption to impose liability only on a secured lender who
exercises control over operational aspects of the facility and thus is
"participating in management." A number of environmentally related activities
before the loan is made and during its pendency, as well as "workout" steps to
protect a security interest, are identified as permissible to protect a security
interest without triggering liability. The Lender Liability Act also identifies
the circumstances in which foreclosure and post-foreclosure activities will not
trigger CERCLA liability.
The Lender Liability Act also amends the Solid Waste Disposal Act to limit
the liability of lenders holding a security interest for costs of cleaning up
contamination from underground storage tanks. However, the Lender Liability Act
has no effect on state environmental laws similar to CERCLA that may impose
liability on mortgagees and other persons, and not all of those laws provide for
a secured creditor exemption. Liability under many of these federal and state
laws may exist even if the mortgagee did not cause or contribute to the
contamination and regardless of whether the mortgagee has actually taken
possession of a mortgaged property through foreclosure, deed in lieu of
foreclosure or otherwise. Moreover, such liability is not limited to the
original or unamortized principal balance of a loan or to the value of the
property securing a loan.
CERCLA's "innocent landowner" defense to strict liability may be available
to a mortgagee that has taken title to a mortgaged property and has performed an
appropriate environmental site assessment that does not disclose existing
contamination and that meets other requirements of the defense. However, it is
unclear whether the environmental site assessment must be conducted upon loan
origination, prior to foreclosure or both, and uncertainty exists as to what
kind of environmental site assessment must be performed in order to qualify for
the defense.
Beyond statute-based environmental liability, there exist common law causes
of action that can be asserted to redress hazardous environmental conditions on
a property (e.g., actions based on nuisance for so called toxic torts resulting
in death, personal injury or damage to property). Although it may be more
difficult to hold a mortgagee liable in such cases, unanticipated or uninsured
liabilities of the mortgagor may jeopardize the mortgagor's ability to meet its
loan obligations.
At the time the Mortgage Loans were originated, it is possible that no
environmental assessment or a very limited environmental assessment of the
Mortgaged Properties was conducted.
The related Agreement will provide that the Master Servicer or the Special
Servicer, if any, acting on behalf of the Trust Fund, may not acquire title to
any Mortgaged Property or take over its operation unless the Master Servicer or
the Special Servicer, if any, has previously determined, based upon a phase I or
other specified environmental assessment prepared by a person who regularly
conducts such environmental assessments, that (a) the Mortgaged Property is in
compliance with applicable environmental laws or that it would be in the best
economic interest of the Trust Fund to take the actions necessary to comply with
such laws and (b) there are no circumstances or conditions present at the
Mortgaged Property relating to Hazardous Materials for which some investigation,
remediation or clean-up action could be required or that it would be in the best
economic interest of the Trust Fund to take such actions with respect to such
Mortgaged Property. This requirement effectively precludes enforcement of the
security for the related Note until a satisfactory environmental assessment is
obtained and/or any required remedial action is taken. This requirement will
reduce the likelihood that a given Trust Fund will become liable for any
environmental conditions affecting a Mortgaged Property, but will make it more
difficult to realize on the security for the Mortgage Loan. There can be no
assurance that any environmental assessment obtained by the Master Servicer or
the Special Servicer, if any, will detect all possible environmental conditions
or that the other requirements of the Agreement, even if fully observed by the
Master Servicer or the Special Servicer, if any, will in fact insulate a given
Trust Fund from liability for environmental conditions.
"Hazardous Materials" are generally defined as any dangerous, toxic or
hazardous pollutants, chemicals, wastes or substances, including, without
limitation, those so identified pursuant to CERCLA or any other environmental
laws now existing, and specifically including, without limitation, asbestos and
asbestos-containing materials, polychlorinated biphenyls, radon gas, petroleum
and petroleum products, urea formaldehyde and any
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substances classified as being "in inventory," "usable work in process" or
similar classification that would, if classified as unusable, be included in the
foregoing definition.
If a mortgagee is or becomes liable for clean-up costs, it may bring an
action for contribution against the current owners or operators, the owners or
operators at the time of on-site disposal activity or any other party who
contributed to the environmental hazard, but such persons or entities may be
without substantial assets, bankrupt or otherwise judgment proof. Furthermore,
such action against the mortgagor may be adversely affected by the limitations
on recourse in the loan documents. Similarly, in some states anti-deficiency
legislation and other statutes requiring the mortgagee to exhaust its security
before bringing a personal action against the mortgagor (see "--Anti-Deficiency
Legislation" above) may curtail the mortgagee's ability to recover from its
mortgagor the environmental clean-up and other related costs and liabilities
incurred by the mortgagee. Accordingly, it is possible that such costs could
become a liability of the Trust Fund and occasion a loss to the
Certificateholders. Shortfalls occurring as the result of imposition of any
clean-up costs will be addressed in the Prospectus Supplement and Agreement for
therelated Series.
Other environmental laws that may affect the value of a mortgaged property,
or impose cleanup costs or liabilities, including those related to asbestos,
radon, lead paint and underground storage tanks.
Certain federal, state and local laws, regulations and ordinances govern
the removal, encapsulation or disturbance of asbestos-containing materials
("ACMs") in the event of the remodeling, renovation or demolition of a building.
Such laws, as well as common law standards, may impose liability for releases of
ACMs and may allow third parties to seek recovery from owners or operators of
real properties for personal injuries associated with such releases. In
addition, federal law requires that building owners inspect their facilities for
ACMs and presumed ACMs (consisting of thermal system insulation, surfacing
materials and asphalt and vinyl flooring in buildings constructed prior to 1981)
and transfer all information regarding ACMs and presumed ACMs in their
facilities tosuccessive owners.
The United States Environmental Protection Agency (the "EPA") has concluded
that radon gas, a naturally occurring substance, is linked to increased risks of
lung cancer. Although there are no current federal or state requirements
mandating radon gas testing, the EPA and the United States Surgeon General
recommend testing residences for the presence of radon and that abatement
measures be undertaken if radon concentrations in indoor air meet or exceed four
picocuries per liter.
Under the Residential Lead-Based Paint Hazard Reduction Act of 1992 (the
"Lead Paint Act"), owners of residential housing constructed prior to 1978 are
required to disclose to potential residents or purchasers any known lead-paint
hazards. The Lead Paint Act creates a private right of action with treble
damages available for any failure to so notify. In addition, the ingestion of
lead-based paint chips or dust particles by children can result in lead
poisoning, and the owner of a property where such circumstances exist may be
held liable for such injuries. Finally, federal law mandates that detailed
worker safety standards must be complied with where construction, alteration,
repair or renovation of structures that contain lead, or materials that contain
lead, is contemplated.
Underground storage tanks ("USTs") are, and in the past have been,
frequently located at properties used for industrial, retail and other business
purposes. Federal law, as well as the laws of most states, currently require
USTs used for the storage of fuel or hazardous substances and waste to meet
certain standards designed to prevent releases from the USTs into the
environment. USTs installed prior to the implementation of these standards, or
that otherwise do not meet these standards, are potential sources of
contamination to the soil and groundwater. Land owners may be liable for the
costs of investigating and remediating soil and groundwater contamination that
may emanate from leaking USTs.
ENFORCEABILITY OF CERTAIN PROVISIONS
Default Interest; Late Charges; and Prepayment Fees. Some of the Mortgage
Loans may contain provisions requiring the mortgagor to pay late charges or
additional interest if required payments are not timely made, and in some
circumstances, may prohibit payments for a specified period and/or condition
prepayments upon the mortgagor's payment of prepayment fees or yield maintenance
penalties. In certain states there may be limitations upon the enforceability of
such provisions, and no assurance can be given that any of such provisions
related to any Mortgage Loan will be enforceable. Some of the Mortgage Loans may
also contain provisions prohibiting any
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prepayment of the loan prior to maturity or requiring the payment of a
prepayment fee in connection with any such prepayment. Even if enforceable, a
requirement for such prepayment fees may not deter mortgagors from prepaying
their mortgage loans. Although certain states will allow the enforcement of such
provisions upon a voluntary prepayment of a mortgage loan, in other states such
provisions may be unenforceable after a mortgage loan has been outstanding for a
certain number of years or if enforcement would be unconscionable, or the
allowed amount of any prepayment fee may be limited (i.e., to a specified
percentage of the original principal amount of the mortgage loan, to a specified
percentage of the outstanding principal balance of a mortgage loan or to a fixed
number of months' interest on the prepaid amount). In certain states there may
be limitations upon the enforceability of prepayment fee provisions applicable
in connection with a default by the mortgagor or an involuntary acceleration of
the secured indebtedness, and no assurance can be given that any of such
provisions related to any mortgage loan will be enforceable under such
circumstances. The applicable laws of certain states may also treat certain
prepayment fees as usurious if in excess of statutory limits. See
"--Applicability of Usury Laws" below.
Due-on-Sale Provisions. The enforceability of due-on-sale and
due-on-encumbrance provisions has been the subject of legislation or litigation
in many states, and in some cases, typically involving single family residential
mortgage transactions, their enforceability has been limited or denied under
applicable state law. However, the Garn-St. Germain Depository Institutions Act
of 1982 (the "Garn-St. Germain Act"), which generally preempts state
constitutional, statutory and case law that prohibits the enforcement of
due-on-sale clauses and permits mortgagees to enforce these clauses in
accordance with their terms, subject to certain exceptions. As a result,
due-on-sale clauses have become generally enforceable except in those states
whose legislatures have exercised their authority to regulate the enforceability
of such clauses with respect to mortgage loans that were: (i) originated or
assumed during the "window period" under the Garn-St. Germain Act, which ended
in all cases not later than October 15, 1982; and (ii) originated by lenders
other than national banks, federal savings institutions or federal credit
unions. The Federal Home Loan Mortgage Corporation has taken the position in its
published mortgage servicing standards that, out of a total of eleven "window
period states," five states (Arizona, Michigan, Minnesota, New Mexico and Utah)
have enacted statutes extending, on various terms and for varying periods, the
prohibition on enforcement of due-on-sale clauses with respect to certain
categories of loans that were originated or assumed during the "window period"
applicable to such state. Also, the Garn-St. Germain Act does "encourage"
lenders to permit assumption of loans at the original rate of interest or at
some other rate less than the average of the original rate and the market rates.
The Agreement for each Series generally will provide that if any Mortgage
Loan contains a provision in the nature of a "due-on-sale" clause, which by its
terms provides that: (i) such Mortgage Loan shall (or may at the mortgagee's
option) become due and payable upon the sale or other transfer of an interest in
the related Mortgaged Property or (ii) such Mortgage Loan may not be assumed
without the consent of the related mortgagee in connection with any such sale or
other transfer, then, for so long as such Mortgage Loan is included in the Trust
Fund, the Master Servicer or the Special Servicer, if any, on behalf of the
Trustee, shall take such actions as it deems to be in the best interest of the
Trust Fund in accordance with the servicing standard set forth in the Agreement,
and may waive or enforce any due-on-sale clause contained in the related Note or
Mortgage.
In addition, under the federal Bankruptcy Code, due-on-sale clauses may not
be enforceable in bankruptcy proceedings and may, under certain circumstances,
be eliminated in any modified mortgage resulting from such bankruptcy
proceeding.
Acceleration on Default. It is expected that the Mortgage Loans will
include a "debt-acceleration" clause, which permits the mortgagee to accelerate
the full debt upon a monetary or nonmonetary default of the mortgagor. The
courts of all states will enforce such acceleration clauses in the event of a
material payment default if appropriate notices of default have been effectively
given. However, the equity courts of any state may refuse to foreclose a
mortgage when an acceleration of the indebtedness would be inequitable or unjust
or the circumstances would render the acceleration unconscionable. Furthermore,
in some states, the mortgagor may avoid foreclosure and reinstate an accelerated
loan by paying only the defaulted amounts and, in certain states, the costs and
attorneys' fees incurred by the mortgagee in collecting such defaulted payments.
State courts also are known to apply various legal and equitable principles
to avoid enforcement of the forfeiture provisions of Installment Contracts. For
example, a mortgagee's practice of accepting late payments from the mortgagor
may be deemed a waiver of the forfeiture clause. State courts also may impose
equitable grace periods for payment of arrearages or otherwise permit
reinstatement of the Installment Contract following a default. Not
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infrequently, if a mortgagor under an Installment Contract has significant
equity in the property, equitable principles will be applied to reform or
reinstate the Installment Contract or to permit the mortgagor to share the
proceeds upon a foreclosure sale of the property if the sale price exceeds the
debt.
SOLDIERS' AND SAILORS' RELIEF ACT
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), a mortgagor who enters military service (including
the Army, Navy, Air Force, Marines, Coast Guard, members of the National Guard
or any Reserves who are called to active duty status after the origination of
their mortgage loan and officers of the U.S. Public Health Service assigned to
duty with the military) after the origination of such mortgagor's mortgage loan
may not be charged interest (including fees and charges) above an annual rate of
6% during the period of such mortgagor's active duty status, unless a court
orders otherwise upon application of the mortgagee. Any shortfall in interest
collections resulting from the application of the Relief Act, to the extent not
covered by any applicable Credit Enhancement, could result in losses to the
holders of the Certificates. In addition, the Relief Act imposes limitations
that would impair the ability of the Master Servicer or the Special Servicer, if
any, to foreclose on an affected Mortgage Loan during the mortgagor's period of
active duty status and, under certain circumstances, during an additional three
months thereafter. Thus, in the event that such a Mortgage Loan goes into
default, there may be delays and losses occasioned by the inability to realize
upon the Mortgaged Property in a timely fashion. Because the Relief Act applies
to mortgagors who enter military service (including reservists who are later
called to active duty) after origination of the related mortgage loan, no
information can be provided as to the number of Mortgage Loans that may be
affected by the Relief Act. The Relief Act may also be applicable if the
mortgagor is an entity owned or controlled by a person in a military service.
APPLICABILITY OF USURY LAWS
State and federal usury laws limit the interest that mortgagees are
entitled to receive on a mortgage loan. In determining whether a given
transaction is usurious, courts may include charges in the form of "points" and
"fees" in the determination of the "interest" charged in connection with a loan,
but may exclude payments in the form of "reimbursement of foreclosure expenses"
or other charges found to be distinct from "interest". If, however, the amount
charged for the use of the money loaned is found to exceed a statutorily
established maximum rate, the form employed and the degree of overcharge are
both immaterial. Statutes differ in their provision as to the consequences of a
usurious loan. One type of statute requires the mortgagee to forfeit the
interest above the applicable limit or imposes a specified penalty. Under this
statutory scheme, the mortgagor may have the recorded mortgage or deed of trust
cancelled upon paying its debt with lawful interest, or the mortgagee may
foreclose, but only for the debt plus lawful interest, in either case, subject
to any applicable credit for excessive interest collected from the mortgagor and
any penalty owed by the mortgagee. A second type of statute is more severe. A
violation of this type of usury law results in the invalidation of the
transaction, thereby permitting the mortgagor to have the recorded mortgage or
deed of trust cancelled without any payment and prohibiting the mortgagee from
foreclosing.
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, as amended ("Title V"), provides that state usury limitations do
not apply to certain types of residential (including multifamily, but not other
commercial) first mortgage loans originated by certain lenders after March 31,
1980. A similar federal statute was in effect with respect to mortgage loans
made during the first three months of 1980. The statute authorized any state to
reimpose interest rate limits by adopting, before April 1, 1983, a law or
constitutional provision that expressly rejects application of the federal law.
In addition, even where Title V is not so rejected, any state is authorized by
law to adopt a provision limiting discount points or other charges on mortgage
loans covered by Title V. Certain states have taken action to reimpose interest
rate limits and/or to limit discount points or other charges.
ALTERNATIVE MORTGAGE INSTRUMENTS
Alternative mortgage instruments, including adjustable rate mortgage loans,
originated by non-federally chartered lenders have historically been subjected
to a variety of restrictions. Such restrictions differed from state to state,
resulting in difficulties in determining whether a particular alternative
mortgage instrument originated by a state-chartered lender was in compliance
with applicable law. These difficulties were alleviated substantially with
respect to residential (including multifamily, but not other commercial)
mortgage loans as a result of the enactment of
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Title VIII of the Garn-St. Germain Act ("Title VIII"). Title VIII provides that,
notwithstanding any state law to the contrary: (i) state-chartered banks may
originate alternative mortgage instruments in accordance with regulations
promulgated by the Comptroller of the Currency with respect to origination of
alternative mortgage instruments by national banks; (ii) state-chartered credit
unions may originate alternative mortgage instruments in accordance with
regulations promulgated by the National Credit Union Administration (the "NCUA")
with respect to origination of alternative mortgage instruments by federal
credit unions; and (iii) all other non-federally chartered housing creditors,
including state-chartered savings and loan associations, state-chartered savings
banks and mortgage banking companies, may originate alternative mortgage
instruments in accordance with the regulations promulgated by the Federal Home
Loan Bank Board (now the Office of Thrift Supervision) with respect to
origination of alternative mortgage instruments by federal savings and loan
associations. Title VIII authorized any state to reject applicability of the
provisions of Title VIII by adopting, prior to October 15, 1985, a law or
constitutional provision expressly rejecting the applicability of such
provisions. Certain states have taken such action. A mortgagee's failure to
comply with the applicable federal regulations in connection with the
origination of an alternative mortgage instrument could subject such mortgage
loan to state restrictions that would not otherwise be applicable.
LEASES AND RENTS
Some of the Mortgage Loans may be secured by an assignment of leases and
rents, either through assignment provisions incorporated in the mortgage,
through a separate assignment document or both. Under an assignment of leases
and rents, the mortgagor typically assigns to the mortgagee the mortgagor's
right, title and interest as landlord under each lease and the income derived
therefrom, while retaining a revocable license to collect the rents for so long
as there is no default under the mortgage loan documentation. In the event of
such a default, the license terminates and the mortgagee may be entitled to
collect rents. A mortgagee's failure to perfect properly its interest in rents
may result in the loss of a substantial pool of funds that could otherwise serve
as a source of repayment for the loan. Some state laws may require that in
addition to recording properly the assignment of leases and rents, the mortgagee
must also take possession of the property and/or obtain judicial appointment of
a receiver before such mortgagee is entitled to collect rents. Although
mortgagees actually taking possession of the property may become entitled to
collect the rents therefrom, such mortgagees may also incur potentially
substantial risks attendant to such possession, including liability for
environmental clean-up costs and other risks inherent to property ownership and
operation. In addition, if a bankruptcy or similar proceeding is commenced by or
in respect of the mortgagor, the mortgagee's ability to collect the rents may
also be adversely affected.
SECONDARY FINANCING; DUE-ON-ENCUMBRANCE PROVISIONS
Some of the Mortgage Loans may not restrict secondary financing, thereby
permitting the mortgagor to use the Mortgaged Property as security for one or
more additional loans. Some of the Mortgage Loans may preclude secondary
financing (often by permitting the senior mortgagee to accelerate the maturity
of its loan if the mortgagor further encumbers the Mortgaged Property) or may
require the consent of the senior mortgagee; however, such provisions may be
unenforceable in certain jurisdictions under certain circumstances. The
Agreement for each Series will generally provide that if any Mortgage Loan
contains a provision in the nature of a "due-on-encumbrance" clause, which by
its terms: (i) provides that such Mortgage Loan will (or may at the mortgagee's
option) become due and payable upon the creation of any lien or other
encumbrance on the related Mortgaged Property; or (ii) requires the consent of
the related mortgagee to the creation of any such lien or other encumbrance on
the related Mortgaged Property; then for so long as such Mortgage Loan is
included in a given Trust Fund, the Master Servicer or, if such Mortgage Loan is
a Specially Serviced Mortgage Loan, the Special Servicer, if any, on behalf of
such Trust Fund, will exercise (or decline to exercise) any right it may have as
the mortgagee of record with respect to such Mortgage Loan to (x) accelerate the
payments thereon or (y) withhold its consent to the creation of any such lien or
other encumbrance, in a manner consistent with the servicing standard set forth
in the Agreement.
If a mortgagor encumbers a mortgaged property with one or more junior
liens, the senior mortgagee is subjected to additional risk, such as the
following. First, the mortgagor may have difficulty servicing and repaying
multiple loans. In addition, if the junior loan permits recourse to the
mortgagor and the senior loan does not, a mortgagor may be more likely to repay
sums due on the junior loan than those due on the senior loan. Second, acts of
the senior mortgagee that prejudice the junior mortgagee or impair the junior
mortgagee's security may create a superior equity in favor of the junior
mortgagee. For example, if the mortgagor and the senior mortgagee agree to an
increase in the
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principal amount of, or the interest rate payable on, the senior loan, the
senior mortgagee may lose its priority to the extent an existing junior
mortgagee is prejudiced or the mortgagor is additionally burdened. Third, if the
mortgagor defaults on the senior loan and/or any junior loan or loans, the
existence of junior loans and actions taken by junior mortgagees can impair the
security available to the senior mortgagee and can interfere with, delay and in
certain circumstances even prevent the taking of action by the senior mortgagee.
Fourth, the bankruptcy of a junior mortgagee may operate to stay foreclosure or
similar proceedings by the senior mortgagee.
CERTAIN LAWS AND REGULATIONS
The Mortgaged Properties will be subject to compliance with various
federal, state and local statutes and regulations. Failure to comply (together
with an inability to remedy any such failure) could result in material
diminution in the value of a Mortgaged Property, which could, together with the
possibility of limited alternative uses for a particular Mortgaged Property
(e.g., a nursing or convalescent home or hospital), result in a failure to
realize the full principal amount of and interest on the related Mortgage Loan.
The Internal Revenue Code of 1986, as amended, provides priority to certain
tax liens over the lien of a mortgage. In addition, substantive requirements are
imposed on mortgagees in connection with the origination and servicing of
mortgage loans by numerous federal and some state consumer protection laws.
These laws include the federal Truth-in-Lending Act, Real Estate Settlement
Procedures Act, Equal Credit Opportunity Act, Fair Credit Billing Act, Fair
Credit Reporting Act, and related statutes. These federal laws impose specific
statutory liabilities upon lenders who originate mortgage loans and who fail to
comply with the provisions of the law. In some cases, this liability may affect
assignees of the mortgage loans.
TYPE OF MORTGAGED PROPERTY
A mortgagee may be subject to additional risk depending upon the type and
use of the mortgaged property in question. For instance, mortgaged properties
that are hospitals, nursing homes or convalescent homes may present special
risks to mortgagees in large part due to significant governmental regulation of
the ownership, operation, maintenance, control and financing of health care
institutions. Mortgages encumbering mortgaged properties that are owned by the
mortgagor under a condominium form of ownership are subject to the declaration,
by-laws and other rules and regulations of the condominium association.
Mortgaged properties that are hotels or motels may present additional risks to
mortgagees in that: (i) such properties are typically operated pursuant to
franchise, management and operating agreements that may be terminable by the
franchisor, manager or operator; and (ii) the transferability of operating,
liquor and other licenses to the entity acquiring such properties either through
purchase or foreclosure is subject to the vagaries of local law requirements. In
addition, mortgaged properties that are multifamily residential properties or
cooperatively owned multifamily properties may be subject to rent control laws,
which could impact the future cash flows of such properties. See "RISK
FACTORS--Risks Associated with Lending on Income Producing Properties."
CRIMINAL FORFEITURES
Various federal and state laws (collectively, the "Forfeiture Laws")
provide for the civil or criminal forfeiture of certain property (including real
estate) used or intended to be used to commit or facilitate the commission of a
violation of certain laws (typically criminal laws), or purchased with the
proceeds of such violations. Even though the Forfeiture Laws were originally
intended as tools to fight organized crime and drug related crimes, the current
climate appears to be to expand the scope of such laws. Certain of the
Forfeiture Laws (i.e., the Racketeer Influenced and Corrupt Organizations law
and the Comprehensive Crime Control Act of 1984) provide for notice, opportunity
to be heard and for certain defenses for "innocent lienholders." However, given
the uncertain scope of the Forfeiture Laws and their relationship to existing
constitutional protections afforded property owners, no assurance can be made
that enforcement of a Forfeiture Law with respect to any Mortgaged Property
would not deprive the Trust Fund of its security for the related Mortgage Loan.
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AMERICANS WITH DISABILITIES ACT
Under Title III of the Americans with Disabilities Act of 1990 and rules
promulgated thereunder (collectively, the "ADA"), in order to protect
individuals with disabilities, public accommodations (such as hotels,
restaurants, shopping centers, hospitals, schools and social service center
establishments) must remove structural, architectural and communication barriers
from existing places of public accommodation to the extent "readily achievable."
In addition, under the ADA, alterations to a place of public accommodation or a
commercial facility are to be made so that, to the maximum extent feasible, such
altered portions are readily accessible to and usable by disabled individuals.
The "readily achievable" standard takes into account, among other factors, the
financial resources of the affected site, owner, landlord or other applicable
person. In addition to imposing a possible financial burden on the mortgagor in
its capacity as owner or landlord, the ADA may also impose such requirements on
a foreclosing mortgagee who succeeds to the interest of the mortgagor as owner
or landlord. Furthermore, since the "readily achievable" standard may vary
depending on the financial condition of the owner or landlord, a foreclosing
mortgagee who is financially more capable than the mortgagor of complying with
the requirements of the ADA may be subject to more stringent requirements than
those to which the mortgagor is subject.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general discussion of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of the
Certificates. This discussion was prepared by Morrison & Hecker L.L.P., counsel
to the Depositor ("Counsel") and, to the extent it expresses opinions or
conclusions as to federal income tax law, represents the opinion of Counsel as
to such matters. The discussion below is based upon the Internal Revenue Code of
1986, as amended (the "Code"), the regulations promulgated thereunder,
including, where applicable, proposed regulations, and the administrative
rulings and court decisions all as in effect and existing on the date hereof
and, all of which are subject to change, possibly on a retroactive basis, or
possible differing interpretations. This discussion is directed primarily to
investors who will hold Certificates as "capital assets" (generally, property
held for investment) within the meaning of Section 1221 of the Code. The
discussion below does not purport to address all federal income tax consequences
that may be applicable to particular categories or classes of investors some of
which (such as banks, insurance companies and foreign investors) may be subject
to special rules under the federal income tax laws. In addition to the federal
income tax consequences described herein, potential investors should consider
the state and local tax consequences, if any, of the purchase, ownership and
disposition of the Certificates. See "STATE TAX CONSIDERATIONS."
Certificateholders are advised to consult their own tax advisors concerning the
federal, state, local or other tax consequences to them of the purchase,
ownership and disposition of the Certificatesoffered hereunder.
Taxpayers and preparers of tax returns (including those filed by any REMIC
or other issuer) should be aware that under applicable Treasury regulations a
provider of advice on specific issues of law is not considered an income tax
return preparer unless the advice (i) is given with respect to events that have
occurred at the time the advice is rendered and is not given with respect to the
consequences of contemplated actions, and (ii) is directly relevant to the
determination of an entry on a tax return. Accordingly, taxpayers should consult
their own tax advisors and tax return preparers regarding the preparation of any
item on a tax return, even where the anticipated tax treatment has been
discussed herein.
The Prospectus Supplement for each series of Certificates will indicate
whether a REMIC election (or elections) will be made for the related Trust and,
if such an election is to be made, will identify all "regular interests" and
"residual interests" in the REMIC. The applicable Prospectus Supplement will
also specify if a REMIC election will not be made for a portion of the Trust
Fund. If so specified, such portion may be treated as a grantor trust for
federal income tax purposes. See "--Federal Income Tax Consequences For
Certificates As To Which No REMIC Election Is Made." For purposes of this tax
discussion, references to a "Certificateholder" or a "holder" are to the
beneficial owner of a Certificate.
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FEDERAL INCOME TAX CONSEQUENCES
FOR REMIC CERTIFICATES
GENERAL
The following discussion addresses securities ("REMIC Certificates")
representing interests in a Trust, or a portion thereof, which the Trustee will
covenant to elect to have treated as a REMIC under Sections 860A through 860G
(the "REMIC Provisions") of the Code.
An election to be treated as a REMIC for federal income tax purposes may be
made for a Trust Fund relating to a Series of Certificates. Such an election
will generally be made if the related Trust Fund would not qualify as a grantor
trust under subpart E, Part I of Subchapter J of the Code. In such a case,
Morrison & Hecker L.L.P., counsel to the Depositor, will deliver its opinion to
the effect that the Trust Fund issuing Certificates of that Series will be
treated as one or more REMICs for federal income tax purposes provided that the
provisions of the applicable Agreement are complied with and the statutory and
regulatory requirements concerning REMICs are satisfied, and the Certificates
offered thereby will be considered to be "Regular Interests" or "Residual
Interests" in the REMICs, as specified in the related Prospectus Supplement.
The following discussion is based in part upon the rules governing original
issue discount that are set forth in Sections 1271-1273 and 1275 of the Code and
in the Treasury regulations issued thereunder (the "OID Regulations"), and in
part upon the REMIC Provisions and the Treasury regulations issued thereunder
(the "REMIC Regulations"). The OID Regulations, which are effective with respect
to debt instruments issued on or after April 4, 1994, do not adequately address
certain issues relevant to, and in some instances provide that they are not
applicable to, securities such as the Certificates.
QUALIFICATION AS A REMIC
In order for the Trust Fund to qualify as a REMIC, there must be ongoing
compliance on the part of the Trust Fund with the requirements set forth in the
Code. The Trust Fund must fulfill an asset test, which requires that no more
than a de minimus portion of its assets, as of the close of the third calendar
month beginning after the "Startup Day" (which for purposes of this discussion
is the date of issuance of the Certificates) and at all times thereafter, may
consist of assets other than "qualified mortgages" and "permitted investments."
The REMIC Regulations provide a "safe harbor" pursuant to which the de minimus
requirement is met if at all times the aggregate adjusted basis of the
nonqualified assets is less than one percent of the aggregate adjusted basis of
all the REMIC's assets. An entity that fails to meet the safe harbor may
nevertheless demonstrate that it holds no more than a de minimus amount of
nonqualified assets. A REMIC also must provide "reasonable arrangements" to
prevent its residual interest from being held by "disqualified organizations"
and applicable tax information to transferors or agents that violate this
requirement. Accordingly, the Agreement for each Series will contain provisions
to assure that the asset and reasonable arrangements tests will be met at all
times that the Certificates are outstanding. See "--Taxation of Holders of
Residual Certificates--Restrictions on Ownership and Transfer of Residual
Certificates."
A qualified mortgage is any obligation that is principally secured by an
interest in real property and that is either transferred to the REMIC on the
Startup Day or is purchased by the REMIC within a three-month period thereafter
pursuant to a fixed-price contract in effect on the Startup Day. Qualified
mortgages include whole mortgage loans, such as the Mortgage Loans, provided, in
general, (i) the fair market value of the real property security (including
buildings and structural components thereof) is at least 80% of the principal
balance of the Mortgage Loan either at origination or as of the Startup Day (an
original loan-to-value ratio of not more than 125% with respect to the real
property security); or (ii) substantially all the proceeds of the Mortgage Loan
or the underlying mortgage loan were used to acquire, improve or protect an
interest in real property that, at the origination date, was the only security
for the Mortgage Loan or underlying mortgage loan. If the Mortgage Loan has been
substantially modified other than in connection with a default or reasonably
foreseeable default, it must meet the loan-to-value test in (i) of the preceding
sentence as of the date of the last such modification or at closing. A qualified
mortgage includes a qualified replacement mortgage, which is any property that
would have been treated as a qualified mortgage if it were transferred to the
REMIC pool on the Startup Day and that is received either (i) in exchange for
any qualified
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mortgage within a three-month period thereafter or (ii) in exchange for a
"defective obligation" within a two-year period thereafter. A "defective
obligation" includes (i) a mortgage in default or as to which default is
reasonably foreseeable, (ii) a mortgage as to which a customary representation
or warranty made at the time of transfer to the REMIC pool has been breached,
(iii) a mortgage that was fraudulently procured by the mortgagor, and (iv) a
mortgage that was not in fact principally secured by real property (but only if
such mortgage is disposed of within 90 days of discovery). A Mortgage Loan that
is "defective" as described in clause (iv) that is not sold or, if within two
years of the Startup Day, exchanged, within 90 days of discovery, ceases to be a
qualified mortgage after such 90-day period. For purposes of this opinion, where
the applicable Prospectus Supplement provides for a fixed retained yield with
respect to the Mortgaged Properties underlying a Series of Certificates,
references to the Mortgaged Properties will be deemed to refer to that portion
of the Mortgaged Properties held by the Trust Fund which does not include the
fixed retained yield.
Permitted investments include cash flow investments, qualified reserve
assets and foreclosure property. A cash flow investment is any investment,
earning a return in the nature of interest, of amounts received on or with
respect to qualified mortgages for a temporary period, not exceed 13 months,
until the next scheduled distribution to holders of interests in the REMIC.
Foreclosure property is real property acquired by the REMIC in connection with
default or imminent default of a qualified mortgage and generally held for not
more than three years after the year in which such property is acquired, with
extensions granted by the Internal Revenue Service ("IRS").
In addition to the foregoing requirements, the various interests in a REMIC
also must meet certain requirements. All of the interests in a REMIC must be
either of the following: (i) one or more Classes of regular interests or (ii) a
single Class of residual interests on which distributions, if any, are made pro
rata. A regular interest is an interest in a REMIC that is issued on the Startup
Day with fixed terms, is designated as a regular interest, and unconditionally
entitles the holder to receive a specified principal amount (or other similar
amount), and provides that interest payments (or other similar amounts), if any,
at or before maturity either are payable based on a fixed rate or a qualified
variable rate or consist of a specified, nonvarying portion of the interest
payments on some or all of the qualified mortgages. A qualified variable rate
includes a rate based on a weighted average of rates on some or all of the
REMIC's qualified mortgages, which in turn bear a fixed rate or qualified
variable rate. A residual interestis an interest in a REMIC other than a regular
interest that is issued on the Startup Day and is designated as aresidual
interest.
Unless otherwise stated in the related Prospectus Supplement, and to the
extent permitted by then applicable laws, any prohibited transactions tax,
contributions tax, tax on "net income from foreclosure property" or state or
local income or franchise tax that may be imposed on the REMIC will be borne by
the related Master Servicer, Special Servicer or Trustee in any case out of its
own funds, provided that such person has sufficient assets to do so, and
provided further that such tax arises out of a breach of such person's
obligations under the related Agreement and in respect of compliance with
applicable laws and regulations. Any such tax not borne by a Master Servicer,
Special Servicer or Trustee will be charged against the related Trust Fund
resulting in a reduction in amounts payable to holders of the related REMIC
Certificates.
If an entity electing to be treated as a REMIC fails to comply with one or
more of the ongoing requirements of the Code for such status during any taxable
year, the Code provides that the entity will not be treated as a REMIC for such
year and thereafter. In that event, such entity may be taxable as a corporation
under Treasury regulations, and the related Certificates may not be accorded the
status or given the tax treatment described below. Section 860D(b)(2) of the
Code provides that if (i) an entity ceases to be a REMIC, (ii) the Secretary of
the Treasury determines that such cessation was inadvertent, (iii) no later than
a reasonable time after the discovery of the event resulting in such cessation,
steps are taken so that such entity is once more a REMIC, and (iv) such entity,
and each person holding an interest in such entity at any time during a period
specified, agrees to make such adjustments as may be required by the Secretary
of the Treasury with respect to such period, then, notwithstanding such
terminating event, the entity will be treated as continuing to be a REMIC or
such cessation will be disregarded, whichever the Secretary of the Treasury
determines to be appropriate. Although the Code authorizes the Treasury
Department to issue regulations providing relief in the event of an inadvertent
termination of REMIC status, no such regulations have been issued. Any such
relief, moreover, may be accompanied by sanctions, such as the imposition of a
corporate tax on all or a portion of the Trust Fund's income for the period in
which the requirements for such status are not satisfied.
Status of REMIC Certificates. If a REMIC election is made with respect to a
Series of Certificates, (i) Certificates held by a domestic building and loan
association will constitute "a regular or a residual interest in a
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REMIC" within the meaning of Code Section 7701(a)(19)(C)(xi) (assuming that at
least 95% of the REMIC's assets consist of cash, government securities, "loans
secured by an interest in real property" and other types of assets described in
Code Section 7701(a)(19)(C)(i)-(x) (except that if the underlying mortgage loans
are not residential mortgage loans, the Certificates will not so qualify)); and
(ii) Certificates held by a real estate investment trust will constitute "real
estate assets" within the meaning of Code Section 856(c)(4)(A), and income with
respect to the Certificates will be considered "interest on obligations secured
by mortgages on real property or on interests in real property" within the
meaning of Code Section 856(c)(3)(B) (assuming, for both purposes, that at least
95% of the REMIC's assets are qualifying assets). If less than 95% of the
REMIC's assets consist of assets described in (i) or (ii) above, then a
Certificate will qualify for the corresponding tax treatment in (i) or (ii) in
the proportion that such REMIC assets are qualifying assets. The determination
as to the percentage of the REMIC's assets that constitute assets described in
the foregoing sections of the Code will be made with respect to each calendar
quarter based onthe average adjusted basis of each category of the assets held
by the REMIC during such calendar quarter. TheTrustee will report those
determinations to Certificateholders in the manner and at the times required by
applicable Treasury regulations.
Holders of Certificates should be aware that (i) Certificates held by a
regulated investment company will not constitute "government securities" within
the meaning of Code Section 851(b)(4)(A)(i); and Certificates held by a real
estate investment trust will not constitute "Government Securities" within the
meaning of Code Section 856(c)(4)(A). REMIC Certificates held by certain
financial institutions will constitute an "evidence of indebtedness" within the
meaning of Code Section 582(c)(i).
It is possible that various reserves or funds will reduce the proportion of
REMIC assets that qualify under the standards described above.
Tiered REMIC Structures. For certain Series of Certificates, two or more
separate elections may be made to treat designated portions of the related Trust
Fund as REMICs ("Tiered REMICs") for federal income tax purposes. Upon the
issuance of any such Series of Certificates, counsel to the Depositor will
deliver its opinion generally to the effect that, assuming compliance with all
provisions of the related Agreement, the Tiered REMICs will each qualify as a
REMIC and the Certificates issued by the Tiered REMICs will be considered to
evidence ownership of Regular Certificates or Residual Certificates in the
related REMIC within the meaning of the REMIC Regulations of the Code.
The Tiered REMICs will be treated as one REMIC solely for purposes of
determining whether the Certificates will be "real estate assets" within the
meaning of Section 856(c)(4)(A) of the Code and "loans secured by an interest in
real property" under Section 7701(a)(19)(C) of the Code, and whether the income
on such Certificates is interest described in Section 856(c)(3)(B) of the Code.
TAXATION OF REMIC REGULAR CERTIFICATES
Interest and Acquisition Discount. Certificates representing Regular
Interests in a REMIC ("Regular Certificates") are generally taxable to
Certificateholders in the same manner as evidences of indebtedness issued by the
REMIC. Stated interest on the Regular Certificates will be taxable as ordinary
income and taken into account using the accrual method of accounting, regardless
of the Certificateholder's normal accounting method. Reportswill be made
annually to the IRS and to holders of Regular Certificates that are not excepted
from thereporting requirements regarding amounts treated as interest (including
accrual of original issue discount) onRegular Certificates.
Certificates on which interest is not paid currently ("Compound Interest
Certificates") will, and certain of the other Certificates constituting Regular
Interests may be issued with original issue discount ("OID") within the meaning
of Code Section 1273. Rules governing OID are set forth in Sections 1271-1275 of
the Code and the OID Regulations. Although Section 1272(a)(6) of the Code
contains specific provisions governing the calculation of OID on securities,
such as the Certificates, on which principal is required to be prepaid based on
prepayments of the underlying assets, regulations interpreting those provisions
have not yet been issued. Further, the application of the OID Regulations to the
Regular Certificates remains unclear in other respects because the OID
Regulations either do not address, or are subject to varying interpretations
with regard to, several relevant issues.
In general, OID, if any, will equal the difference between the stated
redemption price at maturity of a Regular Certificate and its issue price. The
issue price of a Regular Certificate of a Class will generally be the initial
offering price at which a substantial amount of the Certificates in the Class is
sold to the public, and will be treated by the
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Depositor as including, in addition, the amount paid by the Certificateholder
for accrued interest that relates to a period prior to the issue date of such
Regular Certificate. The stated redemption price at maturity is the sum of all
payments on the Certificate other than any "qualified stated interest payments."
A holder of a Regular Certificate must include OID in gross income as
ordinary income as it accrues under a method taking into account an economic
accrual of the discount. In general, OID must be included in income in advance
of the receipt of the cash representing that income. The amount of OID on a
Regular Certificate will be considered to be zero if it is less than a de
minimus amount determined under the Code.
Under this de minimus rule, OID on a Regular Certificate will be considered
to be zero if such OID is less than .25% of the stated redemption price at
maturity of the Regular Certificate multiplied by the weighted average maturity
of the Regular Certificate. Although not specifically addressed by regulations,
it is assumed that the schedule of distributions used in determining weighted
average maturity should be based on the assumed rate of prepayment of the
Mortgage Loans and the anticipated reinvestment rate, if any relating to the
Regular Certificates (the "Prepayment Assumption"). The Prepayment Assumption
with respect to a Series of Regular Certificates will be set forth in the
related Prospectus Supplement. The holder of a Regular Certificate includes any
de minimus OID in income pro rata as stated principal payments are received.
If the interval between the issue date and the first Distribution Date on a
Regular Certificate is longer than the interval between subsequent Distribution
Dates (and interest paid on the first Distribution Date is less than would have
been earned if the stated interest rate were applied to outstanding principal
during each day in such interval), the stated interest distributions on such
Regular Certificate technically do not constitute qualified stated interest. In
such case a special rule, applying solely for the purpose of determining whether
OID is de minimus, provides that the interest shortfall for the long first
period (i.e., the interest that would have been earned if interest had been paid
on the first Distribution Date for each day the Regular Certificate was
outstanding) is treated as made at a fixed rate if the value of the rate on
which the payment is based is adjusted in a reasonable manner to take into
account the length of the interval. Regular Certificate holders should consult
their own tax advisors to determine the issue price and stated redemption price
at maturity of a Regular Certificate.
Qualified stated interest is interest that is unconditionally payable at
least annually during the entire term of the Certificate at either (a) a single
fixed rate that appropriately takes into account the length of the interval
between payments or (b) the current values of (i) a single "qualified floating
rate" or (ii) a single "objective rate" (each a "Single Variable Rate"). A
"current value" is the value of a variable rate on any day that is no earlier
than three months prior to the first day on which that value is in effect and no
later than one year following that day. A qualified floating rate is a rate the
variations in which reasonably can be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Regular Certificate is denominated (e.g., LIBOR). Such a rate remains qualified
even though it is multiplied by a fixed, positive multiple not exceeding 1.35,
increased or decreased by a fixed rate, or both. Certain combinations of rates
constitute a single qualified floating rate, including (a) interest stated at a
fixed rate for an initial period of less than one year followed by a qualified
floating rate, if the value of the qualified floating rate on the issue date is
intended to approximate the fixed rate, and (b) two or more qualified floating
rates that can reasonably be expected to have approximately the same values
throughout the term of the Regular Certificate. A combination of such rates is
conclusively presumed to be a single qualified floating rate if the values of
all rates on the issue date are within .25 percentage points of each other. A
variable rate that is subject to an interest rate cap, floor, "governor" or
similar restriction on rate adjustment may be a qualified floating rate only if
such restriction is fixed throughout the term of the instrument, or is not
reasonably expected as of the issue date to cause the yield on the debt
instrument to differ significantly from the expected yield absent the
restriction. An objective rate is a rate, other than a qualified floating rate,
determined by a single formula that is fixed throughout the term of the Regular
Certificate and is based on (i) one or more qualified floating rates (including
a multiple or inverse of a qualified floating rate); (ii) one or more rates each
of which would be a qualified floating rate for a debt instrument denominated in
a foreign currency; (iii) the yield or the changes in the price of one or more
items of "actively traded" personal property other than stock or debt of the
issuer or a related party, (iv) a combination of rates described in (i), (ii) or
(iii); or (v) other rates designated by the IRS in the Internal Revenue
Bulletin. Each rate described in (i) through (v) above will not be considered an
objective rate, however, if it is reasonably expected that the average value of
the rate during the first half of the Regular Certificate's term will differ
significantly from the average value of the rate during the final half of its
term. The rules for determining the qualified stated interest payable with
respect to certain variable rate Regular Certificates not bearing interest at a
Single Variable Rate are discussed below under
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"--Variable Rate Regular Certificates." In the case of the Compound Interest
Certificates, Interest Weighted Certificates (as defined below) and certain of
the other Regular Certificates, none of the payments under the instrument will
be considered qualified stated interest, and thus the aggregate amount of all
payments will be included in the stated redemption price at maturity. Because
Certificateholders are entitled to receive interest only to the extent that
payments are made on the Mortgage Loans, interest might not be considered to be
"unconditionally payable."
The holder of a Regular Certificate issued with OID must include in gross
income, for all days during its taxable year on which it holds such Regular
Certificate, the sum of the "daily portions" of such OID. Under Code Section
1272(a)(6), the amount of OID to be included in income by a holder of a debt
instrument, such as a Regular Certificate, that is subject to acceleration due
to prepayments on other debt obligations securing such instrument, is computed
by taking into account the anticipated rate of prepayments assumed in pricing
the debt instrument (the "Prepayment Assumption"). The IRS has not yet issued
regulations that address Prepayment Assumptions; however, the Conference
Committee Report to the Tax Reform Act of 1986 indicates that the assumed rate
of prepayments used in pricing can be used for purposes of OID calculations if
such assumption is reasonable for comparable transactions. The amount of OID
includible in income by a Certificateholder will be computed by allocating to
each day during a taxable year a pro-rata portion of the OID that accrued during
the relevant accrual period. The amount of OID that will accrue during an
accrual period (generally the period between interest payments or compounding
dates) is the excess (if any) of (i) the sum of (a) the present value of all
payments remaining to be made on the Regular Certificate as of the close of the
accrual period and (b) the payments during the accrual period of amounts
included in the stated redemption price of the Regular Certificate, over (ii)
the "adjusted issue price" of the Regular Certificate at the beginning of the
accrual period. The adjusted issue price of a Regular Certificate is the sum of
its issue price plus prior accruals of OID, if any, reduced by the total
payments, other than qualified stated interest payments, made with respect to
such Regular Certificate in all prior periods. Code Section 1272(a)(6) requires
the present value of the remaining payments to be determined on the basis of
three factors: (i) the original yield to maturity of the Regular Certificate
(determined on the basis of compounding at the end of each accrual period and
properly adjusted for the length of the accrual period); (ii) events (including
actual prepayments) that have occurred before the end of the accrual period; and
(iii) the assumption that the remaining payments (including actual prepayments)
will be made in accordance with the original Prepayment Assumption. The effect
of this method will be to increase (or decrease) the portion of OID required to
be included in income by a Certificateholder taking into account whether
prepayments with respect to the Mortgage Loans are accruing faster (slower) than
the Prepayment Assumption. Although OID will be reported to Certificateholders
based on the Prepayment Assumption, there is no assurance that Mortgage Loans
will be prepaid at that rate and no representation is made to Certificateholders
that Mortgage Loans will be prepaid at that rate or at any other rate.
A subsequent holder of a Regular Certificate will also be required to
include OID in gross income. If such a holder purchases a Regular Certificate
for an amount that exceeds its adjusted issue price the holder will be entitled
(as will an initial holder who pays more than a Regular Certificate's issue
price) to offset such OID by comparable economic accruals of portions of such
excess.
Certain Classes of Certificates may represent more than one Class of
Regular Interests. The Trustee intends, based on the OID Regulations, to
calculate OID on such Certificates as if, solely for the purposes of computing
OID, the separate Regular Interests were a single debt instrument.
Interest Weighted Certificates. It is not clear how income should be
accrued with respect to Regular Certificates the payments on which consist
solely or primarily of a specified portion of the interest payments on qualified
mortgages held by the REMIC ("Interest Weighted Certificate"). The Depositor
intends to take the position that all of the income derived from an Interest
Weighted Certificate should be treated as OID and that the amount and rate of
accrual of such OID should be calculated by treating the Interest Weighted
Certificate as a Compound Interest Certificate. However, the IRS could assert
that income derived from an Interest Weighted Certificate should be calculated
as if the Interest Weighted Certificate were a Certificate purchased at a
premium equal to the excess of the price paid by such Certificateholder for the
Interest Weighted Certificate over its stated principal amount, if any. Under
this approach, a Certificateholder would be entitled to amortize such premium
only if it has in effect an election under Section 171 of the Code with respect
to all taxable debt instruments held by such holder, as described below.
Alternatively, the IRS could assert that the Interest Weighted Certificate
should be taxable under the final regulations under Section 1275 governing debt
issued with contingent principal payments, in which case a Certificateholder
might recognize income at a slower rate than if the Interest Weighted
Certificate were treated as a Compound Interest
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Certificate. If the contingent payment rules were applicable to Interest
Weighted Certificates (which, as 1272(a)(6) instruments, are specifically
excluded from the scope of the contingent payment regulations) income on certain
Certificates would be computed under the "noncontingent bond method." The
noncontingent bond method would generally apply in a manner similar to the
method prescribed by the Code under Section 1272(a)(6). See "--Variable Rate
Regular Certificates." Because of uncertainty in the law, Counsel to the
Depositor will not render any opinion on these issues.
Variable Rate Regular Certificates. Regular Certificates bearing interest
at one or more variable rates are subject to certain special rules. The
qualified stated interest payable with respect to certain variable rate debt
instruments not bearing interest at a Single Variable Rate generally is
determined under the OID Regulations by converting such instruments into fixed
rate debt instruments. Instruments qualifying for such treatment generally
include those providing for stated interest at (i) more than one qualified
floating rates or (ii) a single fixed rate and (a) one or more qualified
floating rates or (b) a single "qualified inverse floating rate" (each, a
"Multiple Variable Rate"). A floating rate is a qualified floating rate if
variations in the rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds, where such rate is subject to a
fixed multiple that is greater than 0.65, but not more than 1.35. Such rate may
also be increased or decreased by a fixed spread or subject to a fixed cap or
floor, or a cap or floor that is not reasonably expected as of the issue date to
affect the yield of the instrument significantly. An objective rate (other than
a qualified floating rate) is a rate that is determined using a single fixed
formula and that is based on objective financial or economic information,
provided that such information is not (i) within the control of the issuer or a
related party or (ii) unique to the circumstances of the issuer or a related
party. A qualified inverse floating rate is an objective rate equal to a fixed
rate reduced by a qualified floating rate, the variations in which can
reasonably be expected to inversely reflect contemporaneous variations in the
cost of newly borrowed funds (disregarding permissible rate caps, floors,
governors and similar restrictions such as aredescribed above).
Purchasers of Regular Certificates bearing a variable rate of interest
should be aware that there is uncertainty concerning the application of Code
Section 1272(a)(6) and the OID Regulations to such Certificates. In the absence
of other authority, the Depositor intends to be guided by the provisions of the
OID Regulations governing variable rate debt instruments in adapting the
provisions of Code Section 1272(a)(6) to such Certificates for the purpose of
preparing tax reports furnished to the IRS and Certificateholders. In that
regard, in determining OID with respect to Regular Certificates bearing interest
at a Single Variable Rate, (a) all stated interest with respect to a Regular
Certificate is treated as qualified stated interest and (b) the amount and
accrual of OID, if any, is determined under the OID rules applicable to fixed
rate debt instruments discussed above by assuming that the Single Variable Rate
is a fixed rate equal to (i) in the case of a qualified floating rate or
qualified inverse floating rate, the issue date value of the rate or (ii) in the
case of any other objective rate, a fixed rate that reflects the yield that is
reasonably expected for the Regular Certificate. Interest and OID attributable
to the Regular Certificates bearing interest at a Multiple Variable Rate
similarly will be taken into account under a methodology that converts the
Certificate into an equivalent fixed rate debt instrument. However, in
determining the amount and accrual of OID, the assumed fixed rates are (a) for
each qualified floating rate, the value of each such rate as of the issue date
(with appropriate adjustment for any differences in intervals between interest
adjustment dates); (b) for a qualified inverse floating rate, the value of the
rate as of the issue date; and (c) for any other objective rate, the fixed rate
that reflects the yield that is reasonably expected for the Certificate. In the
case of a Certificate that provides for stated interest at a fixed rate in one
or more accrual periods and either one or more qualified floating rates or a
qualified inverse floating rate in other accrual periods, the fixed rate is
initially converted into a qualified floating rate (or a qualified inverse
floating rate, if the Certificate provides for a qualified inverse floating
rate). The qualified floating rate or qualified inverse floating rate that
replaces the fixed rate must be such that the fair market value of the Regular
Certificate as of its issue date is approximately the same as the fair market
value of an otherwise identical debt-instrument that provides for either the
qualified floating rate or the qualified inverse floating rate. Subsequent to
converting the fixed rate into either a qualified floating rate or a qualified
inverse floating rate, the Regular Certificate is then treated as converted into
an equivalent fixed rate debt instrument in the manner described above. If the
interest paid or accrued with respect to a Single Variable Rate or Multiple
Variable Rate Certificate during an accrual period differs from the assumed
fixed interest rate, such difference will be an adjustment (to interest or OID,
as applicable) to the Certificateholder's taxable income for the taxable period
or periods to which such difference relates.
Purchasers of Certificates bearing a variable rate of interest should be
aware that the provisions of the OID Regulations governing variable rate debt
instruments are limited in scope and may not apply to some Regular
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Certificates having variable rates. If such a Certificate is not subject to the
provisions of the OID Regulations governing variable rate debt instruments, it
may be subject to the provisions of the OID Regulations applicable to debt
instruments having contingent payments. Prospective purchasers of variable rate
Regular Certificates should consult their tax advisers concerning the
appropriate tax treatment of such Certificates.
Constant Yield Election for Interest. Under the OID Regulations, holders of
Regular Certificates generally may elect to include all accrued interest on a
Regular Certificate in gross income using the constant yield to maturity method.
For purposes of this election, interest includes stated interest, OID, de
minimus OID, market discount, de minimus market discount and unstated interest,
as adjusted by any premium. If a holder of a Regular Certificate makes such an
election and (i) the Regular Certificate has amortizable bond premium, the
holder is deemed to have made an election to amortize bond premium with respect
to all debt instruments having amortizable bond premium that such
Certificateholder owns or acquires or (ii) the Regular Certificate has market
discount, the holder is deemed to have made an election to include market
discount in income currently for all debt instruments having market discount
acquired during the year of the election or thereafter. See "--Market Discount"
and "--Premium." The election to accrue interest, discount and premium on a
constant yield method is irrevocable without the consent of the IRS. A holder of
a Regular Certificate should consult its tax adviser before making this
election.
Market Discount. A purchaser of a Regular Certificate may also be subject
to the market discount rules of Code Section 1276 if the stated redemption price
at maturity (or the revised issue price where OID has accrued on such
Certificate) exceeds the basis of the Certificate in the hands of the purchaser.
Such purchaser generally will be required to recognize accrued market discount
as ordinary income as payments of principal are received on such Regular
Certificate, or upon the sale or exchange of the Regular Certificate. In general
terms, until regulations are promulgated, market discount may be treated as
accruing, at the election of the Certificateholder, either (i) under a constant
yield method, taking into account the Prepayment Assumption, or (ii) in
proportion to accruals of OID (or, if there is no OID, in proportion to accruals
of stated interest) allocated to such period in relation to the sum of such
interest together with the remaining interest as of the end of such period. A
holder of a Regular Certificate having market discount may also be required to
defer a portion of the interest deductions attributable to any indebtedness
incurred or continued to purchase or carry the Regular Certificate. The deferred
portion of such interest expense in any taxable year generally will not exceed
the accrued market discount on the Regular Certificate for such year. Any such
deferred interest expense is, in general, allowed as a deduction not later than
the year in which the related market discount income is recognized or the
Regular Certificate is disposed of. As an alternative to the inclusion of market
discount in income on the foregoing basis, the Certificateholder may elect to
include such market discount in income currently as it accrues on all market
discount instruments acquired by such holder in that taxable year or thereafter,
in which case the interest deferral rule will not apply. Such election will
apply to all taxable debt instruments (including all Regular Interests) held by
the Certificateholder at the beginning of the taxable year in which the election
is made, and to all taxable debt instruments acquired thereafter by such holder,
and will be irrevocable without the consent of the IRS. In Revenue Procedure
92-67, the IRS set forth procedures for taxpayers (1) electing under Code
Section 1278(b) to include market discount in income currently, (2) electing
under rules of Code Section 1276(b) to use a constant interest rate to determine
accrued market discount on a bond where the holder of the bond is required to
determine the amount of accrued market discount at a time prior to the holder's
disposition of the bond, and (3) requesting consent to revoke an election under
Code Section 1278(b). Purchasers who purchase Regular Certificates at a market
discount should consult their tax advisors regarding the elections for
recognition of such discount.
Market discount with respect to a Regular Certificate will be considered to
be zero if such market discount is less than 0.25% of the remaining stated
redemption price at maturity of such Regular Certificate multiplied by the
weighted average maturity of the Regular Certificates (determined as described
above under "--Original Issue Discount") remaining after the date of purchase.
Treasury regulations implementing the market discount rules have not yet been
issued, and therefore investors should consult their own tax advisors regarding
the application of these rules as well as the advisability of making any of the
elections with respect thereto.
Premium. A Certificateholder who purchases a Regular Certificate (other
than an Interest Weighted Certificate, to the extent described above) at a cost
greater than its stated redemption price at maturity, generally will be
considered to have purchased the Certificate at a premium. The Certificateholder
may elect under Code Section 171 to amortize such premium as an offset to
interest income on such Certificate (and not as a separate deduction item) on a
constant yield method. See "--Constant Yield Election for Interest."
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Although no regulations addressing the computation of premium accrual on
collateralized mortgage obligations or Regular Interests have been issued, the
legislative history of the Tax Reform Act of 1986 (the "1986 Act") indicates
that premium is to be accrued in the same manner as market discount.
Accordingly, it appears that the accrual of premium on a Regular Certificate
will be calculated using the Prepayment Assumption. If a Certificateholder makes
an election to amortize premium on a Certificate, such election will apply to
all taxable debt instruments (including all Regular Interests) held by the
holder at the beginning of the taxable year in which the election is made, and
to all taxable debt instruments acquired thereafter by such holder, and will be
irrevocable without the consent of the IRS. Purchasers who pay a premium for
Regular Certificates should consult their tax advisers regarding the election to
amortize premium and the method to be employed.
Final Treasury regulations were issued in December 1997 which address the
amortization of bond premiums (the "Premium Regulations"). The preamble to the
Premium Regulations indicate that they do not apply to Regular Interests in a
REMIC or any pool of debt instruments the yield on which may be affected by
prepayments. The Premium Regulations describe the yield method of amortizing
premium and provide that a bond holder may offset the premium against
corresponding interest income only as that income is taken into account under
the bond holder's method of accounting. For instruments that may be called or
prepaid prior to maturity, a bond holder will be deemed to exercise its option
and an issuer will be deemed to exercise its redemption right in a manner that
maximizes the holder's yield. A holder of a debt instrument may elect to
amortize bond premium under the Premium Regulations for the taxable year
containing the effective date, with the election applying to all the holder's
debt instruments held on the first day of the taxable year. Because the Premium
Regulations are specifically not applicable to Regular Certificates purchasers
who pay a premium for their Regular Certificates should consult their tax
advisors regarding any election to amortize premium and the method to be
employed.
Subordinate Certificates--Effects of Defaults, Delinquencies and Losses. As
described above under "CREDIT ENHANCEMENT --Subordinate Certificates," certain
Series of Certificates may contain one or more Classes of Subordinate
Certificates. Holders of Subordinate Certificates will be required to accrue
interest and OID with respect to such Certificates on the accrual method without
giving effect to delays and reductions in distributions attributable to defaults
or delinquencies on any Mortgage Loans, except possibly to the extent that it
can be established that such amounts are uncollectible. As a result, the amount
of income reported by a holder of a Subordinate Certificate in any period could
significantly exceed the amount of cash distributed to such holder in that
period.
Although not entirely clear, and to the extent the bad debt rules of
Section 166 of the Code apply, it appears a Certificateholder that is a
corporation or otherwise holds such Certificates in connection with a trade or
business should generally be allowed to deduct as an ordinary loss any loss
sustained on account of partial or complete worthlessness of a Regular
Certificate. Although similarly unclear, a noncorporate Certificateholder
generally should be allowed to deduct as a short-term capital loss any loss
sustained on account of complete worthlessness of a Regular Certificate. A
noncorporate Certificateholder alternatively, depending on the factual
circumstances, may be allowed a capital loss deduction as the principal balance
of a Subordinate Certificate is reduced by reason of realized losses resulting
from liquidated Mortgage Loans; however, the IRS could contend that a
noncorporate Certificateholder should be allowed such losses only after all
Mortgage Loans in the Trust Fund have been liquidated or the Subordinate
Certificates otherwise have been retired. Special rules are applicable to banks
and thrift institutions, including rules regarding reserves for bad debts.
Holders of Subordinate Certificates should consult their own tax advisers
regarding the appropriate timing, character and amount of any loss sustained
with respect to Subordinate Certificates.
Allocation of Expenses in a Single Class REMIC. As a general rule, all of
the servicing, administrative and other non-interest expenses of a REMIC will be
taken into account by holders of the Residual Certificates. In the case of a
single class REMIC, however, the expenses and a matching amount of additional
income will be allocated, under temporary Treasury regulations, among the
holders of REMIC Regular Certificates and the holders of REMIC Residual
Certificates on a daily basis in proportion to the relative amounts of income
accruing to each Certificateholder on that day. In general terms, a single class
REMIC is one that either (i) would qualify, under existing Treasury regulations,
as a grantor trust if it were not a REMIC (treating all interests as ownership
interests, even if they would be classified as debt for federal income tax
purposes) or (ii) is similar to such a trust and is structured with the
principal purpose of avoiding the single class REMIC rules. Unless otherwise
stated in the applicable Prospectus Supplement, the expenses of the REMIC will
be allocated to holders of the related REMIC Residual Certificates in their
entirety and not to holders of the related REMIC Regular Certificates. If the
REMIC is
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considered to be a "single-class REMIC" and a Regular Interest Certificateholder
is an individual or a "pass-through interest holder" (including certain
pass-through entities but not including real estate investment trusts), such
expenses will be deductible only to the extent that such expenses, plus other
"miscellaneous itemized deductions" of the Certificateholder, exceed 2% of such
Certificateholder's adjusted gross income. In addition, Code Section 68 provides
that the amount of itemized deductions otherwise allowable for the taxable year
for an individual whose adjusted gross income exceeds the applicable amount (for
1998, estimated to be $124,500, or $62,250, in the case of a separate return of
a married individual within the meaning of Code Section 7703, which amounts will
be adjusted annually for inflation) (the "Applicable Amount") will be reduced by
the lesser of (i) 3% of the excess of adjusted gross income over the Applicable
Amount or (ii) 80% of the amount of itemized deductions otherwise allowable for
such taxable year. The partial or total disallowance of these deductions may
have a significant adverse impact on the yield of the Regular Certificate to
such a holder.
Sale or Exchange of Regular Certificates. A Regular Interest
Certificateholder's tax basis in its Regular Certificate is the price such
holder pays for a Certificate, plus amounts of OID or market discount included
in income and reduced by any payments received (other than qualified stated
interest payments) and any amortized premium. Gain or loss recognized on a sale,
exchange or redemption of a Regular Certificate, measured by the difference
between the amount realized and the Regular Certificate's basis as so adjusted,
will generally be capital gain or loss, assuming that the Regular Certificate is
held as a capital asset. If, however, a Certificateholder is a bank, thrift or
similar institution described in Section 582 of the Code, gain or loss realized
on the sale or exchange of a Certificate will be taxable as ordinary income or
loss.
Gain from the disposition of a Regular Certificate that might otherwise be
capital gain will be treated as ordinary income to the extent of the excess, if
any, of (i) the amount that would have been includible in the holder's income if
the yield on such Regular Certificate had equaled 110% of the applicable federal
rate (as defined in Code Section 1274(d)) as of the beginning of such holder's
holding period, over (ii) the amount of ordinary income actually recognized by
the holder with respect to such Regular Certificate prior to its sale. In
addition, all or a portion of any gain from the sale of a Certificate that might
otherwise be capital gain may be treated as ordinary income (i) if such
Certificate is held as part of a "Conversion Transaction" as defined in Code
Section 1258(c), in an amount equal to the interest that would have accrued on
the holder's net investment in the conversion transaction at 120% of the
appropriate applicable federal rate under Code Section 1274(d) in effect at the
time the taxpayer entered into the transaction reduced by any amount treated as
ordinary income with respect to any prior disposition of property that was held
as part of such transaction, or (ii) if, in the case of a noncorporate taxpayer,
an election is made under Code Section 163(d)(4) to have net capital gains taxed
as investment income at ordinary income rates for purposes of the rule that
limits the deduction of interest on indebtedness incurred to purchase or carry
property held for investment to a taxpayer's net investment income. A sale of a
REMIC Regular Certificate will be part of a "conversion transaction" if
substantially all of the holder's expected return is attributable to the time
value of the holder's net investment, and (i) the holder entered the contract to
sell the REMIC Regular Certificate substantially contemporaneously with
acquiring the REMIC Regular Certificate, (ii) the REMIC Regular Certificate is
part of a straddle, (iii) the REMIC Regular Certificate is marketed or sold as
producing capital gains, or (iv) other transactions to be specified in Treasury
regulations that have not yet been issued.
As of date of this Prospectus the maximum marginal tax rate on ordinary
income for individual taxpayers is 39.6%. The maximum marginal tax rate on
long-term capital gains for non-corporate taxpayers is 20%. The maximum marginal
tax rate on both ordinary income and long-term capital gains of corporate
taxpayers is 35% subject to certain higher marginal tax rates which phase out
the benefits of the guaranteed corporate tax rate structure. Net capital gain
realized on a capital asset which is sold after being held by 12 months or less
is subject to tax at ordinary income tax rates. Any gain realized on a capital
asset which is sold after being held for more than 12 months, is subject to a
maximum tax rate of 20%, assuming that the taxpayer is otherwise in a rate
bracket equal to or greater than 20%.
TAXATION OF THE REMIC
General. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC is not generally subject to entity-level taxation. Rather,
except in the case of a "Single-Class REMIC," the taxable income or net loss of
a REMIC is taken into account by the holders of Residual Interests. The Regular
Interests are generally treated as debt of the REMIC and taxed accordingly. See
"--Taxation of REMIC Regular Certificates" above.
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Calculation of REMIC Income. The taxable income or net loss of a REMIC is
determined under an accrual method of accounting and in the same manner as in
the case of an individual having the calendar year as a taxable year, with
certain adjustments as required under Code Section 860C(b). The "daily portions"
of REMIC taxable income or net loss will be includible as ordinary income or
loss in determining the federal taxable income of holders of Residual
Certificates. See "--Taxation of Holders of Residual Certificates." In general,
the taxable income or net loss will be the difference between (i) the gross
income produced by the REMIC's assets, including stated interest and any OID or
market discount on loans and other assets, plus any cancellation of indebtedness
income due to the allocation of realized losses to the Regular Certificates, and
(ii) deductions, including stated interest and OID accrued on Regular
Certificates, amortization of any premium with respect to loans and servicing
fees and other expenses of the REMIC.
For purposes of computing its taxable income or net loss, the REMIC should
have an initial aggregate tax basis in its assets equal to the aggregate fair
market value of the Regular Interests and the Residual Interests on the "Startup
Day" (generally, the day that the interests are issued). That aggregate basis
will be allocated among the assets of the REMIC in proportion to their
respective fair market values.
The OID provisions of the Code apply to loans to individuals originated on
or after March 2, 1984, and the market discount provisions apply to all loans.
Subject to possible application of the de minimus rules, the method of accrual
by the REMIC of OID or market discount income on such loans will be equivalent
to the method under which holders of Regular Certificates accrue OID (i.e.,
under the constant yield method taking into account the Prepayment Assumption).
The REMIC will deduct OID on the Regular Certificates in the same manner that
the holders of the Certificates include such discount in income, but without
regard to the de minimus rules. See "--Taxation of REMIC Regular Certificates"
above.
To the extent that the REMIC's basis allocable to loans that it holds
exceeds their principal amounts, the resulting premium, if attributable to
mortgages originated after September 27, 1985, will be amortized over the life
of the loans (taking into account the Prepayment Assumption) on a constant yield
method. Although the law is somewhat unclear regarding the recovery of premium
attributable to loans originated on or before such date, it is possible that
such premium may be recovered in proportion to payments of loan principal.
Prohibited Transactions Tax and Other Taxes. The REMIC will be subject to a
100% tax on any net income derived from a "prohibited transaction." For this
purpose, net income will be calculated without taking into account any losses
from prohibited transactions or any deductions attributable to any prohibited
transaction that resulted in a loss. In general, prohibited transactions include
(i) subject to limited exceptions, the sale or other disposition of any
qualified mortgage transferred to the REMIC; (ii) subject to a limited
exception, the sale or other disposition of a cash flow investment; (iii) the
receipt of any income from assets not permitted to be held by the REMIC pursuant
to the Code; or (iv) the receipt of any fees or other compensation for services
rendered by the REMIC. Notwithstanding (i) and (iv), it is not a prohibited
transaction to sell REMIC pool property to prevent a default on Regular
Certificates as a result of a default on qualified mortgages or to facilitate a
clean-up call (generally, an optional termination to save administrative costs
when no more than a small percentage of the Certificates is outstanding). It is
anticipated that a REMIC will not engage in any prohibited transactions in which
it would recognize a material amount of net income. In addition, subject to a
number of limited exceptions for cash contributions, a tax is imposed at the
rate of 100% on amounts contributed to a REMIC after the close of the
three-month period beginning on the Startup Day. It is not anticipated that any
such contributions will occur or that any such tax will be imposed.
Net Income from Foreclosure Property. REMICs also are subject to federal
income tax at the highest corporate rate on "net income from foreclosure
property," determined by reference to the rules applicable to real estate
investment trusts. Generally, property acquired by deed in lieu of foreclosure
would be treated as "foreclosure property" for a period ending with the third
calendar year following the year of acquisition of such property, with a
possible extension. "Net income from foreclosure property" generally means gain
from the sale of a foreclosure property that is inventory property and gross
income from foreclosure property other than qualifying rents and other
qualifying income for a real estate investment trust. It is not anticipated that
any REMIC will recognize "net income from foreclosure property" subject to
federal income tax.
Liquidation of the REMIC. If a REMIC and the Trustee adopt a plan of
complete liquidation, within the meaning of Code Section 860F(a)(4)(A)(i) and
sell all the REMIC's assets (other than cash) within a 90-day period beginning
on the date of the adoption of the plan of liquidation, the REMIC will recognize
no gain or loss on the sale of its assets, provided that the REMIC credits or
distributes in liquidation all the sale proceeds plus its cash (other than
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amounts retained to meet claims against the REMIC) to holders of Regular
Certificates and Residual Certificate holders within the 90-day period.
TAXATION OF HOLDERS OF RESIDUAL CERTIFICATES
The holder of a Certificate representing a residual interest (a "Residual
Certificate") will take into account the "daily portion" of the taxable income
or net loss of the REMIC for each day during the taxable year on which such
holder held the Residual Certificate. The daily portion is determined by
allocating to each day in any calendar quarter its ratable portion of the
taxable income or net loss of the REMIC for such quarter, and by allocating that
amount among the holders (on such day) of the Residual Certificates in
proportion to their respective holdings on such day. For this purpose, the
taxable income or net loss of the REMIC, in general, will be allocated to each
day in the calendar quarter ratably using such reasonable convention as set
forth in the Prospectus Supplement including, as applicable, a "30 days per
month/90 days per quarter/360 days per year" convention. The related Prospectus
Supplement will indicate whether a different allocation method will be used.
Ordinary income derived from Residual Certificates will be "portfolio income"
for taxpayers subject to Code Section 469 limitation on the deductibility of
"passive losses."
A holder of a Residual Certificate that is an individual or a "Pass-Through
Interest Holder" (including certain pass-through entities, but not including
real estate investment trusts) will be unable to deduct servicing fees payable
on the loans or other administrative expenses of the REMIC for a given taxable
year to the extent that such expenses, when aggregated with the Residual
Interest Certificateholder's other miscellaneous itemized deductions for that
year, do not exceed 2% of such holder's adjusted gross income. In addition, Code
Section 68 provides that the amount of itemized deductions otherwise allowable
for the taxable year for an individual whose adjusted gross income exceeds the
Applicable Amount will be reduced by the lesser of (i) 3% of the excess of
adjusted gross income over the Applicable Amount, or (ii) 80% of the amount of
itemized deductions otherwise allowable for such taxable year. The amount of
additional taxable income reportable by Certificateholders that are subject to
the limitations of either Section 67 or Section 68 of the Code may be
substantial.
As a result, such investors may have aggregate taxable income in excess of
the aggregate amount of cash received on such Certificates with respect to
interest at the pass-through rate on such Certificates or discount thereon.
Furthermore, in determining the alternative minimum taxable income of such a
Certificateholder that is an individual, estate or trust, or a "pass-through
entity" beneficially owned by one or more individuals, estates or trusts, no
deduction will be allowed for such holder's allocable portion of servicing fees
and other miscellaneous itemized deductions of the REMIC, even though an amount
equal to the amount of such fees and other deductions will be included in such
holder's gross income. Moreover, where there is fixed retained yield with
respect to the Mortgage Loans underlying a series of Certificates or where the
servicing fees are in excess of reasonable servicing compensation, the
transaction will be subject to the application of the "stripped bond" and
"stripped coupon" rules of the Code, as described below under "--Federal Income
Tax Consequences For Certificates As To Which No Remic Election Is
Made--Stripped Certificates--Discount or Premium on Stripped Certificates."
Accordingly, such Certificates may not be appropriate investments for
individuals, estates or trusts, or pass-through entities beneficially owned by
one or more individuals, estates or trusts. Such prospective investors should
consult with their tax advisors prior to making an investment in such
Certificates.
The holder of a Residual Certificate must report its proportionate share of
the taxable income of the REMIC regardless of whether or not it receives cash
distributions from the REMIC attributable to such income or loss. The reporting
of taxable income without corresponding distributions could occur, for example,
in certain REMICs in which the loans held by the REMIC were issued or acquired
at a discount, since mortgage prepayments cause recognition of discount income,
while the corresponding portion of the prepayment could be used in whole or in
part to make principal payments on Regular Interests issued without any discount
or at an insubstantial discount. When there is more than one Class of Regular
Certificates that distribute principal sequentially, this mismatching of income
and deductions is particularly likely to occur in the early years following
issuance of the Regular Certificates when distributions in reduction of
principal are being made in respect of earlier maturing Classes of Certificates
to the extent that such Classes are not issued with substantial discount. If
taxable income attributable to such a mismatching is realized in general, losses
would be allowed in later years as distributions on the later Classes of Regular
Certificates are made. (If this occurs, it is likely that cash distributions to
holders of Residual Certificates will exceed taxable income in later years.)
Taxable income may also be greater in the earlier years of certain REMICs as a
result of the fact that interest expense deductions, as a percentage of
outstanding principal of Regular Certificates, will
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typically increase over time as lower yielding Certificates are paid, whereas
interest income with respect to loans will generally remain constant over time
as a percentage of outstanding loan principal.
In any event, because the holder of a Residual Interest is taxed on the net
income of the REMIC, the taxable income derived from a Residual Certificate in a
given taxable year will not be equal to the taxable income associated with
investment in a corporate bond or stripped instrument having similar cash flow
characteristics and pre-tax yield. Therefore, the after-tax yield on the
Residual Certificate will most likely be less than that of such a bond or
instrument.
Basis. A Residual Certificateholder will not be permitted to amortize
directly the cost of its Residual Certificate as an offset to its share of the
taxable income of the related REMIC. However, such taxable income will not
include cash received by the REMIC that represents a recovery of the REMIC's
basis in its assets. Such recovery of basis by the REMIC will have the effect of
amortization of the issue price of the Residual Certificates over their life.
However, in view of the possible acceleration of the income of Residual
Certificateholders discussed previously under "--Taxation of Holders of Residual
Certificates," the period of time over which such issue price is effectively
amortized may be longer than the economic life of the Residual Certificates.
A Residual Certificate may have a negative value if the net present value
of anticipated tax liabilities exceeds the present value of anticipated cash
flows. If a Residual Certificate has a negative value, it is not clear whether
its issue price would be considered to be zero or such negative amount for
purposes of determining the REMIC's basis in its assets. The REMIC Regulations
do not address whether residual interests could have a negative basis and a
negative issue price. The Depositor does not intend to treat a Class of Residual
Certificates as having a value of less than zero for purposes of determining the
bases of the related REMIC in its assets. The preamble to the REMIC Regulations
states that the Service may provide future guidance on the proper tax treatment
of payments made by a transferor of such a residual interest to induce the
transferee to acquire the interest, and Residual Certificateholders should
consult their own tax advisors in this regard.
Further, to the extent that the initial adjusted basis of a Residual
Certificateholder (other than an original holder) in a Residual Certificate is
greater than the corresponding portion of the REMIC's basis in the Mortgage
Loans, the Residual Certificateholder will not recover a portion of such basis
until termination of the REMIC, unless future Treasury regulations provide for
periodic adjustments to the REMIC income otherwise reportable by such holder.
The REMIC Regulations do not currently so provide. See "--Sale or Exchange"
below regarding possible treatment of a loss upon termination of the REMIC as a
capital loss.
Limitation on Losses. The amount of the REMIC's net loss that a
Certificateholder may take into account currently is limited to the holder's
adjusted basis at the end of the calendar quarter in which such loss arises. A
holder's basis in a Residual Certificate will initially equal such holder's
purchase price, and will subsequently be increased by the amount of the REMIC's
taxable income allocated to the holder, and decreased (but not below zero) by
the amount of distributions made and the amount of the REMIC's net loss
allocated to the holder. Any disallowed loss may be carried forward
indefinitely, but may be used only to offset income of the REMIC generated by
the same REMIC. The ability of Residual Interest Certificateholders to deduct
net losses may be subject to additional limitations under the Code, as to which
such holders should consult their tax advisers.
Distributions. Distributions on a Residual Certificate, if any, will
generally not result in any additional taxable income or loss to a holder of a
Residual Certificate. If the amount of such distribution exceeds a holder's
adjusted basis in the Residual Certificate, however, the holder will recognize
gain (treated as gain from the sale of the Residual Certificate) to the extent
of such excess. If the Residual Certificate is property held for investment,
such gain will generally be capital in nature.
Limitations on Offset or Exemption of REMIC Income: Excess Inclusions and
UBTI. The portion of a Residual Interest Certificateholder's REMIC taxable
income consisting of "excess inclusion" income may not be offset by other
deductions or losses, including net operating losses, on such
Certificateholder's federal income tax return. The Small Business Job Protection
Act of 1996 eliminated a prior law exception to this rule for certain
organizations taxed under Section 593 (thrift institutions) with respect to
Residual Certificates with significant value. This change is effective for
Residual Certificates acquired in taxable years beginning after December 31,
1995. If the holder of a Residual Certificate is an organization subject to the
tax on unrelated business taxable income ("UBTI") imposed by Code Section 511,
such as a pension fund or other exempt organization, such Residual Interest
Certificateholder's excess inclusion income will be treated as unrelated
business taxable income of such Certificateholder. In addition, under Treasury
regulations yet to be issued, if a real estate investment trust, a regulated
investment company, a
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common trust fund or certain cooperatives were to own a Residual Certificate, a
portion of dividends (or other distributions) paid by the real estate investment
trust (or other entity) would be treated as excess inclusion income. If a
Residual Certificate is owned by a foreign person, excess inclusion income is
subject to tax at a rate of 30%, which rate may not be reduced by treaty and is
not eligible for treatment as "portfolio interest." See "--Tax Treatment of
Foreign Investors--Residual Certificates." Although not entirely clear, the
REMIC Regulations indicate that the significant value determination is made only
on the Startup Day.
The excess inclusion portion of a REMIC's income is generally equal to the
excess, if any, of REMIC taxable income for the quarterly period allocable to a
Residual Certificate, over the daily accruals for such quarterly period of (i)
120% of the long term applicable federal rate on the Startup Day multiplied by
(ii) the adjusted issue price of such Residual Certificate at the beginning of
such quarterly period. The adjusted issue price of a Residual Interest at the
beginning of each calendar quarter will equal its issue price (calculated in a
manner analogous to the determination of the issue price of a Regular Interest),
increased by the aggregate of the daily accruals for prior calendar quarters,
and decreased (but not below zero) by the amount of loss allocated to a holder
and the amount of distributions made on the Residual Certificate before the
beginning of the quarter. Accordingly, the portion of the REMIC pool's taxable
income that will be treated as excess inclusions will be a larger portion of
such income as the adjusted issue price of the Residual Certificates diminishes.
For this purpose, the long-term applicable federal rate, which is announced
monthly by the Treasury Department, is an interest rate that is based on the
average market yield of outstanding marketable obligations of the United States
government having remaining maturities in excess of nine years.
Alternative Minimum Tax. The 1996 Act also provides new rules affecting the
determination of alternative minimum taxable income ("AMTI") of a Residual
Certificate holder. First, AMTI is calculated without regard to the special rule
that taxable income cannot be less than excess inclusion income for the year.
Second, AMTI for a taxable year cannot be less than excess inclusion income for
the year. Finally, any AMTI net operating loss deduction is computed without
regard to excess inclusions. These changes are effective for tax years beginning
after December 31, 1986, unless a Residual Certificate holder elects to have the
rules apply only to tax years beginning after August 20, 1996.
Under the REMIC Regulations, in certain circumstances, transfers of
Residual Certificates may be disregarded. See "--Restrictions on Ownership and
Transfer of Residual Certificates" and "--Tax Treatment of Foreign Investors."
Sale or Exchange. A holder of a Residual Certificate will recognize gain or
loss on the sale or exchange of a Residual Certificate equal to the difference,
if any, between the amount realized and such Certificateholder's adjusted basis
in the Residual Certificate at the time of such sale or exchange. Any such loss
may be a capital loss subject to limitation; gain which might otherwise be
capital may be treated as ordinary income under certain circumstances. See
"--Sale or Exchange of Regular Certificates" above. Except to the extent
provided in regulations, which have not yet been issued, the "wash sale" rules
of Code Section 1091 will disallow any loss upon disposition or a Residual
Certificate if the selling Certificateholder acquires any Residual Interest in a
REMIC or similar mortgage pool within six months before or after such
disposition. Any such disallowed loss would be added to the Residual Interest
Certificateholder's adjusted basis in the newly acquired Residual Interest.
Restrictions on Ownership and Transfer of Residual Certificates. As a
condition to qualification as a REMIC, reasonable arrangements must be made to
prevent the ownership of a Residual Interest by any "Disqualified Organization."
"Disqualified Organizations" include the United States, any state or political
subdivision thereof, any foreign government, any international organization, or
any agency or instrumentality of any of the foregoing (provided, that such term
does not include an instrumentality if all of its activities are subject to tax
and a majority of its board of directors is not selected by any such
governmental entity.), a rural electric or telephone cooperative described in
Section 1381(a)(2)(C) of the Code, or any entity exempt from the tax imposed by
Sections 1-1399 of the Code, if such entity is not subject to tax on its
unrelated business income. Accordingly, the applicable Agreement will prohibit
Disqualified Organizations from owning a Residual Certificate. In addition, no
transfer of a Residual Certificate will be permitted unless the proposed
transferee shall have furnished to the Trustee an affidavit representing and
warranting that it is neither a Disqualified Organization nor an agent or
nominee acting on behalf of a Disqualified Organization and the transferor
provides a statement in writing to the Depositor and the Trustee that it has no
actual knowledge that the statement is false.
The Prospectus Supplement relating to a Series of Certificates may provide
that a Residual Certificate may not be purchased by or transferred to any person
that is not a U.S. Person or may describe the circumstances and
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restrictions pursuant to which such a transfer may be made. The term "U.S.
Person" means a citizen or resident of the United States, a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any political subdivision thereof or an estate or trust that is
subject to U.S. federal income tax regardless of the source of its income.
If a Residual Certificate is transferred to a Disqualified Organization (in
violation of the restrictions set forth above), a tax will be imposed on the
transferor of such Residual Certificate at the time of the transfer pursuant to
Code Section 860E(e)(2) equal to the product of (i) the present value
(discounted using the "applicable federal rate" for obligations whose term ends
on the close of the last quarter in which excess inclusions are expected to
accrue with respect to the Residual Certificate) of the total anticipated excess
inclusions with respect to such Residual Certificate for periods after the
transfer and (ii) the highest marginal federal income tax rate applicable to
corporations. In addition, if a Disqualified Organization is the record holder
of an interest in a pass-through entity (including, among others, a partnership,
trust, real estate investment trust, regulated investment company or any person
holding as nominee) that owns a Residual Certificate, the pass-through entity
will be required to pay tax equal to its product of (i) the amount of excess
inclusion income of the REMIC for such taxable year allocable to the interest
held by such Disqualified Organization; multiplied by (ii) the highest marginal
federal income tax rate imposed on corporations by Code Section 11(b)(1).
Such a tax generally would be imposed on the transferor of the Residual
Certificate, except that where such transfer is through an agent (including a
broker, nominee, or other middleman) for a Disqualified Organization, the tax
would instead be imposed on such agent. A transferor of a Residual Certificate
would in no event, however, be liable for such tax with respect to a transfer if
the transferee furnishes to the transferor an affidavit that the transferee is
not a Disqualified Organization and, as of the time of the transfer, the
transferor does not have actual knowledge that such affidavit is false. The tax
also may be waived by the Treasury Department if the Disqualified Organization
promptly disposes of the Residual Certificate and the transferor pays income tax
at the highest corporate rate on the excess inclusion for the period the
Residual Certificate is actually held by the Disqualified Organization.
In addition, if a "Pass-Through Entity" has excess inclusion income with
respect to a Residual Certificate during a taxable year and a Disqualified
Organization is the record holder of an equity interest in such entity, then a
tax is imposed on such entity equal to the product of (i) the amount of excess
inclusions that are allocable to the interest in the Pass-Through Entity during
the period such interest is held by such Disqualified Organization and (ii) the
highest marginal federal corporate income tax rate. Such tax would be deductible
from the ordinary gross income of the Pass-Through Entity for the taxable year.
The Pass-Through Entity would not be liable for such tax if it has received an
affidavit from such record holder that (i) states under penalty of perjury that
it is not a Disqualified Organization or (ii) furnishes a social security number
and states under penalties of perjury that the social security number is that of
the transferee, provided that during the period such person is the record holder
of the Residual Certificate, the Pass-Through Entity does not have actual
knowledge that such affidavit is false.
Noneconomic Residual Interests. Under the REMIC Regulations, if a Residual
Certificate is a "noneconomic residual interest," as described below, a transfer
of a Residual Certificate to a non-U.S. Person will be disregarded for all
federal tax purposes if a significant purpose of the transfer was to impede the
assessment or collection of tax. If a transfer of a Residual Interest is
disregarded, the transferor would be liable for any federal income tax imposed
upon the taxable income derived by the transferee from the REMIC. A Residual
Certificate is a "noneconomic residual interest" unless, at the time of the
transfer (i) the present value of the expected future distributions on the
Residual Certificate at least equals the product of the present value of the
anticipated excess inclusions and the highest rate of tax imposed on
corporations for the year in which the transfer occurs and (ii) the transferor
reasonably expects that the transferee will receive distributions from the REMIC
at or after the time at which the taxes accrue on the anticipated excess
inclusions in an amount sufficient to satisfy the accrued taxes. The present
value is calculated based on the Prepayment Assumption, using a discount rate
equal to the applicable federal rate under Code Section 1274(d)(1) that would
apply to a debt instrument issued on the date the noneconomic residual interest
was transferred and whose term ended on the close of the last quarter in which
excess inclusions were expected to accrue with respect to the Residual Interest
at the time of transfer. A significant purpose to impede the assessment or
collection of tax exists if the transferor, at the time of transfer, knew or
should have known that the transferee would be unwilling or unable to pay taxes
on its share of the taxable income of the REMIC. Under the REMIC Regulations, a
transferor is presumed not to have improper knowledge if (i) the transferor
conducted, at the time of the transfer, a reasonable investigation of the
financial condition of the transferee and, as a result of the investigation, the
transferor found that the transferee had
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historically paid its debts as they came due anFd found no significant evidence
to indicate that the transferor will not continue to pay its debts as they come
due in the future; and (ii) the transferee represents to the transferor that it
understands that, as the holder of the noneconomic residual interest, the
transferee may incur tax liabilities in excess of any cash flows generated by
the residual interest and that the transferee intends to pay taxes associated
with holding of residual interest as they become due. The Agreement will require
the transferee of a Residual Certificate to state as part of the affidavit
described above under the heading "--Disqualified Organizations" that such
transferee (i) has historically paid its debts as they come due, (ii) intends to
continue to pay its debts as they come due in the future, (iii) understands
that, as the holder of a noneconomic residual interest, it may incur tax
liabilities in excess of any cash flows generated by the Residual Certificate,
and (iv) intends to pay any and all taxes associated with holding the Residual
Certificate as they become due. The transferor must have no reason to believe
that such statement is untrue. A similar type of limitation exists with respect
to certain transfers of Residual Interests by foreign persons to U.S. Persons.
See "--Tax Treatment of Foreign Investors."
Mark-to-Market Rules. A "negative value" Residual Interest (and any
Residual Interest or arrangement that the IRS deems to have substantially the
same economic effect) is not treated as a security and thus may not be marked to
market under final Treasury regulations under Section 475 of the Code that
generally require a securities dealer to mark to market securities held for sale
to customers. In general, a Residual Interest has negative value if, as of the
date a taxpayer acquires the Residual Interest, the present value of the tax
liabilities associated with holding the Residual Interest exceeds the sum of (i)
the present value of the expected future distributions on the Residual Interest,
and (ii) the present value of the anticipated tax savings associated with
holding the Residual Interest as the REMIC generates losses. In addition, in the
Preamble to the temporary Treasury regulations, the IRS requested comments
regarding whether additional rules are needed to carry out the purposes of
Section 475 of the Code. Consequently, the IRS may further limit, prospectively
or retroactively, the definition of "security" for purposes of Section 475 of
the Code by carving out of such definition all Residual Interests.
REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
A Certificateholder, other than a Residual Interest Certificateholder, may,
under certain circumstances, be subject to "backup withholding" at the rate of
31% with respect to distributions or the proceeds of a sale of Certificates to
or through brokers that represent interest or original issue discount on the
Certificates. This withholding generally applies if the holder of a Certificate
(i) fails to furnish the Trustee with its taxpayer identification number
("TIN"); (ii) furnishes the Trustee an incorrect TIN; (iii) fails to report
properly interest, dividends or other "reportable payments" as defined in the
Code; or (iv) under certain circumstances, fails to provide the Trustee or such
holder's securities broker with a certified statement, signed under penalty of
perjury, that the TIN provided is its correct TIN and that the holder is not
subject to backup withholding. Backup withholding will not apply, however, with
respect to certain payments made to Certificateholders, including payments to
certain exempt recipients (such as exempt organizations) and to certain Non-U.S.
Persons. Holders of the Certificates should consult their tax advisers as to
their qualification for exemption from backup withholding and the procedure for
obtainingthe exemption.
The Trustee will report to the Certificateholders and to the Master
Servicer for each calendar year the amount of any "reportable payments" during
such year and the amount of tax withheld, if any, with respect to payments on
the Certificates. Any amounts withheld from distribution on Regular Certificates
would be allowed as a credit against such Certificateholders, federal income tax
liability or would be refunded by the IRS.
TAX TREATMENT OF FOREIGN INVESTORS
Regular Certificates. Under the Code, unless interest (including OID) paid
on a Certificate (other than a Residual Certificate) is considered to be
"effectively connected" with a trade or business conducted in the United States
by a nonresident alien individual, foreign partnership or foreign corporation
(each, a "Non-U.S. Person") such interest will normally qualify as portfolio
interest (except if (i) the recipient is a holder, directly or by attribution,
of 10% or more of the capital or profits interest in the issuer or (ii) the
recipient is a controlled foreign corporation as to which the issuer is a
related person) and will not be subject to the 30% United States withholding
tax. Upon receipt of appropriate ownership statements signed under penalties of
perjury, identifying the beneficial owner and stating, together with other
statements, that the beneficial owner of the Regular Certificate is a Non-U.S.
Person, the issuer normally will be relieved of obligations to withhold tax from
such interest payments. These provisions supersede the
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generally applicable provisions of United States law that would otherwise
require the issuer to withhold at a 30% rate (unless reduced or eliminated by an
applicable tax treaty) on, among other things, interest and other fixed or
determinable, annual or periodic income paid to Non-U.S. Persons. Holders of
Certificates, including "stripped certificates" (i.e., Certificates that
separate ownership of principal payments and interest payments on the Mortgage
Loans), however, may be subject to withholding to the extent that the Mortgage
Loans were originated on or before July 18, 1984.
Interest and OID of Certificateholders who are foreign persons are not
subject to withholding if they are effectively connected with a United States
business conducted by the Certificateholder. They will, however, generally be
subject to United States federal income tax at regular rates.
Residual Certificates. Payments to holders of Residual Certificates who are
foreign persons will generally be treated as interest and be subject to United
States withholding tax at 30% or any lower applicable treaty rate. Holders
should assume that such income does not qualify for exemption from United States
withholding tax as portfolio interest. If the amounts paid to Residual
Certificateholders who are Non-U.S. Persons are effectively connected with the
conduct of a trade or business within the United States by such Non-U.S. Person,
30% (or lower treaty rate) withholding will not apply. Instead, the amounts paid
to such Non-U.S. Persons will be subject to United States federal income tax at
regular rates. It is clear that, to the extent that a payment represents a
portion of REMIC taxable income that constitutes excess inclusion income, a
holder of a Residual Certificate will not be entitled to an exemption from or
reduction of the 30% (or lower treaty rate) withholding tax. See "--Taxation of
Holders of Residual Certificates--Limitations on Offset or Exemption of REMIC
Income: Excess Inclusions". If the payments are subject to United States
withholding tax, they generally will be taken into account for withholding tax
purposes only when paid or distributed (or when the Residual Certificate is
disposed of). The Treasury has statutory authority, however, to promulgate
regulations that would require such amounts to be taken into account at an
earlier time in order to prevent the avoidance of tax. Such regulations could,
for example, require withholding prior to the distribution of cash in the case
of Residual Certificates that do not have significant value.
If a Residual Certificate has tax avoidance potential, a transfer of a
Residual Certificate to a Non-U.S. Persons will be disregarded for all federal
tax purposes. A Residual Certificate has tax avoidance potential unless, at the
time of the transfer, the transferor reasonably expects that the REMIC will
distribute to the transferee Residual Interest holder amounts that will equal at
least 30% of each excess inclusion, and that such amounts will be distributed at
or after the time at which the excess inclusion accrues and not later than the
close of the calendar year following the calendar year of accrual. If a Non-U.S.
Person transfers a Residual Certificate to a U.S. Person, and if the transfer
has the effect of allowing the transferor to avoid tax on accrued excess
inclusions, then the transfer is disregarded and the transferor continues to be
treated as the owner of the Residual Certificate for purposes of the withholding
tax provisions of the Code. See "--Taxation of Holders of Residual
Certificates--Limitations on Offset or Exemption of REMIC Income: Excess
Inclusions."
On April 22, 1996, the IRS issued proposed regulations which, if adopted in
final form, could have an affect on the United States taxation of foreign
investors holding Regular Certificates or Residual Certificates. The proposed
regulations would apply to payments after December 31, 1998. Investors who are
Non-U.S. Persons shouldconsult their tax advisors regarding the specific tax
consequences to them of owning Regular Certificates orResidual Certificates.
ADMINISTRATIVE MATTERS
The REMIC's books must be maintained on a calendar year basis and the REMIC
must file an annual federal income tax return. The REMIC will also be subject to
the procedural and administrative rules of the Code applicable to partnerships,
including the determination of any adjustments to, among other things, items of
REMIC income, gain, loss, deduction or credit by the IRS in a unified
administrative proceeding.
In general, the Trustee will, to the extent permitted by applicable law,
act as agent of the REMIC, and will file REMIC federal income tax returns on
behalf of the related REMIC. Reports of accrued interest and OID will be made
annually to the IRS and to individuals, estates, non-exempt and non-charitable
trusts, and partnerships who are either holders of record of Regular
Certificates or beneficial owners who own Regular Certificates through a broker
or middleman as nominee. All brokers, nominees and all other non-exempt holders
of record of Regular Certificates (including corporations, non-calendar year
taxpayers, securities or commodities dealers, real estate investment trusts,
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investment companies, common trust funds, thrift institutions and charitable
trusts) may request such information for any calendar quarter by telephone or in
writing by contacting the person designated in IRS Publication 938 with respect
to a particular Series of Regular Certificates. Holders through nominees must
request such information from the nominee.
The IRS's Form 1066 has an accompanying Schedule Q, Quarterly Notice to
Residual Interest Holders of REMIC Taxable Income or Net Loss Allocation.
Treasury regulations require that Schedule Q be furnished by the REMIC to each
Residual Certificateholder by the end of the month following the close of each
calendar quarter (41 days after the end of a quarter under proposed Treasury
regulations) in which the REMIC is in existence.
Treasury regulations require that, in addition to the foregoing
requirements, information must be furnished quarterly to Residual
Certificateholders, furnished annually, if applicable, to holders of Regular
Certificates, and filed annually with the IRS concerning Code Section 67
expenses (see "--Taxation of the REMIC--Calculation of REMIC Income" above)
allocable to such holders. Furthermore, under such regulations, information must
be furnished quarterly to Residual Certificateholders, furnished annually to
holders of Regular Certificates, and filed annually with the IRS concerning the
percentage of the REMIC's assets meeting the qualified asset tests described
above under "--Qualification as a REMIC--Status of REMIC Certificates."
The holder of the largest percentage interest of the Residual Certificates
will be designated as and will act as the "tax matters person" with respect to
the REMIC in all respects. In general, the Trustee will act as attorney in fact
and agent for the tax matters person and, subject to certain notice requirements
and various restrictions and limitations, generally will have the authority to
act on behalf of the REMIC and the Residual Interest Certificateholders in
connection with the administrative and judicial review of items of income,
deduction, gain or loss of the REMIC, as well as the REMIC's classification.
Residual Interest Certificateholders generally will be required to report such
REMIC items consistently with their treatment on the related REMIC's tax return
and may in some circumstances be bound by a settlement agreement between the
Trustee as attorney in fact and agent for tax matters person, and the IRS
concerning any such REMIC item. Adjustments made to the REMIC tax return may
require a Residual Interest Certificateholder to make corresponding adjustments
on its return, and an audit of the REMIC's tax return, or the adjustments
resulting from such an audit, could result in an audit of a Residual Interest
Certificateholder's return. No REMIC will be registered as a tax shelter
pursuant to Section 6111 of the Code because it is not anticipated that any
REMIC will have a net loss for any of the first five taxable years of its
existence. Any person that holds a Residual Certificate as a nominee for another
person may be required to furnish to the related REMIC, in a manner to be
provided in Treasury regulations, the name and address of such person and other
information.
FEDERAL INCOME TAX CONSEQUENCES FOR CERTIFICATES
AS TO WHICH NO REMIC ELECTION IS MADE
TAX STATUS AS A GRANTOR TRUST
General. If the applicable Prospectus Supplement so specifies with respect
to a Series of Certificates, the Certificates of such Series will not be treated
as regular or residual interests in a REMIC for federal income tax purposes but
instead will be treated as an undivided beneficial ownership interest in the
Mortgage Loans. Under such circumstances the arrangement, pursuant to which the
Mortgage Loans will be held and the Certificates will be issued, will be
classified for federal income tax purposes as a grantor trust under Subpart E,
Part 1 of Subchapter J of the Code and not as an association taxable as a
corporation. In such a case, Morrison & Hecker L.L.P., counsel to the Depositor,
will deliver its opinion to the effect that the arrangement by which the
Certificates of that Series are issued will be treated as a grantor trust as
long as all of the provisions of the applicable Trust Agreement are complied
with and the statutory and regulatory requirements are satisfied.
In some Series ("Pass-Through Certificates"), there will be no separation
of the principal and interest payments on the Mortgage Loans. In such
circumstances, a Certificateholder will be considered to have purchased an
undivided interest in each of the Mortgage Loans. In other cases ("Stripped
Certificates"), sale of the Certificates will produce a separation in the
ownership of the principal payments and interest payments on the Mortgage Loans.
Each Certificateholder will be required to report on its federal income tax
return its pro rata share of the gross income derived from the Mortgage Loans
(not reduced by the amount payable as fees to the Trustee, the Master Servicer
and the Special Servicer, if any, and similar fees provided that such amounts
are reasonable compensation for services
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rendered (collectively, the "Servicing Fee")), at the same time and in the same
manner as such items would have been reported under the Certificateholder's tax
accounting method had it held its interest in the Mortgage Loans directly,
received directly its share of the amounts received with respect to the Mortgage
Loans and paid directly its share of the Servicing Fees. In the case of
Pass-Through Certificates, such gross income will consist of a pro rata share of
all of the income derived from all of the Mortgage Loans and, in the case of
Stripped Certificates, such income will consist of a pro rata share of the
income derived from each stripped bond or stripped coupon in which the
Certificateholder owns an interest. The holder of a Certificate will generally
be entitled to deduct such Servicing Fees under Section 162 or Section 212 of
the Code to the extent that such Servicing Fees represent "reasonable"
compensation for the services rendered by the Trustee, the Master Servicer and
the Special Servicer, if any. In the case of a noncorporate holder, however,
Servicing Fees (to the extent not otherwise disallowed, e.g., because they
exceed reasonable compensation) will be deductible in computing such holder's
regular tax liability only to the extent that such fees, when added to other
miscellaneous itemized deductions, exceed 2% of adjusted gross income and may
not be deductible to any extent in computing such holder's alternative minimum
tax liability. In addition, Section 68 of the Code provides that the amount of
itemized deductions otherwise allowable for the taxable year for an individual
whose adjusted gross income exceeds the Applicable Amount will be reduced by the
lesser of (i) 3% of the excess of adjusted gross income over the applicable
amount or (ii) 80% of the amount of itemized deductions otherwise allowable for
suchtaxable year.
TAX STATUS OF CERTIFICATES
In the case of Stripped Certificates there is no specific legal authority
existing regarding whether the character of the Certificates, for federal income
tax purposes, will be the same as the Mortgage Loans. The IRS could take the
position that the Mortgage Loans' character is not carried over to the
Certificates in such circumstances. Pass-Through Certificates will be, and,
although the matter is not free from doubt, Stripped Certificates should be
considered to represent, "real estate assets" within the meaning of Section
856(c)(5)(B) of the Code, "loans secured by an interest in real property" within
the meaning of Section 7701(a)(19)(C) of the Code provided that the real
property securing the loan is of the type specified in such Code Section;
"obligation(s) principally secured by an interest in real property" within the
meaning of Section 860G(a)(3)(A) of the Code; and interest income attributable
to the Certificates should be considered to represent "interest on obligations
secured by mortgages on real property or on interests in real property" within
the meaning of Section 856(c)(3)(B) of the Code. However, Mortgage Loans secured
by non-residential real property will not constitute "loans secured by an
interest in real property" within the meaning of Section 7701(a)(19)(C) of the
Code. In addition, it is possible that various reserves or funds underlying the
Certificates may cause a proportionate reduction in the above-described
qualifying status categoriesof Certificates.
PASS-THROUGH CERTIFICATES
Discount or Premium on Pass-Through Certificates. The holder's purchase
price of a Pass-Through Certificate is to be allocated among the Mortgage Loans
in proportion to their fair market values, determined as of the time of purchase
of the Certificates. In the typical case, the Depositor believes it is
reasonable for this purpose to treat each Mortgage Loan as having a fair market
value proportional to the share of the aggregate principal balances of all of
the Mortgage Loans that it represents, since the Mortgage Loans will have a
relatively uniform interest rate and other common characteristics. To the extent
that the portion of the purchase price of a Certificate allocated to a Mortgage
Loan (other than to a right to receive any accrued interest thereon and any
undistributed principal payments) is less than or greater than the portion of
the principal balance of the Mortgage Loan allocable to the Certificate, the
interest in the Mortgage Loan allocable to the Certificate will be deemed to
have been acquired at a discount or premium, respectively.
Original Issue Discount. The treatment of any discount will depend on
whether the discount represents OID or market discount. In the case of a
Mortgage Loan with OID in excess of a prescribed de minimus amount, a holder of
a Certificate will be required to report as interest income in each taxable year
its share of the amount of OID that accrues during that year, determined under a
constant yield method by reference to the initial yield to maturity of the
Mortgage Loan, in advance of receipt of the cash attributable to such income and
regardless of the method of federal income tax accounting employed by that
holder. OID with respect to a Mortgage Loan could arise for example by virtue of
the financing of points by the originator of the Mortgage Loan, or by virtue of
the charging of points by the originator of the Mortgage Loan in an amount
greater than a statutory de minimus exception, in circumstances under which the
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points are not currently deductible pursuant to applicable Code provisions.
However, the OID Regulations provide that if a holder acquires an obligation at
a price that exceeds its stated redemption price, the holder will not include
any OID in gross income. In addition, if a subsequent holder acquires an
obligation for an amount that exceeds its adjusted issue price the subsequent
holder will be entitled to offset the OID with economic accruals of portions of
such excess. Accordingly, if the Mortgage Loans acquired by a Certificateholder
are purchased at a price that exceeds the adjusted issue price of such Mortgage
Loans, any OID will be reduced or eliminated.
Market Discount. Certificateholders also may be subject to the market
discount rules of Sections 1276-1278 of the Code. A Certificateholder that
acquires an interest in Mortgage Loans with more than a prescribed de minimus
amount of "market discount" (generally, the excess of the principal amount of
the Mortgage Loans over the purchaser's purchase price) will be required under
Section 1276 of the Code to include accrued market discount in income as
ordinary income in each month, but limited to an amount not exceeding the
principal payments on the Mortgage Loans received in that month and, if the
Certificates are sold, the gain realized. Such market discount would accrue in a
manner to be provided in Treasury regulations. The legislative history of the
1986 Act indicates that, until such regulations are issued, such market discount
would in general accrue either (i) on the basis of a constant interest rate or
(ii) in the ratio of (a) in the case of Mortgage Loans not originally issued
with OID, stated interest payable in the relevant period to total stated
interest remaining to be paid at the beginning of the period or (b) in the case
of Mortgage Loans originally issued at a discount, OID in the relevant period to
total OID remaining to be paid.
Section 1277 of the Code provides that the excess of interest paid or
accrued to purchase or carry a loan with market discount over interest received
on such loan is allowed as a current deduction only to the extent such excess is
greater than the market discount that accrued during the taxable year in which
such interest expense was incurred. In general, the deferred portion of any
interest expense will be deductible when such market discount is included in
income, including upon the sale, disposition or repayment of the loan. A holder
may elect to include market discount in income currently as it accrues, on all
market discount obligations acquired by such holder during the taxable year such
election is made and thereafter, in which case the interest deferral rule
discussed above will not apply.
A Certificateholder who purchases a Certificate at a premium generally will
be deemed to have purchased its interest in the underlying Mortgage Loans at a
premium. A Certificateholder who holds a Certificate as a capital asset may
generally elect under Section 171 of the Code to amortize such premium as an
offset to interest income on the Mortgage Loans (and not as a separate deduction
item) on a constant yield method. The legislative history of the 1986 Act
suggests that the same rules that will apply to the accrual of market discount
(described above) will generally also apply in amortizing premium with respect
to Mortgage Loans originated after September 27, 1985. If a holder makes an
election to amortize premium, such election will apply to all taxable debt
instruments held by such holder at the beginning of the taxable year in which
the election is made, and to all taxable debt instruments acquired thereafter by
such holder, and will be irrevocable without the consent of the IRS. Purchasers
who pay a premium for the Certificates should consult their tax advisers
regarding the election to amortize premium and the method to be employed.
Although the law is somewhat unclear regarding recovery of premium allocable to
Mortgage Loans originated before September 28, 1985, it is possible that such
premium may be recovered in proportion to payments of MortgageLoan principal.
STRIPPED CERTIFICATES
Discount or Premium on Stripped Certificates. A Stripped Certificate may
represent a right to receive only a portion of the interest payments on the
Mortgage Loans, a right to receive only principal payments on the Mortgage
Loans, or a right to receive certain payments of both interest and principal.
Certain Stripped Certificates ("Ratio Strip Certificates") may represent a right
to receive differing percentages of both the interest and principal on each
Mortgage Loan. Pursuant to Section 1286 of the Code, the separation of ownership
of the right to receive some or all of the interest payments on an obligation
from ownership of the right to receive some or all of the principal payments
results in the creation of "stripped bonds" with respect to principal payments
and "stripped coupons" with respect to interest payments. Section 1286 of the
Code applies the OID rules to stripped bonds and stripped coupons. For purposes
of computing OID, a stripped bond or a stripped coupon is treated as a debt
instrument issued on the date that such stripped interest is purchased with an
issue price equal to its purchase price or, if more than one stripped interest
is purchased, the ratable share of the purchase price allocable to such stripped
interest. The Code, the OID Regulations and judicial decisions provide no direct
guidance as to how the interest and OID rules are to apply to Stripped
Certificates. Under the method described above for REMIC Regular Interest
Certificates (the "Cash Flow Bond
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Method"), a prepayment assumption is used and periodic recalculations are made
which take into account with respect to each accrual period the effect of
prepayments during such period. The 1986 Act prescribed the same method for debt
instruments "secured by" other debt instruments, the maturity of which may be
affected by prepayments on the underlying debt instruments. However, the 1986
Act does not, absent Treasury regulations, appear specifically to cover
instruments such as the Stripped Certificates which technically represent
ownership interests in the underlying Mortgage Loans, rather than being debt
instruments "secured by" those loans. Nevertheless, it is believed that the Cash
Flow Bond Method is a reasonable method of reporting income for such
Certificates, and it is expected that OID will be reported on that basis. In
applying the calculation to such Certificates, the Trustee will treat all
payments to be received with respect to the Certificates, whether attributable
to principal or interest on the loans, as payments on a single installment
obligation and as includible in the stated redemption price at maturity. The IRS
could, however, assert that OID must be calculated separately for each Mortgage
Loan underlying a Certificate. In addition, in the case of Ratio Strip
Certificates, the IRS could assert that OID must be calculated separately for
each stripped coupon or stripped bond underlying a Certificate.
Under certain circumstances, if the Mortgage Loans prepay at a rate faster
than the Prepayment Assumption, the use of the Cash Flow Bond Method may
accelerate a Certificateholder's recognition of income. If, however, the
Mortgage Loans prepay at a rate slower than the Prepayment Assumption, in some
circumstances the use of this method may decelerate a Certificateholder's
recognition of income.
In the case of a Stripped Certificate which either embodies only interest
payments on the underlying loans or (if it embodies some principal payments on
the Mortgage Loans) is issued at a price that exceeds the principal payments (an
"Interest Weighted Certificate"), additional uncertainty exists because of the
enhanced potential for applicability of the contingent payment debt instrument
provisions of the OID Regulations.
Under the contingent payment debt instrument provisions, the contingent
instrument is treated as if it were a debt with no contingent payments (the
"noncontingent bond method"). Under this method the issue price is the amount
paid for the instrument and the Certificateholder is in effect put on the cash
method with respect to interest income at a comparable yield of a fixed rate
debt instrument with similar terms. The comparable yield must be a reasonable
yield for the issuer and must not be less than the applicable federal rate. A
projected payment schedule and daily portions of interest accrual is determined
based on the comparable yield. The interest for any accrual period, other than
an initial short period, is the product of the comparable yield and the adjusted
issue price at the beginning of the accrual period (the sum of the purchase
price of the instrument plus accrued interest for all prior accrual periods
reduced by any noncontingent or contingent payments on the debt instrument). If
the amount payable for a period were, however, greater or less than the amount
projected the income included for the period would be increased or decreased
accordingly. Any reduction in the income accrual for a period to an amount below
zero (a "Negative Adjustment") would be treated by a Certificateholder as an
ordinary loss to the extent of prior income accruals and may be carried forward
to offset future interest accruals. At maturity, any remaining Negative
Adjustment or any loss attributable to the Certificateholder's basis would be
treated as a loss from a sale or exchange of the Certificate. If the
loss-generating Mortgage Loan or Mortgage Loans was issued by a natural person,
such loss may be an ordinary loss because loss recognized on retirement of a
debt instrument issued by a natural person is not a loss from a sale or
exchange. However, the IRS might contend that such loss should be a capital loss
if the Certificateholder held its Certificate as a capital asset. A loss
resulting from total interest inclusions exceeding total net Negative
Adjustments taken into account would be an ordinary loss. If a gain were
recognized on sale or exchange of the Certificate it would be capital in nature
if the Certificate were a capital asset in the hands of the Certificateholder.
Possible Alternative Characterizations. The characterizations of the
Stripped Certificates described above are not the only possible interpretations
of the applicable Code provisions. Among other possibilities, the IRS could
contend that (i) in certain Series, each non-Interest Weighted Certificate is
composed of an unstripped undivided ownership interest in Mortgage Loans and an
installment obligation consisting of stripped principal payments; (ii) the
non-Interest Weighted Certificates are subject to the contingent payment OID
Regulations; (iii) each Interest Weighted Certificate is composed of an
unstripped undivided ownership interest in the Mortgage Loans and an installment
obligation consisting of stripped interest payments; or (iv) there are as many
stripped bonds or stripped coupons as there are scheduled payments of principal
and/or interest on each Mortgage Loan.
SALE OF CERTIFICATES
As a general rule, if a Certificate is sold, gain or loss will be
recognized by the holder thereof in an amount equal to the difference between
the amount realized on the sale and the Certificateholder's adjusted tax basis
in the
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Certificate. Except as subsequently discussed, such gain or loss will generally
be capital gain or loss if the Certificate is held as a capital asset. In the
case of Pass-Through Certificates, such tax basis will generally equal the
holder's cost of the Certificate increased by any discount income with respect
to the loans represented by such Certificate previously included in income, and
decreased by the amount of any distributions of principal previously received
with respect to the Certificate. Such gain, to the extent not otherwise treated
as ordinary income, will be treated as ordinary income to the extent of any
accrued market discount not previously reported as income. In the case of
Stripped Certificates, the tax basis will generally equal the
Certificateholder's cost for the Certificate, increased by any discount income
with respect to the Certificate previously included in income, and decreased by
the amount of all payments previously received with respect to such Certificate.
Certain financial institutions subject to the provisions of Code Section
582(c), which recognize gain on the sale of a certificate will be taxable at
ordinary income rates on such gain. In addition, gain on the sale of a Standard
Certificate will be treated as ordinary income (i) if a Pass-Through Certificate
is held as part of a "conversion transaction" as defined in Code Section
1258(c), up to the amount of interest that would have accrued on the
Pass-Through Certificateholder's applicable Federal rate in effect at the time
the taxpayer entered into the transaction minus any amount previously treated as
ordinary income with respect to any prior disposition of property that was held
as a part of such transaction or (ii) in the case of a non-corporate taxpayer,
to the extent such taxpayer has made an election under Code Section 163(d)(4) to
have net capital gains taxed as investment income at ordinary income rates.
Capital gains of certain non-corporate taxpayers generally area subject to a
lower maximum tax rate (20%) than ordinary income of such taxpayers (39.6%) for
property held for more than one year. The maximum tax rate for corporations is
the same with respect to both ordinary income and capital gains.
REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
The Trustee will furnish, within a reasonable time after the end of each
calendar year, to each Pass-Through Certificateholder or Stripped
Certificateholder at any time during such year, such information (prepared on
the basis described above) as the Trustee deems to be necessary or desirable to
enable such Certificateholders to prepare their federal income tax returns. Such
information will include the amount or original issue discount accrued on
Certificates held by persons other than Certificateholders exempted from the
reporting requirements. The amounts required to be reported by the Trustee may
not be equal to the proper amount of original issued discount required to be
reported as taxable income by a Certificateholder, other than an original
Certificateholder that purchased at the issue price. In particular, in the case
of Stripped Certificates, unless provided otherwise in the applicable Prospectus
Supplement, such reporting will be based upon a representative initial offering
price of such class of Stripped Certificates. The Trustee will also file such
original issue discount information with the Service. If a Certificateholder
fails to supply an accurate taxpayer identification number or if the Secretary
of the Treasury determines that a Certificateholder has not reported all
interest and dividend income required to be shown on his federal income tax
return, 31% backup withholding may be required in respect of any reportable
payments, as described above under "Material Federal Income Tax
Consequences--Federal Income Tax Consequences For REMIC Certificates--Reporting
Requirements and Backup Withholding".
TREATMENT OF FOREIGN INVESTORS
To the extent that a Certificate evidences ownership in Mortgage Loans that
are issued on or before July 18, 1984, interest or original issue discount paid
by the person required to withhold tax under Code Section 1441 or 1442 to
nonresident aliens, foreign corporations, or other Non-U.S. Persons generally
will be subject to 30% United States withholding tax, or such lower rate as may
be provided for interest by an applicable tax treaty. Accrued original issue
discount recognized by the Pass-Through Certificateholder or Stripped
Certificateholder on original issue discount recognized by the Pass-Through
Certificateholder or Stripped Certificateholders on the sale or exchange of such
a Certificate also will be subject to federal income tax at the same rate.
Treasury regulations provide that interest or original issue discount paid
by the Trustee or other withholding agent to a Non-U.S. Person evidencing
ownership interest in Mortgage Loans issued after July 18, 1984 will be
"portfolio interest" and will be treated in the manner, and such persons will be
subject to the same certification requirements, described above under "--Federal
Income Tax Consequences for REMIC Certificates--Tax Treatment of Foreign
Investors--Regular Certificates".
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STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "MATERIAL
FEDERAL INCOME TAX CONSEQUENCES," potential investors should consider the state
income tax consequences of the acquisition, ownership and disposition of the
Certificates. State income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe any
aspect of the income tax laws of any state. Therefore, potential investors
should consult their own tax advisers with respect to the various state tax
consequences of an investment in the Certificates.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain requirements on employee benefit plans subject to ERISA ("ERISA
Plans") and prohibits certain transactions between ERISA Plans and persons who
are "parties in interest" (as defined under ERISA) with respect to assets of
such Plans. Section 4975 of the Code prohibits a similar set of transactions
between certain plans ("Code Plans," and together with ERISA Plans, "Plans") and
persons who are "disqualified persons" (as defined in the Code) with respect to
Code Plans. Certain employee benefit plans, such as governmental plans and
church plans (if no election has been made under Section 410(d) of the Code),
are not subject to the requirements of ERISA or Section 4975 of the Code.
However, a governmental plan or a church plan may be subject to similar
restrictions under other applicable federal and state law ("Similar Law"). Any
such plan which is qualified under Section 401(a) of the Code and exempt from
taxation under Section 501(a) of the Code is, however, subject to the prohibited
transaction rules set forth in Section 503 of the Code. A fiduciary of a
governmental plan or a church plan should make its own determination as to the
need for or availability of any exemptive relief under Similar Law or Section
503 of the Code.
Investments by ERISA Plans are subject to ERISA's general fiduciary
requirements, including the requirement of investment prudence and
diversification and the requirement that investments be made in accordance with
the documents governing the ERISA Plan. Before investing in a Senior
Certificate, an ERISA Plan fiduciary should consider, among other factors,
whether to do so is appropriate in view of the overall investment policy and
liquidity needs of the ERISA Plan. Such fiduciary should especially consider the
sensitivity of the investments to the rate of principal payments (including
prepayments) on the Mortgage Loans, as discussed in the Prospectus Supplement
related to a Series.
PROHIBITED TRANSACTIONS
Section 406 of ERISA and Section 4975 of the Code prohibit parties in
interest and disqualified persons with respect to ERISA Plans and Code Plans
from engaging in certain transactions involving such Plans or "plan assets" of
such Plans, unless a statutory or administrative exemption applies to the
transaction. Section 4975 of the Code and Sections 502(i) and 502(l) of ERISA
provide for the imposition of certain excise taxes and civil penalties on
certain persons that engage or participate in such prohibited transactions. The
Depositor, the Underwriter, the Master Servicer, the Special Servicer, if any,
or the Trustee or certain affiliates thereof may be considered or may become
parties in interest or disqualified persons with respect to a Plan. If so, the
acquisition or holding of Certificates by, on behalf of or with "plan assets" of
such Plan may be considered to give rise to a "prohibited transaction" within
the meaning of ERISA and/or Section 4975 of the Code, unless the administrative
exemption described below or some other exemption is available.
Special caution should be exercised before "plan assets" of a Plan are used
to purchase a Senior Certificate if, with respect to such assets, the Depositor,
the Underwriter, the Master Servicer, the Special Servicer, if any, or the
Trustee or an affiliate thereof either (a) has discretionary authority or
control with respect to the investment or management of such assets or (b) has
authority or responsibility to give, or regularly gives, investment advice with
respect to such assets pursuant to an agreement or understanding that such
advice will serve as a primary basis for investment decisions with respect to
such assets and that such advice will be based on the particular needs of the
Plan.
Further, if the underlying assets included in a Trust Fund were deemed to
constitute "plan assets," certain transactions involved in the operation of the
Trust Fund may be deemed to constitute prohibited transactions under ERISA
and/or the Code. Neither ERISA nor Section 4975 of the Code defines the term
"plan assets."
The U.S. Department of Labor (the "Department") has issued regulations (the
"Regulations") concerning whether a Plan's assets would be deemed to include an
undivided interest in each of the underlying assets of an entity
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<PAGE>
(such as the Trust Fund), for purposes of the reporting and disclosure and
general fiduciary responsibility provisions of ERISA and the prohibited
transaction provisions of ERISA and Section 4975 of the Code, if the Plan
acquires an "equity interest" (such as a Senior Certificate) in such an entity.
Certain exceptions are provided in the Regulations whereby an investing
Plan's assets would be considered merely to include its interest in the
Certificates instead of being deemed to include an undivided interest in each of
the underlying assets of the Trust Fund. However, it cannot be predicted in
advance, nor can there be a continuing assurance whether such exceptions may be
met, because of the factual nature of certain of the rules set forth in the
Regulations. For example, one of the exceptions in the Regulations states that
the underlying assets of an entity will not be considered "plan assets" if less
than 25% of the value of each class of equity interests is held by "benefit plan
investors," which are defined as ERISA Plans, Code Plans, individual retirement
accounts and employeebenefit plans not subject to ERISA (for example,
governmental plans and church plans), but this exemptionis tested immediately
after each acquisition of an equity interest in the entity whether upon initial
issuance or in the secondary market.
Pursuant to the Regulations, if the assets of the Trust Fund were deemed to
be "plan assets" by reason of the investment of assets of a Plan in any
Certificates, the "plan assets" of such Plan would include an undivided interest
in the Mortgage Loans, the mortgages underlying the Mortgage Loans and any other
assets held in the Trust Fund. Therefore, because the Mortgage Loans and other
assets held in the Trust Fund may be deemed to be "plan assets" of each Plan
that purchases Certificates, in the absence of an exemption, the purchase, sale
or holding of Certificates of any Series or Class by or with "plan assets" of a
Plan may result in a prohibited transaction and the imposition of civil
penalties or excise taxes. Depending on the relevant facts and circumstances,
certain prohibited transaction exemptions may apply to the purchase, sale or
holding of Certificates of any Series or Class by a Plan, for example,
Prohibited Transaction Class Exemption ("PTCE") 95-60, which exempts certain
transactions between insurance company general accounts and parties in interest;
PTCE 91-38, which exempts certain transactions between bank collective
investment funds and parties in interest; PTCE 90-1, which exempts certain
transactions between insurance company pooled separate accounts and parties in
interest; or PTCE 84-14, which exempts certain transactions effected on behalf
of a plan by a "qualified professional asset manager." There can be no assurance
that any of these exemptions will apply with respect to any Plan's investment in
any Certificates or, even if an exemption were deemed to apply, that any
exemption would apply to all prohibited transactions that may occur in
connection with such investment. Also, the Department has issued individual
administrative exemptions from application of certain prohibited transaction
restrictions of ERISA and the Code to most underwriters of mortgage-backed
securities (each, an "Underwriter's Exemption"). Such an Underwriter's Exemption
can only apply to mortgage-backed securities which, among other conditions, are
sold in an offering with respect to which such an underwriter serves as the sole
or a managing underwriter, or as a selling or placement agent. If such an
Underwriter's Exemption might be applicable to a Series of Certificates, such as
Senior Certificates, the related Prospectus Supplement will refer to such
possibility. Further, the related Prospectus Supplement may provide that certain
Classes or Series of Certificates, such as Subordinate Certificates, may not be
purchased by, or transferred to, Plans or may only be purchased by,or
transferred to, an insurance company for its general account under circumstances
that would not result in a prohibited transaction.
Any fiduciary or other Plan investor who proposes to invest "plan assets"
of a Plan in Certificates of any Series or Class should consult with its counsel
with respect to the potential consequences under ERISA and Section 4975 of the
Code or, in the case of governmental plans or church plans, Similar Law of any
such acquisition and ownership of such Certificates.
UNRELATED BUSINESS TAXABLE INCOME-RESIDUAL INTERESTS
The purchase of a Certificate evidencing an interest in the Residual
Interest in a Series that is treated as a REMIC by any employee benefit or other
plan that is exempt from taxation under Code Section 501(a), including most
varieties of Plans, may give rise to "unrelated business taxable income" as
described in Code Sections 511-515 and 860E. Further, prior to the purchase of
an interest in a Residual Interest, a prospective transferee may be required to
provide an affidavit to a transferor that it is not, nor is it purchasing an
interest in a Residual Interest on behalf of, a "Disqualified Organization,"
which term as defined above includes certain tax-exempt entities not subject to
Code Section 511, such as certain governmental plans, as discussed above under
"MATERIAL FEDERAL INCOME TAX CONSEQUENCES--Federal Income Tax Consequences For
REMIC Certificates--Taxation of Holders of Residual
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Certificates" and "--Federal Income Tax Consequences for REMIC Certificates--
Taxation of Holders of Residual Certificates--Restrictions on Ownership and
Transfer of Residual Certificates."
Due to the complexity of these rules and the penalties imposed upon persons
involved in prohibited transactions, it is particularly important that
individuals responsible for investment decisions with respect to ERISA Plans and
Code Plans consult with their counsel regarding the consequences under ERISA
and/or the Code of their acquisition and ownership of Certificates.
The sale of Certificates to a Plan is in no respect a representation by the
Depositor, the applicable underwriter or any other service provider with respect
to the Certificates, such as the Trustee, the Master Servicer and the Special
Servicer, if any, that this investment meets all relevant legal requirements
with respect to investments by Plans generally or any particular Plan or that
this investment is appropriate for Plans generally or any particular Plan.
LEGAL INVESTMENT
The related Prospectus Supplement will indicate whether the Offered
Certificates will constitute "mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984 (the "Enhancement Act"). It is
anticipated that the Offered Certificates generally will not constitute
"mortgage related securities" for purposes of the Enhancement Act.
All depository institutions considering an investment in the Certificates
should review the Supervisory Policy Statement on Securities Activities dated
January 28, 1992 (the "Policy Statement") of the Federal Financial Institutions
Examination Council (to the extent adopted by their respective regulators),
which in relevant part prohibits depository institutions from investing in
certain "high-risk" mortgage securities, except under limited circumstances, and
sets forth certain investment practices deemed to be unsuitable for regulated
institutions.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits, provisions that
may restrict or prohibit investment in securities that are not "interest
bearing" or "income-paying," and provisions that may restrict or prohibit
investments in securities that are issued in book-entry form.
The appropriate characterization of the Certificates under various legal
investment restrictions, and thus the ability of investors subject to these
restrictions to purchase Certificates, may be subject to significant
interpretive uncertainties. All investors whose investment authority is subject
to legal restrictions should consult their own legal advisers to determine
whether, and to what extent, the Certificates will constitute legal investments
for them.
PLAN OF DISTRIBUTION
The Depositor may sell the Certificates offered hereby in Series either
directly or through underwriters. The related Prospectus Supplement or
Prospectus Supplements for each Series will describe the terms of the offering
for that Series and will state the public offering or purchase price of each
Class of Certificates of such Series, or the method by which such price is to be
determined, and the net proceeds to the Depositor from such sale.
If the sale of any Certificates is made pursuant to an underwriting
agreement pursuant to which one or more underwriters agree to act in such
capacity, such Certificates will be acquired by such underwriters for their own
account and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices to be determined at the time of sale or at the time of commitment
therefor. Firm commitment underwriting and public reoffering by underwriters may
be done through underwriting syndicates or through one or more firms acting
alone. The specific managing underwriter or underwriters, if any, with respect
to the offer and sale of a particular Series of Certificates will be set forth
on the cover of the Prospectus Supplement related to such Series and the members
of the underwriting syndicate, if any, will be named in such Prospectus
Supplement. The Prospectus Supplement will describe any discounts and
commissions to be allowed or paid by the Depositor to the underwriters, any
other items constituting underwriting compensation and any discounts and
commissions to be allowed or paid to the dealers. The obligations of the
underwriters will be subject to certain conditions precedent. The underwriters
with respect to a sale of any Class of Certificates will generally be obligated
to purchase all such Certificates if any are purchased. Pursuant to each such
underwriting agreement, the Depositor will indemnify the related underwriters
against certain civil liabilities, including liabilities under the 1933 Act.
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If any Certificates are offered other than through underwriters pursuant to
such underwriting agreements, the related Prospectus Supplement or Prospectus
Supplements will contain information regarding the terms of such offering and
any agreements to be entered into in connection with such offering.
Purchasers of Certificates, including dealers, may, depending on the facts
and circumstances of such purchases, be deemed to be "underwriters" within the
meaning of the 1933 Act in connection with reoffers and sales by them of
Certificates. Certificateholders should consult with their legal advisors in
this regard prior to any such reofferand sale.
LEGAL MATTERS
Certain legal matters relating to the Certificates offered hereby will be
passed upon for the Depositorby Morrison & Hecker L.L.P., Kansas City, Missouri,
and for the Underwriters as specified in the relatedProspectus Supplement.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each Series of Certificates
and no Trust Fund will engage in any business activities or have any assets or
obligations prior to the issuance of the related Series of Certificates.
Accordingly, no financial statements with respect to any Trust Fund will be
included in this Prospectus or in the related Prospectus Supplement.
RATINGS
It is a condition to the issuance of any Class of Offered Certificates that
they shall have been rated not lower than investment grade, that is, in one of
the four highest categories, by a Rating Agency.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by Certificateholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with such certificates, the nature of the underlying mortgage loans
and the credit quality of the guarantor, if any. Ratings on mortgage
pass-through certificates do not represent any assessment of the likelihood of
principal prepayments by mortgagors or of the degree by which such prepayments
might differ from those originally anticipated. As a result, certificateholders
might suffer a lower than anticipated yield, and, in addition, holders of
stripped interest certificates in extreme cases might fail to recoup their
initial investments. See "RISK FACTORS--Limited Nature of Credit Ratings."
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating.
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INDEX TO DEFINITIONS
PAGE
----
1933 Act ........................................................ 2
1934 Act ........................................................ 2
1986 Act ........................................................ 63
ACMs ............................................................ 50
ADA ............................................................. 55
Agreement ....................................................... 9, 21
AMTI ............................................................ 68
Applicable Amount ............................................... 64
Bankruptcy Code ................................................. 43
Cash Flow Bond Method ........................................... 79
CERCLA .......................................................... 19, 48
Certificateholders .............................................. 21, 23
Certificates .................................................... 7
Classes ......................................................... 1
Closing Date .................................................... 27
Code ............................................................ 11, 55
Code Plans ...................................................... 77
Collection Account .............................................. 8, 23
Commission ...................................................... 2
Compound Interest Certificates .................................. 58
Counsel ......................................................... 55
Credit Enhancement .............................................. 9, 36
Cut-off Date .................................................... 10, 23
Department ...................................................... 77
Depositor ....................................................... 1
Disqualified Organizations ...................................... 78, 68
Distribution Account ............................................ 8, 23
Distribution Date ............................................... 10, 23
Enhancement Act ................................................. 79
EPA ............................................................. 50
ERISA ........................................................... 11, 77
ERISA Plans ..................................................... 77
Escrow Account .................................................. 31
Escrow Payments ................................................. 31
Event of Default ................................................ 35
Fannie Mae ...................................................... 24
FHA ............................................................. 28
FHLMC ........................................................... 24
Forfeiture Laws ................................................. 54
Form 8-K ........................................................ 27
Garn-St. Germain Act ............................................ 51
Hazardous Materials ............................................. 49
HUD ............................................................. 28
Installment Contracts ........................................... 7, 26
Interest Weighted Certificate ................................... 60, 75
IRS ............................................................. 57
Lead Paint Act .................................................. 50
Lender Liability Act ............................................ 49
Master Servicer ................................................. 30
Master Servicer Remittance Date ................................. 23
Midland ......................................................... 21
81
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PAGE
----
Mortgage ........................................................ 7, 26
Mortgage Loan ................................................... 7, 26
Mortgage Loan File .............................................. 28
Mortgage Loan Groups ............................................ 27
Mortgage Loan Schedule .......................................... 28
Mortgage Pool ................................................... 1, 7
Mortgaged Property .............................................. 7, 26
Multiple Variable Rate .......................................... 61
NCUA ............................................................ 53
Negative Adjustment ............................................. 75
noncontingent bond method ....................................... 75
Non-U.S. Person ................................................. 70
Note ............................................................ 27
Offered Certificates ............................................ 1
OID ............................................................. 58
OID Regulations ................................................. 56
Pass-Through Certificates ....................................... 72
Pass-Through Entity ............................................. 69
Pass-Through Interest Holder .................................... 66
Pass-Through Rate ............................................... 2
Permitted Investments ........................................... 24
Plan ............................................................ 11
Plans ........................................................... 77
Policy Statement ................................................ 79
Premium Regulations ............................................. 63
Prepayment Assumption ........................................... 59, 63
Property Protection Expenses .................................... 23
PTCE ............................................................ 78
Rating Agency ................................................... 11, 22
Ratio Strip Certificates ........................................ 74
Registration Statement .......................................... 2
Regular Certificates ............................................ 11, 58
Regular Interests ............................................... 11
Regulations ..................................................... 77
Relief Act ...................................................... 52
REMIC ........................................................... 1
REMIC Certificates .............................................. 56
REMIC Provisions ................................................ 56
REMIC Regulations ............................................... 56
REO Account ..................................................... 24
REO Property .................................................... 22
Reserve Account ................................................. 22
Reserve Fund .................................................... 38
Residual Certificate ............................................ 66
Residual Certificates ........................................... 11
Residual Interests .............................................. 11
S&P ............................................................. 24
Seller .......................................................... 29
Senior Certificates ............................................. 37
Servicing Fees .................................................. 73
Similar Law ..................................................... 77
Simple Interest Loans ........................................... 27
Single Variable Rate ............................................ 59
82
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PAGE
----
Special Servicer ................................................ 7
Special Servicing Fee ........................................... 33
Specially Serviced Mortgage Loans ............................... 30
Stripped Certificates ........................................... 72
Subordinate Certificates ........................................ 37
Tiered REMICs ................................................... 60
TIN ............................................................. 70
Title V ......................................................... 52
Title VIII ...................................................... 53
Trust Fund ...................................................... 1, 22
Trustee ......................................................... 7, 26
U.S. Person ..................................................... 69
UBTI ............................................................ 67
UCC ............................................................. 41
Underwriter's Exemption ......................................... 78
USTs ............................................................ 50
Voting Rights ................................................... 20
83
<PAGE>
COMMERCIAL MORTGAGE
ACCEPTANCE CORP.
Commercial Mortgage Pass-
Through Certificates
Series 1998 - C2
98C2black.xls
(Microsoft Excel, Version 5.0 )
<PAGE>
THE CD-ROM IN THE ENVELOPE ABOVE PROVIDES, IN ELECTRONIC FORMAT (I) THE
APPRAISALS OF THE MORTGAGED PROPERTIES KNOWN AS ONE LIBERTY PLAZA (CONTROL
NUMBER MLMI-001) AND SHERATON CHICAGO HOTEL & TOWERS (CONTROL NUMBER MLMI-003)
AND (II) THE MARKET VALUE STUDIES OF THE 29 MOBILE HOME PARKS SECURING THE
MORTGAGE LOAN IDENTIFIED IN ANNEX A OF THIS PROSPECTUS SUPPLEMENT UNDER CONTROL
NUMBERS MLMI-002A THROUGH 002AC, IN PDF FORMAT AND FORMS PART OF THE PAPER
VERSION OF THIS PROSPECTUS SUPPLEMENT. THE INFORMATION CONTAINED IN THIS CD-ROM
DOES NOT APPEAR ELSEWHERE IN PAPER FORM IN THIS PROSPECTUS SUPPLEMENT AND MUST
BE CONSIDERED AS PART OF, AND TOGETHER WITH, THE INFORMATION CONTAINED ELSEWHERE
IN THIS PROSPECTUS SUPPLEMENT. THE DISKETTE IN THE ENVELOPE BEHIND THE CD-ROM
CONTAINS A FILE: THE FILE "98C2BLACK.XLS." THE FILE IS A MICROSOFT EXCEL,
VERSION 5.0(r) SPREADSHEET THAT PROVIDES, IN ELECTRONIC FORMAT, THE INFORMATION
SHOWN IN ANNEX A OF THIS PROSPECTUS SUPPLEMENT. THE INFORMATION CONTAINED IN THE
CD-ROM AND ON THE DISKETTE WILL BE FILED BY THE DEPOSITOR WITH THE SECURITIES
AND EXCHANGE COMMISSION AS PART OF THE PROSPECTUS SUPPLEMENT, AND IS ALSO
AVAILABLE THROUGH THE PUBLIC REFERENCE BRANCH OF THE SECURITIES AND EXCHANGE
COMMISSION. ALL OF THE INFORMATION CONTAINED IN THE CD-ROM AND THE DISKETTE IS
SUBJECT TO THE SAME LIMITATIONS AND QUALIFICATIONS AS ARE SET FORTH IN THE PAPER
PORTION OF THIS PROSPECTUS SUPPLEMENT. PROSPECTIVE INVESTORS ARE STRONGLY URGED
TO READ THE PAPER PORTION OF THIS PROSPECTUS SUPPLEMENT IN ITS ENTIRETY PRIOR TO
ACCESSING THE CD-ROM AND THE DISKETTE. IF THE CD-ROM AND THE DISKETTE WERE NOT
RECEIVED IN A SEALED PACKAGE, THERE CAN BE NO ASSURANCES THAT THEY REMAIN IN
THEIR ORIGINAL FORMAT AND SHOULD NOT BE RELIED UPON FOR ANY PURPOSE. PROSPECTIVE
INVESTORS MAY CONTACT ANDREA BALKAN OF MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED AT 212-602-7505 TO RECEIVE AN ORIGINAL COPY OF THE CD-ROM.
MICROSOFT EXCEL(r) IS A REGISTERED TRADEMARK OF MICROSOFT CORPORATION.
